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Ball Corporation (NYSE:BLL)

October 11, 2011 10:00 am ET

Executives

Colin Gillis - President

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

Michael W. Feldser - President of Ball Metal Food & Household Packaging Division of Americas

Raymond J. Seabrook - Executive Vice President and Chief Operating Officer of Global Packaging Operations

Michael Hranicka - Chief Operating Officer of North American Metal Beverage Packaging Operations and Executive Vice President of North American Metal Beverage Packaging Operations

David L. Taylor - Chief Executive Officer of Ball Aerospace & Technologies Corp and President of Ball Aerospace & Technologies Corp

Scott C. Morrison - Chief Financial Officer and Senior Vice President

Gerrit Heske - President of Ball Packaging - Europe

Gihan Atapattu - President

Dave Taylor -

Analysts

Unknown Analyst

John A. Hayes

Okay, good morning, everyone. My name is John Hayes. I'm President and Chief Executive Officer of Ball Corporation. Welcome to our 2011 investor field trip management briefing. Before I begin, I want to give a special thank you to Ann Scott who's in the back here for setting this whole thing up. You can only appreciate the amount of effort that goes into organizing these types of things. So let's give her a big round of applause.

We have a couple of goals for not only yesterday, but also today, and I just want to quickly review and recalibrate everyone. The first is to get to know us as a management team. There's a variety of people we'll talk about in a minute here. But really for those of you in the room, take advantage of it. I think we are very broad, diverse and experienced and talented management team, and I think that's important as we talk about our Drive for 10 vision and what we're doing going forward. We also want to discuss our shared vision and I said this briefly last night at dinner, but our definition of shared vision is when you invest in Ball, you invest with Ball, its management, employees and directors. We own over 12% of the stock, which is over $600 million of our own money in the company. And we feel that's very important as we align with you all as to what we're trying to do going forward. We also want to share our long-term investment theses. And in addition to Ray Seabrook, Scott Morrison and our various business units presidents, I want to highlight some of the people in the room that you might not have had a chance to meet yet last night. The first is Lisa Pauley, who's head of our HR and all of our compliance. She's back in the left there, my left I guess. Charles Baker, our General Counsel, he's back over here. Dan Rabbitt, who's Head of Corporate Development, way in the back there hiding behind the curtain so to speak. Shawn Barker, our Vice President and Controller; Mr. money man, Jeff Knobel, who controls our cash. He's our treasurer. He's right over there; and then last but not least, Leroy Williams, who's the head of our IT and doing a lot of neat things in the IT area.

Before we begin, I need to say that some of today's comments may include forward-looking statements. Certain outcomes may differ materially from those expressed or implied, and these can be found on our website at ball.com. As I mentioned, participating today, we have Scott Morrison, our Chief Financial Officer. I think most of you know him. Many of you, in fact, probably all of you know Ray Seabrook. He's the old hand here at Ball Corporation. He's been around for a long time and does a lot of great work. He is currently our Chief Operating Officer of our Packaging businesses. Then, also our global unit presidents who you'll hear from a little bit later on. That includes Dave Taylor; Gihan Atapattu; Colin Gillis; Mike Feldser; Gerrit Heske; and last but not the least, Michael Hranicka. The agenda we're going go through, I'm going to give some opening remarks, and then, I'm going to turn it over to Dave Taylor to do a little bit of a deeper dive into the Aerospace business. We'll take a break then. Then, Ray will stand up and give an overview of our various Packaging businesses, and then, we'll have a roundtable-type discussion with our various packaging unit presidents. Take another break. Scott will go over the financial view historically and what our goals are, and then, we'll leave plenty of time for a Q&A session for all of you. And then, and I believe most, if not all of you, are going to tour our Golden facility, which we have a lot of neat things going on there.

So let's dive right into it. To understand Ball's future, I'm going to briefly reflect upon our past, and then, I'm going to layout our Drive for 10 vision. In order to anticipate the future, you have to understand the past. And this one image reflects Ball's entire 131-year history. Our business is involved from in 1880 from a private family held entity headquartered in Buffalo, New York of all places to a thriving Fortune 500 company. This history and our long-standing values, and we talked last night about uncompromising integrity and about being close to the customers, about behaving like owners, about the attention to detail that's woven in the fabric of our culture and DNA and last but not least, about being innovative. That's the way we do business. We truly believe is a competitive advantage for us and we believe a pathway to our future success. Much of the stock appreciation we've had as a company, much of the value created as a company has really happened over the past 10 years and reflecting on that strength of the businesses we remain in today.

Today, Ball is a highly profitable Packaging and Aerospace business. Approximately 90% of our revenues in EBIT are derived from our Global Packaging businesses and 10% from our Aerospace businesses. The irony is if you go back 10 years from now, the percentages were about the same, and we've done a wonderful job of growing our Aerospace business, which Dave Taylor is going to talk about, in an environment where we didn't need a lot of capital to do that. So there's a lot of great things going on in that business. All of our core businesses are very healthy today and quite defensive given the recent stock market volatility.

To get to where you want to go, one must know where you're going, and we do at Ball Corporation know where we're going. Our building blocks for the future lie in our Drive for 10 levers. They're maximizing value in our existing businesses, expanding into new products and capabilities, aligning ourselves with the right customers and markets and truly understand where they're going, broadening our geographic reach and leveraging our know-how and technology expertise. I'll touch on each one of these levers briefly and then, turn it over to Dave Taylor and Ray Seabrook and his team to address the future direction of Aerospace and Packaging.

Our vision on where we're going is what we call Drive for 10. It's based and grounded in the past and what has gotten us here today. Nothing here is necessarily new, but rather reinforcement of what we're doing, why and being a little bit more proactive about what we're doing around it. So what is Drive for 10? Really at its highest level, it's a mindset around perfection with a greater sense of urgency and deliberateness of what we're trying to do around our future success. You all know that at Ball Corporation, we have a culture of continuous improvement and whether it's in our manufacturing facilities to improve efficiencies; sustainability goals to reduce the impact on the environment or EVA-based philosophy to investment and to our incentives, which are the foundation of how we generate value for our shareholders and how we internally as well as externally measure success. So what I'd like to do is go through each one of the levers that I've talked about before, and the first one is maximizing value in our existing businesses. That really centers around regional supply and demand, the manufacturing efficiencies, customer mix and positioning our products. We are focused on aligning our packaging, manufacturing footprint with regional and customer demand. I think that's a key lever, and we talked a little bit last night about the levers. We have to understand what our supply and demand is. And since 2008, we've closed 7 facilities; and on a comparable basis, we're manufacturing the same amount of products with 7 less facilities. We are in a fixed-cost business and the key to running a fixed-cost business is getting more out of less. And we've taken an industry leadership position in this area and intend to do so in the future. And from time to time, we will redeploy existing assets to another Ball facility like we did in Serbia to reduce our freight and accommodate for regional growth or from our Torrance plant, which recently went down and taking that equipment, putting into other parts of the world.

Over the past 4 years, we have also executed a concerted effort to rebalance our customer portfolio in our Packaging businesses, and we will continue to focus on having the right mix of business, whether it's in the soft drink, beer, energy drink, teas or specialty can business, Ball has a wide array of solutions for our customers in all parts of the world, not just here in North America. And as the leading supplier of our beverage and food cans, it's incumbent upon us to position our products to ensure that all customers and all of their customers are aware of the infinite recyclability of our containers and the financial value these products have in the recycling system. We truly believe that metal packaging is the best in terms of value, the best in terms of quality and the best in terms of sustainability. And we are rededicating our efforts to get this message out, as I said, to not only our customers but to the retailers and consumers as well, which leads me toward sustainability focus at Ball. We believe that another way of maximizing value in our existing businesses is the triple bottom line approach by balancing the economic, environmental and social impacts on our decision-making process because we think it creates long-term value for all of our stakeholders, whether it's about returns for our shareholders, our license to operate with the communities in which we operate and providing a health and safe environment for our employees in the areas in which they live. We really think that this provides a competitive advantage for Ball Corporation.

Our priorities are in packaging, energy, water and waste, safety and talent management, and we've done some pretty amazing things here over the past few years. Since '05, we lowered our total safety recordable rate by 55%. We've reduced our greenhouse gas emissions 18%. We have exceeded the goals we set for ourselves a year early on that, and now we're only sending 29% of all of our waste generated from our manufacturing facilities into the landfill. So that's, obviously, that's some good proof points of what we're doing in terms of focusing on our people, our communities and most importantly, the bottom line.

So far, I've talked a little -- mostly about the Packaging businesses. Dave Taylor, as I said before, is going to deep dive into our Aerospace business, but we've had a lot of great examples on our Aerospace business as well of maximizing values in that business. Here's one example of using a lean manufacturing approach in creating a detector technology center. We co-located labs and staff and we could work on multiple programs simultaneously. What that translated into was a 55% improvement in our manufacturing and efficiency in our Aerospace business and an 81% reduction in total hardware moves. Now these are just some examples of what we're doing at Ball Corporation. We literally could spend days on how to -- talking about the various examples of how we can maximize the value of our existing businesses. Not to worry, I won't do that today. But this is truly indeed the fabric of we do at Ball Corporation, and this has set the foundation of our future because if you don't -- you don't have a bright future unless you have a bright baseline. And we certainly do have that today.

So turning to the second lever is broadening our geographic reach. Ray and Dave Taylor are both going to discuss this lever, so I won't steal their thunder a little -- thunder much, but we are and will continue to pursue profitable expansion to meet our customer needs, whether it's in Serbia, Brazil, China or Vietnam. This morning, we announced that we are buying out our partner in our Qingdao plant, relocating and expanding our new facility. It'll be up and running by the end of 2011 and I think Scott will talk about it. We will record a fourth-quarter gain as part of all that. Each of these regions of the world provide growth project for us, which we believe exceed our EVA targets and our hurdle rates of at least 9% after-tax. Sometimes those return rates are higher in other parts of the world where the risk is higher, and as we look forward both near and long term, we do believe that there are going to be continued opportunities for us to leverage our customer relationships and technological skills to ensure that we capture our fair share of the growth outside of the mature markets.

The third lever I will talk about is aligning ourselves with the right customers and right markets. Our customer base, as you all know, includes many companies, some of the biggest companies in the world serving the food, the beverage and the household products arena, as well as defense and civil space markets. We win with the winners. We have a strategy of following our customers and making sure that we're giving the best in terms of value, the highest quality, the best service. And by understanding their need, we truly believe that we're going to have great opportunities with all of these customers as we move forward and in addition to continuing to expand our customer base.

A couple of examples of that are just here. The first one is ConAgra Foods. We entered in a joint venture in the early 2000s with them. We ultimately bought them out and we recently reentered into a long-term agreement with them. The same thing with Coors. We formed a joint venture as well as a commercial supply agreement. Since that time, they've merged with MillerCoors, and we are in the process of renegotiating and feel pretty good about what we're doing with them as we move forward to extend those various agreements. And then last but not least, the fad way's [ph] representation of DigitalGlobe. It was a company we started in the early '90s to provide remote sensing, commercial remote sensing opportunities. We are in the process of building the fifth satellite for them right now and it's been a homerun for them. It's been a homerun for us. So those are just a couple of examples of what we mean about being close to the customer and how we can provide value for them while at the same time, providing value for us.

Today, Ball's top 10 customers make up more than 50% of our global sales, and over time, we're going to continue to pursue profitable growth in existing businesses as well as engage in additional activity to grow our business through leveraging our expertise in metal manufacturing and aerospace technology. In the future and through growth of our recently acquired extruded aluminum container business, we'll be able to balance the scale and diversity of our customer mix while continuing to grow with them around the world because we see great growth opportunities in places that we currently don't do business.

The fourth one is about expanding into new products and capabilities, and this is a necessity if we're going to meet our Drive for 10 goals. Not to worry, we're not going in the automotive or rocket making business, but this is really expanding into what we do best. You saw some of that yesterday in terms of our R&D center. But Ball has a very long history of remaking its product portfolio over time. We were in the zinc penny blank business, so you think about that and you think about the slug business that we're in today. We've been in wood, oil can jackets. We've been in prefabricated housing, which was phased out in the '70s. We used to make Christmas ornaments and did several other things. I mentioned that only because you have to understand the lessons from being in and out of various businesses, and those lessons to us are: Number one, you need scale; number two, you need manufacturing expertise; number three, you really have to understand the full supply chain. You just can't be looking in your segment of the supply chain, but really understanding it all. So when you think about our entry in the slug business, that's a good example of it. You need to align with customer demands, not only on a regional basis, but also on a global basis. Some of our businesses that we're in right now are regional businesses, and we understand that. Some of them are global businesses. We understand that too. So to truly understand and being able to align the customer demands are quite important. And then last but not least, you need technological know-how in order to differentiate yourself. Those are the lessons learned that we've had and we are going to be applying them and have been applying them as we go forward. A good example of that is the impact extruded business and the slug business. When you think about the reasons why we got into those businesses over the last 12 to 18 months or so, it's because they were able to serve global customers. We're able to use our technologies similar to our D&I process in the two-piece beverage can making businesses. We are able to understand the full supply chain, and it's just not about making containers, but it's understanding the filling and understanding the raw material side. It's also having manufacturing know-how. We also do some other things that you all saw yesterday in our innovation and technology center here in North America. We also have one in Bonn, Germany, and we're doing some pretty neat things in terms of product expansions and providing value to our customers. Specifically, we can help our customers differentiate the products on the shelf and create a higher tier pricing for them. These are just a couple of examples. Whether it's in the wood stain business, the beer business, the CSD business or energy drinks, we're able to provide our customers packaging, which is able to improve their price points, improve their profitability and in return, help us grow with them. So we're going to continue to aggressively pursue the segmenting of these opportunities in the future because we see real value in that.

Now here's an example what some of you might have saw yesterday for MillerCoors. This came out of their annual report I believe. I noticed that 3 out of the 4 innovations came via cans, and there's a fourth one on the way that they just recently announced. That's the rollout of the reclosable pint, which currently available for the Miller Lite brand. They also have a couple of other things in the pipeline, and we continue to work very closely with this customer and other customers like this because it helps to grow the overall category, which is so critical in what we do. But it also helps us to grow our share with the volume in their system because when you have innovation and they want innovation and you can provide it and others can't, it provides you competitive advantage.

Now lastly in terms of the levers, it's about leveraging our know-how and technology expertise. Technology has served us well for over 130 years at Ball Corporation. It's been one of the foundational elements of our business success and we used technology. Really, what the do is we integrate technology to add features to our packaging products but also to our aerospace products, and Dave will talk about that, to ensure we can make them of interest to our customers. And then so really it's that integrating of the technology and utilizing technology. We are not a R&D lab. We will never probably be an R&D lab, but we apply technology, I think perhaps, better than most people. And we're going to take that technology and move it into other product categories, as I mentioned, like slugs and impact extrusion that we can provide a differentiation. Another example about technology and how we use it, we talked a little bit last night about energy and the issues of tapping into the grid in other parts of the world. Well, here's a couple of examples. I believe this is in Vietnam of what that grid looks like. And so when you're thinking about building facilities in places where you don't have adequate access to water, you don't have adequate access to energy, you have to be thinking about that whole supply chain because it's not just about cans there and through some of the things that we have in terms of [indiscernible] Ball Corporation. Whether it's in our Packaging businesses or whether it's in our Aerospace businesses, we're able to leverage those ideas, learn, develop and generate it in one part of the world or in one part of the business to other parts of the world or other parts of the businesses and that's very important for us as we go forward. One of the reasons why it's so important, because the world is a fast place these days, and if we're not doing it, someone else is going to be doing. So we're trying to be proactive in many of these things I just talked about.

So all of these things: maximizing value in our existing businesses, broadening our geographic reach, aligning with the right customers and markets, expanding into new products and leveraging our technology, all of these are a part of our Drive for 10 vision that are going to help us maximize our returns in the future. So speaking of returns, what I'd like to do now is hand the presentation off to Dave Taylor, who runs one of our best returning businesses and that's Aerospace. Dave?

David L. Taylor

Thanks, John. It's a pleasure to be here and I'm sure you all noticed on the one chart that showed the history of the Ball Corporation, the oldest current operating segment is Aerospace. I'm sure you all noticed though it's hard to see. But we're very proud of that, and one thing that you don't know about Aerospace that I'll mention is our factors of production are people. We're not necessarily a process entity. We're not necessarily an infrastructure entity, but we are a people company and the assets go home every night. So one thing you'll see as you talk to us around the room is we're very big on culture, and we need the best people in the world to work for us. And I can say they do. We have someone who's been in aerospace over 50 years. I think they started when they were 3 or something, but they've been there 50 years. I've been there 28 years. And John mentioned talent management. We are very big on talent management, and we're very big on pushing that dimension to make sure we have the right people we need in a culture that provides the products and the services to our customers.

Aerospace is in 3 major market segments. You may know us for the classic space hardware sector. That's the one on the -- your left there. There, we do things like spacecrafts, space missions, space instruments and we do them for all areas of the government and the commercial sector. We do them for the Department of Defense. We do them for the Pentagon. We do them for the intel agencies. We do them for NASA. We do them for NOAA, and as John mentioned, we do it for the commercial sector also. That may be how you know us, but we also have a major play in the tactical market and the tactical market to us means antennas. We have very high-performance antennas on probably most air-breathing vehicles you can think of be it missiles or aircraft. We actually have them on naval vessels, on destroyers. We also do video cameras for the war fighter in the field to give instant imaging to people that need it in the battle space, and we're also in information, the information sector. And what that means -- John mentioned last night at dinner that we as a nation are drowning in data. We are drowning in data and what we need out of that is information. We have enough sensors to some degree and we have enough data, and what we do in our information sector is we make information available out of that data so people can make informed decisions.

We've also -- John mentioned, we've had a pretty good past 10 years. We've more than doubled all organically. Very proud of that. And I think we've levered our market position in terms of what we bring to the marketplace. We bring a very cost-effective solution to the problems that our customers have. And we have a little different way of doing that. We get to the same answer. We get to the same performance or better at a much better price and cost point. And the only fly in our ointment at the moment is the U.S. government and its ability to fund the missions going forward. And I would tell you that we can't afford, as a nation, to do what we've been doing in terms of expenditures. And I think, and I think we think that we have good solutions here to that issue with the government, and one thing we've been doing over time is we've been taking market in the space hardware sector. And I think the reason for that is we do have very efficient solutions to the problems. Just a quick overview of market trends, how we think the top line there is U.S. government and the rest, as you can see, the rest of the world. If you look at the 3 sectors that we're in, the space hardware is under pressure and that's where we've been taking market lately. Very happy with that, and I think we'll continue to do that with our ability to perform. The tactical market is yet to be determined as the country withdraws from certain foreign engagements. It's not clear how it'll go, but you always need tactical things and we're taking market there, and information will continue to grow. More and more information, more and more cyber activities go around the world and we're very well positioned to take that. And we think there is opportunity in the rest of the world, and one thing you'll hear in the message from me today is we cannot remain totally a government-funded entity. So we're going to start to look more geographically dispersed in the U.S. and then more geographically dispersed around the world.

Sort of more background. I'm sure you all know this, but defense spending is on the way down. And you can see what's gone on in prior administrations, prior buildups and the current administration is coming down. We don't know where that's going. We don't know where it'll bottom out, but it is trending down. And what I would tell you is the things that we do in defense, the programs and projects that we have in defense are things that the nation currently needs and will need in the future. Our growth was not a function of the buildup that you see there. It's a function of our ability to perform and the missions that are required for the long term for the country.

As John mentioned, we do supply high-quality products. You can see on the left there, a picture of one of the imaging satellites that we built. We started this from scratch, our own funding. We do all this work fixed price. We take all that risk. Not all companies will take fixed-price type of business. And what you get out of it is an image on the right. It's a nuclear power plant in Iran. You can imagine where that data gets used, and if you look at Google Earth, as John mentioned last night, the vast majority of those images come from space assets that we designed and built at Ball Aerospace, and that commercial fixed-price mentality of how we run programs helps us position ourselves into the rest of the government marketplace be it DoD or defense or other civil or NOAA type environments.

One way to look at the success is backlog. You could see the contracted backlog is up. That's good. We like that, and that's a conservative number. Another way to look at backlog is awarded contracts. That's a bigger number. We don't show that number. We show actually contracted backlog on that chart, and you'll see the margins are coming up as a function of the fixed-price percentages. I don't show the margins, but we make more of our profit, I would tell you, on fixed-price programs than on reimbursable programs.

So given that, our strategy going forward is threefold. We want to enhance our current market position with our current value proposition. And as I mentioned before, we think we have a very, very good offering in the current marketplace in terms of fixed-price performance, our ability to perform at a lower cost price and the missions and the capability that we provide. There's also new funding models that come about. The government is struggling with its normal way of procuring missions, its normal way of meeting requirements. So there's an opening that we're looking at there to help the government, the new methods of contracting, new methods of providing the solutions to their issues. We also do want to expand our geographic reach and reduce the dependency on the U.S. government. We have thoughts about that, how to move around the world and that's twofold: One, we may actually purchase our way into offshore positions. We're currently looking at programs offshore. We're currently pursuing opportunities in Asia and in the Middle East to sell hardware in terms of a program base into those areas, so we look at that. And we also want to continue to do what we've always done for 50-some years and that's lever off our technology. Those terms of things that come to mind are maritime domain awareness. There's a lot of traffic, ship traffic in the world. People need to know who those people are, where they're going, where they've been, what their intentions are. We have ways to do that. I mentioned information. Global security is a big area for us to participate in. We have ideas how we're going to do that, to not only lever off the current positions that we have in that marketplace, but to add to that maybe in the M&A space.

So that's a very, very quick overview. There's a question period later. So now we'd like to take a 15 minute break. So thanks. Okay. I misstated. Now you have Ray Seabrook. Ray?

Raymond J. Seabrook

Good morning. My name is Ray Seabrook and I'm the Chief Operating Officer of the Global Packaging business. And there's, obviously, in the room we've had a lot of longtime shareholders and you know me and there's a lot of people that don't know me. So what I thought I would do is first of all tell you it's a great time to be in the packaging business, and I have been in the packaging business since 1985. So I got in the business in '85. That makes me one of the old guys around here, and for a long time I was in the financial part of the business. I was the treasurer for a while. I could remember sitting in Stern Stewart's office in 1992 with Dave Hoover, and we put in the EVA system and we did that in 1992. We talked a lot about -- in those days, we talked a lot about return on invested capital. We talked about cash flow and I was the CFO for a long time. And then after I'd done those 2 jobs, they said, well, why don't you try this Chief Operating Officer role, and I said that'd be great. And then the first thing I had was Scott Morrison sitting in my office says, are you crazy? What are you doing? And I say, what do you mean? Because when I was a CFO, basically, we really screwed down capital. We float a lot of cash. We bought back a lot of stock, which we continued, which Scott will talk about, we still continue to do it. We turned down a lot of capital projects. And I said to Scott, I said, but Scott you haven't seen the stuff we haven't been doing. So I'm about to tell you where we are in Global Packaging. I want to set the market up for the guys here who run these businesses, but it's like a lot of things in life. Timing is important. We've been in China for over 25 years, and when we first went into China, it was a lot of joint ventures. Actually, you couldn't own businesses in China in the early days, and it all hasn't been fun. I mean if you think about what we do is we sell packaging to the people that live in the country. We don't make things and ship it back to the U.S. So for a long time how you made money in China was you made it in China and sold it in the U.S. and so we were never able to do that. So we struggled for a long, long time in China. And what you'll see with this presentation is finally, for us, finally, the emerging markets are emerging. And so as we look at some of the global opportunities we have, we have growing middle classes in these emerging markets, and they are needing the products that we make. So when we look at the stuff that we are doing, a lot of the longtime shareholders says, boy, you spend a lot of money. And I say, yes, but you haven't seen the stuff we're not spending money on. So that's what I want to sort of start this off with. So as they say, it's a great time to be the packaging industry and for our products, we have these wonderful, mature markets and we have these very good market shares. We have great facilities. We have good people. We have very good market positions there in the growing markets. We have a lot of opportunities that we're trying to expedite.

So a little bit about what we're doing. So this slide talks a little bit about some of our growth strategies and what you see there, the first picture you see is Vietnam. I'm going to show you we're building 3 new plants this year, one in Vietnam, one in Brazil and one in China, and the picture you see on the left is our Vietnam plant. We expect to have that up and running, we've said the first quarter 2012. We're on track. We've had a pretty rainy season. It's been raining a lot, but we're pretty much on track. We expect to have that plant going. The second picture you see there is Alagoinhas in Brazil, which is our new Brazil plant. And in the background, you see can the brewery that is main customer. If you look at the picture a little bit more, you can see that, that's the main brewery that, that plant is built to serve. A little bit about innovation, the guys are going to talk to you a little bit -- we've been doing -- the last few years we've been doing, I think, a pretty good job in innovation. Through these mature markets, our customers want us to innovate. They want new products. They want market share gains, and we've been doing a pretty good job with some of our small sizes, some of our sleek cans. And you can see that, that innovation is that resealable end on that Monster can. We have tactile. We've introduced a new tactile embossing. We also have, of course, our Alumi-Tek can. So we've been doing a fairly good job at innovating. In addition to that, we've been also looking for new markets for our can. We're -- I think, I know we are the largest guy in craft beers. For a long time, craft beer was only in bottles. So recently, we've -- a lot of -- you'll see a lot of craft beer in cans, and so we've been the leader in that. And as John talked a little bit about, we're expanding our technology base. We get into the slug business. We also bought Aerocan. I'll talk about that a little bit later. Which gives us 2 things. It gives us a new product line and it gives us a new customer base as well.

So let's talk about maximizing value in our existing business. Still, I would tell you that 60% of our earnings still come from the U.S. if you look at our company. We're happy with that because well, while the U.S. doesn't have the same growth profile as some of our other markets, we have a great market position. We have great facilities. We have great plants and we continue to innovate and we continue to maximize value in these businesses as you guys know, that own shares for a long time, flow a tremendous amount of cash. So some little charts here, one's a little bit about the German market. When we bought Schmalbach in 2002, the market sort of disappeared on us, and it's slowly coming back. It says 1 billion units in 2010 that are filled in Germany and used in Germany, and it's probably 1.3 billion in '11 as we sit here, so there's been a 30% growth in '11 as we're looking at it. You can see we're going to talk a lot about China. The opportunities are fairly vast in China, and you can see that we've grown our market share in China. We made an acquisition at the end of 2010, and as we look to 2012 for China, you can talk to Gihan, but he's looking at another 1.4 billion units growth that we expect our share to be in '12. And as they said, in our existing businesses, we continue to squeeze. We get productivity improvements and we continue to run those businesses and reduce our costs constantly. We have a concept with our customers who want to be best cost and best value in those businesses. And finally, again, for longtime shareholders of our company, when we bought U.S. Can to combine it with our food can group, we were making $38 million of EBIT. We said at that time, we thought with rationalizing plants and with the addition of U.S. Can, we thought the business could get to $95 million to $100 million of EBIT. And Mike Feldser, who you can ask questions to is here, you can see that at last year, it's $129 million of EBIT and we expect that business to make more in 2011 than it did in 2010.

So a little bit about the markets. I promised to talk a little bit of markets to set this up for the guys. And as you can see, that here's -- you can see that fundamentally in North America the markets are fairly flat. You're talking about our estimate for 2011 is 94 billion beverage cans in the U.S. and about 28 billion food cans. We do have a little bit of growth in our aerosol market, in the tinplate aerosol market. And what I'm going to show you is that in the emerging markets, this is a slide we actually took from one of our customer presentations, and what it says is this is kind of the key to the emerging markets, is that as the middle class develops, the consumption is correlated to GDP. As I said, we've been in China for 25 years and all of it hasn't been fun because the market really, it took a long time to develop. It took a long time to create a middle class in China. As we sit here today, there is a class in China and it's growing. And you can see that correlation between the growing middle class and consumption of our products, and you can see that, of course, United States is the highest. You can see that Brazil and China and India are fairly low and they're growing.

So this is an important slide, and I need to set up the math for you. And what it says is between 2010 and 2020, the growth -- it doesn't tell you the size of the market. This is the growth. So this is the growth in the market. So it says that China is expected to grow by 200 million hectoliters. This is the beer market. That's off the chart, right? And then you go Brazil and Vietnam, so I just told you that the 3 plants we're building, as we speak, are in China, Brazil and Vietnam. So surprise, surprise. We've got a lot of growth in those markets. The surprising part of that chart, there's 8 regions that we're not building plants. So the other part you need to understand about this slide is the size of the market. So to give you a sense, the market in China is 460 -- as we sit at the end of '10, the size of the market in China was 469 million hectoliters, which is -- now the next largest market in the world for beer is the U.S., and it's at 250 million hectoliters to give you the size difference. And you look at the growth, so you got China growing at 50%. The market's twice as big as any other market and it's growing at 50%. So as you start to think about what we're doing and how we're doing it and the developing of a middle class in China, the only thing to keep in mind is when you take the Far East and include India, the Philippines, China and that whole area, 60% of the people in the world live there. So you've got 60% of the world's population lives in the area we're talking about. So obviously, there's something going on over there. There's -- as you might expect, there's an income shift between the West and the East. Some of our money is flowing east fundamentally.

So when we look at that, you got almost a 50% growth of the market in China that's twice as big as any other market. You got Brazil growing at 30%. Vietnam is growing at over 100%. And so we've really got some growth opportunities, and these are emerging markets. And I said we were in China for a long time and we really struggled, and so it's like a lot of things in life. Timing is not unimportant. So we have a fair amount of opportunities, and there's places like Russia, India, the Middle East and Africa that we're kind of not there. So as you might imagine, we're not trying to do everything. And at the end of the exercise, we only have so much engineering talent to do what we can do. So what we're doing is trying to do our best opportunities.

So again, a little bit -- I talked about the size of the market. Now this is the mix. So you got volume and mix, right? So we got size and now we got mix. And so what you find is as these markets mature, generally, the can tends to take about half. So if you look at the U.K., for example, and the U.S. and what the can market share of beer, it's just a little bit more than half in the U.S. and a little under half in the U.K. And you can see at Brazil, we've had a lot of growth of late. You could see we were at 38% market share. Now we expect that to move closer to half as that market matures. But now look at China. You got 5% market share. So to give you a sense of the size of this -- so if you were to -- and I'm not going to predict what it's going to go to because I can't give you a time frame, but let's just take a simple assumption, say, let's say the market doubles and goes to 10%. And as you're sitting there you think, that's not an unrealistic assumption. How quick does is that going to happen? I don't know. Is the market going to grow 10%? I suspect it will. So if the market grows to 10%, that's 20 can lines to give you the size. So we'll probably be putting in 1 or 2 can lines. You're talking about a market that is growing, that will grow, that is a growing middle class in China. So it's like anything else. We've got to make sure we get the right opportunities, and that's what we've been doing.

So little bit about what we're doing and a little bit more about the markets to set up our guys. If you look at North America, you can see that it's a large market. I would tell you that the U.S. market is probably flat to slightly declining. We expect Mexico to go from 9 billion to 14 billion. We look at our market share, obviously, we're the dominant player. The key for us is to keep the supply demand in balance. So if the market declines something, look for us to take more plants out. As you know, we've closed one plant this year that had 3 can lines in it, one that went to Canada, 2 of them are going to go to China. So we redeploy assets where we think we need to have them. When we look at our installed asset base in the U.S., it's low cost. It's the best asset base. We have great people. We have great operations, and we do really have the best cost and best value in this marketplace. We're the market leader and we expect to act rationally.

We look at South America, a little different position. You could see Rexam's got the largest market share. We have 19%. You can ask Colin, but our strategy would be to go to try to improve our market share to 25% to maybe 30%. We don't want to be the dominant player in South America. We want to keep the market more or less the way it is now. We'd like to gain a little bit more market share as it grows. But we would expect that 19 billion in the next 10 years to go to more like mid-30s.

So we look at Europe, Africa and the Middle East. As you know, we're not in the Middle East and we're not in Africa, and we have a 32% market position in Europe, a market we expect to continue to grow at 3% to 5%. We will not be adding any capacity as we sit here in 2012, but we are tight on capacity. At one time, the market was growing at 4%. They had a really tough summer this year on weather in Europe, so the market's probably going to be closer to flattish or maybe up just slightly. And we think that our capacity is going to be good through 12%, but we are pretty much sold out in Europe as we speak.

Asia, again, I've been talking a lot about Asia, but when you look at our market share in Asia, we have the largest market share, and you can see there's a lot of competitors. There reason for a lot of competitors is a lot of growth. We, obviously, are lined up with all the international customers in Asia and quite frankly, I don't want to steal Gihan's thunder, but we are sold out. Matter of fact, we're probably going to have to scramble to get enough cans to do 2012, but I'll let him talk to you about that. Again, if you just sort of take what I told you before about the dynamics of the market place, we have, to give you a sense, we have 40 engineers in the U.S., We have 40 engineers in Europe, round numbers. We have 6 in Asia. So we're supporting a lot of that growth with engineering talent out of Europe and the U.S., and over time, we're going to have to build up our Asian business, and I encourage you to ask Gihan questions about that. You can see we have a fair amount of competitors. The marketplace is really, really tight, so the pricing is halfway reasonable. And we expect that to continue. I would tell you that generally our margins in all of these emerging markets are a little bit better than the U.S.

So again, trying to put it into perspective. I think John said this number last night. If you kind of transpose all this on the way of thinking, you said, okay, in the next 9 or 10 years, how many cans are there? There's fundamentally 120 billion cans needed in these growing markets around the world. Now it all won't exactly come in a straight line. It's going to come -- there's going to be some bumps in there. And I'll tell you a little bit about how we think about growth, how we think about new projects in a minute. But when you think about that, I'm going to tell you, we have 22% of the world's installed capacity in beverage cans. So you take the 120 billion. You say that if we just kept our share of that installed capacity, for us, that's 30 can lines. So you would say that our share of that growth, it would be 30 can lines. So there's obviously growth. We don't want to get ahead of ourselves. On the other hand, we don't want to be sitting on the sidelines and watch all this happen, so we're trying to take a balanced approach to all this.

Again, I just told you we have 22% of installed capacity. So this is what our guys think the installed capacity in the world currently sits at. You can see that all of our competitors are adding a little bit of capacity. We're adding about 5 billion units as we look at this chart. And again, we think we're adding in markets where we know how to make money. As I said before, we're interested in handling growth, but we're not interested in growth for growth's sakes. We're only interested if we can make some money. If at the end of the exercise we want to be a good supplier to our customers, but at the end of the exercise we need to make money.

So this is what we're doing this year. As I said, Scott says do we need to do all this stuff? And I said, Scott, I think we really do and I expect to get the appropriate returns on all these projects. So if you look -- and I'm just going to run down how we think about these things. So the second line in Serbia, I told you, our capacity in Europe is relatively tight. We thought, actually, if the market had continued at 4% growth pace this year, we would actually have to add a little bit of capacity in '12 for '13, but I think we're going to be able to not have to do that now. So I think as we stand here today, I'm not expecting to add any capacity in Europe in 2012. Now the second line in Serbia is a profitable position for us because we're adding into a line into an existing plant, and when you put a line into an existing plant, it's obviously more profitable because there's no fixed cost that go with it. So that was a logical move for us. When we look at Fort Worth, Texas, that's a specialty can line, and we've looked at that capacity and you'd say, why would you add capacity into a flat to declining market rate? I told we had 3 can lines in Torrance and one of them was a specialty can line. In order to close that plant, I needed the capacity somewhere else. So we were going to take that line in Torrance and move it to China and that we added capacity in Fort Worth. So when you -- I think we've announced this before. We expect the fixed-cost savings in closing that plant to be $25 million. So that actually project had a 2-year payback for us. So when we look at stuff, I'll tell you we look at return on invested capital. We also look at payback. And we don't like things that sort of take too long to pay back because it makes us nervous. So we like things under 5 years and we like returns in excess of our cost to capital. We look at Golden, the Alumi-Tek, we have a long-term contract for that. It's a specialty can. And that thing's contracted for more than 5 years with volume requirements on the contract. Qingdao, China, I just said, we're sold out in China. That's 850 million cans, and if we didn't get that, again, we'd have no chance at making this 2012 number. And that, basically, has a return in excess of its cost of capital pretty much out of the box.

Vietnam is more of an interesting one. So that's a new market to us. We weren't in Vietnam, and generally speaking, we just don't build a plant and hope something shows up. We'd like to have customer contracts before we do it. When we went to Vietnam the first time, we were dealing with primarily 1 or 2 large customers, and the pricing, we didn't like the way the pricing was going. So we didn't want to disrupt the pricing in the marketplace. So what we did was we added a couple more customers to it and we reduced the volumes from those customer contracts. When we put the venture together for Vietnam, we expected the line would be sort of 2/3 full. When we first started, we had customer contracts for 2/3. As we stand here today, I expect that line to be sold out. So again, and that really -- that was EVA positive within the first 3 years of operation.

Brazil, again, has a long-term customer contract attached to it. I showed you the customer plant. It's just across the street. That contract is for more than 5 years. We expect the market to continue to grow. And that, John mentioned, we use a different return rate in Brazil than we do in the U.S. So that was exceeding its cost of capital pretty much out of the box. So as you can see, we're careful about spending capital. Scott likes the capital, buyback the stock, which we like him to get it, but at the end of the exercise, we've got to take our fair share of the market growth.

I haven't talked about food yet, and what I want to say about food, I told you that it's a mature business. Mike Feldser, who runs that business for us, we expect him to get that thing to $100 million or so of EBIT. He's got it sitting at over $130 million, $120 million, $130 million, and we're doing a great job. That business, we're running for cash.

A little bit about the extruded aluminum business that John talked about. It's a new customer base for us. It's a new market. It's generally not -- our competitors in that market are not international companies. They're more local as John mentioned, and we think that we can turn this into a global business to service these customers. We also like the technology with some of our other customers on the beverage side, and we think that between our Alumi-Tek bottle and our current technology on 2-piece and this extruded aluminum technology, we think there's some great possibilities for us. So a little bit about that market, you can see it's a much smaller market and actually, Europe is a lot larger market than U.S. We have about 24% -- 20% market with our Aerocan acquisition. I will tell you that the growth this year is excess of 20%, so it's grown -- its top line and earnings line has grown by in excess of 20% year-to-date. Its earnings are ahead of the acquisition model, so it's off to a great start. Gerrit and the guys are doing a nice job, and we're looking potentially at other things that we can do with this technology as we look around the world. And finally, I think we're going to take a break, and we're going to come back with a chance for you to ask all the -- we're going to bring the operating guys up here, and we'll give a chance to you to -- they'll briefly describe their business, and then we're going to open it up for you for questions for them. So we'll take a break. Be back at 9:15.

[Break]

John A. Hayes

Okay, all right. Well, welcome back, welcome back from the break. And here's the part of the program I'm sure you've all been waiting for. We've got the 5 gentlemen up here that are responsible for running our packaging operations. And I must say that it makes my job a lot easier. These are very competent guys, and they're doing a great job. And I've asked them all if they could just under 2 minutes, you can check to see how they're making out, I said under 2 minutes to talk a little bit about what you're doing, how you think about your business. And then, I really want to turn over to Q&A and let you guys loose on these guys and ask them anything you want.

But the other thing is, Ann is going to come around in the audience with a microphone, so the only thing I can ask you, when you have a question, just put your hand up, and Ann will come over with a microphone so you can ask your questions.

So with that, I'll turn it over Michael Hranicka, who's President of our Metal Beverage Packaging business in North America. Michael?

Michael Hranicka

Hi there. Happy to be with everyone today. We are quite excited about the beverage businesses in North America. This business has a long history. It got its start right down the road in Golden, Colorado. You'll see that facility later today. Since that time, over the decades, Ball has created a tremendous business. It is a business with leading market share, 2x that of our competitor. It's now grown into a 19-plant network, which is servicing blue-chip customers, like Coca-Cola, Pepsi, MillerCoors, Anheuser-Busch. We drive low cost in our operations. And for that reason, we are here to stay.

In addition to that, we have a dedication to innovation. You saw that yesterday afternoon. That drives tremendous value and leverage throughout our network of facilities. And all of this is bolstered by something that you've heard as a common theme here. And it is our people. We've got engaged, experienced employees running our operations. And that is the real differentiator for Ball.

There's a tremendous opportunity to leverage what has been created. And I'm here to tell you that North America is a growth business. I love making that statement because ultimately, people look at it and say, it's a mature operation, how can you tell us that it's a growth business? Well, the reason is there are many different kinds of growth. There are volume pure plays, North America is not. What North America is, is an area of our operation where we are focused squarely on growing cash and expanding our EBIT margins.

We recognize that what we are is the fuel for our global aspirations. So within our North American business, we are dead-focused on ensuring that our cash management, our capital allocation and our margin is something that we've focused a great deal of time and attention on. Everything we do is focused on these principles. While we always focus on execution, 2011 was quite special. We termed it internally, the year of execution. And the reason is we challenged our great people to do a lot of great things. We asked them to do a multitude of projects. Now the key here is that all of those projects are aligned around these general themes: operational excellence; innovation; and technology.

When we talk about how we expect to generate cash and how we expect to expand EBIT margins, those are our areas of focus. And so all of our projects, when you take a look at the things that we did in Fairfield; in Fort Worth; in Golden, Colorado; those are innovation plays. And you can expect those, as Ray mentioned earlier, to exceed our cost of capital hurdle. Those are things that drive value for our customer and we use innovation as a way and a tool to do that.

Additionally, from an operational excellence perspective, you look at the closure of Torrance. The closure of Torrance allowed us to fully leverage the other plants in our network. An example of that, as Ray mentioned earlier, the movement of some of that capacity to Fort Worth and moving innovation to Fort Worth. That's a big deal for us. Also, we moved a line out to Whitby, Canada. Whitby, historically, was a middle of the pack conversion cost performer. By closing a high-cost facility in Torrance, moving a line to Whitby right next to our customer, that took Whitby and made it one of the lowest conversion cost plants in our system. Overall, from an operational excellence perspective, that is what we are all about. It is leveraging our facilities and driving significant value.

Lastly, we installed JDE 9.0, and we're in the process of installing plant floor systems. The reason that technology component is so important, is as our business becomes more expansive, we must make better, faster, realtime decisions. These investments in technology allow us to do that. Having said all this, the real differentiator is our people. You hear us say all the time, that we use the same kind of equipment, we buy from the same suppliers, we sell to the same customers. The differentiator for us is our people. It's our culture and ultimately, that is what made all of these projects successful in 2011. The execution has been terrific, and all timing and performance metrics have been met.

Looking forward to the Q&A. In the meantime, I'm going to kick it to Gihan.

Gihan Atapattu

I'm going to jump up here to let you guys -- great. We're standing in front of a huge opportunity in Asia, as John and Ray have talked to you guys about. Asia for me is really 3 regions. One is China, the greater China market, which you've seen the numbers. Then there's Southeast Asia, which is a kind of an APAC country, if you will, and then the Indian subcontinent. And I'll talk a little bit about what our strategy is as we look at those 3 distinct markets.

When you're in an emerging market, it's very important to be not only a can maker, but also what I would call is a market maker, because the opportunity here is -- at 5% penetration of beer cans in China, the opportunity for us as an industry is really to be able to take that up to 10%, 15% and so on. So that therefore, we're not looking over our shoulders all the time at the 12 different competitors in China, but really, we're leading with innovation and creating what I call occasions for consumers in China or in Southeast Asia, to reach for a drink and reach for a can. So therefore, when we talk about making a market, we spend a lot of time in our innovation working with the global brands ABI, Coke, Pepsi, et cetera, and also with the regional brands about talking about how do we get cans into restaurants, into the cooler in a restaurant, how do we get more cans into the 7-Eleven, how do we get cans in various locations so that people are able to market -- grocery stores, multi-pack more, take it into household. That's what drives can penetration. That's what's going to take that 5% to 10% to 15% and so on, which will be good for the whole industry.

Our goal in this market is really to be #1 and #2 and clearly, that's for a couple reasons. One, as that penetration goes up and those volumes go up, we'll have a higher percentage of the growth for Ball. In addition, it gives us a really great opportunity to be able to leverage scale. As we went into Vietnam, Vietnam was a great example, as we went in and we didn't just say, oh that's a big market, here's the statistics, we want to go in. We went and talked to customers and they said, we really would like to have Ball because we are expanding our footprint across Asia, and we want to be able to take innovation to various countries very quickly and Ball, you have the supply chain and we see what you're doing with it in terms of China, Southeast Asia, and eventually, with India's subcontinent that you'll be able to roll product out for us in a very fast way.

And so therefore, we've become more than a can maker, we've become part of the branding and the packaging of our customers. And that goes for not only the ABI, such as the Cokes, but also for Qingdao, Chang Bia [ph] and many of other regional customers that we have a very good diverse customer base.

We are fortunate to have a #1 position right now in China, and we're going to leverage that and keep growing that. And we have also great opportunity with low can penetration, beer market growing as Ray talked about in key markets like Vietnam, et cetera and China. And also, modern retail, you can't underestimate how many more stores Walmart are putting in, Costco [ph], 7-Eleven, and that just gives us a great opportunity to move cans. Multi-packing is starting to take off and that's going to be a tipping point. And we are not just waiting and watching that, but we are working with brands on trying to make that happen. And that's probably a different Ball where we are leading the market, using our leading position, not just building can lines, but really innovating and driving the market share.

Southeast Asia continues to see strong double-digit growth, Vietnam is what I call a beachhead. That's our entry point into Indochina. With that, we'll be going into Laos and Cambodia. We're negotiating contracts right now as we speak into taking significant share in those markets. Well, you could call it late to the game, so we will have a short-term goal of being clear #2. But with our beachhead, we believe that we've -- and our strong customer relationships, we believe that we'll grow that share and become a clear #1 down the road.

In Asia, you've got regional buyers there who learned their trade in North America and Europe. So they understand how to buy metal, how to buy cans. So it is not a free ride for us, which means it's extremely important that we drive productivity and operational excellence now, not 10 years from now. So we leverage all the know-how that Ball has in North America and Europe. We've got global metrics that we benchmark our Asian facilities against North America and Europe and we're proud to say in some categories, we lead those things.

Productivity is extremely important. We continue to try to look for ways to see instead of just scattering money around the region in new plants and footprint, we continue to look for ways to sweat our assets, more cans out of the existing lines. Perhaps I've not seen, I heard at dinner yesterday that people said, well, Crown seems to be more aggressive than you. Well, we do a lot of things that we don't make press releases for, which is like sweating the assets, making faster lines and getting more cans. Like Ray said, 1.4 billion can need, 800 million out of Qingdao so where's the other cans from? It's about sweating the assets that we have. And we find that, that's a great way to drive EBIT and EVA.

Pricing, extremely important. As volumes go up, we need to get the right price. We believe that innovation and what I call the secret sauce, which is making sure that we get the right can at the right time and having the service at the fillers so that there's absolutely no problems for our customers. That allows us to get a premium in the marketplace.

The last thing is really placement. As we look to see where we're going to put on new can lines in white spaces, we continuously look for, is it better to have 2 or 3-line plants, and what's the productivity from that versus going close to a customer. And we offset, we look at each of those scenarios. And we'll have a blend between white space expansion and investing in productivity, which is 2 and 3-line can plants. It's not a one-size-fits-all for us. So that's what China and Asia is. I look forward to you guys asking me question. Hopefully, you got a kind of feeling of how we think about the business and what our strategic and tactical plan is. Thank you. Mike?

Michael W. Feldser

My name is Mike Feldser, I run the Food and Household Products division for Ball Corporation. We have 11 plants in North America. Additionally, we operate 2 DWI [ph] food can lines inside beverage facilities in Milwaukee and Findlay. We have 2 plants in Argentina, servicing the Aerosol business, and then we have our 2 newly acquired slug facilities in Verona, Virginia, and Sherbrooke, Québec, Canada.

The success over the last few years has been driven by a couple of key factors. We were able to leverage the manufacturing facilities, reduce the footprint after the U.S. can acquisition and took advantage of existing manufacturing expertise, engineering expertise in the existing food can facilities, moved a lot of the aerosol assets inside those food plants. Additionally, we made some great strides in engineering excellence and innovation in aerosol dome and aerosol bottom manufacturing. We increased the speeds of our aerosol lines and took advantage of all of that to help us grow EBIT over the last few years.

We have excellent relationships with all of our customers. We are very close to our customers. We fixed some contracts that did not allow the appropriate cost pass-through, cost increase pass-throughs over the years, that has helped us considerably, as tinplate as all of you knew -- as all of you know, tinplate increases over the last 3 years or so have been extravagant, to say the least. We were able to pass through all those costs, which is something that was not done in the past. That helped us considerably.

So the last couple years have been very successful and we are in a very mature business. But we are very excited about the opportunities that we have to improve our cash flow even more and improve our return on invested capital. That will continue to come about because of our ongoing facilities rationalization, which believe it or not, we still have some very exciting opportunities to do there. And we are better focused on innovation than ever before. And most of that is in the aerosol area. Not only around impact extruded, but some things that we think we can do in some other technologies. And on the food can side, increased speeds, perhaps another look at DWI expansion there. And our slug business has obviously led to the acquisition of Aerocan in Europe. There's some opportunities that we believe exist in the Americas there in that technology, probably more so in South America than North America currently, but some real growth opportunities because of the Aerocan acquisition, we have a new relationship with Unilever, which is very healthy, both in Europe, but also presenting opportunities for us in South America.

I don't want to overplay the innovation thing, but I do want to simply make the statement that when you look at our business and say, somebody asked me last night, well, what about the food can? I would tell you that there's not much going on in the food can business, technology-wise, other than 2-piece versus 3-piece, nobody's going to reinvent the food can anytime soon, there's some things that we can do with the ends. But our focus is to continue to grow the EBIT line, albeit obviously, not as quickly as we did the last 3 years; generate a considerable amount of cash; reduce our invested -- excuse me, reduce our investment capital and increase the return, which we're very excited about the opportunities there over the next 3 to 5 years. Gerrit?

Gerrit Heske

So good morning. My name is Gerrit Heske, I'm in charge of Europe. And I'm now 18 years with the company. I'm coming through the Schmalbach-Lubeca acquisition which was in 2003. I have to say it was a perfect fit for us, for our company, for our customers. And I have to say all of our shareholders because when I see here the development off of that, it was not too bad.

So we are now in Europe, 15 plants. We operate in 7 countries. And since generally we have now a new product line in Europe called Aerocan, Michael already mentioned that, which we are very happy with. I'd like to give you a brief update here on both of these operations.

All in all, we have 3,300 people, as I said, operating in 7 countries, and our footprint in Europe is very well-balanced.

On the beverage side, we have a very strong customer base. We are, as you have seen on the charts, the #2 from a market share perspective. But on the beer side, strong #1, with a very high innovation focus and a very strong link into our major customers.

On the footprint side, as I said here, very well-balanced. North, East, West, and that is one of our strengths which we can generate also for our customers.

From the overall territories perspective, we are also in charge of Middle East and Africa. Also we have some ties into Russia. But here, as Ray already said, we have to make money and all these kind of budgets are running through our EVA filter, which is very important for us. Our key strategies in these areas, customer focus, we are following our customers, we are listening already to our customers and then we explore opportunities in our facilities. Operational excellence, which is a common theme in our organization, is one of the core expertise which we can deliver to our customers, high flexibility. Yesterday, I explained 5 years ago we have only 5 can sizes, now we are producing 10 to 12. And every year, a new can size is coming up. So we are following here the specialty cans in our facilities. And also our plants are prepared here to cope with these challenges overall.

On the innovation side, we have a technical center in Bonn, where we have some nice developments going on in the past and also for the future. I would like to mention 1 or 2. It's one of the reclosable ends which we developed, it's the first reclosable end for the can industry and also, we explore new printing technologies here, digital printing, which we're ready to market end of this year. Again, also here, differentiation for our customers, listen to customers, and get the consumer attracted by our product.

A very big part is also on the sustainability side. You have listened to the sustainability stories here which we're doing around the globe. Very important for us in Europe is also that we are taking concrete actions in respect to recycling. We have our own collecting system here in Poland and in Serbia, which is very successful. We need to be proactive here in getting our cans, used cans, back into the stream, and that is also running very successfully here from overall market perspective.

What I'd like also to mention here which is a little bit different to other market is our dual metal strategy. We have a strong base also on steel, Schmalbach-Lubeca historical has a very strong steel base. We are still around about 40% in steel, 60% in aluminum and we remain confident here to keep that. It was a very successful story for us, it is today. And we feel also very bullish here in the future here to keep that dual metal strategy.

From the European market, overall it looks okay. On half year, and if you're more interested here, we can make a report here, which gives all information of data of all the European markets, so which is outside $55 billion, still growing. And that is so we keep also the confidence here because of the consumer behavior, because of substitution packages, especially on glass that we can keep the 3% to 5% year growth in the next year, which gives us the opportunity also to get new capacity onstream.

Having now a quick look here on aerosol, on the aerosol market, also here we are very happy here to have this new business in our portfolio. Here, we have another chance here to get new customers here, also in contact with us, Unilever, Henkel, Beiersdorf, Procter & Gamble, so really big players in the market, and more or less the same people which we can see in our facilities, very dedicated, strong passion for the business, and also the attitudes they are running the business is very compared to ours, so that's also, I have to say, a very good fit. And it has an excellent footprint. West, East is already very well-established. So we are very competitive in that market and with the new things coming up, especially on the technology side, and the synergies which can generate on the beverage side with our beverage customers, we're very bullish here going forward with that business. So all in all, Europe is very confident, very happy here for looking into the future. Thank you.

Colin Gillis

Good morning, I'm Colin Gillis, I run Latapack-Ball, our Brazilian joint venture. Ball entered the Brazil market in the mid-90s, via joint venture, as I mentioned. And Brazil right now is an exciting place to be and it's an exciting time to be in Brazil. We are very blessed with a very nice mix of both global customers including Coca-Cola and Heineken, and local customers, including Schincariol, Petropolis, Inadbi [ph] and Conchi [ph].

One of our -- one of the things we seek to do in Brazil was to differentiate ourselves with top quality and excellent service, and we're widely recognized for that. And part of that is staying close to our customers. It is one of our key strategies that enables us to grow successfully in the market.

Brazil started out with one facility that eventually grew. And in 2009, we started an expansion process where we added approximately 2 billion cans of capacity in Três Rios via a first line and then a second line. And we're now building a plant in the Northeast, in Alagoinhas which as Ray pointed out, will have a capacity of 1 billion cans.

The Northeast right now is the fastest growing region in Brazil, and there's a tremendous amount of investment not only in packaging, but in automotive, in pharmaceutical, so it's a great place to be.

Location, location, location. When you look at Alagoinhas, I think Ray pointed out in the picture how close we are to our major customer who signed up a long-term agreement with us. However, within 45 minutes of the plant, a lot of major customers, including Heineken, Coca-Cola, Ambev, also have facilities. So we're ideally positioned for the immediate future, and the growth potential in the area is attractive.

In a growth market, we have to be mindful. The market is growing, but one of our platforms is operational excellence. You can't ignore the facilities we've put in. And so we drive our productivity, much as Gihan and Michael explained, it's nice to have these brand-new facilities, but it's important that we continue to leverage the opportunities that we have in our existing facilities. As I like to call them, there's free cans in those facilities. And before you invest incremental capital, you want to ensure that we're getting the maximum opportunity out of the facilities we have.

On innovation. Innovation in Brazil probably more slanted to differentiation of can sizes. For a relatively new market, there's a fair amount of different can sizes. We have 2 new sleek sizes, a 269 mil beer can and the 310 can that can be used for both beer and beverages. And this fall, we will introduce a 350 mil sleek container to the market.

The next opportunity is probably looking at other different sizes, whether it be jumbo cans or different iterations of the sleek containers that we currently produce. Innovation. We're very, very blessed to have 2 strong technical centers, one here in the U.S. and another in Europe. We can leverage the opportunities and the expertise that these folks have to bring innovation to Brazil. And our customers are looking forward, although selectively. Right now, it's about growing market via sizes, but innovation, whether it be textile, varnishes, inks, is coming. There's a little bit of it in the market, we can see expansion there. There's also some interest in reclosable ends, and it's certainly opportunities we're investigating.

Sustainability for us, Brazil is a relatively high-cost place to do business. When we look at our newest facility, we're looking at leveraging technology to reduce operating cost. We build these plants for 30 to 40 years and so everything we can do to reduce cost. For example, Três Rios is an absolutely fabulous facility, and I know some of you have been fortunate enough to visit. In our new plant in Alagoinhas, we will reduce electrical usage by over 100 horsepower. The amount of steel that's going in the building will be reduced significantly. We have to look at installation cost, but we also have to look at operating and maintenance costs going forward.

Right now, in Brazil, we use the least amount of compressed air, which is probably the most expensive spend in the electrical portion of the plant than anywhere else in the system. We're fortunate by being -- by building new facilities, we're able to leverage the latest technology.

Lastly, but not leastly, is people development. As much like the '70s here in the U.S., the business is taking off. It's very important that we have the right people in the right place at the right time. Our Alagoinhas facility will be staffed by largely local folks from the Alagoinhas area, because it is in a rather remote area of Brazil. So it's incumbent that we get the right people and we get them trained appropriately and up to speed. And we have some very elaborate and some very impressive training programs that will allow us to do that. Thank you.

Question-and-Answer Session

Unknown Analyst

Maybe a question for Gihan, if I could. And specific to China, you have a nice slide in here on Slide 47, it breaks out all the local competitors there. First off, if you could target -- if you could sort of give us some color as to who these competitors serve. Are they regional customers? Are they multinationals? And second, some of these are state-owned enterprises, and if China were to slow, why shouldn't we expect some of these data on enterprises become more competitive over time, particularly if the growth manifests to the extent that you think it will?

Gihan Atapattu

The competitive combination of the global competitors, we've got Rexam and Crown ourselves, and the regional folks. I think the market's waking up to what's been evident, which is beer is going to drive the can penetration and so therefore, they want to try and get into the beer game as well. We are fortunate that we hold quite a strong dominant position in the beer customers. They're nipping at our heels. They'll try to come in with some predatory pricing. But at the end of the day, I told you, the secret sauce to this business is really about can you deliver on your promise, get those cans to the fillers. And then if there's a problem with the filling of the can and the sealing, do you have the technical service in all the locations to be able to get rid of the problems so that the lines can be filled. These filling lines are 1,600 cans per minute, if there's no cans, it's not getting filled, and that's a big problem.

Customers still rely on Ball and our technology and our local service, so I believe that we will start to see this predatory pricing, buyers will test them out, but long-term, it comes down to our service and our footprint and our supply chain. When we're negotiating pricing and deals, we negotiate prices in terms of China. And a lot of the smaller guys have one plant, but they can't supply all of China. So that becomes a problem. The second thing, as I said, is when we're talking about market penetration and creating the market there, we continuously bring in new types of product. Sleek, slim, 500 and the new 202 end, all of these require recapitalization. The smaller guys, the question is they're just trying to figure out how to make a can, can they also now do it flex, will they be able to manage the downtime to take a line down, put it back up and deliver at the right time. So we keep raising the bar on them and making sure that we hold onto our long-term relationships and large customer relationships and volumes.

Unknown Analyst

A question on state-owned enterprises?

Gihan Atapattu

The state-owned enterprises, they -- in principal, the difference is just that they probably look at investments in a different way than we do. But we've all been around this game long enough. At the end of the day, it comes back to roots. You can make one investment and try to go for perhaps small breakeven and small cash flow. But once the recapitalization comes again, then you know you've got to dig back into your pockets and whether you're state-owned or somebody else, there's a lot of pressure on capital right now in China, including state-owned enterprises, especially in the last 2 months, you read the news, it's not an open checkbook anymore for the state-owned enterprises as well, they've got to compete. And China wants them to compete as equally as us. So we're going to keep raising the bar, and we'll see what happens.

Unknown Analyst

I appreciate all the presentation. I have 2 questions really around growth and how you pursue it and how you avoid falling over yourselves chasing that growth. For Gihan and Collin, again, you have tremendous opportunities ahead of you, what are the 2 or 3 things that you would relay to us that would make us confident in your ability to manage that growth from a person standpoint, from a control standpoint, from an R&D standpoint? And Mike, you view North America as a growth market, the market peaked in 1994 on an aggregate basis, help us understand how you expect to grow in that market. Is it more on the profit and margin side? Clearly, the market itself isn't going in an aggregate basis.

Gihan Atapattu

Well, first of all you see us sitting here, this is a Global Packaging team. I'm not left alone in China to try and go after that growth by myself. Michael sent over his -- we got a couple major big projects right now, that are actually being executed by the North American engineering team. We've got another project that's going to happen in the South China, which is going to be executed by Gerrit and his team. So we're not left alone, me and my 6 engineers, to try and figure out how to grow 20%, 30%. We're getting the innovations out of the 2 innovation centers, R&Ds, et cetera out of North America and Europe. And what we do is replicate and we take it to the local market. So until we can get the critical mass, in terms of engineering and all that, we benefit from both strong cash flow, engineering, know-how, R&D.

Colin Gillis

And much the same in Brazil. The first line in Três Rios was probably the best start up in Ball's history, and then the line came up in late November and was performing at a high rate of efficiency in December. And that's part of -- it's a partnership. And the U.S. beverage project team that assisted us was invaluable. It's having the right people work with our folks. And what we were able to leverage out of that, George, is that our people are now a lot more adept at managing projects. In Alagoinhas, we will have probably less of a U.S. assist, we have a full-time project manager from Michael's team. But we're going to largely use our own assets. And that's a great opportunity for our people to grow. They've seen what success looks like and how to do it, now we need to replicate it in Alagoinhas.

Michael Hranicka

In the North America when we talk about growth, there are many different types of growth. And when we look at what it is we're focused on doing, let's take innovation as an example and use the aluminum pints that you all saw last night. In a market where 12 ounce continues to decline and you've got 12 ounce -- over the course of time, it's dropped from 100 million to let's say, mid-90 million range today, that gets offset because of the value created with innovation. We always say, we're not selling cans, we're moving money. And so when you look at an aluminum pint, that at 20% of the volume of a 12-ounce container, generates the same contribution. It's an important metric to understand. And when we talk about our business in total, that is the value of innovation from an EBIT expansion and growth perspective. Additionally, close to customer, our customers value that because it's an extension of their brand. Therefore, it's that feng shui, it continues to feed upon itself. We create innovation, they appreciate it, they come to us for more and higher value innovation. Now additionally, other parts of the P&L, like operational excellence. As we talked about one of the real, powerful outcomes of the acquisition of Metal Container, it is that prior to the acquisition, Ball was convinced that we were the best manufacturer of cans in the world. And the folks from Metal Container were convinced that they were the best manufacturers in the world. And what we discovered is we were both incredibly efficient. We simply, in different areas, had different strategies. And so what that has allowed us to do, it's like a petri dish, we have created an environment where we are able to really dig into the core strategies of 2 world-class manufacturing platforms, and we have become something better than either of us could have been individually. So when you talk about what that does for us, that grows our ability to generate cash, to manage working capital differently. And so areas of growth exist beyond pure volume, and that's what we are focused on.

Unknown Analyst

Kind of continuing with the expansion thing there, can you talk about how your expansion strategies differ from those of your peers, especially in Asia?

Gihan Atapattu

Well, I don't want to speculate on peers because I don't know what their strategy is, I'm not privy to that. Let me just talk about what our expansion strategy is. We've been successful with both global customers and regional local customers growing with them. That 200 million hectoliters of beer growth means that, that's a lot of new breweries that they're going to put in, whether it's filling locations in can lines. So in principle, we sit down with them and we talk to them about 2, 3 years where their expansion is going to be, where the white space is going to be and we have a long relationship and security in terms of supply, and then they ask us, do you want to participate with us? And they know we have the wherewithal in terms of people, engineers and money and strong buying power, leveraging our global metal participants, those type of things, to grow with them. So in principle, we talk to them. And once we understand that there's a pull, we'll work out the volume and the pricing and we'll make a deal, and we'll just go with them.

Unknown Analyst

Just want to ask a question, a couple questions on the emerging markets. And first, given the profitability is higher there, as these markets continue to grow, I imagine that puts some pressure on profitability starting to normalize closer to what we see in the developed markets. How do you handle that? Do you agree with that? And then number 2, as you're expanding in emerging markets, we see a growing trend to do longer-term deals. Now that de-risks contracts and investment, but it could come at the expense of profitability. And so I want to get your thoughts on how you handle that process as well.

Michael W. Feldser

Well, great question. There's a couple things. Right now, profitability in Brazil is in a nice place, nothing lasts forever. So it's important, and I think it was mentioned earlier, we construct our facilities to be multi-line, so that we manage our cost base. And that's important as we grow so that if price pressure does occur and when it occurs, we have a lower cost base to manage the offset. That's basically how we look at it.

Gihan Atapattu

The announcement today about Qingdao is another example of that, we wanted to have control of that so that we could then be able to provide productivity in that site with -- now it's going to be 800 million can line with 500 ml the largest size format as well. And how can we put a second line and then perhaps a third line. That allows us to get more productivity out of those lines. So we definitely look at 2-line, 3-line plants as we look out in the next 3 years.

Michael W. Feldser

I agree, that was our plan in Três Rios. As the first line is being started up, we're already installing a second line, that gave tremendous leverage to the cost base of the facility. And our goal, if we can do that as we extend our network of plants, it's the right way to proceed.

Unknown Analyst

My first question is for Gihan. In John's presentation, he was talking about expanding into new products and then to new capabilities, and I was just wondering in the emerging markets, especially over in Asia, maybe you could talk a little bit about how you're building and protecting your supply chain, that was one of the things that John had mentioned, and then also, your technological know-how, how you were going about protecting that in the Chinese environment in particular. And then the second question was for Colin. Colin, in your presentation, you mentioned that you currently have 19% market share in Brazil, you could see that maybe going to 25% to 30%, but you don't want to be the dominant player. Can you just maybe fill in the color there on why you wouldn't want to be the dominant player in that market?

Gihan Atapattu

On the first question on sizes and innovation, we are bringing in -- our marketing folks have been looking at our product portfolio and saying, what's going to be kind our good, better and best products to be able to introduce into the marketplace. We started out with 330 ML, 355 ML. and we have a very strong position in there. We have slim now, which as you know, you have seen the -- for Coke, which is here in North America focused on less calories. But in Asia, it's focused on less money, a better price point for the consumer to be able to drive the brand and to be able to get more cans. And the can, frankly, they tell us makes more money for them. So we're going with the small sizes, the large 500, we're looking at sleek and some other sizes as well. So we continuously be able -- we are bringing those in as we bring in new lines as well. We believe that, that's a way to be able to add more value to our customers, but also, as I said, keep driving some amount of recapitalization on know-how which perhaps the smaller competitors don't have, and it will keep us in front of them. It's not only money to be able to put in a different size in the line, it can cost you about almost a week or longer in taking the line down and taking it back up if you don't know how to swing a line. So that's a level of know-how that we have and that we'll be gaining from North America and Europe. We get poached by competitors significantly, and we continuously defend that by ensuring that our salaries are very good, that have very good safety, that we have a career path for our people. Now with more plants. As you know, in China, many people came from the west and they're working in cities that may not be close to their homes. We are very focused now on talking to our employees about saying, how can we get you closer to your home, how can we get you closer to your mother, your father, your boyfriend, girlfriend, husband or wife, so that you can have a normal life as we have here in North America or Europe. So we're having these discussions, and that makes them more comfortable about working for Ball because we've got that footprint, we're not just one factory, we're able to do that. We have people in China that have long tenure with us even in a market that people tend to move around because they appreciate Ball. We had people who were poached, and guess what, we have people who come back. The competitors were -- all the promises did not pan out, what we're seeing with competitors is that they're poaching different people from different -- so they may get some from us, some from Crown, some from Pacific, whatever. And what that's doing is creating a mix match of culture within them, like 3 different ways of how to run a can line, whereas Ball, we have one way, we have a Ball way whether you're North America, Europe or China, we have a Ball way of how we run a can line, and they missed that when they went over, and there was kind of internal fighting and they called us up and say can we come back. So that's good, that's great, that's the best thing and we bring those people back, we welcome them. And then we tell them also to tell the rest of the people at Ball that things are not great on the other side.

Colin Gillis

Just to answer your question on growth. Certainly, our growth in Brazil has been based on discipline. And it's a measure of growing with the market, we're growing profitability. Yes, we can deploy a whole bunch of capital, build a whole bunch of plants and claim to have a large market share. But I think as we grow in that market, I don't think we're putting a topside on what growth is, but what we see over the nearer-term is a manageable set of growth expectations that we can deliver on the promises we're making to the industry. If we're going to build a facility, we're going to staff it appropriately and we're going to take care of our customers. To grow just willy-nilly would be inappropriate and irresponsible on our part. So that discipline says, yes, we'll grow, but we'll manage the growth appropriately, and when we get to a certain level, we'll look at the next level.

Unknown Analyst

I have a question about -- if you remember the slide on Page 22, where you talked about your share of the beer markets in various regions. Could you talk a little bit about the beverage, the CSD soft drink market? Because, as you know, 30 years ago, we went through a process where we got out of bottles here in the U.S., I'm sure there was a lot of embedded investment that the bottlers had, but for whatever reason, that ended. And yet, I don't hear much talk about that transformation possibly visiting China or Brazil. So again, could you talk a little bit about where your shares are of the CSD market in those 2 areas and what could happen there in the next 10 or 15 years?

Colin Gillis

Well, the market dynamics in Brazil, PET is approximately 80% of the market. And that's just the reality, and it's not unlike some other jurisdictions except for perhaps North America. So we will grow with the market. But PET has its place. Unless there's a tremendous move away from PET, we see beer as obviously the primary growth vehicle, but then we need to look beyond beer and CSDs. What other products? I mean, coconut juice in Brazil is huge. So are there opportunities there? Are there nutritional products? Energy drinks are still relatively small in Brazil, but it's a growing segment. So I think you have to look beyond the traditional CSD-beer relationship and see what else is possible, and those are the avenues we're exploring right now.

Unknown Analyst

Just to clarify on the PET where it's 80% of the soft drink market, is almost all of that single-serve or does it tend to be the 2-liter?

Colin Gillis

Well, it's beyond 2 liter. There's 2 liter, there's 2.5 liter, there's 3 liter. The beverage companies are continuingly repositioning depending on value for the consumer. Consumers are very, very cost conscious. So they're always looking at what makes the most sense for their disposable income.

Gihan Atapattu

In China, I think your question is what else is other than beer. So you really need to look at, as Colin said, the 3-piece which is about 9 billion pieces right now which is in terms of juices, coffees and some other things. There's a CSD, and then also there's the Tea segment, which is very strong, Wang Lao Ji being the dominant one there with about 4.5 billion units just in cans, we're very strong in Wang Lao Ji. In carbonated soft drinks, we're starting to see it, 2010 was a bit of a soft year for them. They're coming back strong in carbonated soft drinks, but they're also coming back into cans. They're seeing cans as that they're able to make more money with cans, they're seeing that it's a good way to reestablish the brand. They're looking for ways of -- we were just -- John and I were front of Coke and the President of Coke, China, saying, look there's 300 million people in the countryside who have not yet tasted Coke, how can we get them to taste Coke and get accustomed to this. And a great way, he told us is, let's get a stubby can out there for them. So that's again, a great opportunity to build the carbonated soft drink and to build, as I told you, the locations on the can as well. So there's a lot of opportunity in terms of 3-piece, in terms of coffees, juices, carbonated soft drinks and then the tea market as well, which will drive in addition to the beer.

Unknown Analyst

As I look at the U.S. CSD market, I think it's one of the biggest end markets for you, if not the biggest one. It appears that the secular trend is negative, perhaps even accelerating this year. So my question is, can you talk about why the trend has been negative and how concerned you are about that fact?

Michael Hranicka

We're very fortunate to be aligned with some of the best customers in the world. These people sell beverages and they understand the value of selling beverages in cans. So when people look at CSD, they think, wow, there's all kinds of issues around corn syrup and some of the portion control. The reality is that it all gets back to creativity and innovation. These same customers that are selling beverages and that are selling them in cans are simply targeting different types of products. You look at water, water is a good example. Not historically a big can market. There's 40 billion units of water, of which, probably 100 million to 200 million are in cans. Those are areas of tremendous opportunity that help offset any weakness in a particular product like CSD. You see in the aluminum pipe coconut water. You see customers putting more teas in cans. And so our customers are in it for the long haul, people like Coca-Cola and Pepsi are selling beverages and selling the predominance of that product in cans, and they're committed to doing so. They're simply tinkering with the type of product that they may put in that can.

Unknown Analyst

Again, second question as a company, Ball talks about the ability to pass through the metal cost to the customer in a realtime basis which in fact, is pretty evident in the numbers, but I'm just curious if there's any differences in the way that mechanism actually works in the different parts of the world in that Ball does business?

Gihan Atapattu

In Asia, we run the same way as North America and Europe in our contracts.

Colin Gillis

Same with South America.

Gerrit Heske

Same with Europe.

Unknown Analyst

Mr. Hayes has challenged you to think for the next decade, as opposed to kind of 3-year running increments and as you look over the next decade, appreciating that each one of you has different dynamics within your markets, some growing, some holding steady, some shrinking. What do you think as the best opportunities for you to attack? Is it new white space, whether it's specific regions like the Middle East or Mexico, et cetera? Or is it new products, aluminum aerosol, aluminum bottles, different things of that nature? And how do you go about doing such that -- doing that and yet maintaining a competitive, or I should say, a constructive pricing environment, potentially growing that share as you move forward?

Michael Hranicka

When we take a look, there's like many things, there's no silver bullet, and there's not one particular area that we focus on. That's true whether you talk about our corporate finance, or whether you talk about our operational strategy. When we look at how to ensure our business is positioned for the long-term, we look at many different levers. And the basis of that is our ability to generate cash. Cash allows us to infuse our business with growth, either in new products or in new geographies. Speaking of the Americas itself, we today, are essentially North America and Brazil. The area under my control is the Americas. The reality is we're America, North America and Brazil. One of our major endeavors, certainly because of demographics, is to expand in areas throughout Latin America because we believe that the long-term requires that kind of an outlook. So in addition to operational excellence, innovation, there's always going to be geographic peaks, and those are our goals long-term.

Gihan Atapattu

Yes, I think, for us, when you're in an emerging market with so much promise, you just have to be really disciplined about what to go after. And the discipline for me is really about, what John talked about, is the levers. What levers do we have to pull on that our competitors don't have. So do we have a global reach relationship with the customer, do we have some special know-how that we'll be able to be lowest cost, best value, these kind of things. So in best product filters [ph], what we will do. And at the end of the day, as I mentioned earlier, it's first, talking to the customer to make sure that we really have a pull, that there is a need, that they'll say, we really want Ball to come with us. And then from that, that's how you can structure the pricing that makes sense, the volumes that makes sense and a long-term contract. And then after that, it's all about execution. With the help of these guys, I can make that happen. So it's really about, what are we really good at, what can we offer, and then making sure that the customers recognize it and then we go after it.

Michael W. Feldser

I think from our point of view, on the Food and Household side, we look at it maximizing the value of our existing businesses. And what I mean by that is continuing to improve the efficiency of our operations and drive down our efficiencies on invested capital and improve our cash, as I mentioned earlier. Though impact extruded is part of Europe, at the moment we see tremendous growth opportunities in that. In South America, we've got, I think, a technological edge there in that we can leverage our 2-piece expertise there to make that process more efficient as time goes on. And then I think continuing to grow, again, in a very mature market here in the States, but we have very, very good customers who have some good growth plans, and we'll grow with them albeit 12 percentages but nevertheless, without damaging the marketplace in any way relative to supply and demand balance.

Gerrit Heske

And when we're are looking into Europe, Middle East, Africa, it's more or less what the folks are all saying, a disciplined approach. There's a lot of opportunities, but we run everything here through our EVA filter, and I think that Scott will talk a little bit about that later, and that is important for us here. To look at the opportunities which are coming in respect to on the market, on the customer side. Still in Germany, we have a nice opportunity to go. On the other [ph] side, we have nice opportunities with our customers here which we gained through the acquisition. But nonetheless, disciplined approach and I think that we have excellent runway.

Colin Gillis

To expand a little bit on what Michael and Mike mentioned about Latin America, it's a big place and obviously, Brazil is the dominant economy. However, we need to understand what the opportunities whether it be beverage cans, impact extruded food cans are other options for packaging in the rest of South America. And that really starts with market intelligence. And I think it's incumbent upon us to -- before you decide to enter a business, you have to know what your markets are and what your opportunities are, then you look for opportunity, and that's effectively what we're looking at.

Unknown Analyst

Gerrit, I've got a couple questions for you. One is on one of Ray's slides, he showed the can penetration and he used the U.K. as a proxy for Western Europe at 49%. Could you just clue us into what is it in Eastern Europe? And is there that similar emerging market opportunity of raising can penetration versus bottle and how important that could be? And then, secondly, on another of Ray's slides, he showed the top 10 markets in terms of beer growth, and one of those is Turkey, which is in your domain, you don't have a presence there. Could you talk about the opportunity or the need to penetrate that market if in fact, that's really the only top 10 growth market that's in your sector?

Gerrit Heske

Okay. So let's start here with the can penetration, when you quickly look on the U.K. figure, it's high for Europe, yes? Which is the benchmark for all the other countries and there's still some room to maneuver and control here in the certain countries, the 26 countries we are serving in Europe. So there's a good opportunity, especially here. The people stay more at home, consuming more at home, to get a nice share, to get into 40s, which is a target for us. Coming to the East market, Poland is already on the 42%, 43% level, and the rest of the markets are in the 20% to 30%. So that is also why we feel confident here in the European market, in this middle single-digit growth here perspective over the next years, to gain share in respect to glass bottles and potentially also, that would be tea and especially on the refillable side, where the consumer trend is changing dramatically to one-way, which gives us additional can penetration in certain countries and not only in Germany. On Turkey, yes, you're right. There's a relatively white spot for us so far. Turkey in front of me is growing nicely, cans is also in a good shape. And we have purposely here, selected a couple of years of our Serbian plants here in that area to serve also the western part of Turkey, also from Serbia, it's still on. But nevertheless, also here disciplined. Not only to generate volume, we need to be also profitable in that area but nevertheless, the opportunity is there, and we are looking actively in that area from our Serbian plant.

Unknown Analyst

And then just another of Ray's slides showed what we've seen historically coming out of Germany, so we still have a 95% collapse in can demand in a span of a year, now we're back up to 1 billion cans. As the potential there and the pace with which we got the renewed adoption that's been signaled where you seem to be at sort of a turning point of the deep discounters starting to sell cans again, could you just highlight sort of maybe it's a minimum, maximum -- you see the recovery potential there because if it's anything close to what that market used to be, it's going to have serious implications in terms of capacity, pricing, for all of Western Europe.

Gerrit Heske

Germany is, of course, one of the markets which we had not a good start when we got Ball. It was exactly in the same year, 2003 where the deposit was enforced. And you have seen the figures here in the chart from Ray, 7 billion from 6 billion of that was consumption in Germany, and this consumption fall to 200 million in 2005. So from 2005 on, we have a nice growth. Last year, especially here, I would say in the last 2 years, the discounters are listing more and more. So the retailers are getting more attracted, not a lot of support from our direct beer customers, it's more the retailer who's driving it, well with us, the can maker. And we are now -- we're on about on 1 billion with a growth rate of 30% to 40%. So we are confident that this growth will remain. And especially in 2 discount as we are missing, that is 2 big ones, that is Auldey [ph] and Leedle [ph]. And Leedle is part of the Schwartzkopf [ph], so we'll call Schwartzkopf [ph], a big retail chain in Germany and their sister company called Calfron [ph], they are listing, actually the can right now, from today on. Which is the signal from this and we stay confident that we are getting these discounters. And then the market will develop, I would say, in the right shape and that means we remain confident to grow the volume here, not maybe in the same as it was before, but 50%, 60% of that, I think, is a reasonable target for the next 2 to 3 years.

Unknown Analyst

Two questions, one for Gerrit. In France, there's been some back-and-forth around the tax on sugar-based drinks next year. Can you give us an update here on how you're thinking about that, the impact that could have on volumes potentially in that region? Concerns that, that might spread to other regions? Just how you're thinking about the sensitivity and risks around that? And then, for Mike Feldser, you talked about facility rationalizations. To the extent you can comment on it, what inning do you think we're in, in that opportunity? And how impactful could that be on margins over the next couple of years?

Gerrit Heske

France is a very specific country, yes? They have an election actually next year, so the politicians are looking for certain elements here to get the attraction from the people. But also, here to get their deficits, what they have in their current, say, status here, down. That means they're generating a lot of new ideas here to generate here, taxes, or other things here to get the deficit down and the sugar tax is one of the ideas which are not floating. There's a proposal, a proposal in the French legislation. It is not formalized right now, they would like to increase the VAT on sugar products from 5.5% to 90% [ph], which affects the product here, just to give the magnitude, to $0.01 to $0.02 on our cans, yes? So that is the magnitude. So we feel especially aligned with our customers, which are bringing a lot of good stuff in respect to clarifying the situation and also try to get this off the table. But even when it would be enforced, I think the consumer will not really recognize it. I think the package and also especially the product itself, it is an excellent product, which has served very well in the markets. So we feel confident here that the market will stay. But nevertheless, these kind of challenges, and John mentioned this, will come more and more in different countries as well. So we need to stay tuned, we need to get our resources here to minimize that effect to us. But overall, we stay confident that it will be okay for us.

Michael W. Feldser

On the aerosol side, we have our fourth high-speed aerosol line going into an existing food facility second quarter of next year. The other significant development in the Aerosol business is, we began to trend away from lithoed cans to plain-label aerosol. If you look at it over the past 10 years, there's a fairly rapid pace of change in the early part of the century from litho to plain, it leveled off in the middle of the decade and now it's beginning to come back again. That's going to force us to take a look at our whole service center concept. The industry has too much litho capacity, we have too much litho capacity. So you may see some rationalization around that. These are high-costs facilities, opportunities to consolidate those.

Unknown Analyst

Two questions. One for Mike Feldser and then one for all of you. Mike, for a long time, the food can business within Ball corporation, was the story of one year good and one year bad, one year good, one year bad. And then something in the last several years changed where performance really turned up significantly. If you think about it, what are the 1 or 2 things that changed to improve that performance and are they sustainable? And then a question for all of you, back to Chris's question from earlier about pass-throughs in your business, clearly, this has been a pass-through business for the years, it's one of the reasons why it's improved its return on capital over the years, are there any components of the cost structure next year or in '13 that you might not have quite as much flexibility in passing through? Just thinking out-of-the-box.

Raymond J. Seabrook

Well, the up-and-down in the food business, George, was all about chasing volume that was largely unprofitable. Because you had people chasing the only way you could, which was with price. Our effort since the U.S. Can acquisition, as I mentioned, was to get our facilities rationalized and bring the -- as best we could for the industry, bring the supply demand equation in balance. And then, secondly, we strengthened our contracts. It wasn't always the case that you could pass through all the tinplate increases and all the CPI increases, and those contracts are 100% fixed now. The growth of the EBIT over the last 2, 3, 4 years is not sustainable. You can't go from 35 to 130 every 3 years. But we think that we'll be more than sustainable at that level and we'll grow it to some degree, over the next 3 to 5 years. And we think that the specific initiatives that we've developed around the Drive for 10 the whole corporation's involved with, we'll produce some very interesting results in the next few years. And relative to pass-throughs, managing risk is an important part of our business. We place a great deal of attention on that as a corporation, and certainly, when you talk about a component of that, contracts are key. We have become very effective at managing our contracts over the years, and we are comfortable with where we are relative to the pass-throughs.

Gihan Atapattu

In Asia, you've read everything about the inflation situation. So we have discipline in our pricings to ensure that we're not only passing through the metal cost and the things that are clearly, customers understand, but also trying to get PPI price through. At the end of the day, it's a market economy, right? You cannot just stand and say, we're going to get everything through. So it's a mix. And that's why I stressed how important productivity is to be able to have 2-line plants, et cetera, to be able to flex. And we may have to have situations share some of that cost increase and then pass-through as much. It's a unique opportunity now to be disciplined because the market is tight and there's not enough cans, so I think counting on us to be able to get those costs through.

Gerrit Heske

In Europe, we need to keep the supply demand situation here relatively tight. And then, of course, we're able also here to pass 3 things through here which in respect to inflation, is coming through the market.

Colin Gillis

Our contracts in Brazil are U.S. dollar based and local currency based and there's pass-through mechanisms for both.

John A. Hayes

All right. Well, thank you very much. We're going to take a -- why don't we take a 10-minute break and come back at 25 until. And then, we'll wrap up with the financial summary and then Q&A for the rest of us. Thanks.

[Break]

Scott C. Morrison

All right, why don't we get going with the financial overview tying all this together? And then we'll come up and do some Q&A at the end.

Ray's story about the CapEx was pretty accurate. He left out a couple of points. That was -- I was probably 3 months into my job of being CFO. Ray had been CFO for a decade, and in that decade, I think we were the 20th best performing stock in the S&P 500, so in that time we created a tremendous amount of value. And obviously, with his guidance as CFO, one of the things he always was focused on was capital spending and limiting capital spending and maintaining capital spending. So I was probably 3 months into my job as CFO and we had this meeting, and he's talking about all these projects. And you know Ray, he's ready to go. And at one point, I looked at John Hayes and I said, "Who is this guy?" He was unrecognizable. But the one thing that is recognizable that didn't change is Ray's financial acumen. When it comes to most things finance, he has a great gut feel for what the right thing to do is.

And so these projects that we're pursuing now with this -- with all this capital that we've been spending, we were convinced that all of those things would make our business better, make us more profitable, improve our returns.

Now the other thing he left out, I think this was a meeting later on. But Ray is Chief Operating Officer of the packaging businesses, so not aerospace. So we looked at a list of all this capital spending, and there's $300-plus million of growth capital in the packaging businesses. And for those of you that went up to Boulder yesterday, you saw the expansion that we're doing in aerospace. And aerospace is spending a little bit more than the normal, around $30 million, which is a little bit high for them. And Ray is looking at this whole list of capital and he's shaking his head. He said, "Somebody has got to tell Dave Taylor he can't spend this much money."

So I think it's all depending upon what chair you sit in and what your perspective is. But as you heard all the guys talk on the panel, the one common thread that you see is a focus on returns in each of our businesses. No matter what business, we have businesses that have more growth characteristics. We have other businesses where it's more about maximizing value. But the common thread is the returns that we generate in the business. And the alignment that we have with shareholders -- I think one of the things, one of the reasons we have been as successful as we have been for a long period of time is that we don't have a lot of noise in our system. How we get paid is directly correlated to how the shareholders get paid. And you heard all the guys talk about returns, how they're going to grow their business and improve their returns. I think having the same goals, the same interests that our shareholders have creates a lot less noise in our system, a lot less wasted time, so that we're all focused on the right thing. And it sounds simple, but I think it's the discipline over a long period of time that's the key to that success.

So I'm going to talk a little bit about our financial strategy. And for those of you who have known us a while, this hasn't changed a heck of a lot. We have -- we're fortunate that we have cash-generative businesses. I'm going to talk a little bit about each of these in another minute. We've been very good at allocating capital. And you heard today from the conversation about all the different opportunities we have to allocate capital, but it always runs through an EVA filter. We've been able to grow EBIT. John mentioned last night that we've quadrupled EBIT from 2000 to 2010, and we think a lot of these projects and plans and some of the acquisition activity that we've done will continue to grow that EBIT. And again, it all goes through an EVA filter that we know, over time, drives our stock price.

So let's take a look at each component in a little bit more detail. The first one is cash generation. Over the past decade, we've generated almost $3.5 billion in free cash flow. Now the interesting thing on this chart is, look at the bottom when we start off the decade. Kind of in the first half of the decade, we're generating between $100 million and $300 million of free cash flow a year. And then as we move through the back half of the decade, it starts rising to $300 million to $500 million a year. And in 2011, we've said we generated at least $400 million of free cash flow. Now that's after spending $300 million on growth CapEx. So $700 million of sustainable free cash flow before growth CapEx, so the trend is definitely positive. And we think, again, these projects and the things that we're doing and the focus that we have continues to grow this free cash flow going forward.

And then we've been very disciplined in how we allocate that capital. Over the last 5 years, you can see we've returned $2 billion of capital to shareholders through net share buybacks and dividends; $2 billion in acquisitions, less divestitures; and $2 billion in CapEx, with about 1/2 of that being growth CapEx. Now frankly, we're not that good that it's exactly $2 billion each. And we don't start off each year saying we're going to do 1/3, 1/3, 1/3. It's really pulling the levers that we have in front of us that give us the best return at any point in time.

A year or so ago, we had sold -- a couple years ago, we sold the plastics business. And we took all that money and put it back into buying back our stock. That was a great opportunity, we've made acquisitions. And if you look at -- if you were to look at this chart, whether it's -- this is a 5-year chart. If you look at a 10-year chart or a 3-year chart, it looks pretty similar. It's about 1/3, 1/3, 1/3. Now it comes in chunks because you never know when various opportunities will come. But having that flexibility to pursue a variety of different things has been one of the differentiators, I think, for us as a company relative to our peers and even other industrial companies.

And as I mentioned before, we have cash-generative businesses, so it allows us to pull a variety of levers at the same time. When we get to the end of this year, if you look back on the last 24 months, we'll have bought back nearly $1 billion of our stock, made $1 billion of acquisitions and spent nearly $0.5 billion on growth capital. All of those things, improving our company.

Now this balanced approach, we know, works. As Ray mentioned before, we instituted EVA in 1992. And this chart shows a couple different things. It starts in 2000 and it goes through 2010. And the blue bar is our -- is the cost to capital. The green bar on top is our returns in excess of that cost to capital. And then you'll see, as the chart goes on from left to right from 2000 to 2010, we put over $3 billion of capital to work over that decade.

Now while the returns look like they peaked, and they did from a percentage standpoint in 2004, when you look at the returns, the total EVA dollars calculated on the $5 billion capital base at the end of the decade, you see that our return is in the correlation to our stock price, which I'm going to show you in a minute and why we know this works over time. So putting capital to work, increasing our returns, we know, creates value.

So over the same time period, if you look at the blue bar here, are those returns from the previous page that were in excess of our cost to capital, and the green line is our year-end stock price. And you see how highly correlated our stock price has been to the excess returns that we're generating in excess -- over our cost to capital. So we know over time that EVA focus, that discipline, creates shareholder value.

Now you've got a lot of wild things that happened in the market. In the last couple of months, there have been all kinds of things that have gone on. I talked to one of our investors last night, and he said, "I never know what the right timing in the market is, but I know when stocks are cheap." And so you're going to see distortions from time to time because we're going to trade with the market. Given some of the indexes that we're in, we're going to move with the market. But we know, over time, if we continue to focus on EVA and increasing our returns, that it will be reflected in our stock price.

Now this discipline that we've had for the last decade or so that's created this value, that's not changing going forward. It's a pretty simple formula. We know who we are. There is a Clint Eastwood movie where he shoots some guy, and at the end he says, "A man's got to know his limitations." We know our limitations. We know what we're good at, we know how to do this. This isn't something new. And we're going to continue to focus on generating cash; allocating capital in a very prudent, disciplined way; growing EBIT through various projects and M&A activity; and always focus on returns in our business; and then do it again and again and again. And that discipline, going forward, we're confident, continues to improve our company.

Now this value creation model isn't that complicated. We look at -- one of our targets is long-term earnings per share growth of 10% to 15% over time. Buying back our stock is a pretty simple thing to do. That can generate 5% to 7% of our returns. And with the liquidity that we have and the cash flow that we generate, we're able to orient most of that free cash flow right now to buying back our stock. You heard the guys talk about their businesses and the opportunities they have to maximize value in their existing businesses, which also adds to that earnings per share growth. And then being disciplined with how we deploy future capital, whether it's through acquisitions or growth CapEx, we think, gets us to that 10% to 15% goal over time.

So our long-term financial goals remain intact. We want to continue to focus and grow our EBIT, always through -- everything we do is through an EVA filter, whether it's acquisitions, buying back our stock or various growth CapEx projects. We're always focused on free cash flow. We know that next to earnings per share, free cash flow is probably the next thing our investors look for. And we're going to continue significant share buyback, absent M&A activity. And right now, given the flexibility we have in our capital structure, which I'll talk about in a minute, we have a lot of opportunity or the ability, I should say, to orient most of our free cash flow to buying back our stock. And the focus is always returning that excess, that value to our shareholders.

So financially speaking, why invest in Ball? We have a strong balance sheet. We have a lot of liquidity. We have a modest amount of leverage, and over the last couple of years, Jeff Knobel, our Treasurer, I don't know if you've had a chance to meet him, he's done a great job of extending out our debt maturities. So we have nothing significant for the next several years. I think 2016 is our first debt maturity. We're also the -- we do our bank deal and increase a lot of flexibility in that structure. We upsized our revolver. We were able to add an accordion feature to that bank facility, which gives us access to a significant amount of capital. We've got over 40 banks that participate in that, so we're not wedded to any one financial institution. We were able to extend our AR securitization from what was an annually renewable deal into a 3-year term deal.

So all of those things give us a lot of flexibility going forward as we look at all kinds of opportunities. And as I discussed, we're going to continue to focus and generate strong free cash flow, be very disciplined in how we deploy that capital. And as I mentioned in the beginning, we have a management team that's completely aligned with what shareholders' interests are. So we think all of these things give us the potential and position us well to replicate the things that we've done in the past decade as we look forward to the next decade.

And with that, I'm going to turn it over to John to wrap things up, and then we'll come back and do some Q&A.

John A. Hayes

Thank you, Scott. Before, I just wanted to summarize some of the things that you all heard, and then I'd be happy to take additional questions from you all.

You heard the following nuggets, as Ray always likes to say when he gives the presentation. But you heard a lot about leadership, and you heard leadership of around the terms such as discipline and return focus, operational excellence and attention to detail. Talked about supply-and-demand balance, about global leverage and about managing risk. That is what we've done so well over the past number of years, and that's what we're going to strive to do over the next coming years, because that what's makes our company so successful.

Scott gave a good -- did a very good overview from a financial point of view of let's just keep this simple, because when you keep it simple, you take volatility and deviation out of a what you. And so what we're trying to do is keep it simple, and we're trying to keep it balanced. The capital allocation approach that we've had at Ball Corporation for so long has worked so well. And as Scott said, any given year, we don't have "1/3, 1/3, 1/3" target, it just happens that way. But the one thing we do know, that is when there's not internal growth opportunities and when there's not M&A opportunities that can generate returns in excess of our cost to capital, we can always buy back our stock. And that's why we've been buying back over $1 billion, I guess, for the last 18 months.

Those types of things require a lot of discipline and a lot of patience. But when they come up, we always have to be tenacious to get after it. And I think that, at its core, I talked about Drive for 10 being an attitude and being a mindset about perfection and getting after things. That's what you should expect to see at Ball Corporation going forward. You should expect us to see patience, a level of patience waiting for the right opportunities. When the opportunities come, you should expect us to be tenacious and get after that.

So what I'd ask, perhaps, is Ray and Dave Taylor, if you guys wouldn't mind coming up here. We'd be more than happy to take any additional questions about aerospace, the corporation or even the various packaging presidents remain here, so they can take questions as well.

Unknown Analyst

John, looking -- thinking about over the past 12 years or so since I've covered your stock. You've done a nice job with returns, a lot of it has been acquisition-related. Pricing has improved across the industry, very strong focus on productivity. And you've also managed CapEx more tightly. Going forward, as we've listened for the last couple of hours, the emerging markets are obviously an exciting place. There's different sort of grades of different emerging market, if you will. China is a little bit further long results, probably the furthest long, and India maybe is in its infancy. I guess the question is, how are you balancing your focus on returns while not necessarily turning down a project which may not meet your return threshold but may make a lot of sense strategically going forward?

John A. Hayes

Excellent question. The best way -- I just talked about keeping things simple. And one of the things that we know that has worked so well for us is having the discipline to prioritize. You can't do everything. You heard Gihan talk about the level of -- that we need to develop more the people over in Asia than we have relative in the United States and in Europe. It's those types of things that are limiting us. But one thing we do know, Paul, is when you try 10 things and get each 1 of them 50% right, it's not nearly as good as doing 5 things and doing them all correctly. And so you should expect that we're going to continue to be disciplined around those types of things and prioritize. The challenge becomes: what's short-term and what's long-term? And I think that's really what you're getting at. And that's a judgment call on a case-by-case basis. We always joke internally that whenever we have a discussion about a strategic investment, it's usually something we shouldn't do because that means you're not going to generate the returns, and so that really gets to the prioritization I was talking about. So yes, we have to be thinking about long term. That's what Drive for 10 is. It's looking out 10 years, as opposed to just a couple of years, but it's finding that balance at the same time.

Unknown Analyst

Okay. And just a question on aerospace for Dave Taylor. It's interesting that you broke out of the U.S. government portion versus rest of world opportunity. Maybe touch on rest of world. I think it's relatively new for you as a company. How are you positioning for that?

Dave Taylor

It's very new for us. We're actually sitting in the management meetings and we thought, well, my goodness, the rest of the company is around the world, maybe we should be. Not quite that naive, but -- everybody is very nervous of my sense of humor, I can tell this now. But look, we need other sources of revenue, and there are other sources of revenue around the world. It's -- Brazil is one of the leading aerospace countries in the world. No one knows that, unless you're Brazilian. China, it's difficult for us to work in China. China's growing. India's growing. What we're looking at is 70% of the aerospace, in the sense revenues from Great Britain, are exported. So our thought there is to enter the U.K. and then participate there. So -- and they don't have to be obviously synergistic from a capability or market standpoint. It's just another source of revenue that we can draw on, that we can use our skills in the aerospace and defense market sector. So we'll be getting that. It's by nowhere totally baked in, but we've started to do that and we plan to get -- be a global aerospace entity in the future.

John A. Hayes

And to just give a sense to what Dave is talking about. The Joint Strike Fighter, which we make all the antennas for, were subbed to the prime on that, but the ultimate source of funding isn't the U.S. government. It's a 9-country consortium that are being sold to many of the NATO countries over in Europe. And so that source of funding is one of the things that kind of opened our eyes up, are we tapping in as many places as we possibly could be.

Unknown Analyst

Yes, this is another question for Dave on the aerospace side. First of all, just with regard to the budget deficit reduction proposals in the U.S., are any of your aerospace programs impacted by that? Or are any kind of the market segments that you operate in impacted by any of these proposals? And then also, just back to the global growth of aerospace, how exactly do you kind of see yourselves being able to take advantage of that? Is it acquisitions or organically?

Dave Taylor

Yes, the budget thing, I mentioned this some at the break. We work the budget almost hourly. We have a fairly large Washington office presence. It does change dramatically in realtime. And I would tell you, if you're an aerospace and defense contractor, you have budget issues. You can't get away from that at the moment. Some of our programs are affected, some are not affected. But here's what I will tell you, and that is that, on the space sector side, the things that we do are capabilities that the nation needs. On the tour, I remember I mentioned we just delivered the NPOESS Preparatory Project satellite, NPP. That's a weather satellite. We need weather satellites, it's not like it's going to come and go. So that, together with the follow-on which is the Joint Polar Satellite System, the JPSS contract, we have to have that. So that stuff will continue. That's not at the whim of -- it may be funded a little more slowly, it may be funded quickly, but it will happen. In the national security space, we participate in missions that the nation has to continue. So it may be up, it may be down, but it will continue. On the information side, the other -- the third sector, it is growing. It is growing. If you look at where the federal funding monies are going and you follow the money, a lot of it, a lot of new money is being allocated into cyber information in that sector because of the current geopolitical situation that we're under. So I think, yes, we have issues, there'll be some noise in that. I can go out on a little limb. I don't foresee any big things being canceled at the moment. It could happen. I can't really see that far in the future. But at the moment, the things we do are needed by the nation. In the offshore thing we talked about, I think we will do, and John will, I think, support this, we plan to buy our way into offshore in terms of the market penetration in a large sense. We would do that obviously through M&A. And I mentioned the U.K. is an entrée portal that we're thinking about at the moment. We also do program-based things, project-based things. We're currently bidding on some systems in South Korea. We're currently in a down-select in the Middle East for a project. These are fairly large. And there -- I think it's the new opening up of the U.S. ability to participate offshore. These are the arms limitations fixtures that are in place. I think there's -- people have talked about it for many years. I think it's actually starting to happen in terms of the ability to sell stuff offshore.

Unknown Analyst

Two questions, one for you, Dave Taylor. As you think of that information segment, clearly that's been the fastest growing. It's kind of, I don't want to say come out of nowhere over the last decade here, but it's really expanded. Who do you view as your principal competition? And then I've got a follow-up for Scott.

Dave Taylor

It depends. What we do currently is basically predominant with the United States Air Force. So in terms of information extraction from data, competitors are people like Booz Allen, General Dynamics, Northrop Grumman, those kinds of companies. In the future, when we grow out the information cyber market, that landscape will change a bit as we acquire our way into the cyber domain. But currently, those are our major competitors that we talk about.

Unknown Analyst

Okay. And Scott, I appreciate that we have yet to report the back half of 2010. But I wanted just to get a feel, given all the discussion over the last 2 days about growth opportunities and expansion of can demand growing in different regions, what capital might look like in 2012 and then what that might mean directionally for free cash flow and such?

Scott C. Morrison

I think, even with these opportunities -- we've spent a lot of capital this year. And so if you look around the various businesses, we see capital dropping off pretty significantly, whether it's North American beverage will be down, we did the Serbia line in Europe, that will come down next year. Even a lot of the spend that we're doing in Brazil -- a lot of the growth that we're having in Brazil has been spent this year. And so we see spending coming down even with the growth plans that Gihan was talking about in Asia and food CapEx, as well, typically flat, as well as aerospace. So we see a fairly significant drop-off in CapEx. It probably doesn't get all the way down to depreciation, which will run in the low 300s, but we see it south of $400 million in terms of CapEx. And there's -- we haven't rolled out our plan yet for next year. We're in the process of doing that. There's a lot of puts and takes in working capital and different things, but free cash flow next year should approach -- should be in the range of $0.5 billion.

Unknown Analyst

I have a couple of questions for John. So the first one is, when I look at Brazil, the Brazilian bev can market, I see a real long-term growth and really solid returns, and there are only 3 companies that are fortunate enough to have a position in that market. What do you see as the barriers to entry in Brazil that would prevent a fourth or a fifth entrant in that market?

John A. Hayes

Well, actually, there is actually 4 competitors. There's a small, local one down there, it's a steel can manufacturer in the north of Brazil. But Brazil is not unique relative to other markets about relative competitiveness and creating opportunities for others. It's a classic example is we need to deliver and we need to exceed what our customers expect from us in terms of value, in terms of cost, in terms of service, in terms of quality because you do those things right, and they have no need to talk to anyone else. And so we're -- I can't comment on anyone other than what we're doing and that we remain squarely focused on make sure, our customers, the first call they ever think about is Ball Corporation.

Unknown Analyst

Helpful. And the second question is -- as I look at your Packaging business, you have a very strong global franchise in different types of metal packaging. Longer term, do you see yourself potentially getting into any other types of packaging substrates outside of metal?

John A. Hayes

I think in long-term world debt, I guess, so -- but the truth of the matter is we have more opportunities in terms of metal packaging, what we're doing right now, and hopefully, you all got a flavor for them. But there's not a strong desire to actively jump at something that we don't know nearly as much about what we're doing today. If you think about the leverage that we talked about and think about the customer focus and broadening geographic reach and technology and all those things that you've heard about, that's what makes us so good. And we have more opportunities than we have resources right now. So never say never in the future, but that's certainly -- we've had discussions on this whole Drive for 10, about what that means 10 years out. But certainly, we have more opportunities now than we have resources to effect upon. Yes?

Unknown Analyst

Can you remind us what your definition of invested capital or net operating assets is for your EVA framework and whether that impacts your preference for buybacks over, say, dividends? There hasn't been a lot of talk of dividends today. Just wondering how you think of that. And then maybe secondly, as more of your invested capital base moves into the emerging markets, will that in any way change sort of the 9% threshold, given that you guys do use a higher number for some of those markets?

Scott C. Morrison

We don't have -- in terms of share buyback, we do look at how we're priced and how we think we should perform. And we do look at dividends, too, from time to time. We tend to not tweak our dividend frequently. We look really to level the free cash flow that we generate, and when we hit new levels, we modify the dividend. And so with growing free cash flow, that's something we look at all the time and say, what's the right thing to do and what the right timing is for something like that. In terms of invested capital in other parts of the world, we do have different hurdle rates. 9% is our kind of our corporate rate and for a lot of the more developed world. But we do use higher return thresholds in different parts. So we take risk into account, country risk. Although there's a debate now as to what the appropriate country risk is in the United States, so we do take that into account when we look at those projects.

Unknown Analyst

[indiscernible]

Scott C. Morrison

Yes. Will that base shift as we move more and more outside the 9% target, which is what we're in, in the U.S. and Europe? Over time, over a long period of time, I mean, if you look at the capital that we're going to deploy over the next handful of years, it doesn't move it that meaningfully. But if you look over the next 10 years, it does, and it could change the risk profile a little bit.

Unknown Analyst

John, I'm curious. We started getting hints last night about the Drive for 10. And before seeing sort of the whole thing unfold, I had a feeling that there was going to be some financial metrics behind it, whether it was $10 billion of revenue or $10 of EPS or maybe 10 million shares outstanding. Is there a reason that you haven't married this sort of rally and cry of operations with those, whatever they are, but those kind of financial metrics and sort of bring the 2 together as an overriding directive for the company?

John A. Hayes

You all say what you do and then do what you say. We have those. We have chosen not to disclose them publicly right now. We're still in the development phase on some of these things, and so until we're locked and loaded, we just thought it wasn't prudent to talk to the external world without a specific game plan around those. But yes, we do have targets around that.

Unknown Analyst

And then just a couple other questions. One is, when you look at your geographic operations, one thing that jumps out at me is, it's, I guess, unique amongst many companies, that you really have sort of individual business lines unique to each country. By that, I mean you make food cans in Argentina and no beverage cans; Brazil, beverage cans, no food cans; China, and so on and so forth. So you really haven't leveraged across the divisions the geographic presence you have. And it looks as though, maybe in some cases, there are unique reasons why not. Is there a need to overcome that? Is there an acceleration of returns by doing that, that other companies certainly are able to leverage? And I didn't hear anything specific about that, but it seems as though sort of doing 2 and 3 lines of business operations in the same country would be beneficial. Is that in the offing?

John A. Hayes

It very well could be. In fact, that's one of the reasons why we had the 5 packaging presidents up here. And you talk -- we heard about aluminum impact extruded, so that is a good example. Each of the businesses in which we compete in is a bit different. The food cans is a bit more regional. And think about our customer base here in North America, those customers don't have international operations. So when you think about what you're leveraging there, you're really leveraging more of the manufacturing know-how, and you have less levers to pull. But your points a good one, and that's exactly what we're trying -- we're thinking about as part of this Drive for 10. And I think Gihan said it best: He said you're talking to one body here. We're all partners in this. And to have that partnership mentality, how we can make 1 and 1 equal or greater than 2, that's what we're certainly about.

Unknown Analyst

And then, Ray, you've talked, and the others as well, about the superior economics when you go from 1 line to 2 and 3 versus the greenfield. Could you just give us, it doesn't have to be dollars and cents, but that progression of invested capital, return on capital when you build the first line and then how much of a difference adding a second or a third line to that existing asset does in terms of accelerating the returns and the return on capital?

Raymond J. Seabrook

Yes, the math is relatively straightforward. I mean, you basically -- when you put the second line in, you have no fixed. And so you just really got -- the only fixed you get is the cost of the line. But fundamentally, is the building and all the infrastructure that goes around that second line is already in place. So when we think about our cost structure, you think the metal is somewhere 70%, and the rest of it, the rest of the number, is fixed. So other than the cost of the line, the rest of it's free. So it's a lot more profitable, the second line, than the first.

Unknown Analyst

[indiscernible] for further [indiscernible] a 12% capital for line 1, do you get a 24% capital for line 2?.

Raymond J. Seabrook

Yes, the question was the return on capital of the second line versus the first. I would say, a rule of thumb, it's doubled. So if it's 12, it's 24, yes.

Unknown Analyst

Yes, we've talked a lot about the growth in the global beverage can markets today. But on Slide 21, John, you also talked about balancing mix to be more evenly distributed between beverage and consumer products companies. Can you elaborate on how you're thinking about that more broadly, perhaps from a geographic standpoint or a product standpoint? Are the returns on the consumer products side of the business as strong as what you're seeing on the beverage side today? And if so, over what time frame are you guys thinking about this rebalancing? Should we look at that literally and think that 5, 10 years from now it will be much more even?

John A. Hayes

Yes. I think that the context of that slide was really to talk more about the global nature of fast-moving consumer goods companies. And historically, we had been really focused on the beverage, ergo the Coca-Cola, the Pepsi Colas, the ABIs, the SABMillers, the Heinekens, et cetera. They really have global presences, and we do quite well with that. As we got into the Aerosol business with U.S. Can back in 2007, it opened our eyes to that there's a whole another group of customers that we, up until that point, hadn't done much business with. We didn't -- we tried to do some businesses, but we didn't have the right products. But aerosol opened our mind that these too think very globally as well. And so how can we replicate some of the things we've done on the beverage side into other areas? And I think that's the main purpose of that. I don't -- I wouldn't take it literally, to do it. What it says is that we have a wealth of opportunity with some customers that historically Ball hadn't done business with, that we're finding more opportunity with on a regional and a global basis.

Unknown Analyst

Relative return profile [indiscernible]?

John A. Hayes

Relative return profile of beverage can business versus other businesses? It's much like you heard earlier. It varies by region, it varies by your strategy by region. It's the -- I don't think there's an enormous difference in terms of return on capital, at least on behalf of the question, gets into the growth profile thereafter because, when you have greater growth from the same amount of capital, you're going to be generating higher returns, by definition of that. And so we always have that benchmark, as we said. The first benchmark is buying back our stock. The next one is knowing what we can do in the existing businesses we have and then in some of these more adjacent things we've gotten into more recently, we find that the returns on capital risk adjusted, and the levers we can pull as a result are attractive for us.

Unknown Analyst

Two questions, one for Dave and then one for John, Scott and Ray. Dave, you mentioned something to the effect of alternative funding sources for sustaining the growth of aerospace over time. If you could provide a little bit more detail around what you meant by that, I'd appreciate it.

Dave Taylor

Sure. Well, the government is struggling in how to acquire space systems. They've talked about acquisition reform for many, many years. But now with the physical constraints, we think there's a market by which we can maybe aid the government in acquiring -- maybe we buy the systems for them because we know how to do that. Maybe we -- DigitalGlobe and -- is a very good success story on, you don't sell the customers space systems, you sell them data. Maybe there are markets within which we would rather -- we'll field our own system and we'll sell data to the customers, not hardware. Different market, we know how to do that. There are different funding sources that I can't go into right now, but there are private funding sources to fund new ventures that are not government-backed. And those may supplant the current missions that the government have in terms of supporting the nation. It's a little vague, I'm sorry, but that is because...

Unknown Analyst

I understood why it has to be. And the question for John, Scott and Ray. If I do some preliminary math on the 30 new beverage can lines over the next 10 years, roughly it would come out to something approaching $2 billion, adjust that number as you might, realizing it's over 10 years. One, how should we -- and you're ultimately going to follow your customers. How should we think about that amount of capital being deployed over time, ratably? Do you see a real period in the middle of that 10-year period where you'll see it funded? And how much can you fund from your existing assets to take a bite out of the on-paper $2 billion?

John A. Hayes

Let me take the first crack at that. Anything we tell you is not going to be correct because of the lumpiness of that. But let's take a step back and think what we heard. We do -- in the U.S. market, for example, the most developed market in the world, we've been getting more out of less. And so we still -- as time goes on, if that trend continues in terms of what's going on in the marketplace, we're going to have the opportunity to redeploy assets. And that's the best value proposition we can provide, so we're very much focused on that. Looking out over that 10-year horizon, is it going to be the 30 lines that was referenced? Is it going to be 20, is it going to be 40? It's premature. I don't think it's going to be ratably. I think you're going to see some acceleration and pause, acceleration and pause. And so how to model that, I don't know. Scott, if you have a point of view? Or Ray?

Scott C. Morrison

Well, it comes in chunks, so when we build a new plant, that's obviously a big throw. But when we build the box big enough to put multiple lines in. So use Brazil as an example, we built the Três Rios plant, and soon thereafter, we put the second line in. That's a lot less capital than the first one. We're doing the same thing in Alagoinhas where we're going to build a plant big enough to utilize, to accommodate more lines later on. So it comes in chunks then it drops down, and you're getting incremental returns and better returns than on that future capital. But how it comes, believe it or not, we do have a chart, 10 years and none of it will be right. It's all going to move around.

John A. Hayes

But yes, to Scott's point, he mentioned our plant announcement today. We've been working on it obviously, if it's going to be up and running by at the end of '11. We've been working on it for a while, that one should presume we did not build that for a one-line facility.

Raymond J. Seabrook

Yes, the only comment I have, George, is, as the Chief Operating Officer, I tend not to look 10 years out anymore. I'm kind of here and now. And so we set that up for you to kind of give you the dynamics, the dynamics there. How it's going to pan out exactly, nobody knows. I just know, out in front of us, we're opportunity-rich. We're just trying to sort through all that and pick the best ones for us. So I can tell you, in the foreseeable future, 1 to 2 years out, if we're opportunity-rich. How that pans out over a longer period of time, it's hard for me to predict that. But we sit here today, we have more opportunities than I've seen in a long time.

Unknown Analyst

My first question for John and Ray, perhaps. The aluminum aerosol business has been a great add for you guys, arguably a less competitive business and a business where you have more of a competitive advantage. Now what are some of the things that you guys are going to do going forward to target that market? And why aren't you targeting it more aggressively? And a second question, perhaps for Scott. Just want to get a sense of what the impact we be for pension expense, your cash contribution for next year. There's certainly a lot of moving pieces, I just want to get a sense what the sensitivity are.

Raymond J. Seabrook

So the first question on aerosol. Well, Mike alluded to -- Mike Feldser, who runs the tinplate aerosol business for us, he talked about we do have some innovation. Some of the capital spending that he's been doing this year, he spent in the neighborhood of $30 million of CapEx this year. I would say that most of that -- part of that $30 million has been on the aerosol side, as opposed on the food side. So we have been doing some stuff with tinplate aerosol. The business is flat to slightly up. We've got some new presses that we're putting in our facilities to lower our cost, so we are doing something on that side. And the other thing that maybe is not plainly obvious but this extrude aluminum, this is aerosol. A business that we talked about, Ball Aerocan, it's an aerosol business. I mean, fundamentally, it's -- most of what they're selling is aerosol. They just happen to be in aluminum. So we believe we are doing -- expanding aerosol. We believe that, that's what we're doing.

John A. Hayes

Yes, on the aluminum aerosol, specifically, the -- you said it's perhaps less competitive. I don't think it's less competitive. I think we have a lot to bring in terms of the leverage we talked about. We know how to deal with multinational companies. We know how to deal with the sourcing of aluminum on that and all the risk associated with aluminum. We know how to make a D&I can, perhaps as well if not better than anyone out there. And those types of skill sets relative to the competition give us some advantages that we're going to try and take advantage of.

Scott C. Morrison

And on the pension expense side. We see our pension expense next year going up modestly. Right now, maybe it's kind of dependent on where year-end discount rates are at, but probably in the neighborhood of $5 million from the expense standpoint. From a funding standpoint, we're not funding much this year, and so our funding will go up next year. And it was kind of in when I said, we're rolling up our plan for 2012, there's a lot of moving pieces on the working capital side. I was taking into account the increased pension funding to get to that $0.5 billion of free cash flow number. But one of the things we've done over the last number of years is really taken risk out of our -- how we manage our pension plan. So if you were to look at our asset allocation back in 2003, we would have had a more traditional 70-30 split of equities to fixed income. And now we're more than 1/2 in fixed income or fixed income-like investments. So we have much less equity exposure, much less swing in our pension expense from year-to-year. So we've -- that's another area where we've really focused on taking risk out of the company and taking less volatility.

Unknown Analyst

John, one of your big competitors has been talking a lot more about cash and returns for the last 18 months to 2 years, essentially the things that Ball has been talking about and executing forever. Are you seeing a visible change in the marketplace and trading competitive activity so forth as you've seen this change, at least in rhetoric, in terms of how this other player is approaching returns in overall market discipline?

John A. Hayes

It's only -- I can only comment on what we're doing and what we're seeing in the marketplace. And it's a competitive marketplace out there and we're just trying to control all the things we possibly can control. As historians, if you will, of the packaging world, and that's really what you're getting to. And I think all of us, with the exception of Dave, but you've become a historian as well, the -- we know what it takes to generate money and generate returns in this business and, like I said, getting more out of less. We're a fixed-cost business. You have to understand who you are. And when you're a fixed-cost business, the more you can get out of with less investment, the better off you're going to be. So if that translates into return on investments, obviously it does, that's what worked for Ball so well for so long, and we're going to continue to do that.

Unknown Analyst

Yes. There's been a lot of talk about innovation over the last couple of days, and all the products seem really neat, and it's nice to see a lot of pictures and physically see some of the product in hand. But how do you measure that internally, the innovation? And do you have targets for innovation going forward such that you sort of incentivize innovation amongst your company?

John A. Hayes

Well, the last question first about incentives around innovation. No, we don't. Not in the way you're thinking about it because we have a philosophy that, "all for one, one for all." And the reason why I say that is because, if you're not careful, then you're going to start incentivizing manufacturing efficiency. And then you're going to start incentivizing talent development, and pretty sure -- pretty soon, you have incentives that are all over the place that are not aligned with one another. So we keep it all for one, one for all. And we reward people on promotion and things like that, that deliver it. It's up to all of us that you saw that deliver those innovations. And we do -- innovation is sometimes a difficult thing to target, but in terms of -- and you heard Michael talk about the water market and you heard him talk about the beer market. We do have targets about what we want to do there. That's low-hanging fruit, there's really no investment in there because that's a new market, but that is innovation as well, to think about the craft market and having upwards of 0.5 billion cans and 5 years ago having nothing. That is -- that brings value to our company right here, right now. Some of the longer-term things, always, as Gerrit said, always go through the EVA filter. So when you talk about the resealable can that we had in Europe, that went through the EVA filter. You talk about Alumi-Tek here in North America, that went through the EVA filter as well. And so you see that EVA filter is tied directly to our incentive systems, and so we're all aligned to get those things done but only if they're profitable.

Unknown Analyst

And then just longer term, you've got -- a lot of the innovations are obviously coming from the developed markets: North America and Europe. Do you foresee a future where you're seeing more innovations come from the emerging markets? You don't have any technology centered on the map in the developing markets right now, but do you foresee a future around that, where the innovation goes the other direction as well?

John A. Hayes

Yes, you could. I think it aligns a little bit with what Scott was saying. Long term, you can -- you have to follow the trends in where it is. Brazil's a good example, Colin was mentioning to this. Typically, what you see in a market such as that is as it's growing, and China is a good example. You don't see a lot of proliferation of sizes. Brazil, to an extent, changed that paradigm. There's more sleek cans out there and, I'm thinking, probably -- I'm hesitating, close to any other market. Europe might be a little bit further ahead. But my point remains the same. We saw the proliferation of sizes occur sooner in the maturation of that market than you did, whether it was here in North America or in Western Europe. And so we're trying to be -- to create flexibility in what we're doing to accommodate those things because, if you're on the front edge of those things, it can be profitable for you because, as Gihan was saying, not only are you going out to the customers, but it creates a closed-loop system where they're coming back to you for the next new idea. And so we are seeing that the speed of the maturation of the markets, and it is increasing a little bit. Ray, do you have anything else to add?

Raymond J. Seabrook

The only I would tell you is, yes, we do measure innovation. At the end of the exercise, we have these 2 facilities that do innovation and they cost money. So we -- I say to these guys is, "What the hell am I getting for my money?" So I get a report that says what's -- of our EBIT we're generating these businesses, how much has come from innovation that we've put in the market in the last 5 years. And we look at it and we make sure we're getting our money's worth out of the innovation centers, so we do look at that.

Unknown Analyst

Yes, my question -- by the way, given a great road map for us for the next 10 years. But we're still ignoring -- the last 3 months, we've seen a lot of convulsions in the market. And as you look at, I guess, 3 elements of your plan going into next year, has anything changed, whether it's -- maybe, Scott, give us a little more granularity on the pension. Do you feel you may have to increase materially the contributions or not at all with the lower long-term rates? And then we've also seen the dollar go up and also the cold, I guess, winter in Brazil and the cool summer in Europe. Do you feel any or all of these events are important enough to or meaningful enough to impact how you are planning for next year versus maybe what you thought 3 or 4 months ago?

John A. Hayes

Do you want to take that first?

Scott C. Morrison

No, the pension funding is something that we saw. We have very little pension funding this year, so our expense is much higher than our pension funding. We knew that coming into this year, we knew it going into next year. So the funding might change a bit from what we had originally planned just because, given where discount rates are at but not materially. Not that's it's going to change any of our larger strategic things that we're doing. And when I mentioned there's a whole bunch of moving parts in terms of working capital and cash taxes and all kinds of things that move around, but none of those right now look to be changing anything that we we're doing from a fundamental or strategic standpoint. There was another part of the pension.

Unknown Analyst

No, no, the currency.

Scott C. Morrison

Oh, currency, yes. In currency there will be -- if currency stays where it is, it will clearly be a bit of a headwind next year. But again, not a meaningful change in the direction of what we're trying to do with the businesses.

John A. Hayes

Yes. As Scott mentioned earlier, that we don't have a lot of noise in our system. And so what today's environment requires is agility and the ability to make decisions quickly and react quickly. And I think the management team, hopefully you saw, we're all on the same page. And it makes it that much easier when you have issues. And there are some things that we haven't talked about today that, a couple months, we're on the schedule and aren't anymore because of the flexibility that we had to do. And so being able to deal with things in realtime and not waiting 2 or 3 weeks or waiting for a certain event to occur or something else, for someone else to be in the office, those things are real important to us. And so we're trying to -- not only trying, we have an environment where we can make decisions quickly and all be aligned behind those.

Unknown Analyst

Yes, John, on capital allocation. Acquisitions, you've had some great ones and some big ones over time. You had that great chart, it's been about 1/3 of the capital allocation. But as we look going forward and understanding they're going to be lumpy. But given the consolidation that we've seen in the metal markets and the developed end markets and then to your size, can acquisition be as big of a piece to capital allocation as it has been over the last 5 years? Or do we need to slant more towards share repurchases than what we've seen?

John A. Hayes

That's a good question. And the reality is we've created a ton of value over the last decade, actually, in terms of acquisition, even starting in '98 with Reynolds and then getting into Schmalbach, et cetera. It's a law of big numbers and also a law of opportunities that, given that we're such a larger company today, M&A is still going to play an important part. Will it play as a critical part as it did going forward or as it did in the past? I'm not sure it will just because of law of large numbers, but it's still going to be very important as we go forward. And there's still a lot of opportunities there, it's just we're much bigger now. So by definition, it'd be harder to move the needle, all things being equal. But it's certainly on our radar screen, and I think our philosophy behind them hasn't changed. And there's opportunity sets that come up all the time around the world that we're constantly looking at.

Scott C. Morrison

But that's why I put -- one of my bullets was "absent significant M&A." Much of that free cash flow goes to buyback of stock.

Unknown Analyst

And a follow-up to that, John, given the emerging market and the inflection we're seeing, does the growth CapEx, does the opportunity for growth CapEx in emerging markets offset the -- a lot of opportunities that's kind of on the acquisition side as far as capital allocation goes?

John A. Hayes

Yes, I think there's a bit of that. And so if you think about just capital allocation, and Scott mentioned it's kind of been 1/3, 1/3, 1/3: internal growth, M&A, share repurchase. Will that change over time? On the margin, but we still think there's opportunity to do all those things. And so what you're hearing today is we have a lot internal opportunities that, to Ray's point, over the past decade, we didn't have as many opportunities on those as we do as we sit here today, looking forward.

Unknown Analyst

I have a couple questions, the first one is for John and Dave. I wanted to get back to the Aerospace business. I think, based on what you said today, you are open to doing M&A in aerospace. And then I wanted to see, without necessarily pinning you down, if you can give us a sense for the type of size or the range of sizes that you would be comfortable with in terms of any M&A deal in aerospace. And then just a follow-on to that, we do have a great track record of being able to see how prudent you've been in terms of the multiples you've paid for packaging assets that you've acquired. Can you talk about how you think about what the right multiple is for a potential aerospace acquisition?

Dave Taylor

I'm really glad you asked John that question.

John A. Hayes

Thank you, Dave. First, in terms of size, let's not go crazy here. What you really heard Dave talk about was small, bolt-on acquisition that give us entrée into new markets and other things. So I would not expect you to assume that we're going to do something on the very large order there. And so -- but I just want to calibrate everyone's thinking around that. In terms of the multiples paid, the aerospace cyclicality is it comes and it goes, much like many other industries, and right now, it's at a low point. And there's probably some more opportunities on a relative sense that would not have been attractive a couple years ago. You haven't seen us acquire into aerospace yet because we haven't found anything that, on a return-adjusted basis, made some sense. But that doesn't mean there's things out there, and that doesn't mean we aren't looking real hard. But the opportunity is to create 1 and 1 equals greater than 2. And on the various packaging businesses, you can look at plant consolidations, you can look at traditional cost-out synergies. On the Aerospace business, you don't have that, so it's really the revenue plus synergies. And so if you did something on the information side that got you into a new customer base, would you have an ability to sell hardware and invent a new customer base? That's a revenue synergy. Sometimes, they're softer to get your arms around, and that's one of the challenges that we face. But we're -- so the challenge we always push ourselves with is, are we sure we can deliver on the numbers we're putting on a piece of paper? And that is no different than any of our other businesses.

Dave Taylor

I might add to that, that you haven't seen us acquire a, one -- because of what John talked about, but we've done internal investments. Those are on a 2-year phase. You saw the investment we've made in capital infrastructure because we needed that. So it's much cheaper to do it with your own CapEx dollars than it is to hang up stuff on the balance sheet. So we haven't had to do that, and we've had, I think, very, very good growth with the excellent EVA return. I mean, we look at that all the time, as these guys said. So the multiples is an issue, we have to get our way through that knothole, but we haven't had to. And we don't have to, going forward, either. So we would do it as it's prudent and it fits the model.

Unknown Analyst

I just had a question on the Chinese bev can market. The competitive landscape is a lot more fragmented there relative to other parts of the world. But as you think longer-term about that market 10 to 15 years out, do you think the competitive landscape in China could look similar to what we now have in North America and Europe? Or are there structural impediments that would prevent that from happening?

Dave Taylor

Do you want to take that, Ray?

Raymond J. Seabrook

Well, it's real simple. As markets mature, they consolidate. And so that -- I can't tell you when, but that will happen. Gihan talked about a lot of these are Chinese companies and they don't necessarily look at returns and things exactly the same way we do. But fundamentally, as that market matures, whenever that is, that it'll start to consolidate.

John A. Hayes

Okay, I think that is it. We certainly appreciate you all coming and certainly appreciate the people on the Internet listening in. I think the tour for Golden is going to be here. But again, we really do appreciate you all coming out to Colorado and hearing the story, and we'd be happy to take any follow-up questions as we ride out to Golden. Thank you very much.

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Source: Ball Corporation - Special Call

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