Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
January 29, 2008
Date of Report
Date of Report
AVERY DENNISON CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 1 -7685 | 95-1492269 | ||
| (State or other jurisdiction | (Commission | (IRS Employer | ||
| of incorporation) | File Number) | Identification No.) | ||
| 150 North Orange Grove Boulevard | ||
| Pasadena, California | 91103 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (626) 304-2000
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
TABLE OF CONTENTS
| Item 2.02 Results of Operations and Financial Condition | ||||||||
| Item 9.01 Financial Statements and Exhibits | ||||||||
| SIGNATURES | ||||||||
| EXHIBIT LIST | ||||||||
| EXHIBIT 99.1 | ||||||||
| EXHIBIT 99.2 | ||||||||
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Section 2 — Financial Information
Item 2.02 Results of Operations and Financial Condition.
Avery
Dennison Corporation’s news release dated January 29, 2008, regarding its preliminary,
unaudited financial results for the fourth quarter of 2007, along with earnings guidance for the
2008 fiscal year, is attached hereto as Exhibit 99.1. This information is being furnished (not
filed) under this Form 8-K. Additionally, the Company will discuss its preliminary financial
results during a webcast and teleconference call today at 2:00 p.m. (EDT). To access the webcast
and teleconference call, please go to the Company’s Web site at
http://www.investors.averydennison.com.
Avery
Dennison Corporation’s presentation dated January 29, 2008, regarding its preliminary
financial review and analysis for the fourth quarter of 2007, along
with earnings guidance for 2008 fiscal year, is attached hereto as Exhibit 99.2.
This information is being furnished (not filed) under this Form 8-K. Additionally, this information
is available on the Company’s Web site at http://www.investors.averydennison.com.
Section 9 — Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits
99.1
|
On January 29, 2008, Avery Dennison Corporation issued a news release announcing its preliminary, unaudited financial results for the fourth quarter ending December 29, 2007, along with earnings guidance for the 2008 fiscal year. | |
99.2
|
On January 29, 2008, Avery Dennison Corporation provided a presentation regarding its preliminary financial review and analysis for the fourth quarter ending December 29, 2007, along with earnings guidance for the 2008 fiscal year. |
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Certain
statements contained in this report on Form 8-K and in Exhibit 99.1 and Exhibit 99.2 are
“forward-looking statements” intended to qualify for the safe harbor from liability established by
the Private Securities Litigation Reform Act of 1995. Such forward-looking statements and
financial or other business targets are subject to certain risks and uncertainties. Actual results
and trends may differ materially from historical or expected results depending on a variety of
factors, including but not limited to risks and uncertainties relating to investment in development
activities and new production facilities; fluctuations in cost and availability of raw materials;
ability of the Company to achieve and sustain targeted cost reductions, including synergies
expected from the integration of the Paxar business in the time and at the cost anticipated;
ability of the Company to generate sustained productivity improvement; successful integration of
acquisitions; successful implementation of new manufacturing technologies and installation of
manufacturing equipment; the financial condition and inventory strategies of customers; customer
and supplier concentrations; changes in customer order patterns; loss of significant contract(s) or
customer(s); timely development and market acceptance of new products; fluctuations in demand
affecting sales to customers; impact of competitive products and pricing; selling prices; business
mix shift; credit risks; ability of the Company to obtain adequate financing arrangements;
fluctuations in interest rates; fluctuations in pension, insurance and employee benefit costs;
impact of legal proceedings, including the Australian Competition and Consumer Commission
investigation into industry competitive practices, and any related proceedings or lawsuits
pertaining to this investigation or to the subject matter thereof or of the concluded
investigations by the U.S. Department of Justice (“DOJ”), the European Commission, and the Canadian
Department of Justice (including purported class actions seeking treble damages for alleged
unlawful competitive practices, which were filed after the announcement of the DOJ investigation),
as well as the impact of potential violations of the U.S. Foreign Corrupt Practices Act based on
issues in China; changes in governmental regulations; changes in political conditions; fluctuations
in foreign currency exchange rates and other risks associated with
foreign operations; worldwide and local economic conditions; impact of epidemiological events on
the economy and the Company’s customers and suppliers; acts of war, terrorism, natural disasters;
and other factors.
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The Company believes that the most significant risk factors that could affect its ability to
achieve its stated financial expectations in the near-term include (1) the impact of economic
conditions on underlying demand for the Company’s products; (2) the degree to which higher raw
material and energy-related costs can be passed on to customers through selling price increases,
without a significant loss of volume; (3) the impact of competitors’ actions, including pricing,
expansion in key markets, and product offerings; (4) potential adverse developments in legal
proceedings and/or investigations regarding competitive activities, including possible fines,
penalties, judgments or settlements; and (5) the ability of the Company to achieve and sustain
targeted cost reductions, including expected synergies associated with the Paxar acquisition.
For a more detailed discussion of these and other factors, see Part I, Item 1A. “Risk Factors” and
Part II, Item 7. “Management’s Discussion and Analysis of Results of Operations and Financial
Condition” in the Company’s Form 10-K, filed on February 28, 2007. The forward-looking statements
included in this Form 8-K are made only as of the date of this Form 8-K, and the Company undertakes
no obligation to update the forward-looking statements to reflect subsequent events or
circumstances.
The financial information presented in the news release, included as an Exhibit to this Current
Report, represents preliminary, unaudited financial results.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AVERY DENNISON CORPORATION | ||||||||||
Date: January 29, 2008 |
||||||||||
| By: | /s/ Daniel R. O’Bryant | |||||||||
| Name: | Daniel R. O’Bryant | |||||||||
| Title: | Executive Vice President, Finance | |||||||||
| and Chief Financial Officer | ||||||||||
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EXHIBIT LIST
| Exhibit No. | Description | |
99.1
|
News release dated January 29, 2008. | |
99.2
|
Presentation dated January 29, 2008. |
Exhibit 99.1
AVERY DENNISON REPORTS
4th QUARTER AND YEAR-END 2007 EARNINGS
4th QUARTER AND YEAR-END 2007 EARNINGS
| • | Reported net income per share of $0.81 for the fourth quarter, down from $1.04 per share last year, due to integration costs and interest expense related to the $1.3 billion acquisition of Paxar and other restructuring charges |
| Ø | Adjusted earnings per share of $1.08, excluding the impact of restructuring and asset impairment charges and transition costs related to the Paxar integration. |
| • | Net sales increased approximately 21 percent to $1.71 billion |
| Ø | Sales before the impact of the Paxar acquisition and foreign currency translation declined approximately 1 percent |
| • | On track to achieve estimated $115 to $125 million of annual cost synergies from Paxar integration by end of 2009 |
PASADENA, Calif. — January 29, 2008 — Avery Dennison Corporation (NYSE:AVY) today reported
net income of $79.4 million or $0.81 per share, compared with $104.7 million or $1.04 per share in
the prior year. Results included restructuring and asset impairment charges, transition costs
associated with the integration of Paxar, and other items, totaling $0.27 and $0.05 in the fourth
quarters of 2007 and 2006, respectively. (See Attachment A-3: “Preliminary Reconciliation of GAAP
to Non-GAAP Measures”.)
Net sales from continuing operations for the fourth quarter were $1.71 billion, up
approximately 21 percent from $1.41 billion for the same quarter last year. Sales before the impact
of the Paxar acquisition and foreign currency translation were down approximately 1 percent from
the prior year.
The Company reported net income of $303.5 million or $3.07 per share for the full year 2007,
compared with $373.2 million or $3.72 per share in the prior year. Results included restructuring
and asset impairment charges, transition costs associated with the integration of Paxar, and other
items, totaling $0.84 per share in 2007 and $0.12 per share in the prior year. Net sales were $6.31
billion in 2007, compared to $5.58 billion in the previous year. (See Attachment A-3: “Preliminary
Reconciliation of GAAP to Non-GAAP Measures”.)
In the fourth quarter of 2007, Avery Dennison changed from the last-in, first- out (LIFO)
inventory accounting method to the first-in, first-out (FIFO) method for certain businesses
operating in the U.S. All the Company’s businesses now utilize the FIFO method of accounting for
inventory. All results have been presented on a FIFO basis as if the accounting change occurred as
of January 1, 2006.
“2007 was a challenging year as U.S. retail markets slowed and market conditions for our
pressure-sensitive materials business weakened, causing us to miss our revenue growth and profit
objectives for the year,” said Dean A. Scarborough, president and chief executive officer of Avery
Dennison. ”We took a number of actions to mitigate the effects of weaker market conditions,
including accelerating productivity programs and reducing expenses.”
“I am pleased with the Paxar acquisition, which positions us as the clear leader in the global
retail information services market,” he added. “The integration of Paxar with our Retail
Information Services Group has been virtually seamless to our customers and is on track to realize
annual cost synergies of nearly $125 million by the end of 2009.”
“We continue to achieve solid results in the emerging markets, particularly in China and India
where we have expanded our capacity with several new manufacturing facilities,” Scarborough said.
“Our radio frequency identification business is gaining traction with the number of inlays sold in
2007 nearly tripling from the previous year. Buoyed by Paxar’s RFID business, we expect sales of
RFID products to reach $50 million in 2008.”
Additional Fourth Quarter Financial Highlights
(For a more detailed presentation of the Company’s results for the quarter, see Fourth Quarter 2007 Financial Review and Analysis, posted at the Company’s Web site at www.investors.averydennison.com.)
(For a more detailed presentation of the Company’s results for the quarter, see Fourth Quarter 2007 Financial Review and Analysis, posted at the Company’s Web site at www.investors.averydennison.com.)
| • | Operating margin (GAAP basis) was 5.7 percent, compared to 8.1 percent for the same period last year. Excluding interest expense, the effect of transition costs associated with the Paxar integration, restructuring and asset impairment charges, and other items, operating margin was 9.6 percent, compared to 9.4 percent for the previous year. (See Attachment A-3: “Preliminary Reconciliation of GAAP to Non-GAAP Measures”.) | ||
| • | The effective tax rate for the quarter and full year 2007 was approximately 19 percent, in line with the Company’s guidance. |
Segment Highlights
(See Attachment A-4: “Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information” for adjusted operating margins included below.)
(See Attachment A-4: “Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information” for adjusted operating margins included below.)
| • | Pressure-sensitive Materials reported sales of $890 million, up 9 percent from the prior year. Organic sales growth for the segment was approximately 2 percent, reflecting soft market conditions in North America and Europe. | ||
| Segment operating margin (GAAP basis) was 8.9 percent, compared to 9.1 percent for the same period last year. Before restructuring and asset impairment charges, and other items, operating margin declined 40 basis points to 9 percent. | |||
| • | Retail Information Services sales grew 144 percent to $411 million, or about 1 percent before the benefits from the Paxar acquisition and currency translation. Growth of the core business continued to be slow due to the decline in orders for apparel shipped to North American retailers and brand owners, reflecting a weak domestic retail environment. | ||
| Segment operating margin (GAAP basis) was 0.5 percent, compared to 5.7 percent for the same period last year. Before restructuring and asset impairment charges, transition costs associated with the Paxar integration, and other items, operating margin was 6.8 percent. | |||
| • | Office and Consumer Products sales declined 5 percent to $272 million. Organic sales decline for the segment was approximately 8 percent, due to customer inventory reductions. | ||
| Segment operating margin (GAAP basis) was 20.6 percent, unchanged from the prior year. Before restructuring and asset impairment charges, and other items, operating margin was 21.9 percent, compared to 19.9 percent for the same period last year. |
Outlook for the Year
Avery Dennison announced that it expects reported (GAAP) earnings for 2008 to be in the range
of $3.80 to $4.20 per share, including an estimated $0.35 per share in restructuring and asset
impairment charges and Paxar integration costs. These charges and costs are subject to revision, as
plans have not been finalized. Excluding these items, the Company expects full year earnings per
share for 2008 to be in the range of $4.15 to $4.55 per share. (See Attachment A-6: “Preliminary
Reconciliation of GAAP to Non-GAAP Measures (Full Year 2008 Estimates)”.)
The Company’s earnings expectations reflect an assumption of reported revenue growth in the
range of 9.5 to 12.5 percent, including a 6.5 percent contribution from the Paxar acquisition and
an estimated 2 to 3 percent benefit from currency translation.
(For a more detailed presentation of the Company’s assumptions underlying its 2008 earnings
expectations, see Fourth Quarter and Full Year 2007 Financial Review and
Analysis, posted at the Company’s Web site at www.investors.averydennison.com.)
Note: Throughout this release, all calculations of amounts on a per share basis reflect fully
diluted shares outstanding.
Avery Dennison is a global leader in pressure-sensitive labeling materials, retail tag, ticketing
and branding systems, and office products. Based in Pasadena, Calif., Avery Dennison is a FORTUNE
500 Company with 2007 sales of $6.3 billion. Avery Dennison employs more than 30,000 individuals in
51 countries worldwide, who develop, manufacture and market a wide range of products for both
consumer and industrial markets. Products offered by Avery Dennison include: Fasson brand
self-adhesive materials; Avery Dennison brand products for the retail and apparel industries; Avery
brand office products and graphics imaging media; specialty tapes, peel-and-stick postage stamps,
and labels for a wide variety of automotive, industrial and durable goods applications.
# # #
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
Certain statements contained in this document are “forward-looking statements” intended to
qualify for the safe harbor from liability established by the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements and financial or other business targets are subject to
certain risks and uncertainties. Actual results and trends may differ materially from historical or
expected results depending on a variety of factors, including but not limited to risks and
uncertainties relating to investment in development activities and new production facilities;
fluctuations in cost and availability of raw materials; ability of the Company to achieve and
sustain targeted cost reductions, including synergies expected from the integration of the Paxar
business in the time and at the cost anticipated; ability of the Company to generate sustained
productivity improvement; successful integration of acquisitions; successful implementation of new
manufacturing technologies and installation of manufacturing equipment; the financial condition and
inventory strategies of customers; customer and supplier concentrations; changes in customer order
patterns; loss of significant contract(s) or customer(s); timely development and market acceptance
of new products; fluctuations in demand affecting sales to customers; impact of competitive
products and pricing; selling prices; business mix shift; credit risks; ability of the Company to
obtain adequate financing arrangements; fluctuations in interest rates; fluctuations in pension,
insurance and employee benefit costs; impact of legal proceedings, including the Australian
Competition and Consumer Commission investigation into industry competitive practices, and any
related proceedings or lawsuits pertaining to this investigation or to the subject matter thereof
or of the concluded investigations by the U.S. Department of Justice (“DOJ”), the European
Commission, and the Canadian Department of Justice (including purported class actions seeking
treble damages for alleged unlawful competitive practices, which were filed after the announcement
of the DOJ investigation), as well as the impact of potential violations of the U.S. Foreign
Corrupt Practices Act based on issues in China; changes in governmental regulations; changes in
political conditions; fluctuations in foreign currency exchange rates and other risks associated
with foreign operations; worldwide and local economic conditions; impact of epidemiological events
on the economy and the Company’s customers and suppliers; acts of war, terrorism, natural
disasters; and other factors.
The Company believes that the most significant risk factors that could affect its ability to
achieve its stated financial expectations in the near-term include (1) the impact of economic
conditions on underlying demand for the Company’s products; (2) the degree to which higher raw
material and energy-related costs can be passed on to customers through selling price increases,
without a significant loss of volume; (3) the impact of competitors’ actions, including pricing,
expansion in key markets, and product offerings; (4) potential adverse developments in legal
proceedings and/or investigations regarding competitive activities, including possible fines,
penalties, judgments or settlements; and (5) the ability of the Company to achieve and sustain
targeted cost reductions, including expected synergies associated with the Paxar acquisition.
For a more detailed discussion of these and other factors, see “Risk Factors” and
“Management’s Discussion and Analysis of Results of Operations and Financial Condition” in the
Company’s Form 10-K, filed on February 28, 2007, with the Securities and Exchange Commission. The
forward-looking statements included in this news release are made only as of the date of this news
release, and the Company undertakes no obligation to update the forward-looking statements to
reflect subsequent events or circumstances.
For more information and to listen to a live broadcast or an audio replay of the 4th
Quarter conference call with analysts, visit the Avery Dennison Web site at
www.investors.averydennison.com
Quarter conference call with analysts, visit the Avery Dennison Web site at
www.investors.averydennison.com
A-1
AVERY DENNISON
PRELIMINARY CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
PRELIMINARY CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
| (UNAUDITED) | ||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| Dec. 29, 2007 | Dec. 30, 2006 | Dec. 29, 2007 | Dec. 30, 2006 | |||||||||||||
Net sales |
$ | 1,714.0 | $ | 1,411.4 | $ | 6,307.8 | $ | 5,575.9 | ||||||||
Cost of products sold |
1,232.5 | 1,016.8 | 4,585.4 | 4,037.9 | ||||||||||||
Gross profit |
481.5 | 394.6 | 1,722.4 | 1,538.0 | ||||||||||||
Marketing, general & administrative expense |
333.0 | 262.4 | 1,182.5 | 1,011.1 | ||||||||||||
Interest expense |
34.3 | 13.3 | 105.2 | 55.5 | ||||||||||||
Other expense, net (1) |
16.2 | 5.1 | 59.4 | 36.2 | ||||||||||||
Income from continuing operations before taxes |
98.0 | 113.8 | 375.3 | 435.2 | ||||||||||||
Taxes on income |
18.6 | 8.7 | 71.8 | 76.7 | ||||||||||||
Income from continuing operations |
79.4 | 105.1 | 303.5 | 358.5 | ||||||||||||
(Loss)
income from discontinued operations, net of taxes |
— | (0.4 | ) | — | 14.7 | |||||||||||
Net income |
$ | 79.4 | $ | 104.7 | $ | 303.5 | $ | 373.2 | ||||||||
Per share amounts: |
||||||||||||||||
Net income per common share, assuming dilution |
||||||||||||||||
Continuing operations |
$ | 0.81 | $ | 1.04 | $ | 3.07 | $ | 3.57 | ||||||||
Discontinued operations |
— | — | — | 0.15 | ||||||||||||
Net income per common
share, assuming
dilution |
$ | 0.81 | $ | 1.04 | $ | 3.07 | $ | 3.72 | ||||||||
Average common shares outstanding,
assuming dilution |
98.6 | 100.4 | 98.9 | 100.4 | ||||||||||||
Common shares outstanding at period end |
98.4 | 98.3 | 98.4 | 98.3 | ||||||||||||
2006 amounts have been restated to reflect the change in method of accounting
for inventory from last-in, first-out (LIFO) to first-in, first-out (FIFO) for
certain businesses operating in the U.S.
| (1) | Other expense for the fourth quarter of 2007 includes $16.2 of restructuring costs, asset impairment and lease cancellation charges. | |
| Other expense, net, for the fourth quarter of 2006 includes restructuring costs, asset impairment and lease cancellation charges of $10.4, partially offset by gain on sale of assets of ($5.3). | ||
| Other expense, net, for 2007 includes $57.5 of asset impairment charges, restructuring costs and lease cancellation charges, $4.8 of certain non-recurring financing costs and $.3 of expenses related to a divestiture, partially offset by a reversal of ($3.2) related to a patent lawsuit. | ||
| Other expense, net, for 2006 includes restructuring costs, asset impairment and lease cancellation charges of $29.8, environmental remediation costs of $13, legal accrual related to a patent lawsuit of $.4, miscellaneous taxes of $.4 related to a divestiture and charitable contribution of $10 to Avery Dennison Foundation, partially offset by gain on sale of investment of ($10.5), gain on sale of assets of ($5.3) and gain from curtailment and settlement of a pension obligation of ($1.6). |
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A-2
Reconciliation of Non-GAAP Financial Measures in Accordance with SEC Regulations G and S-K
Avery Dennison reports financial results in accordance with U.S. GAAP, and herein
provides some non-GAAP financial measures. These non-GAAP financial measures are not in
accordance with, nor are they a substitute for, GAAP financial measures. These non-GAAP
financial measures are intended to supplement the Company’s presentation of its financial
results that are prepared in accordance with GAAP.
The Company’s non-GAAP financial measures exclude the impact of certain events,
activities or strategic decisions. The accounting effects of these events, activities or
decisions, which are included in the GAAP measures, may make it difficult to assess the
underlying performance of the Company in a single period. By excluding certain
accounting effects, both positive and negative (e.g. gains on sales of assets,
restructuring charges, asset impairments, effects of acquisitions and related costs,
etc.), from certain of the Company’s GAAP measures, the Company believes that it is
providing meaningful supplemental information to facilitate an understanding of the
Company’s “core” or “underlying” operating results. These non-GAAP measures are used
internally to evaluate trends in the Company’s underlying business, as well as to
facilitate comparison to the results of competitors for a single period. The Company
applies a quarterly tax rate to the accounting adjustments in order for the year-to-date
tax rate on non-GAAP income to be consistent with the year-to-date
GAAP tax rate.
Limitations associated with the use of the Company’s non-GAAP measures include (1) the
exclusion of items that recur from time to time (e.g. restructuring, asset impairment
charges, discontinued operations, etc.) from calculations of the Company’s earnings and
operating margin; (2) the exclusion of the effects of acquisitions, including integration
costs and certain financing costs; (3) the exclusion of interest expense
from the calculation of the Company’s operating margin; and (4) the exclusion of any
mandatory debt service requirements, as well as the exclusion of other uses of the cash
generated by operating activities that do not directly or immediately support the
underlying business (such as discretionary debt reductions, dividends, share repurchase,
acquisitions, etc.) for calculation of free cash flow. While some of the items the
Company excludes from GAAP measures recur, these items tend to be disparate in amount and
timing. Based upon feedback from investors and financial analysts,
the Company believes that supplemental non-GAAP measures provide
information that is useful to the assessment of the Company’s
performance and operating trends.
The reconciliation set forth below is provided in accordance with Regulations G and S-K
and reconciles the non-GAAP financial measures with the most directly comparable GAAP
financial measures.
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A-3
AVERY DENNISON
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
| (UNAUDITED) | ||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| Dec. 29, 2007 | Dec. 30, 2006 | Dec. 29, 2007 | Dec. 30, 2006 | |||||||||||||
Reconciliation of GAAP to Non-GAAP Operating Margin: |
||||||||||||||||
Net sales |
$ | 1,714.0 | $ | 1,411.4 | $ | 6,307.8 | $ | 5,575.9 | ||||||||
Income from continuing operations before taxes |
$ | 98.0 | $ | 113.8 | $ | 375.3 | $ | 435.2 | ||||||||
GAAP Operating Margin |
5.7 | % | 8.1 | % | 5.9 | % | 7.8 | % | ||||||||
Income from continuing operations before taxes |
$ | 98.0 | $ | 113.8 | $ | 375.3 | $ | 435.2 | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
11.1 | 6.5 | 21.6 | 21.1 | ||||||||||||
Asset impairment and lease cancellation charges |
5.1 | 3.9 | 17.5 | 8.7 | ||||||||||||
Asset impairment charges — acquisition related (1) |
— | — | 18.4 | — | ||||||||||||
Transition costs associated with Paxar integration
(2) |
16.8 | — | 43.0 | — | ||||||||||||
Other (3) |
— | (5.3 | ) | 1.9 | 6.4 | |||||||||||
Interest expense |
34.3 | 13.3 | 105.2 | 55.5 | ||||||||||||
Adjusted non-GAAP operating income before taxes and interest expense |
$ | 165.3 | $ | 132.2 | $ | 582.9 | $ | 526.9 | ||||||||
Adjusted Non-GAAP Operating Margin |
9.6 | % | 9.4 | % | 9.2 | % | 9.4 | % | ||||||||
Reconciliation of GAAP to Non-GAAP Net Income: |
||||||||||||||||
As reported net income |
$ | 79.4 | $ | 104.7 | $ | 303.5 | $ | 373.2 | ||||||||
Non-GAAP adjustments, net of taxes: |
||||||||||||||||
Restructuring costs |
9.0 | 6.1 | 17.6 | 17.6 | ||||||||||||
Asset impairment and lease cancellation charges |
4.2 | 3.6 | 14.4 | 7.4 | ||||||||||||
Asset impairment charges — acquisition related |
— | — | 14.6 | — | ||||||||||||
Transition costs associated with Paxar integration |
13.6 | — | 34.6 | — | ||||||||||||
Other |
— | (5.0 | ) | 1.8 | 2.2 | |||||||||||
Loss (income) from discontinued operations |
— | 0.4 | — | (14.7 | ) | |||||||||||
Adjusted Non-GAAP Net Income |
$ | 106.2 | $ | 109.8 | $ | 386.5 | $ | 385.7 | ||||||||
A-3
(continued)
AVERY DENNISON
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
| (UNAUDITED) | ||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| Dec. 29, 2007 | Dec. 30, 2006 | Dec. 29, 2007 | Dec. 30, 2006 | |||||||||||||
Reconciliation of GAAP to Non-GAAP Earnings Per Share: |
||||||||||||||||
As reported income per common share, assuming dilution |
$ | 0.81 | $ | 1.04 | $ | 3.07 | $ | 3.72 | ||||||||
Non-GAAP adjustments per share, net of taxes: |
||||||||||||||||
Restructuring costs |
0.09 | 0.06 | 0.18 | 0.18 | ||||||||||||
Asset impairment and lease cancellation charges |
0.04 | 0.04 | 0.14 | 0.07 | ||||||||||||
Asset impairment charges — acquisition related |
— | — | 0.15 | — | ||||||||||||
Transition costs associated with Paxar integration |
0.14 | — | 0.35 | — | ||||||||||||
Other |
— | (0.05 | ) | 0.02 | 0.02 | |||||||||||
(Income) from discontinued operations |
— | — | — | (0.15 | ) | |||||||||||
Adjusted Non-GAAP income per common share,
assuming dilution |
$ | 1.08 | $ | 1.09 | $ | 3.91 | $ | 3.84 | ||||||||
Average
common shares outstanding, assuming dilution |
98.6 | 100.4 | 98.9 | 100.4 | ||||||||||||
2006 amounts have been restated to reflect the change in method of accounting for inventory from last-in, first-out (LIFO) to first-in, first-out
(FIFO) for certain businesses operating in the U.S.
| (1) | 2007 YTD includes asset impairment charges primarily related to software assets. | |
| (2) | 2007 QTD includes $16.8 of Paxar integration costs and change-in-control costs reported in marketing, general & administrative expense. | |
| 2007 YTD includes $39.7 of Paxar integration costs and change-in-control costs reported in marketing, general & administrative expense and $3.3 of inventory step-up impact reported in costs of products sold. | ||
| (3) | 2007 YTD includes $4.8 of certain non-recurring financing costs and $.3 of expenses related to a divestiture, partially offset by reversal of an accrual for a patent lawsuit of ($3.2). | |
| 2006 QTD includes gain on sale of assets of ($5.3). | ||
| 2006 YTD includes $13 related to environmental remediation costs, legal accrual related to a patent lawsuit of $.4, miscellaneous taxes of $.4 related to a divestiture and charitable contribution of $10 to Avery Dennison Foundation, partially offset by gain on sale of investment of ($10.5), gain on sale of assets of ($5.3) and gain from curtailment and settlement of a pension obligation of ($1.6). |
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A-4
AVERY DENNISON
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
| (UNAUDITED) | ||||||||||||||||||||||||
| Fourth Quarter Ended | ||||||||||||||||||||||||
| NET SALES | OPERATING INCOME | OPERATING MARGINS | ||||||||||||||||||||||
| 2007 | 2006 | 2007(1) | 2006(2) | 2007 | 2006 | |||||||||||||||||||
Pressure-sensitive Materials |
$ | 890.1 | $ | 814.3 | $ | 79.0 | $ | 74.3 | 8.9 | % | 9.1 | % | ||||||||||||
Retail Information Services |
410.7 | 168.1 | 1.9 | 9.6 | 0.5 | % | 5.7 | % | ||||||||||||||||
Office and Consumer Products |
272.2 | 285.0 | 56.1 | 58.6 | 20.6 | % | 20.6 | % | ||||||||||||||||
Other specialty converting businesses |
141.0 | 144.0 | 0.2 | 0.6 | 0.1 | % | 0.4 | % | ||||||||||||||||
Corporate Expense |
N/A | N/A | (4.9 | ) | (16.0 | ) | N/A | N/A | ||||||||||||||||
Interest Expense |
N/A | N/A | (34.3 | ) | (13.3 | ) | N/A | N/A | ||||||||||||||||
TOTAL FROM CONTINUING OPERATIONS |
$ | 1,714.0 | $ | 1,411.4 | $ | 98.0 | $ | 113.8 | 5.7 | % | 8.1 | % | ||||||||||||
2006 amounts have been restated to reflect the change in method of accounting
for inventory from last-in, first-out (LIFO) to first-in, first-out (FIFO) for
certain businesses operating in the U.S.
(1) Operating income for the fourth quarter of 2007 includes $16.8 of
transition costs associated with Paxar integration and $16.2 of restructuring
costs, asset impairment and lease cancellation charges; of the total $33, the
Pressure-sensitive Materials segment recorded $1, the Retail Information
Services segment recorded $26.1, the Office and Consumer Products segment
recorded $3.4, the other specialty converting businesses recorded $2.7 and
Corporate recorded ($.2).
(2) Operating income for the fourth quarter of 2006 includes restructuring
costs, asset impairment and lease cancellation charges of $10.4, partially
offset by gain on sale of assets of ($5.3); of the total $5.1, the
Pressure-sensitive Materials segment recorded $2.4, the Retail Information
Services segment recorded $3.3, the Office and Consumer Products segment
recorded ($1.9) and other specialty converting businesses recorded $1.3.
RECONCILIATION OF GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
| Fourth Quarter Ended | ||||||||||||||||
| OPERATING INCOME | OPERATING MARGINS | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Pressure-sensitive Materials |
||||||||||||||||
Operating income, as reported |
$ | 79.0 | $ | 74.3 | 8.9 | % | 9.1 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
1.0 | 1.9 | 0.1 | % | 0.2 | % | ||||||||||
Asset
impairment and lease cancellation charges |
— | 1.6 | — | 0.2 | % | |||||||||||
Gain on sale of assets |
— | (1.1 | ) | — | (0.1 | %) | ||||||||||
Adjusted non-GAAP operating
income |
$ | 80.0 | $ | 76.7 | 9.0 | % | 9.4 | % | ||||||||
Retail Information Services |
||||||||||||||||
Operating income, as reported |
$ | 1.9 | $ | 9.6 | 0.5 | % | 5.7 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
6.2 | 1.8 | 1.5 | % | 1.1 | % | ||||||||||
Asset
impairment and lease cancellation charges |
3.1 | 1.5 | 0.7 | % | 0.9 | % | ||||||||||
Transition costs associated with Paxar integration |
16.8 | — | 4.1 | % | — | |||||||||||
Adjusted non-GAAP operating
income |
$ | 28.0 | $ | 12.9 | 6.8 | % | 7.7 | % | ||||||||
Office and Consumer Products |
||||||||||||||||
Operating income, as reported |
$ | 56.1 | $ | 58.6 | 20.6 | % | 20.6 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
3.4 | 1.5 | 1.3 | % | 0.5 | % | ||||||||||
Asset impairment charges |
— | 0.8 | — | 0.3 | % | |||||||||||
Gain on sale of assets |
— | (4.2 | ) | — | (1.5 | %) | ||||||||||
Adjusted non-GAAP operating
income |
$ | 59.5 | $ | 56.7 | 21.9 | % | 19.9 | % | ||||||||
Other specialty converting
businesses |
||||||||||||||||
Operating income, as reported |
$ | 0.2 | $ | 0.6 | 0.1 | % | 0.4 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
1.1 | 1.3 | 0.8 | % | 0.9 | % | ||||||||||
Asset impairment charges |
1.6 | — | 1.2 | % | — | |||||||||||
Adjusted non-GAAP operating
income |
$ | 2.9 | $ | 1.9 | 2.1 | % | 1.3 | % | ||||||||
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A-5
AVERY DENNISON
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
| (UNAUDITED) | ||||||||||||||||||||||||
| Twelve Months Year-to-Date | ||||||||||||||||||||||||
| NET SALES | OPERATING INCOME | OPERATING MARGINS | ||||||||||||||||||||||
| 2007 | 2006 | 2007(1) | 2006(2) | 2007 | 2006 | |||||||||||||||||||
Pressure-sensitive Materials |
$ | 3,497.7 | $ | 3,236.3 | $ | 318.7 | $ | 301.6 | 9.1 | % | 9.3 | % | ||||||||||||
Retail Information Services |
1,174.5 | 667.7 | (4.0 | ) | 45.7 | (0.3 | %) | 6.8 | % | |||||||||||||||
Office and Consumer Products |
1,016.2 | 1,072.0 | 173.6 | 187.4 | 17.1 | % | 17.5 | % | ||||||||||||||||
Other specialty converting businesses |
619.4 | 599.9 | 25.4 | 17.3 | 4.1 | % | 2.9 | % | ||||||||||||||||
Corporate Expense |
N/A | N/A | (33.2 | ) | (61.3 | ) | N/A | N/A | ||||||||||||||||
Interest Expense |
N/A | N/A | (105.2 | ) | (55.5 | ) | N/A | N/A | ||||||||||||||||
TOTAL FROM CONTINUING OPERATIONS |
$ | 6,307.8 | $ | 5,575.9 | $ | 375.3 | $ | 435.2 | 5.9 | % | 7.8 | % | ||||||||||||
2006 amounts have been restated to reflect the change in method of accounting for inventory from
last-in, first-out (LIFO) to first-in, first-out (FIFO) for
certain businesses operating in the U.S.
(1) Operating income for 2007 includes $57.5 of asset impairment charges, restructuring costs and
lease cancellation charges, $43 of transition costs associated with Paxar integration, $4.8 of
certain non-recurring financing costs and $.3 of expenses related to a divestiture, partially
offset by a reversal of ($3.2) related to a patent lawsuit; of the total $102.4, the
Pressure-sensitive Materials segment recorded $13.8, the Retail Information Services segment
recorded $74.2, the Office and Consumer Products segment recorded $4.8, the other specialty
converting businesses recorded $4.2 and Corporate recorded $5.4.
(2) Operating income for 2006 includes restructuring costs, asset impairment and lease cancellation
charges of $29.8, environmental remediation costs of $13, legal accrual related to a patent lawsuit
of $.4, miscellaneous taxes of $.4 related to a divestiture and charitable contribution of $10 to
Avery Dennison Foundation, partially offset by gain on sale of investment of ($10.5), gain on sale
of assets of ($5.3) and gain from curtailment and settlement of a pension obligation of ($1.6); of
the total $36.2, the Pressure-sensitive Materials segment recorded $9.3, the Retail Information
Services segment recorded $11.2, the Office and Consumer Products segment recorded ($2.3), the
other specialty converting businesses recorded $3.7 and Corporate recorded $14.3.
RECONCILIATION OF GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
| Twelve Months Year-to-Date | ||||||||||||||||
| OPERATING INCOME | OPERATING MARGINS | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Pressure-sensitive Materials |
||||||||||||||||
Operating income, as reported |
$ | 318.7 | $ | 301.6 | 9.1 | % | 9.3 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
6.1 | 7.3 | 0.2 | % | 0.2 | % | ||||||||||
Asset impairment and lease cancellation charges |
10.9 | 2.7 | 0.3 | % | 0.1 | % | ||||||||||
Legal accrual related to a patent lawsuit |
(3.2 | ) | 0.4 | (0.1 | %) | — | ||||||||||
Gain on sale of assets |
— | (1.1 | ) | — | — | |||||||||||
Adjusted non-GAAP operating income |
$ | 332.5 | $ | 310.9 | 9.5 | % | 9.6 | % | ||||||||
Retail Information Services |
||||||||||||||||
Operating income, as reported |
$ | (4.0 | ) | $ | 45.7 | (0.3 | %) | 6.8 | % | |||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
9.7 | 9.4 | 0.8 | % | 1.4 | % | ||||||||||
Asset impairment and lease cancellation charges |
3.1 | 1.8 | 0.2 | % | 0.3 | % | ||||||||||
Asset impairment charges — acquisition related |
18.4 | — | 1.6 | % | — | |||||||||||
Transition costs associated with Paxar integration |
43.0 | — | 3.7 | % | — | |||||||||||
Adjusted non-GAAP operating income |
$ | 70.2 | $ | 56.9 | 6.0 | % | 8.5 | % | ||||||||
Office and Consumer Products |
||||||||||||||||
Operating income, as reported |
$ | 173.6 | $ | 187.4 | 17.1 | % | 17.5 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
4.1 | 2.3 | 0.4 | % | 0.2 | % | ||||||||||
Asset impairment and lease cancellation charges |
0.4 | 0.8 | 0.1 | % | 0.1 | % | ||||||||||
Expenses related to a divestiture |
0.3 | — | — | — | ||||||||||||
Gain on sale of assets |
— | (4.2 | ) | — | (0.4 | %) | ||||||||||
Gain from curtailment and settlement of a pension
obligation |
— | (1.6 | ) | — | (0.1 | %) | ||||||||||
Other |
— | 0.4 | — | — | ||||||||||||
Adjusted non-GAAP operating income |
$ | 178.4 | $ | 185.1 | 17.6 | % | 17.3 | % | ||||||||
Other specialty converting businesses |
||||||||||||||||
Operating income, as reported |
$ | 25.4 | $ | 17.3 | 4.1 | % | 2.9 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
2.3 | 2.1 | 0.4 | % | 0.4 | % | ||||||||||
Asset impairment charges |
1.9 | 1.6 | 0.3 | % | 0.2 | % | ||||||||||
Adjusted non-GAAP operating income |
$ | 29.6 | $ | 21.0 | 4.8 | % | 3.5 | % | ||||||||
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A-6
AVERY DENNISON
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Full Year 2008 Estimates)
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Full Year 2008 Estimates)
| 2008 | ||
| Guidance | ||
Reconciliation of GAAP to Non-GAAP Earnings Per Share Guidance: |
||
Reported (GAAP) Earnings Per Share |
$3.80 - $4.20 | |
Add Back: |
||
Estimated Integration Transition Costs, Restructuring and Asset Impairment Charges (1) |
~ $0.35 | |
Adjusted (non-GAAP) Earnings Per Share |
$4.15 to $4.55 |
| (1) | Subject to revision as plans are finalized |
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A-7
AVERY DENNISON
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
| (UNAUDITED) | ||||||||
ASSETS |
Dec. 29, 2007 |
Dec. 30, 2006 |
||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 71.5 | $ | 58.5 | ||||
Trade accounts receivable, net |
1,113.8 | 910.2 | ||||||
Inventories, net |
631.0 | 496.9 | ||||||
Other current assets |
242.0 | 221.1 | ||||||
Total current assets |
2,058.3 | 1,686.7 | ||||||
Property, plant and equipment, net |
1,591.4 | 1,309.4 | ||||||
Other assets |
2,597.0 | 1,328.8 | ||||||
| $ | 6,246.7 | $ | 4,324.9 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Short-term and current portion of long-term debt |
$ | 1,110.8 | $ | 466.4 | ||||
Accounts payable |
679.2 | 630.1 | ||||||
Other current liabilities |
676.8 | 602.3 | ||||||
Total current liabilities |
2,466.8 | 1,698.8 | ||||||
Long-term debt |
1,145.0 | 501.6 | ||||||
Other long-term liabilities |
640.6 | 428.3 | ||||||
Shareholders’ equity: |
||||||||
Common stock |
124.1 | 124.1 | ||||||
Capital in excess of par value |
781.1 | 881.5 | ||||||
Retained earnings |
2,290.2 | 2,155.6 | ||||||
Accumulated other comprehensive income (loss) |
89.7 | (50.1 | ) | |||||
Cost of unallocated ESOP shares |
(3.8 | ) | (5.7 | ) | ||||
Employee stock benefit trusts |
(428.8 | ) | (602.5 | ) | ||||
Treasury stock at cost |
(858.2 | ) | (806.7 | ) | ||||
Total shareholders’ equity |
1,994.3 | 1,696.2 | ||||||
| $ | 6,246.7 | $ | 4,324.9 | |||||
2006 amounts have been restated to reflect the change in method of accounting for inventory from
last-in, first-out (LIFO) to first-in, first-out (FIFO) for
certain businesses operating in the U.S.
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A-8
AVERY DENNISON
PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
| (UNAUDITED) | ||||||||
| Twelve Months Ended | ||||||||
| Dec. 29, 2007 | Dec. 30, 2006 | |||||||
Operating Activities: |
||||||||
Net income |
$ | 303.5 | $ | 373.2 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
184.1 | 154.3 | ||||||
Amortization |
50.5 | 43.6 | ||||||
Deferred taxes |
(28.1 | ) | (7.3 | ) | ||||
Asset impairment and net loss (gain) on sale and disposal of assets |
44.0 | (7.8 | ) | |||||
Stock-based compensation |
21.6 | 24.1 | ||||||
Other non-cash items, net |
(15.4 | ) | (6.5 | ) | ||||
| 560.2 | 573.6 | |||||||
Changes in
assets and liabilities, net of the effect of business acquisitions and divestitures |
(60.8 | ) | (62.8 | ) | ||||
Net cash provided by operating activities |
499.4 | 510.8 | ||||||
Investing Activities: |
||||||||
Purchase of property, plant and equipment |
(190.5 | ) | (161.9 | ) | ||||
Purchase of software and other deferred charges |
(64.3 | ) | (33.4 | ) | ||||
Payments for acquisitions |
(1,291.9 | ) | (13.4 | ) | ||||
Proceeds from sale of assets |
4.9 | 15.4 | ||||||
Proceeds from sale of businesses and investments |
— | 35.4 | ||||||
Other |
(1.4 | ) | 3.0 | |||||
Net cash used in investing activities |
(1,543.2 | ) | (154.9 | ) | ||||
Financing Activities: |
||||||||
Net increase (decrease) in borrowings (maturities of 90 days or less) |
792.2 | (137.8 | ) | |||||
Additional borrowings (maturities longer than 90 days) |
688.8 | — | ||||||
Payments of debt (maturities longer than 90 days) |
(222.0 | ) | (2.3 | ) | ||||
Dividends paid |
(171.8 | ) | (171.8 | ) | ||||
Purchase of treasury stock |
(63.2 | ) | (157.7 | ) | ||||
Proceeds from exercise of stock options, net |
36.2 | 54.1 | ||||||
Other |
(4.8 | ) | 17.7 | |||||
Net cash provided by (used in) financing activities |
1,055.4 | (397.8 | ) | |||||
Effect of foreign currency translation on cash balances |
1.4 | 1.9 | ||||||
Increase (decrease) in cash and cash equivalents |
13.0 | (40.0 | ) | |||||
Cash and
cash equivalents, beginning of year |
58.5 | 98.5 | ||||||
Cash and
cash equivalents, end of year |
$ | 71.5 | $ | 58.5 | ||||
2006 amounts have been restated to reflect the change in method of accounting for inventory from
last-in, first-out (LIFO) to first-in, first-out (FIFO) for
certain businesses operating in the U.S.
####
EXHIBIT 99.2
| Fourth Quarter and Full Year 2008 Financial Review and Analysis (Unaudited) January 29, 2007 DRAFT: Friday Evening Final |
| Certain statements contained in this document are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements and financial or other business targets are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or expected results depending on a variety of factors, including but not limited to risks and uncertainties relating to investment in development activities and new production facilities; fluctuations in cost and availability of raw materials; ability of the Company to achieve and sustain targeted cost reductions, including synergies expected from the integration of the Paxar business in the time and at the cost anticipated; ability of the Company to generate sustained productivity improvement; successful integration of acquisitions; successful implementation of new manufacturing technologies and installation of manufacturing equipment; the financial condition and inventory strategies of customers; customer and supplier concentrations; changes in customer order patterns; loss of significant contract(s) or customer(s); timely development and market acceptance of new products; fluctuations in demand affecting sales to customers; impact of competitive products and pricing; selling prices; business mix shift; credit risks; ability of the Company to obtain adequate financing arrangements; fluctuations in interest rates; fluctuations in pension, insurance and employee benefit costs; impact of legal proceedings, including the Australian Competition and Consumer Commission investigation into industry competitive practices, and any related proceedings or lawsuits pertaining to this investigation or to the subject matter thereof or of the concluded investigations by the U.S. Department of Justice ("DOJ"), the European Commission, and the Canadian Department of Justice (including purported class actions seeking treble damages for alleged unlawful competitive practices, which were filed after the announcement of the DOJ investigation), as well as the impact of potential violations of the U.S. Foreign Corrupt Practices Act based on issues in China; changes in governmental regulations; changes in political conditions; fluctuations in foreign currency exchange rates and other risks associated with foreign operations; worldwide and local economic conditions; impact of epidemiological events on the economy and the Company's customers and suppliers; acts of war, terrorism, natural disasters; and other factors. The Company believes that the most significant risk factors that could affect its ability to achieve its stated financial expectations in the near-term include (1) the impact of economic conditions on underlying demand for the Company's products; (2) the degree to which higher raw material and energy-related costs can be passed on to customers through selling price increases, without a significant loss of volume; (3) the impact of competitors' actions, including pricing, expansion in key markets, and product offerings; (4) potential adverse developments in legal proceedings and/or investigations regarding competitive activities, including possible fines, penalties, judgments or settlements; and (5) the ability of the Company to achieve and sustain targeted cost reductions, including expected synergies associated with the Paxar acquisition. The financial information presented in this document represents preliminary, unaudited financial results. Slide 3 |
| Use of Non-GAAP Financial Measures This presentation contains certain non-GAAP measures as defined by SEC rules. The most directly comparable GAAP measures have been included in the earnings news release for the quarter. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included with the financial statements accompanying the earnings news release for the quarter, along with certain supplemental analysis provided in this document. (See Attachments A-2 through A-5 to Exhibit 99.1, news release dated January 29, 2007, and Slides 18 and 19 of this document.) The Company's non-GAAP financial measures exclude the impact of certain events, activities or strategic decisions. The accounting effects of these events, activities or decisions, which are included in the GAAP measures, may make it difficult to assess the underlying performance of the Company in a single period. By excluding certain accounting effects, both positive and negative (e.g., gains on sales of assets, restructuring charges, asset impairments, effects of acquisitions and related costs, etc.), from certain of the Company's GAAP measures, the Company believes that it is providing meaningful supplemental information to facilitate an understanding of the Company's "core" or "underlying" operating results. These non-GAAP measures are used internally to evaluate trends in the Company's underlying business, as well as to facilitate comparison to the results of competitors for a single period. The Company applies a quarterly tax rate to the accounting adjustments in order for the year-to-date tax rate on non-GAAP income to be consistent with the year-to-date GAAP tax rate. (See Attachment A-2 to Exhibit 99.1 for discussion of limitations associated with the use of these non-GAAP measures.) The information in this document has been furnished (not filed) under Form 8-K with the SEC and is posted at the Investors section of the Company's Web site. Slide 3 |
| Full Year 2007 Overview Total sales up approximately 1% on an organic basis, reflecting soft market conditions in several key segments (particularly in second half of the year) and inventory reductions by Office Products customers Reported sales up 13%, driven primarily by the Paxar acquisition and currency translation Challenging year driven by economic and market conditions, including competitive price environment for the roll materials business in North America and Europe Continued strength in emerging markets, particularly for materials businesses in China, India, and the ASEAN region Completion of Paxar acquisition; identification of $115 to $125 mil. in annual cost synergies when integration is complete Actions taken to drive annualized cost savings of $45 to $50 million (in addition to acquisition integration savings); further actions underway |
| Fourth Quarter Overview Net sales increased 21.4% over prior year Net effect of Paxar acquisition was approx. 15% Currency added 7% ($0.05 benefit to earnings per share) Sales declined modestly (0.6%) on an organic basis Operating margin before restructuring and asset impairment charges and transition costs associated with the Paxar integration increased by 20 basis points vs. prior year Restructuring and other productivity initiatives more than offset the cost of raw material inflation and competitive price environment Headwinds also included 40 basis points of margin compression from addition of base Paxar business (margin of base business is lower than Company-average before integration savings) Benefited from lower than anticipated corporate expense |
| Fourth Quarter Overview (continued) Effective tax rate for the quarter and year was approximately 19%. Annual tax rate expected to be in the 18-20% range for the foreseeable future Reported E.P.S. of $0.81 includes $0.27 of restructuring charges, asset impairment, and transition costs for Paxar integration $0.13 of restructuring and asset impairment charges, including $0.08 related to Paxar $0.14 of transition costs associated with Paxar integration Adjusted E.P.S. of $1.08 Adjusted earnings per share includes $0.03 of estimated accretion from the base Paxar business, including interest on acquisition debt and amortization of intangibles |
| Reported Sales Growth 3.5% 3.9% 8.1% 18.5% 21.4% Management Analysis of Underlying Sales Trends (1) Reported Sales Growth less the impacts of foreign currency translation and acquisitions, net of divestitures (calculation may not tie due to rounding). Q4-06 Q1-07 Q2-07 Organic Sales Growth(1) 2.0% 1.3% 2.0% (0.1)% (0.6%) Acquisitions, Net of Divestitures (1.1)% (0.8)% 2.5% 14.5% 15.1% Currency 2.6% 3.5% 3.5% 4.1% 7.0% Q3-07 Q4-07 |
| Gross Profit Margin (Total Company) 28.1% 29.0% 27.7% Operating Margin (non-GAAP(2)): Pressure-Sensitive Materials 9.0% 9.4% 9.5% Retail Information Services (RIS) 6.8% 7.0% 3.0% Office and Consumer Products 21.9% 19.9% 18.5% Other Specialty Converting 2.1% 1.3% 5.7% Total Company 9.6% 9.0% 9.0% Impact of RFID on reported margin: (0.4)% (0.4)% (0.4)% Total Company Excluding RFID 10.0% 9.4% 9.4% (1) See Slides 18 and 19 for reconciliation to reported results for Total Company and RIS. (2) Earnings before interest and taxes, restructuring and asset impairment charges, and other items detailed in Attachments A-3 and A-4 of Exhibit 99.1. Q4-07 Q4-06 Q3-07 Margin Analysis (prior periods restated for change in LIFO accounting) Adjusted(1) |
| Key Factors Impacting Margin (see Slide 18 for prior year reconciliation for Paxar) Gross profit margin before Paxar integration costs improved 10 basis points compared to prior year margin, as reported Adjusting the prior year number to include Paxar, gross profit margin declined 90 basis points This decline reflects impact of price competition and higher raw material costs, as well as negative segment and product mix shifts, partially offset by restructuring savings and other sources of productivity Marketing, general and administrative (MG&A) expense ratio before Paxar integration costs improved by 20 basis points compared to prior year MG&A ratio, as reported Adjusting the prior year number to include Paxar, MG&A expense ratio improved by 170 basis points Absolute MG&A spending was down about $13 mil. vs. adjusted prior year, as cost reductions more than offset the effects of currency (approx. $11 mil.), amortization of intangibles related to Paxar acquisition (approx. $6 mil.), and general inflation |
| PRESSURE-SENSITIVE MATERIALS Reported sales of $890 mil., up 9% compared with prior year Organic sales growth of approx. 2%, a modest improvement over Q3 pace Change in sales for roll materials business by region, adjusted for the effect of currency: Europe up at low single digit rate, a modest improvement vs. Q3 trend North America declined at low single digit rate, similar to Q3 Asia growth in mid-teens South America up mid single digit Graphics & Reflective business increased at mid single-digit rate before currency Excluding restructuring and asset impairment charges, operating margin declined 40 basis points vs. prior year to 9.0%, as the negative effects of pricing and raw material inflation more than offset benefits from restructuring and other productivity initiatives Q4-2007 Segment Overview |
| Q4-2007 Segment Overview (continued) RETAIL INFORMATION SERVICES Reported sales of $411 mil., up 144% compared with prior year primarily due to the Paxar acquisition Organic sales growth of approx. 1% Slowdown vs. historical trend and long-term target reflects decline in orders for apparel shipped to North American retailers and brand owners, reflecting a weak domestic retail market. Sales on products destined for European market remain solid (> 10%) Operating margin before transition costs, restructuring, and asset impairment charges declined 90 basis points to 6.8% Adjusting the prior year number to include Paxar (see Slide 19), operating margin before transition costs, restructuring, and asset impairment charges declined 20 basis points Integration synergies of approx. $11 mil. more than offset the effects of intangible amortization (approx. $6 mil.) and higher corporate cost allocation (approx. $4 mil.) Realized volume growth insufficient to cover inflation in employee-related costs (e.g., headcount additions and rapid salary inflation in China) |
| Target Target Est. Pre-Tax Target Pre-Tax Cost Annual E.P.S. Depreciation & EBITDA(1) Savings Accretion(1) Amortization Accretion 2008 $80 - $90 $0.35 - $0.45 ~ $70 $175 - $190 2009 $110 - $120 $0.65 - $0.80 ~ $75 $215 - $235 2010 $115 - $125 $0.85 - $1.00 ~ $75 $240 - $260 Financing Weighted average interest expense of 5% based on current short-term rates Combination of senior notes, mandatory convertibles, and short-term debt (47% floating) Maintained BBB+ credit rating Estimated One-Time Cash Integration Costs(2) Cash Restructuring / Transition Costs(3): $125 - $135 Capital / IT Investments: $ 40 - $ 45 Total Cash Costs: $165 - $180 (1) Excluding one-time integration costs. Reflects near-term margin compression in base business, offset by lower interest expense than previously assumed, with productivity improvement over time. Assumes 3% to 5% compound annual growth on 2007 sales through 2010, with 2008 range reflecting 1% to 4% top line growth. (2) Excludes non-cash charges (e.g., asset write-offs) taken to either the P&L or balance sheet (3) Severance, change in control payments, consulting fees, etc. Paxar Financial Outlook (Millions, except as noted) Estimated Timing of Cash Outflows 2007 45% 2008 35-40% 2009 15-20% |
| Q4-2007 Segment Overview (continued) OFFICE AND CONSUMER PRODUCTS Reported sales of $272 mil., down 5% compared with prior year Organic sales decline of approx. 8%, due to customer inventory reductions ($18 mil. estimated impact to net sales) Excluding restructuring and asset impairment charges, operating margin increased 200 basis points to 21.9%, reflecting the benefits of: Restructuring actions and other productivity initiatives Tight management of expenses Selective price increases (effective January 2007) and lower volume-based rebates OTHER SPECIALTY CONVERTING Reported sales of $141 mil., down 2% compared with prior year Organic sales decline of approx. 6%, or a decline of 2% adjusted for exit of low margin distribution business Excluding restructuring and asset impairment charges, operating margin increased by 80 basis points to 2.1%, reflecting improvement in RFID |
| FY 2007 Cash Flow and Y/E Debt-To-Total Capital (Millions, except as noted) 2007 2006 Cash flow from operations $499.4 $510.8 Payment for capital expenditures $190.5 $161.9 Payment for software and other deferred charges $ 64.3 $ 33.4 Free Cash Flow(1) $244.6 $315.5 Dividends $171.8 $171.8 Share Repurchase $ 63.2 $157.7 Total debt to total capital at year-end 53.1% 36.3% (1) Cash flow from operations less payment for capital expenditures, software and other deferred charges (1) Cash flow from operations less payment for capital expenditures, software and other deferred charges (1) Cash flow from operations less payment for capital expenditures, software and other deferred charges (1) Cash flow from operations less payment for capital expenditures, software and other deferred charges (1) Cash flow from operations less payment for capital expenditures, software and other deferred charges |
| 2008 Earnings Guidance: Key Considerations Guidance for adjusted (non-GAAP) earnings per share (see Slide 17 for reconciliation to GAAP): $4.15 to $4.55 Performance within range is highly dependent on organic growth Low end of range assumes organic growth of 1%, net of about $50 mil. in assumed price reductions Company-wide High end of range assumes organic growth of 3%, with a more neutral impact from pricing (carryover of 2007 price decline partially offset with increases) Positive factors contributing to our outlook: Incremental cost synergies from Paxar integration ($60 to $70 mil.) Restructuring actions already announced ($25 to $30 mil. incremental to 2007) Other restructuring and ongoing productivity initiatives Price increases to offset raw material inflation Reduced loss from building RFID business ($10 mil.) Currency translation benefit of 2% to 3% to top-line (E.P.S. benefit of ~ $0.08) Offsetting factors vs. 2007: Higher interest ($20 to $30 mil.) and stock option expense (~ $10 mil.) Raw material inflation (1.5% to 2.0% before cost-outs, or approx. $50 to $55 mil.) General inflation and reinvestment of savings for growth |
| Summary of Assumptions: Reported revenue up 9.5% to 12.5%, including 2% to 3% benefit from currency, and 6.5% from Paxar acquisition effect (anniversary in mid- June) 1.5% to 2.0% inflation in overall raw material costs, offset with benefit from global sourcing strategies, material cost-outs, and price increases Operating margin of 9.0% to 10.0% Interest expense of $125 to $135 mil. Tax rate in the range of 18% to 20% Negligible change in shares outstanding Seasonal considerations - Q1 approx. 20% of full year earnings: RIS business is seasonally stronger in Q2 and Q4 (impact to total Company magnified with Paxar acquisition) Savings from recently announced productivity actions ramp up in back half of the year Stock option expense is higher in Q1 2008 Earnings Guidance: Assumptions |
| 2008 Earnings and Free Cash Flow Guidance 2008 Guidance Reported (GAAP) Earnings Per Share $3.80 - $4.20 Add Back: Estimated Integration Transition Costs, Restructuring and Asset Impairment Charges* ~ $0.35 Adjusted (non-GAAP) Earnings Per Share $4.15 to $4.55 * Subject to revision as plans are finalized Capital Expenditures & Investments in Software (ex-integration) ~ $195 mil. Free Cash Flow (before dividends) $400 to $450 mil. Cash Costs of Paxar Integration (before tax) ~ $ 65 mil. |
| Backup: Fourth Quarter Margin Comparison Reconciliation for Effects of Paxar - Total Company Reconciliation for Effects of Paxar - Total Company Reconciliation for Effects of Paxar - Total Company |
| Backup: Fourth Quarter Margin Comparison Reconciliation for Effects of Paxar - RIS Reconciliation for Effects of Paxar - RIS Reconciliation for Effects of Paxar - RIS |
| Back-up: Prior Period Restatements for Change in LIFO Accounting Rationale for discontinuing LIFO accounting: Time-consuming to track with no economic benefit Inconsistent accounting methodology across business units within the Company (e.g., LIFO accounting only used within the U.S.) Magnitude of annual LIFO adjustment is typically immaterial to total results: For summary of adjustments to restate prior period operating income by segment, see "Q4-07 Restatement for LIFO", posted at the Investor Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website Relations section of our website |