Table of Contents
UNITED STATES
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
October 27, 2009
Date of Report
Date of Report
AVERY DENNISON CORPORATION
| Delaware | 1-7685 | 95-1492269 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer 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
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
Table of Contents
Section 2 — Financial Information
Item 2.02 Results of Operations and Financial Condition.
Avery Dennison Corporation’s (the “Company”) news release dated October 27, 2009, regarding its
preliminary, unaudited financial results for the third quarter of 2009, 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 October 27, 2009, regarding its preliminary
financial review and analysis for the third quarter of 2009, 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 5
— Corporate Governance and Management
Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers.
On October 22, 2009, the Board of Directors (“Board”) of the Company elected Debra L. Reed to the
Board. In connection with Ms. Reed’s election, the Board amended the Company’s Bylaws to provide
that the Board shall have twelve (12) members, Richard M. Ferry resigned from the Board as a Class
II director, Ms. Reed was elected as a Class II director and Mr. Ferry was reelected as a Class
III director. The resignation and reelection of Mr. Ferry was effected in order to more evenly
distribute the number of directors among each of our three classes of directors after Mr. Ferry
retires following the annual stockholders meeting in 2010 pursuant to the retirement provision of the
Company’s Bylaws. The balancing of the number of directors in each class was effected through the
resignation and reelection of Mr. Ferry solely to satisfy the requirements of the Delaware General
Corporation Law and, for all other purposes, Mr. Ferry’s service on the Board is deemed to have
continued uninterrupted and Mr. Ferry will continue to serve on the Audit Committee, the
Compensation and Executive Personnel Committee and the Nominating and Governance Committee. Ms.
Reed was appointed to the Compensation and Executive Personnel Committee. A copy of the news
release announcing Ms. Reed’s election to the Board is attached as Exhibit 99.3 hereto.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
On October 22, 2009, the Board amended Section 2 of Article III of the Company’s Bylaws to increase
the size of the Board of Directors from 11 to 12 members. The text of the amended Section 2 of
Article III of the Bylaws is attached as Exhibit 3.2.1 hereto.
Section 9 — Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
| (c) | Exhibits | |
3.2.1
|
Amended Section 2 of Article III of the Bylaws | |
99.1
|
On October 27, 2009, Avery Dennison Corporation issued a news release announcing its preliminary, unaudited financial results for the third quarter ending October 3, 2009. | |
99.2
|
On October 27, 2009, Avery Dennison Corporation provided a presentation regarding its preliminary financial review and analysis for the third quarter ending October 3, 2009. | |
99.3
|
News release dated October 22, 2009 |
Table of Contents
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 anticipated 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; 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;
volatility of capital and credit markets; impairment of capitalized assets, including goodwill and
other intangibles; credit risks; ability of the Company to obtain adequate financing arrangements
and to maintain access to capital; fluctuations in interest and tax rates; fluctuations in pension,
insurance and employee benefit costs; impact of legal proceedings, including a previous government
investigation into industry competitive practices, and any related proceedings or lawsuits
pertaining thereto or to the subject matter thereof related to the concluded investigation by the
U.S. Department of Justice (“DOJ”) (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; changes in tax laws and regulations; 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, and natural disasters;
and other factors.
The Company believes that the most significant risk factors that could affect its financial
performance in the near-term include (1) the impact of economic conditions on underlying demand for
the Company’s products and on the carrying value of its assets; (2) the impact of competitors’
actions, including pricing, expansion in key markets, and product offerings; (3) the degree to
which higher costs can be offset with productivity measures and/or passed on to customers through
selling price increases, without a significant loss of volume; (4) the impact of an increase in
costs associated with the Company’s debt; and (5) the ability of the Company to achieve and sustain
targeted cost reductions.
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 25, 2009. 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.
Table of Contents
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: October 27, 2009 |
||||
| By: | /s/ Daniel R. O’Bryant | |||
| Name: | Daniel R. O’ Bryant | |||
| Title: | Executive Vice President, Finance and Chief Financial Officer | |||
Table of Contents
EXHIBIT LIST
| Exhibit No. | Description | |
3.2.1
|
Amended Section 2 of Article III of the Bylaws | |
99.1
|
News release dated October 27, 2009 | |
99.2
|
Presentation dated October 27, 2009 | |
99.3
|
News release dated October 22, 2009 |
Exhibit 3.2.1
Article III — Directors
Section 2. Number and Qualification of Directors.
The number of directors of the corporation shall be twelve (12) until changed by a Bylaw amending
this Section 2 of this Article III, duly adopted by the board of directors or by the stockholders.
Exhibit 99.1
AVERY DENNISON ANNOUNCES
THIRD QUARTER 2009 RESULTS
THIRD QUARTER 2009 RESULTS
PASADENA, Calif. — October 27, 2009 — Avery Dennison Corporation (NYSE:AVY) today announced
preliminary third quarter 2009 results.
All non-GAAP terms are reconciled to GAAP in the attached tables.
Third Quarter Financial Summary — Preliminary
($ millions, except per share amounts)
($ millions, except per share amounts)
| 3Q | 3Q | % Change vs. P/Y | ||||||||||||||
| 2009 | 2008 | Reported | Organic (a) | |||||||||||||
Net sales, by segment: |
||||||||||||||||
Pressure-sensitive Materials |
$ | 851.0 | $ | 936.2 | -9 | % | -3 | % | ||||||||
Retail Information Services |
325.2 | 379.1 | -14 | % | -11 | % | ||||||||||
Office and Consumer Products |
242.8 | 260.4 | -7 | % | -4 | % | ||||||||||
Other specialty converting businesses |
130.3 | 149.1 | -13 | % | -10 | % | ||||||||||
Total net sales |
$ | 1,549.3 | $ | 1,724.8 | -10 | % | -6 | % | ||||||||
| As Reported (GAAP) | Adjusted Non-GAAP (b) | |||||||||||||||||||||||||||||||||||||||
| % of Sales | % of Sales | |||||||||||||||||||||||||||||||||||||||
| 2009 | 2008 | % | 2009 | 2008 | 2009 | 2008 | % | 2009 | 2008 | |||||||||||||||||||||||||||||||
Operating income (loss) before
interest and taxes, by segment: |
||||||||||||||||||||||||||||||||||||||||
Pressure-sensitive Materials |
$ | 75.7 | $ | 62.8 | 21 | % | 8.9 | % | 6.7 | % | $ | 84.0 | $ | 68.5 | 23 | % | 9.9 | % | 7.3 | % | ||||||||||||||||||||
Retail Information Services |
(29.1 | ) | 0.5 | -5920 | % | -8.9 | % | 0.1 | % | (6.8 | ) | 7.1 | -196 | % | -2.1 | % | 1.9 | % | ||||||||||||||||||||||
Office and Consumer Products |
41.0 | 41.5 | -1 | % | 16.9 | % | 15.9 | % | 40.8 | 45.4 | -10 | % | 16.8 | % | 17.4 | % | ||||||||||||||||||||||||
Other specialty converting businesses |
0.9 | 1.2 | -25 | % | 0.7 | % | 0.8 | % | 6.0 | 2.7 | 122 | % | 4.6 | % | 1.8 | % | ||||||||||||||||||||||||
Corporate expense |
(11.1 | ) | (9.7 | ) | (11.1 | ) | (9.7 | ) | ||||||||||||||||||||||||||||||||
Total operating income before
interest and taxes |
$ | 77.4 | $ | 96.3 | -20 | % | 5.0 | % | 5.6 | % | $ | 112.9 | $ | 114.0 | -1 | % | 7.3 | % | 6.6 | % | ||||||||||||||||||||
Interest expense |
19.1 | 29.0 | 19.1 | 29.0 | ||||||||||||||||||||||||||||||||||||
Income from operations
before taxes |
$ | 58.3 | $ | 67.3 | -13 | % | 3.8 | % | 3.9 | % | $ | 93.8 | $ | 85.0 | 10 | % | 6.1 | % | 4.9 | % | ||||||||||||||||||||
(Benefit from) Provision for income taxes |
($4.2 | ) | $ | 4.6 | $ | 7.0 | $ | 4.6 | ||||||||||||||||||||||||||||||||
Net income |
$ | 62.5 | $ | 62.7 | 0 | % | 4.0 | % | 3.6 | % | $ | 86.8 | $ | 80.4 | 8 | % | 5.6 | % | 4.7 | % | ||||||||||||||||||||
Net income per common share,
assuming dilution |
$ | 0.59 | $ | 0.63 | -6 | % | $ | 0.82 | $ | 0.81 | 1 | % | ||||||||||||||||||||||||||||
| 2009 | 2008 | |||||||||||||||||||||||||||||||||||||||
YTD Free Cash Flow (c) |
$ | 250.1 | $ | 251.5 | ||||||||||||||||||||||||||||||||||||
| a) | Percentage change in sales before the impact of acquisitions and foreign currency translation | |
| b) | Excludes restructuring and asset impairment charges, transition costs associated with acquisition integrations, and other items (see accompanying schedules A-3 and A-4 for reconciliation to GAAP measures). | |
| c) | Free Cash Flow (a non-GAAP measure) as used herein is defined as net cash provided by operating activities (as reported), less purchase of property, plant, equipment, software, and other deferred charges, plus proceeds from sale of investments, net (see accompanying schedule A-3 for reconciliation to GAAP measure). |
“In the face of continuing tough market conditions we increased operating margin, reflecting
the strength of our franchise businesses and the effectiveness of our operating model,” said Dean
A. Scarborough, president and chief executive
1
officer of Avery Dennison. “The combination of fixed-cost reductions and increasing variable
margins positions the Company for strong profit growth when markets improve.”
“While the rate of volume decline in the third quarter improved compared with the first half
of the year, this was largely due to a slowdown in inventory reductions,” Scarborough said. “Our
end-markets remain soft, and we continue to be cautious about the pace of their recovery.”
“I want to note the excellent performance of our employees in such uncertain times,”
Scarborough said. “They have maintained their focus on serving our customers, operating our
businesses, and laying the groundwork for the future. This has been hard work, and they’ve done a
tremendous job.”
For more details on the Company’s results for the quarter, see the Company’s supplemental
presentation materials, “Third Quarter 2009 Financial Review and Analysis,” posted at the Company’s
Web site at www.investors.averydennison.com, and furnished under Form 8-K with the SEC.
Third Quarter, 2009 Results by Segment
All references to sales reflect comparisons on an organic basis, which exclude the impact of
acquisitions and foreign currency translation. All references to operating margin exclude the
impact of restructuring, asset impairment charges, lease cancellation costs, and other items.
Pressure-sensitive Materials (PSM)
| • | Roll Materials sales declined, reflecting weakness in end-markets. Sales continued to decline in the more economically sensitive Graphics and Reflective Products division. |
2
| • | Operating margin increased as productivity offset the impact of reduced fixed-cost leverage, while the effects of pricing and raw material trends continued to cover the cumulative impact of 2008 inflation. |
Retail Information Services (RIS)
| • | The decline in sales primarily reflected reduced demand for apparel in the U.S. and in Europe, and caution on the part of retailers. | ||
| • | The decline in operating margin reflected reduced fixed-cost leverage, pricing, and other factors that more than offset the benefit of restructuring and productivity actions. | ||
| • | The Company is continuing initiatives to reduce fixed costs in light of current market conditions, while introducing new products and improving value-added services to increase its share of this large market. |
Office and Consumer Products (OCP)
| • | The decline in sales reflected weak end-market demand, led by slower corporate purchase activity. The sales decline was partially offset by strong back-to-school sales, due in part to expanded distribution and consumer trade-up to more durable binders. | ||
| • | Operating margin declined as the benefit of productivity actions was more than offset by the impact of reduced fixed-cost leverage. |
Other specialty converting businesses
| • | The decline in sales is primarily attributable to lower volume of products sold to the housing and construction industries. |
3
| • | The increase in operating margin reflected restructuring and productivity improvements that more than offset reduced fixed-cost leverage. |
Consolidated Items and Actions
| • | In the fourth quarter of 2008, the Company began a restructuring program expected to reduce costs across all segments of the business. The Company is targeting $160 million in annualized savings by mid-2010 (estimating $75 million benefit, net of transition costs, in 2009). The Company estimates that it will incur approximately $130 million of total restructuring charges associated with these actions, with approximately $110 million to be incurred in 2009. In addition to the savings from these new actions, the Company expects approximately $40 million of carryover savings in the year from previously implemented actions. | ||
| At the end of the third quarter of 2009, the Company achieved run-rate savings representing approximately 70 percent of its restructuring target. | |||
| • | The effective tax rate in the third quarter was negative 7 percent, while the adjusted tax rate was positive 7.5 percent. The effective and adjusted tax rates for the full year are expected to be in the low single-digits and low double-digits, respectively. The ongoing annual tax rate is expected to be in the low 20 percent range, varying significantly from quarter to quarter. |
Avery Dennison is a recognized industry leader that develops innovative identification and
decorative solutions for businesses and consumers worldwide. The Company’s products include
pressure-sensitive labeling materials; graphics imaging media; retail apparel ticketing and
branding systems; RFID inlays and tags; office products; specialty tapes; and a variety of
specialized labels for automotive, industrial and durable goods applications. A FORTUNE 500 Company
with sales of $6.7 billion in 2008, Avery Dennison is based in Pasadena, California and has
employees in over 60 countries. For more information, visit www.averydennison.com.
# # #
4
“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
anticipated 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; 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; volatility of capital and credit markets; impairment
of capitalized assets, including goodwill and other intangibles; credit risks; ability of the
Company to obtain adequate financing arrangements and to maintain access to capital; fluctuations
in interest and tax rates; fluctuations in pension, insurance and employee benefit costs; impact of
legal proceedings, including a previous government investigation into industry competitive
practices, and any related proceedings or lawsuits pertaining thereto or to the subject matter
thereof related to the concluded investigation by the U.S. Department of Justice (“DOJ”) (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; changes in tax laws and regulations; 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, and natural disasters; and other factors.
The Company believes that the most significant risk factors that could affect its financial
performance in the near-term include (1) the impact of economic conditions on underlying demand for
the Company’s products and on the carrying value of its assets; (2) the impact of competitors’
actions, including pricing, expansion in key markets, and product offerings; (3) the degree to
which higher costs can be offset with productivity measures and/or passed on to customers through
selling price increases, without a significant loss of volume; (4) the impact of an increase in
costs associated with the Company’s debt; and (5) the ability of the Company to achieve and sustain
targeted cost reductions.
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 most
recent Form 10-K, filed on February 25, 2009, with the Securities and Exchange Commission. The
forward-looking statements included in this document are made only as of the date of this document,
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 Third Quarter
conference call with analysts, visit the Avery Dennison Web site at www.investors.averydennison.com
5
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 | Nine Months Ended | |||||||||||||||
| Oct. 3, 2009 | Sep. 27, 2008 | Oct. 3, 2009 | Sep. 27, 2008 | |||||||||||||
| (13 Weeks) | (13 Weeks) | (40 Weeks) | (39 Weeks) | |||||||||||||
Net sales |
$ | 1,549.3 | $ | 1,724.8 | $ | 4,430.9 | $ | 5,198.9 | ||||||||
Cost of products sold |
1,113.3 | 1,290.5 | 3,259.5 | 3,850.3 | ||||||||||||
Gross profit |
436.0 | 434.3 | 1,171.4 | 1,348.6 | ||||||||||||
Marketing, general & administrative expense |
323.1 | 325.5 | 927.4 | 994.5 | ||||||||||||
Goodwill and indefinite-lived intangible asset impairment charges |
— | — | 832.0 | — | ||||||||||||
Interest expense |
19.1 | 29.0 | 67.0 | 87.8 | ||||||||||||
Other expense, net (1) |
35.5 | 12.5 | 162.4 | 23.9 | ||||||||||||
Income (loss) from operations before taxes |
58.3 | 67.3 | (817.4 | ) | 242.4 | |||||||||||
(Benefit from) provision for income taxes |
(4.2 | ) | 4.6 | (20.8 | ) | 18.9 | ||||||||||
Net income (loss) |
$ | 62.5 | $ | 62.7 | $ | (796.6 | ) | $ | 223.5 | |||||||
Per share amounts: |
||||||||||||||||
Net income (loss) per common share, assuming dilution |
$ | 0.59 | $ | 0.63 | $ | (7.73 | ) | $ | 2.26 | |||||||
Average common shares outstanding,
assuming dilution |
106.0 | 98.9 | 103.1 | 98.9 | ||||||||||||
Common shares outstanding at period end |
105.2 | 98.3 | 105.2 | 98.3 | ||||||||||||
| (1) | Other expense for the third quarter of 2009 includes $33.5 of restructuring costs, asset impairment and lease cancellation charges and legal settlement costs of $2. | |
| Other expense for the third quarter of 2008 includes $12.5 of restructuring costs, asset impairment and lease cancellation charges. | ||
| Other expense for 2009 YTD includes $102.2 of restructuring costs, asset impairment and lease cancellation charges, legal settlement costs of $39 and a loss of $21.2 from debt extinguishment. | ||
| Other expense, net, for 2008 YTD includes $28.4 of restructuring costs, asset impairment and lease cancellation charges, partially offset by ($4.5) related to a gain on sale of investments. |
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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. restructuring charges, asset impairments, legal settlement
costs, certain effects of acquisitions and related integration costs, loss
from debt extinguishment, gains on sales of assets, 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 adjusts the estimated full-year GAAP tax rate to exclude
the tax rate effect of charges for goodwill and indefinite-lived intangible
asset impairments to determine its anticipated adjusted non-GAAP tax rate to
derive non-GAAP net income.
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.) and
items that occur infrequently (e.g. legal settlement costs, loss from debt
extinguishment) from calculations of the Company’s earnings and operating
margin; (2) the exclusion of certain 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 certain items that 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 | Nine Months Ended | |||||||||||||||
| Oct. 3, 2009 | Sep. 27, 2008 | Oct. 3, 2009 | Sep. 27, 2008 | |||||||||||||
| (13 Weeks) | (13 Weeks) | (40 Weeks) | (39 Weeks) | |||||||||||||
Reconciliation of GAAP to Non-GAAP Operating Margin: |
||||||||||||||||
Net sales |
$ | 1,549.3 | $ | 1,724.8 | $ | 4,430.9 | $ | 5,198.9 | ||||||||
Income (loss) from operations before taxes |
$ | 58.3 | $ | 67.3 | $ | (817.4 | ) | $ | 242.4 | |||||||
GAAP Operating Margin |
3.8 | % | 3.9 | % | (18.4 | %) | 4.7 | % | ||||||||
Income (loss) from operations before taxes |
$ | 58.3 | $ | 67.3 | $ | (817.4 | ) | $ | 242.4 | |||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
27.0 | 8.7 | 69.9 | 19.2 | ||||||||||||
Asset impairment and lease cancellation charges |
6.5 | 3.8 | 32.3 | 9.2 | ||||||||||||
Loss from debt extinguishment |
— | — | 21.2 | — | ||||||||||||
Legal settlement costs |
2.0 | — | 39.0 | — | ||||||||||||
Goodwill and indefinite-lived intangible asset impairment charges |
— | — | 832.0 | — | ||||||||||||
Transition costs associated with acquisition integrations (1) |
— | 5.2 | — | 17.9 | ||||||||||||
Other (2) |
— | — | — | (4.5 | ) | |||||||||||
Interest expense |
19.1 | 29.0 | 67.0 | 87.8 | ||||||||||||
Adjusted non-GAAP operating income before taxes and interest expense |
$ | 112.9 | $ | 114.0 | $ | 244.0 | $ | 372.0 | ||||||||
Adjusted Non-GAAP Operating Margin |
7.3 | % | 6.6 | % | 5.5 | % | 7.2 | % | ||||||||
Reconciliation of GAAP to Non-GAAP Net Income: |
||||||||||||||||
As reported net income (loss) |
$ | 62.5 | $ | 62.7 | $ | (796.6 | ) | $ | 223.5 | |||||||
Non-GAAP adjustments, net of taxes:(4)
|
||||||||||||||||
Goodwill and indefinite-lived intangible asset impairment charges |
— | — | 812.6 | — | ||||||||||||
All other (3) |
24.3 | 17.7 | 141.5 | 37.9 | ||||||||||||
Adjusted Non-GAAP Net Income |
$ | 86.8 | $ | 80.4 | $ | 157.5 | $ | 261.4 | ||||||||
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 | Nine Months Ended | |||||||||||||||
| Oct. 3, 2009 | Sep. 27, 2008 | Oct. 3, 2009 | Sep. 27, 2008 | |||||||||||||
| (13 Weeks) | (13 Weeks) | (40 Weeks) | (39 Weeks) | |||||||||||||
Reconciliation of GAAP to Non-GAAP Earnings Per Share: |
||||||||||||||||
As reported income (loss) per common share, assuming dilution |
$ | 0.59 | $ | 0.63 | $ | (7.73 | ) | $ | 2.26 | |||||||
Non-GAAP adjustments per share, net of taxes: |
||||||||||||||||
Goodwill and indefinite-lived intangible asset impairment charges |
— | — | 7.88 | — | ||||||||||||
All other (3) |
0.23 | 0.18 | 1.38 | 0.38 | ||||||||||||
Adjusted Non-GAAP income per common share,
assuming dilution |
$ | 0.82 | $ | 0.81 | $ | 1.53 | $ | 2.64 | ||||||||
Average common shares outstanding,
assuming dilution |
106.0 | 98.9 | 103.1 | 98.9 | ||||||||||||
| (1) | 2008 QTD and YTD includes transition costs associated with acquisition integrations and change-in-control costs reported in marketing, general & administrative expense. | |
| (2) | 2008 YTD includes a gain on sale of investments. | |
| (3) | Reflects after-tax effect on restructuring costs, asset impairment and lease cancellation charges, legal settlement costs, loss from debt extinguishment, transition costs associated with acquisition integrations and gain on sale of investments. | |
| (4) | The Company adjusts the estimated full-year GAAP tax rate to exclude the tax rate effect of charges for goodwill and indefinite-lived intangible asset impairments to determine its anticipated adjusted non-GAAP tax rate to derive non-GAAP net income. |
| (UNAUDITED) | ||||||||
| Nine Months Ended | ||||||||
| Oct. 3, 2009 | Sep. 27, 2008 | |||||||
| (40 Weeks) | (39 Weeks) | |||||||
Reconciliation of GAAP to Non-GAAP Cash Flow: |
||||||||
Net cash provided by operating activities |
$ | 316.9 | $ | 382.3 | ||||
Purchase of property, plant and equipment |
(46.7 | ) | (97.8 | ) | ||||
Purchase of software and other deferred charges |
(20.4 | ) | (49.2 | ) | ||||
Proceeds from sale of investments, net |
0.3 | 16.2 | ||||||
Free Cash Flow |
$ | 250.1 | $ | 251.5 | ||||
-more-
A-4
AVERY DENNISON
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
| (UNAUDITED) | ||||||||||||||||||||||||
| Third Quarter Ended | ||||||||||||||||||||||||
| NET SALES | OPERATING INCOME (LOSS) | OPERATING MARGINS | ||||||||||||||||||||||
| 2009 | 2008 | 2009(1) | 2008(2) | 2009 | 2008 | |||||||||||||||||||
| (13 weeks) | (13 weeks) | (13 weeks) | (13 weeks) | (13 weeks) | (13 weeks) | |||||||||||||||||||
Pressure-sensitive
Materials |
$ | 851.0 | $ | 936.2 | $ | 75.7 | $ | 62.8 | 8.9 | % | 6.7 | % | ||||||||||||
Retail Information Services |
325.2 | 379.1 | (29.1 | ) | 0.5 | (8.9 | %) | 0.1 | % | |||||||||||||||
Office and Consumer Products |
242.8 | 260.4 | 41.0 | 41.5 | 16.9 | % | 15.9 | % | ||||||||||||||||
Other specialty converting businesses |
130.3 | 149.1 | 0.9 | 1.2 | 0.7 | % | 0.8 | % | ||||||||||||||||
Corporate Expense |
N/A | N/A | (11.1 | ) | (9.7 | ) | N/A | N/A | ||||||||||||||||
Interest Expense |
N/A | N/A | (19.1 | ) | (29.0 | ) | N/A | N/A | ||||||||||||||||
TOTAL FROM OPERATIONS |
$ | 1,549.3 | $ | 1,724.8 | $ | 58.3 | $ | 67.3 | 3.8 | % | 3.9 | % | ||||||||||||
| (1) | Operating income for the third quarter of 2009 includes $33.5 of restructuring costs, asset impairment and lease cancellation charges and legal settlement costs of $2; of the total $35.5, the Pressure-sensitive Materials segment recorded $8.3, the Retail Information Services segment recorded $22.3, the Office and Consumer Products segment recorded ($.2) and the other specialty converting businesses recorded $5.1. | |
| (2) | Operating income for the third quarter of 2008 includes $12.5 of restructuring costs, asset impairment and lease cancellation charges and $5.2 of transition costs associated with acquisition integrations; of the total $17.7, the Pressure-sensitive Materials segment recorded $5.7, the Retail Information Services segment recorded $6.6, the Office and Consumer Products segment recorded $3.9 and the other specialty converting businesses recorded $1.5. | |
| Beginning in 2009, the Company modified its approach to allocating Corporate costs to its operating segments to better reflect the costs required to support operations within segment results. Prior year amounts have been restated to conform with the new methodology. | ||
RECONCILIATION OF GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
| Third Quarter Ended | ||||||||||||||||
| OPERATING INCOME (LOSS) | OPERATING MARGINS | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Pressure-sensitive Materials |
||||||||||||||||
Operating income, as reported |
$ | 75.7 | $ | 62.8 | 8.9 | % | 6.7 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
3.9 | 2.5 | 0.5 | % | 0.3 | % | ||||||||||
Asset impairment and lease cancellation charges |
2.4 | 3.2 | 0.3 | % | 0.3 | % | ||||||||||
Legal settlement costs |
2.0 | — | 0.2 | % | — | |||||||||||
Adjusted non-GAAP operating income |
$ | 84.0 | $ | 68.5 | 9.9 | % | 7.3 | % | ||||||||
Retail
Information Services |
||||||||||||||||
Operating (loss) income, as reported |
$ | (29.1 | ) | $ | 0.5 | (8.9 | %) | 0.1 | % | |||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
21.0 | 1.4 | 6.4 | % | 0.4 | % | ||||||||||
Asset impairment and lease cancellation charges |
1.3 | — | 0.4 | % | — | |||||||||||
Transition costs associated with acquisition integrations |
— | 5.2 | — | 1.4 | % | |||||||||||
Adjusted non-GAAP operating (loss) income |
$ | (6.8 | ) | $ | 7.1 | (2.1 | %) | 1.9 | % | |||||||
Office
and Consumer Products |
||||||||||||||||
Operating income, as reported |
$ | 41.0 | $ | 41.5 | 16.9 | % | 15.9 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
(0.2 | ) | 3.3 | (0.1 | %) | 1.3 | % | |||||||||
Asset impairment charges |
— | 0.6 | — | 0.2 | % | |||||||||||
Adjusted non-GAAP operating income |
$ | 40.8 | $ | 45.4 | 16.8 | % | 17.4 | % | ||||||||
Other
specialty converting businesses |
||||||||||||||||
Operating income, as reported |
$ | 0.9 | $ | 1.2 | 0.7 | % | 0.8 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
2.3 | 1.5 | 1.8 | % | 1.0 | % | ||||||||||
Asset impairment charges |
2.8 | — | 2.1 | % | — | |||||||||||
Adjusted non-GAAP operating income |
$ | 6.0 | $ | 2.7 | 4.6 | % | 1.8 | % | ||||||||
-more-
A-5
AVERY DENNISON
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
| (UNAUDITED) | ||||||||||||||||||||||||
| Nine Months Year-to-Date | ||||||||||||||||||||||||
| NET SALES | OPERATING INCOME (LOSS) | OPERATING MARGINS | ||||||||||||||||||||||
| 2009 | 2008 | 2009(1) | 2008(2) | 2009 | 2008 | |||||||||||||||||||
| (40 weeks) | (39 weeks) | (40 weeks) | (39 weeks) | (40 weeks) | (39 weeks) | |||||||||||||||||||
Pressure-sensitive
Materials |
$ | 2,453.4 | $ | 2,835.7 | $ | 126.1 | $ | 217.0 | 5.1 | % | 7.7 | % | ||||||||||||
Retail Information Services |
972.7 | 1,189.3 | (888.4 | ) | 17.1 | (91.3 | %) | 1.4 | % | |||||||||||||||
Office and Consumer Products |
644.1 | 710.2 | 98.9 | 104.1 | 15.4 | % | 14.7 | % | ||||||||||||||||
Other specialty converting businesses |
360.7 | 463.7 | (37.0 | ) | 16.5 | (10.3 | %) | 3.6 | % | |||||||||||||||
Corporate Expense |
N/A | N/A | (50.0 | ) | (24.5 | ) | N/A | N/A | ||||||||||||||||
Interest Expense |
N/A | N/A | (67.0 | ) | (87.8 | ) | N/A | N/A | ||||||||||||||||
TOTAL FROM OPERATIONS |
$ | 4,430.9 | $ | 5,198.9 | $ | (817.4 | ) | $ | 242.4 | (18.4 | %) | 4.7 | % | |||||||||||
| (1) | Operating loss for 2009 includes $832 of goodwill and indefinite-lived intangible asset impairment charges, $102.2 of restructuring costs, asset impairment and lease cancellation charges, legal settlement costs of $39 and a loss of $21.2 from debt extinguishment; of the total $994.4, the Pressure-sensitive Materials segment recorded $70.2, the Retail Information Services segment recorded $869, the Office and Consumer Products segment recorded $5.5, the other specialty converting businesses recorded $28.5 and Corporate recorded $21.2. | |
| (2) | Operating income for 2008 includes $28.4 of restructuring costs, asset impairment and lease cancellation charges and $17.9 of transition costs associated with acquisition integrations, partially offset by ($4.5) related to a gain on sale of investments; of the total $41.8, the Pressure-sensitive Materials segment recorded $10, the Retail Information Services segment recorded $26.4, the Office and Consumer Products segment recorded $8.2, the other specialty converting businesses recorded $1.7 and Corporate recorded ($4.5). | |
| Beginning in 2009, the Company modified its approach to allocating Corporate costs to its operating segments to better reflect the costs required to support operations within segment results. Prior year amounts have been restated to conform with the new methodology. | ||
RECONCILIATION OF GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
| Nine Months Year-to-Date | ||||||||||||||||
| OPERATING INCOME (LOSS) | OPERATING MARGINS | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Pressure-sensitive
Materials |
||||||||||||||||
Operating income, as reported |
$ | 126.1 | $ | 217.0 | 5.1 | % | 7.7 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
24.9 | 4.2 | 1.0 | % | 0.1 | % | ||||||||||
Asset impairment and lease cancellation charges |
6.3 | 5.8 | 0.3 | % | 0.2 | % | ||||||||||
Legal settlement costs |
39.0 | — | 1.6 | % | — | |||||||||||
Adjusted non-GAAP operating income |
$ | 196.3 | $ | 227.0 | 8.0 | % | 8.0 | % | ||||||||
Retail
Information Services |
||||||||||||||||
Operating (loss) income, as reported |
$ | (888.4 | ) | $ | 17.1 | (91.3 | %) | 1.4 | % | |||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
31.4 | 5.7 | 3.2 | % | 0.5 | % | ||||||||||
Asset impairment and lease cancellation charges |
5.6 | 2.8 | 0.6 | % | 0.3 | % | ||||||||||
Transition costs associated with acquisition integrations |
— | 17.9 | — | 1.5 | % | |||||||||||
Goodwill and indefinite-lived intangible asset impairment charges |
832.0 | — | 85.5 | % | — | |||||||||||
Adjusted non-GAAP operating (loss) income |
$ | (19.4 | ) | $ | 43.5 | (2.0 | %) | 3.7 | % | |||||||
Office
and Consumer Products |
||||||||||||||||
Operating income, as reported |
$ | 98.9 | $ | 104.1 | 15.4 | % | 14.7 | % | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
1.0 | 7.6 | 0.1 | % | 1.1 | % | ||||||||||
Asset impairment charges |
4.5 | 0.6 | 0.7 | % | — | % | ||||||||||
Adjusted non-GAAP operating income |
$ | 104.4 | $ | 112.3 | 16.2 | % | 15.8 | % | ||||||||
Other
specialty converting businesses |
||||||||||||||||
Operating (loss) income, as reported |
$ | (37.0 | ) | $ | 16.5 | (10.3 | %) | 3.6 | % | |||||||
Non-GAAP adjustments: |
||||||||||||||||
Restructuring costs |
12.6 | 1.7 | 3.5 | % | 0.3 | % | ||||||||||
Asset impairment charges |
15.9 | — | 4.4 | % | — | |||||||||||
Adjusted non-GAAP operating (loss) income |
$ | (8.5 | ) | $ | 18.2 | (2.4 | %) | 3.9 | % | |||||||
-more-
A-6
AVERY DENNISON
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
| (UNAUDITED) | ||||||||
| Oct. 3, 2009 | Sep. 27, 2008 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 91.9 | $ | 81.3 | ||||
Trade accounts receivable, net |
1,008.6 | 1,120.7 | ||||||
Inventories, net |
511.8 | 648.7 | ||||||
Other current assets |
212.0 | 286.2 | ||||||
Total current assets |
1,824.3 | 2,136.9 | ||||||
Property, plant and equipment, net |
1,393.3 | 1,543.3 | ||||||
Goodwill |
962.2 | 1,775.0 | ||||||
Other intangibles resulting from business acquisitions, net |
271.3 | 298.0 | ||||||
Non-current deferred and refundable income taxes |
216.8 | 80.1 | ||||||
Other assets |
426.7 | 551.7 | ||||||
| $ | 5,094.6 | $ | 6,385.0 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Short-term and current portion of long-term debt |
$ | 669.4 | $ | 721.6 | ||||
Accounts payable |
650.5 | 730.6 | ||||||
Other current liabilities |
668.4 | 673.2 | ||||||
Total current liabilities |
1,988.3 | 2,125.4 | ||||||
Long-term debt |
1,115.7 | 1,545.2 | ||||||
Other long-term liabilities |
690.6 | 615.8 | ||||||
Shareholders’ equity: |
||||||||
Common stock |
124.1 | 124.1 | ||||||
Capital in excess of par value |
698.4 | 747.4 | ||||||
Retained earnings |
1,472.4 | 2,382.3 | ||||||
Accumulated other comprehensive (loss) income |
(170.8 | ) | 75.0 | |||||
Cost of unallocated ESOP shares |
— | (3.8 | ) | |||||
Employee stock benefit trusts |
(253.3 | ) | (358.7 | ) | ||||
Treasury stock at cost |
(570.8 | ) | (867.7 | ) | ||||
Total shareholders’ equity |
1,300.0 | 2,098.6 | ||||||
| $ | 5,094.6 | $ | 6,385.0 | |||||
-more-
A-7
AVERY DENNISON
PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
| (UNAUDITED) | ||||||||
| Nine Months Ended | ||||||||
| Oct. 3, 2009 | Sep. 27, 2008 | |||||||
| (40 Weeks) | (39 Weeks) | |||||||
Operating Activities: |
||||||||
Net (loss) income |
$ | (796.6 | ) | $ | 223.5 | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
139.8 | 154.8 | ||||||
Amortization |
55.8 | 55.7 | ||||||
Provision for doubtful accounts |
16.3 | 13.1 | ||||||
Goodwill and indefinite-lived intangible asset impairment charges |
832.0 | — | ||||||
Asset impairments and net loss on sale and disposal of assets |
39.3 | 16.4 | ||||||
Loss from debt extinguishment |
21.2 | — | ||||||
Stock-based compensation |
19.8 | 24.0 | ||||||
Other non-cash expense and loss |
16.2 | 3.2 | ||||||
Other non-cash income and gain |
(7.2 | ) | (14.9 | ) | ||||
| 336.6 | 475.8 | |||||||
Changes in assets and liabilities and other adjustments, net of the effect of business acquisitions |
(19.7 | ) | (93.5 | ) | ||||
Net cash provided by operating activities |
316.9 | 382.3 | ||||||
Investing Activities: |
||||||||
Purchase of property, plant and equipment |
(46.7 | ) | (97.8 | ) | ||||
Purchase of software and other deferred charges |
(20.4 | ) | (49.2 | ) | ||||
Payments for acquisitions |
— | (130.6 | ) | |||||
Proceeds from sale of investments, net |
0.3 | 16.2 | ||||||
Other |
(4.0 | ) | 7.0 | |||||
Net cash used in investing activities |
(70.8 | ) | (254.4 | ) | ||||
Financing Activities: |
||||||||
Net decrease in borrowings (maturities of 90 days or less) |
(58.1 | ) | (386.3 | ) | ||||
Additional borrowings (maturities longer than 90 days) |
— | 400.1 | ||||||
Payments of debt (maturities longer than 90 days) |
(93.2 | ) | (0.7 | ) | ||||
Dividends paid |
(112.3 | ) | (131.4 | ) | ||||
Purchase of treasury stock |
— | (9.8 | ) | |||||
Proceeds from exercise of stock options, net |
— | 2.3 | ||||||
Other |
2.0 | 8.2 | ||||||
Net cash used in financing activities |
(261.6 | ) | (117.6 | ) | ||||
Effect of foreign currency translation on cash balances |
1.9 | (0.5 | ) | |||||
(Decrease) increase in cash and cash equivalents |
(13.6 | ) | 9.8 | |||||
Cash and cash equivalents, beginning of year |
105.5 | 71.5 | ||||||
Cash and cash equivalents, end of period |
$ | 91.9 | $ | 81.3 | ||||
####
Exhibit 99.2
| Supplemental Presentation Materials Third Quarter 2009 Financial Review and Analysis (unaudited) October 27, 2009 |
| 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 anticipated 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; 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; volatility of capital and credit markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; ability of the Company to obtain adequate financing arrangements and to maintain access to capital; fluctuations in interest and tax rates; fluctuations in pension, insurance and employee benefit costs; impact of legal proceedings, including a previous government investigation into industry competitive practices, and any related proceedings or lawsuits pertaining thereto or to the subject matter thereof related to the concluded investigation by the U.S. Department of Justice ("DOJ") (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; changes in tax laws and regulations; 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, and natural disasters; and other factors. The Company believes that the most significant risk factors that could affect its financial performance in the near- term include (1) the impact of economic conditions on underlying demand for the Company's products and on the carrying value of its assets; (2) the impact of competitors' actions, including pricing, expansion in key markets, and product offerings; (3) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through selling price increases, without a significant loss of volume; (4) the impact of an increase in costs associated with the Company's debt; and (5) the ability of the Company to achieve and sustain targeted cost reductions. The financial information presented in this document represents preliminary, unaudited financial results. |
| 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 schedules 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 October 27, 2009.) 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., restructuring charges, asset impairments, legal settlement costs, certain effects of acquisitions and related integration costs, loss from debt extinguishment, gains on sales of assets, 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 adjusts the estimated full-year GAAP tax rate to exclude the tax rate effect of charges for goodwill and indefinite- lived intangible asset impairments to determine its anticipated adjusted non-GAAP tax rate to derive non-GAAP net income. (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. |
| October 27, 2009 Third Quarter 2009 Financial Review and Analysis 4 Overview Continued weakness in the macroeconomic environment drove volume declines in all segments Rate of volume decline improved vs. the first half of 2009 Inventory levels in many markets appear to be stabilizing End markets remain soft Restructuring and productivity initiatives more than offset the operating margin impact of the volume decline Well positioned for profitable growth when markets improve: On track to achieve over $160 mil. reduction in fixed costs through restructuring actions Increasing variable margins Investing for long-term growth Remain highly focused on free cash flow: Reduced debt by $140 million in the third quarter; on track to achieve debt reduction target |
| Third Quarter Summary Net sales declined 10% from prior year Currency translation reduced sales growth by 4% On an organic basis(1), net sales declined 6% Operating margin increased to 7.3% before restructuring, asset impairment charges, lease cancellation costs, and other items Restructuring and productivity initiatives more than offset the operating margin impact of the volume decline The effect of pricing and material cost trends has offset the cumulative impact of 2008 inflation, contributing to year-on-year margin improvement for the quarter 5 Third Quarter 2009 Financial Review and Analysis October 27, 2009 (1) Throughout this document, all references to organic sales change refer to results before the impact of acquisitions, foreign currency translation, and an extra week in the first quarter of 2009. |
| Third Quarter Summary (continued) Restructuring update: Anticipating $160 mil. of annualized savings from restructuring initiated in the fourth quarter of last year, with approx. $75 mil. of benefit (net of transition costs) expected in 2009 Achieved a run rate of nearly 70% of savings target at end of third quarter Effective tax rate for the quarter was negative 7%; adjusted tax rate for the quarter was positive 7.5% 2009 effective and adjusted tax rates are expected to be in the low single-digits and low double-digits, respectively Ongoing annual tax rate expected to be in the low 20% range, varying significantly from quarter to quarter Reported EPS of $0.59 includes $0.23 of restructuring, asset impairment, and other charges Adjusted EPS of $0.82 6 Third Quarter 2009 Financial Review and Analysis October 27, 2009 |
| 7 Reported Sales Change 2.5% (11.8%) (13.3%) (20.4%) (10.2%) 3Q08 4Q08 1Q09 Organic Sales Change(1) (2.5%) (8.1%) (14.5%) (13.5%) (5.9%) Acquisitions 0.6% 0.6% 0.6% -- -- Currency 4.5% (4.4%) (6.4%) (6.9%) (4.3%) Extra Week -- -- 7.0% -- -- 2Q09 3Q09 Sales Analysis (1) Reported Sales Change (year-over-year) less the impacts of foreign currency translation, acquisitions, and an extra week in 1Q09 (calculation may not tie due to rounding). Third Quarter 2009 Financial Review and Analysis October 27, 2009 |
| 8 Gross Profit Margin (total Company) 28.1% 25.2% 26.8% Operating Margin (non-GAAP(1)): Pressure-sensitive Materials 9.9% 7.3% 8.1% Retail Information Services (2.1%) 1.9% (0.2%) Office and Consumer Products 16.8% 17.4% 17.3% Other specialty converting businesses 4.6% 1.8% (2.4)% Total Company 7.3% 6.6% 6.2% (1) 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. (2) Prior year numbers restated for change in methodology related to allocation of corporate expense to operating segments. 3Q09 3Q08(2) 2Q09 Margin Analysis Third Quarter 2009 Financial Review and Analysis October 27, 2009 |
| Key Factors Impacting Margin Gross profit margin improved 290 basis points vs. prior year to 28.1% The benefit of restructuring and other productivity initiatives more than offset the margin impact of lower volume (i.e., reduced fixed-cost leverage) The effect of pricing and material cost trends has offset the cumulative impact of 2008 inflation, contributing to year-on-year margin improvement for the quarter Marketing, general and administrative (MG&A) expense ratio increased by 200 basis points compared to the prior year Absolute MG&A was essentially flat compared to the prior year Combined benefit of restructuring and other productivity initiatives, as well as currency translation (approx. $12 mil.), offset increased spending related to employee costs and new growth-related initiatives 9 Third Quarter 2009 Financial Review and Analysis October 27, 2009 |
| 10 Third Quarter Segment Overview PRESSURE-SENSITIVE MATERIALS Reported sales of $851 mil., down 9% compared with prior year Organic sales decline of approx. 3% Rate of change in sales (organic basis) for roll materials business, by region: Europe: mid single-digit decline North America: low single-digit decline Emerging Markets: mid single-digit increase Graphics & Reflective sales down low double-digit on an organic basis Excluding restructuring charges and other items, operating margin increased 260 basis points to 9.9% Operating margin increased as productivity offset the impact of reduced fixed-cost leverage, while the effects of pricing and raw material trends continued to cover the cumulative impact of 2008 inflation Third Quarter 2009 Financial Review and Analysis October 27, 2009 |
| 11 Third Quarter Segment Overview (continued) RETAIL INFORMATION SERVICES Reported sales of $325 mil., down 14% compared with prior year Organic sales decline of approx. 11% Operating margin before restructuring charges and other items declined to negative 2.1%, as reduced fixed-cost leverage, pricing, and other factors more than offset the benefit of restructuring actions and other productivity Continuing initiatives to reduce fixed costs, while introducing new products and improving value-added services to increase market share Third Quarter 2009 Financial Review and Analysis October 27, 2009 |
| 12 Third Quarter Segment Overview (continued) OFFICE AND CONSUMER PRODUCTS Reported sales of $243 mil., down 7% compared with prior year Organic sales decline of approx. 4%, despite strong back-to-school sales Corporate purchasing activity remains weak Excluding restructuring charges and other items, operating margin declined to 16.8% as the benefit of productivity actions was offset by the impact of reduced fixed-cost leverage OTHER SPECIALTY CONVERTING BUSINESSES Reported sales of $130 mil., down 13% compared with prior year Organic sales decline of approx. 10% Excluding restructuring charges and other items, operating margin increased to 4.6%, as substantial restructuring and productivity improvements more than offset reduced fixed-cost leverage Third Quarter 2009 Financial Review and Analysis October 27, 2009 |
| 13 ($ Millions) 2009 2008 Net cash provided by operating activities $ 316.9 $ 382.3 Purchase of property, plant and equipment $ (46.7) $ (97.8) Purchase of software and other deferred charges $ (20.4) $ (49.2) Proceeds from sale of investments, net $ 0.3 $ 16.2 Free Cash Flow(1) $ 250.1 $ 251.5 (1) Net cash provided by operating activities (as reported), less purchase of property, plant, equipment, software, and other deferred charges, plus proceeds from sale of investments, net. (1) Net cash provided by operating activities (as reported), less purchase of property, plant, equipment, software, and other deferred charges, plus proceeds from sale of investments, net. (1) Net cash provided by operating activities (as reported), less purchase of property, plant, equipment, software, and other deferred charges, plus proceeds from sale of investments, net. (1) Net cash provided by operating activities (as reported), less purchase of property, plant, equipment, software, and other deferred charges, plus proceeds from sale of investments, net. (1) Net cash provided by operating activities (as reported), less purchase of property, plant, equipment, software, and other deferred charges, plus proceeds from sale of investments, net. Year-To-Date Cash Flow Third Quarter 2009 Financial Review and Analysis October 27, 2009 |
| 14 Factors Impacting 2009 Results Currency translation (at current rates, represents approx. 4% headwind to reported sales growth; approx. $20 mil. negative impact to EBIT vs. 2008) Estimated $75 mil. of savings (net of transition costs) from new restructuring actions Estimated $110 mil. restructuring charges associated with these actions Carryover savings of approx. $40 mil. from previously implemented actions Increased investment in new business opportunities Incremental pension and other employee- related expenses Lower interest expense Adjusted tax rate expected to be in the low double-digits 53 weeks in 2009 fiscal year; 14 weeks in first quarter (minimal benefit to FY earnings) Capital expenditures (including IT) of approximately $100 mil. Depreciation and amortization ^ $260 mil. Potential incremental contribution to pension fund ^ $25 mil. Legal settlements of $39 mil. Non-cash impairment charge of $832 mil. 2009 Commentary Fourth Quarter Sequential Trends Third Quarter 2009 Financial Review and Analysis October 27, 2009 Lower seasonal volume Effect of fiscal calendar change reduces sales by approx. $50 mil. Raw material inflation pressure building |
| AVERY DENNISON |
Exhibit 99.3
DEBRA REED ELECTED TO AVERY DENNISON
BOARD OF DIRECTORS
BOARD OF DIRECTORS
PASADENA, Calif. — October 22, 2009 — Avery Dennison Corporation (NYSE:AVY) today announced that
its board of directors has elected Debra L. Reed a director of the Company, effective October 22,
2009.
Reed is president and chief executive officer of San Diego Gas & Electric and Southern California
Gas Co., the regulated utilities of Sempra Energy, the San Diego-based Fortune 500 energy services
holding company. San Diego Gas & Electric (SDG&E) serves 3.4 million consumers in San Diego and
southern Orange counties and Southern California Gas (SoCalGas) is the nation’s largest natural gas
distribution utility, serving 20.5 million consumers in central and southern California.
“Debbie Reed brings a rich combination of technical, operating and marketing expertise to our board
of directors,” said Dean A. Scarborough, president and chief executive officer of Avery Dennison.
“Under her leadership, Sempra’s utilities are pioneering the use of information technology such as
smart meters to promote energy efficiency. We will benefit from her insights into driving
customer-focused change.”
Reed’s 31 years with Sempra Energy have included roles in human resources, administrative services,
engineering, and marketing, as well as senior leadership. She was appointed president and CEO of
SDG&E and SoCalGas in October 2006 after six years in senior leadership roles at both utilities,
among them chief operating officer and chief financial officer as well as president. Before that,
Reed served as president of Energy Distribution Services at SoCalGas, overseeing the company’s
operations for residential, small commercial and industrial customers. From 1995 to 2000, she
served as senior vice president of SoCalGas.
Reed serves on the board of directors for Halliburton Company; the Jacobs School of Engineering of
the University of California, San Diego; the Precourt Institute for Energy Efficiency at Stanford
University; and the San Diego Regional Economic Development Corp. She is also a member of The
Trusteeship, an affiliate of the International Women’s Forum.
Reed is the recipient of numerous awards and recognition, including the California Science Center’s
“Woman of the Year” award and the League of Women Voters Glass Ceiling Award. She graduated summa
cum laude from the University of Southern California with a bachelor’s degree in civil engineering.
Avery Dennison is a recognized industry leader that develops innovative identification and
decorative solutions for businesses and consumers worldwide. The Company’s products include
pressure-sensitive labeling materials; graphics imaging media; retail apparel ticketing and
branding systems; RFID inlays and tags; office products; specialty tapes; and a variety of
specialized labels for automotive, industrial and durable goods applications. A FORTUNE 500 Company
with sales of $6.7 billion in 2008, Avery Dennison is based in Pasadena, California and has more
than 32,000 employees in over 60 countries. For more information, visit www.averydennison.com.