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
February 1, 2017
Date of Report
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AVERY DENNISON CORPORATION |
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(Exact name of registrant as specified in its charter) |
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Delaware |
1 -7685 |
95-1492269 |
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(State or other jurisdiction |
(Commission |
(IRS Employer |
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of incorporation) |
File Number) |
Identification No.) |
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207 Goode Avenue |
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91203 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code (626) 304-2000
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(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):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Section 2 - Financial Information
Item 2.02 Results of Operations and Financial Condition.
Avery Dennison Corporation’s (the “Company’s”) press release, dated February 1, 2017, regarding the Company’s preliminary, unaudited financial results for fourth quarter and full year 2016 and guidance for the 2017 fiscal year, is attached hereto as Exhibit 99.1 and is being furnished (not filed) with this Form 8-K.
The Company’s supplemental presentation materials, dated February 1, 2017, regarding the Company’s preliminary, unaudited financial review and analysis for fourth quarter and full year 2016 and guidance for the 2017 fiscal year, is attached hereto as Exhibit 99.2 and is being furnished (not filed) with this Form 8-K. The press release and presentation materials are also available on the Company’s website at www.investors.averydennison.com.
The Company will discuss its preliminary, unaudited financial results during a webcast and teleconference today, February 1, 2017, at 11:00 a.m. ET. To access the webcast and teleconference, please go to the Company’s website at www.investors.averydennison.com.
Section 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
99.1 Press release, dated February 1, 2017, regarding the Company’s preliminary, unaudited fourth quarter and full year 2016 financial results.
99.2 Supplemental presentation materials, dated February 1, 2017, regarding the Company’s preliminary, unaudited financial review and analysis for fourth quarter and full year 2016.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this report on Form 8-K and in Exhibits 99.1 and 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. These 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 the following: fluctuations in demand affecting sales to customers; worldwide and local economic conditions; fluctuations in currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in customer preferences; fluctuations in cost and availability of raw materials; the Company’s ability to generate sustained productivity improvement; the Company’s ability to achieve and sustain targeted cost reductions; the impact of competitive products and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; integration of acquisitions and completion of potential dispositions; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; the Company’s ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; fluctuations in pension, insurance, and employee benefit costs; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety; changes in governmental laws and regulations; protection and
infringement of intellectual property; changes in political conditions; the 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 impacts of global economic conditions and political uncertainty on underlying demand for the Company’s products and foreign currency fluctuations; (2) competitors’ actions, including pricing, expansion in key markets, and product offerings; and (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.
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 2015 Form 10-K, filed on February 24, 2016 with the Securities and Exchange Commission, and subsequent quarterly reports on Form 10-Q. 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 these statements to reflect subsequent events or circumstances, other than as may be required by law.
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.
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AVERY DENNISON CORPORATION | |
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Date: February 1, 2017 |
By: |
/s/ Anne L. Bramman | |
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Name: |
Anne L. Bramman |
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Title: |
Senior Vice President and |
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Chief Financial Officer |
EXHIBIT LIST
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Exhibit No. |
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Description |
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99.1 |
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Press release, dated February 1, 2017, regarding the Company’s preliminary, unaudited fourth quarter and full year 2016 financial results. |
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99.2 |
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Supplemental presentation materials, dated February 1, 2017, regarding the Company’s preliminary, unaudited financial review and analysis for fourth quarter and full year 2016. |
Exhibit 99.1
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For Immediate Release
AVERY DENNISON ANNOUNCES
FOURTH QUARTER AND FULL YEAR 2016 RESULTS
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Ø 4Q16 Reported EPS of $0.69 Ø Adjusted EPS (non-GAAP) of $0.99 Ø 4Q16 Net sales increased ~7 percent to $1.55 billion Ø Organic sales growth (non-GAAP) of ~5 percent Ø FY16 Reported EPS of $3.54 Ø Adjusted EPS (non-GAAP) of $4.02 Ø FY16 Net sales increased ~2 percent to $6.09 billion Ø Organic sales growth (non-GAAP) of ~4 percent Ø Expect FY17 Reported EPS of $4.10 to $4.30 Ø Adjusted EPS (non-GAAP) of $4.30 to $4.50
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GLENDALE, Calif., February 1, 2017 – Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its fourth quarter and year ended December 31, 2016. All non-GAAP financial measures referenced in this document are reconciled to GAAP in the attached tables. Unless otherwise indicated, comparisons are to the same periods in the prior year.
“I am pleased to report another year of progress toward our long-term goals,” said Mitch Butier, President and CEO. “We drove strong organic sales growth and margin expansion through our strategy to accelerate growth in high value categories and disciplined execution in our base businesses.
“Label and Graphic Materials had another outstanding year and the transformation of Retail Branding and Information Solutions is on track. Results in our newly created Industrial and Healthcare Materials segment were as anticipated, and it is well positioned for profitable growth. I would like to thank our employees for their dedication and focus on our continued success.
“In 2017, we expect to again deliver solid sales and earnings growth,” said Butier. “We remain confident that the consistent execution of our strategies will enable us to achieve our long-term goal of superior value creation through a balance of profitable growth and capital discipline.”
For more details on the company’s results, see the summary table accompanying this news release, as well as the supplemental presentation materials, “Fourth Quarter and Full Year 2016 Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SEC on Form 8-K.
Fourth Quarter 2016 Results by Segment
Prior period amounts have been reclassified to reflect the company’s new operating structure. The Label and Graphic Materials segment includes Label and Packaging Materials, Graphics Solutions, and Reflective Solutions (all previously reported in Pressure-sensitive Materials). The Industrial and Healthcare Materials segment includes Performance Tapes (previously reported in Pressure-sensitive Materials), Fasteners Solutions (previously reported in Retail Branding and Information Solutions), and Vancive Medical Technologies (previously reported as a standalone segment). Retail Branding and Information Solutions now includes tickets, tags, and labels for apparel, radio-frequency identification, and Printer Solutions.
Organic sales change refers to the increase or decrease in sales excluding the estimated impact of currency translation, product line exits, and acquisitions and divestitures. Adjusted operating margin refers to income before interest expense and taxes, excluding restructuring charges and other items, as a percentage of sales.
Label and Graphic Materials
· Reported sales increased approximately 10 percent; on an organic basis, sales grew approximately 7 percent. Within the segment, sales in Label and Packaging Materials increased mid-single digits and the combined Graphics and Reflective businesses increased low-double digits on an organic basis.
· Operating margin improved 70 basis points to 11.3 percent, driven primarily by the impact of higher volume. Adjusted operating margin also improved 70 basis points.
Retail Branding and Information Solutions
· Reported sales increased approximately 3 percent; on an organic basis, sales grew approximately 5 percent.
· Operating margin improved 610 basis points to 9.3 percent, primarily due to lower restructuring charges. Adjusted operating margin improved 220 basis points as the net savings associated with the business model transformation and the impact of higher volume were partially offset by higher employee-related costs.
Industrial and Healthcare Materials
· Reported sales decreased approximately 8 percent; on an organic basis, sales declined approximately 10 percent, as expected. Strong growth in industrial was more than offset by an expected decline in healthcare categories.
· Operating margin declined 360 basis points to 8.8 percent as the impact of lower volume was only partially offset by the benefit of productivity initiatives.
Other
Share Repurchases / Equity Dilution from Long-Term Incentives
In 2016, the company repurchased 3.8 million shares at an aggregate cost of $262 million. Net of dilution, the company reduced its share count by 2 million. The cost of repurchases, net of proceeds from stock option exercises, was $191 million.
Income Taxes
The 2016 full year tax rate was 32.8 percent, in-line with our previous expectation of 33 percent. The tax rate in 2017 is expected to be in the low-thirty percent range.
Cost Reduction Actions
In 2016, the company realized approximately $82 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $20 million, the majority of which represent cash charges.
Outlook
In its supplemental presentation materials, “Fourth Quarter and Full Year 2016 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2017 financial results. Based on the factors listed and other assumptions, the company expects 2017 earnings per share of $4.10 to $4.30.
Excluding an estimated $0.20 per share for restructuring charges and other items, the company expects adjusted earnings per share (non-GAAP) of $4.30 to $4.50.
Note: Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.
About Avery Dennison
Avery Dennison (NYSE: AVY) is a global leader in pressure-sensitive label and functional materials and labeling solutions for apparel. The company’s applications and technologies are an integral part of products used in every major industry. With operations in more than 50 countries and more than 25,000 employees worldwide, Avery Dennison serves customers in the consumer packaging, graphical display, logistics, apparel, industrial and healthcare industries. Headquartered in Glendale, California, the company reported sales of $6.1 billion in 2016. Learn more at www.averydennison.com.
# # #
“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. These 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 the following: fluctuations in demand affecting sales to customers; worldwide and local economic conditions; fluctuations in currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in customer preferences; fluctuations in cost and availability of raw materials; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; the impact of competitive products and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; integration of acquisitions and completion of potential dispositions; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; fluctuations in pension, insurance, and employee benefit costs; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety; changes in governmental laws and regulations; protection and infringement of intellectual property; changes in political conditions; the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other factors.
We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impacts of global economic conditions and political uncertainty on underlying demand for our products and foreign currency fluctuations; (2) competitors’ actions, including pricing, expansion in key markets, and product offerings; and (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.
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 our 2015 Form 10-K, filed on February 24, 2016 with the Securities and Exchange Commission, and subsequent quarterly reports on Form 10-Q. The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.
For more information and to listen to a live broadcast or an audio replay of the quarterly conference call with analysts, visit the Avery Dennison website at www.investors.averydennison.com
Contacts:
Media Relations:
Rob Six (626) 304-2361
rob.six@averydennison.com
Investor Relations:
Garrett Gabel (626) 304-2399
investorcom@averydennison.com
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Fourth Quarter Financial Summary - Preliminary, unaudited |
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(in millions, except % and per share amounts) |
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4Q |
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4Q |
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% Change vs. P/Y |
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2016 |
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2015 |
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Reported |
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Organic (a) |
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Net sales, by segment: |
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Label and Graphic Materials |
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$1,063.8 |
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$970.6 |
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10% |
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7% |
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Retail Branding and Information Solutions |
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375.9 |
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363.2 |
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3% |
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5% |
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Industrial and Healthcare Materials |
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111.1 |
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121.0 |
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(8%) |
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(10%) |
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Total net sales |
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$1,550.8 |
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$1,454.8 |
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7% |
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5% |
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As Reported (GAAP) |
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Adjusted Non-GAAP (b) |
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4Q |
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4Q |
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% |
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% of Sales |
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4Q |
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4Q |
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% |
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% of Sales |
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2016 |
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2015 |
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Change |
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2016 |
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2015 |
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2016 |
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2015 |
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Change |
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2016 |
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2015 |
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Operating income (loss) / operating margins before interest and taxes, by segment: |
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Label and Graphic Materials |
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$120.6 |
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$102.5 |
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11.3% |
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10.6% |
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$122.6 |
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$104.8 |
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11.5% |
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10.8% |
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Retail Branding and Information Solutions |
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34.8 |
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11.8 |
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9.3% |
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3.2% |
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37.5 |
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28.2 |
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10.0% |
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7.8% |
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Industrial and Healthcare Materials |
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9.8 |
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15.0 |
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8.8% |
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12.4% |
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10.8 |
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15.5 |
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9.7% |
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12.8% |
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Corporate expense |
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(24.4) |
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(22.6) |
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(25.3) |
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(22.5) |
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Total operating income before interest and taxes / operating margins |
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$140.8 |
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$106.7 |
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32% |
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9.1% |
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7.3% |
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$145.6 |
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$126.0 |
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16% |
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9.4% |
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8.7% |
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Interest expense |
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$14.5 |
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$15.2 |
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$14.5 |
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$15.2 |
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Income from continuing operations before taxes |
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$126.3 |
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$91.5 |
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38% |
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8.1% |
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6.3% |
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$131.1 |
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$110.8 |
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18% |
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8.5% |
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7.6% |
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Provision for income taxes |
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$64.3 |
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$35.0 |
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$42.1 |
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$32.5 |
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Income from continuing operations |
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$62.0 |
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$56.5 |
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10% |
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4.0% |
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3.9% |
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$89.0 |
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$78.3 |
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14% |
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5.7% |
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5.4% |
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Income from discontinued operations (c) |
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--- |
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$0.5 |
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n/m |
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Net income |
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$62.0 |
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$57.0 |
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9% |
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4.0% |
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3.9% |
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Net income per common share, assuming dilution: |
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Continuing operations |
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$0.69 |
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$0.61 |
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13% |
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$0.99 |
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$0.85 |
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16% |
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Discontinued operations |
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--- |
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0.01 |
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n/m |
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Total Company |
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$0.69 |
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$0.62 |
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11% |
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2016 |
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2015 |
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4Q Free Cash Flow from Continuing Operations (d) |
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$ 139.4 |
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$ 138.3 |
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Previously reported segment results have been reclassified to reflect our new operating structure. |
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See accompanying schedules A-4 to A-8 for reconciliations from GAAP to non-GAAP financial measures. |
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(a) |
Percentage change in sales excluding the estimated impact of currency translation, product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year. |
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(b) |
Excludes restructuring charges and other items. |
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(c) |
Relates to the 2013 sale of our former Office and Consumer Products and Designed and Engineered Solutions businesses. |
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(d) |
Free cash flow refers to cash flow from continuing operations, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from sales (purchases) of investments, plus (minus) free cash outflow (inflow) from discontinued operations. |
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Full Year Financial Summary - Preliminary, unaudited |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
(in millions, except % and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
FY |
|
FY |
|
% Change vs. P/Y |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
2016 |
|
2015 |
|
Reported |
|
Organic (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales, by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Label and Graphic Materials |
|
$4,187.3 |
|
$4,032.1 |
|
4% |
|
5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Branding and Information Solutions |
|
1,445.4 |
|
1,443.4 |
|
-- |
|
3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial and Healthcare Materials |
|
453.8 |
|
491.4 |
|
(8%) |
|
(8%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$6,086.5 |
|
$5,966.9 |
|
2% |
|
4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported (GAAP) |
|
Adjusted Non-GAAP (b) |
| ||||||||||||||||
|
|
|
FY |
|
FY |
|
% |
|
% of Sales |
|
FY |
|
FY |
|
% |
|
% of Sales |
| ||||
|
|
|
2016 |
|
2015 |
|
Change |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
Change |
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) / operating margins before interest and taxes, by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Label and Graphic Materials |
|
$516.2 |
|
$453.4 |
|
|
|
12.3% |
|
11.2% |
|
$529.2 |
|
$465.5 |
|
|
|
12.6% |
|
11.5% |
|
|
Retail Branding and Information Solutions |
|
102.6 |
|
51.6 |
|
|
|
7.1% |
|
3.6% |
|
112.4 |
|
97.3 |
|
|
|
7.8% |
|
6.7% |
|
|
Industrial and Healthcare Materials |
|
54.6 |
|
57.1 |
|
|
|
12.0% |
|
11.6% |
|
56.5 |
|
65.1 |
|
|
|
12.5% |
|
13.2% |
|
|
Corporate expense |
|
(136.4) |
|
(92.7) |
|
|
|
|
|
|
|
(95.9) |
|
(91.2) |
|
|
|
|
|
|
|
|
Total operating income before interest and taxes / operating margins |
|
$537.0 |
|
$469.4 |
|
14% |
|
8.8% |
|
7.9% |
|
$602.2 |
|
$536.7 |
|
12% |
|
9.9% |
|
9.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$59.9 |
|
$60.5 |
|
|
|
|
|
|
|
$59.9 |
|
$60.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes |
|
$477.1 |
|
$408.9 |
|
17% |
|
7.8% |
|
6.9% |
|
$542.3 |
|
$476.2 |
|
14% |
|
8.9% |
|
8.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$156.4 |
|
$134.5 |
|
|
|
|
|
|
|
$177.8 |
|
$156.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$320.7 |
|
$274.4 |
|
17% |
|
5.3% |
|
4.6% |
|
$364.5 |
|
$319.5 |
|
14% |
|
6.0% |
|
5.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations (c) |
|
--- |
|
($0.1) |
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$320.7 |
|
$274.3 |
|
17% |
|
5.3% |
|
4.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, assuming dilution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$3.54 |
|
$2.95 |
|
20% |
|
|
|
|
|
$4.02 |
|
$3.44 |
|
17% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
--- |
|
--- |
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company |
|
$3.54 |
|
$2.95 |
|
20% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
Free Cash Flow from Continuing Operations (d) |
|
|
|
|
|
|
|
|
|
$ 387.1 |
|
$ 329.4 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously reported segment results have been reclassified to reflect our new operating structure. |
|
|
See accompanying schedules A-4 to A-8 for reconciliations from GAAP to non-GAAP financial measures. |
|
(a) |
Percentage change in sales excluding the estimated impact of currency translation, product line exits, acquisitions and divestitures, and, where applicable, |
|
(b) |
Excludes restructuring charges and other items. |
|
(c) |
Relates to the 2013 sale of our former Office and Consumer Products and Designed and Engineered Solutions businesses. |
|
(d) |
Free cash flow refers to cash flow from continuing operations, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from sales (purchases) of investments, plus (minus) free cash outflow (inflow) from discontinued operations. |
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
|
|
|
(UNAUDITED) |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
Three Months Ended |
|
Twelve Months Ended |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
Dec. 31, 2016 |
|
Jan. 02, 2016 |
|
Dec. 31, 2016 |
|
Jan. 02, 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,550.8 |
|
$ |
1,454.8 |
|
$ |
6,086.5 |
|
$ |
5,966.9 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Cost of products sold |
|
1,125.4 |
|
1,062.5 |
|
4,386.8 |
|
4,321.1 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Gross profit |
|
425.4 |
|
392.3 |
|
1,699.7 |
|
1,645.8 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Marketing, general & administrative expense |
|
279.8 |
|
266.3 |
|
1,097.5 |
|
1,108.1 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Interest expense |
|
14.5 |
|
15.2 |
|
59.9 |
|
60.5 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Other expense, net(1) |
|
4.8 |
|
19.3 |
|
65.2 |
|
68.3 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income from continuing operations before taxes |
|
126.3 |
|
91.5 |
|
477.1 |
|
408.9 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Provision for income taxes |
|
64.3 |
|
35.0 |
|
156.4 |
|
134.5 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income from continuing operations |
|
62.0 |
|
56.5 |
|
320.7 |
|
274.4 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income (loss) from discontinued operations |
|
--- |
|
0.5 |
|
--- |
|
(0.1 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income |
|
$ |
62.0 |
|
$ |
57.0 |
|
$ |
320.7 |
|
$ |
274.3 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Per share amounts: |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income per common share, assuming dilution |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Continuing operations |
|
$ |
0.69 |
|
$ |
0.61 |
|
$ |
3.54 |
|
$ |
2.95 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Discontinued operations |
|
--- |
|
0.01 |
|
--- |
|
--- |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income per common share, assuming dilution |
|
$ |
0.69 |
|
$ |
0.62 |
|
$ |
3.54 |
|
$ |
2.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average number of common shares outstanding, assuming dilution |
|
90.1 |
|
92.5 |
|
90.7 |
|
92.9 |
| ||||
(1) “Other expense, net” for the fourth quarter of 2016 includes severance and related costs of $4, asset impairment and lease cancellation charges of $1.3, and transaction costs of $.9, partially offset by gain on sale of assets of $1.4.
“Other expense, net” for the fourth quarter of 2015 includes severance and related costs of $17.5, asset impairment and lease cancellation charges of $1.5, and net loss from curtailment and settlement of pension obligations of $.3.
“Other expense, net” for fiscal year 2016 includes severance and related costs of $14.7, asset impairment and lease cancellation charges of $5.2, loss from settlement of pension obligations of $41.4, and transaction costs of $5, partially offset by net gain on sales of assets of $1.1.
“Other expense, net” for fiscal year 2015 includes severance and related costs of $52.5, asset impairment and lease cancellation charges of $7, loss on sale of product line and related exit costs of $10.5, and net loss from curtailment and settlement of pension obligations of $.3, partially offset by gain on sale of asset of $1.7 and legal settlements of $.3.
-more-
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
|
|
|
(UNAUDITED) |
| ||
|
|
|
|
|
|
|
|
ASSETS |
|
Dec. 31, 2016 |
|
Jan. 02, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ 195.1 |
|
$ 158.8 |
|
|
Trade accounts receivable, net |
|
1,001.0 |
|
964.7 |
|
|
Inventories, net |
|
519.1 |
|
478.7 |
|
|
Assets held for sale |
|
6.8 |
|
2.5 |
|
|
Other current assets |
|
182.8 |
|
170.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
1,904.8 |
|
1,775.4 |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
915.2 |
|
847.9 |
|
|
Goodwill |
|
793.6 |
|
686.2 |
|
|
Other intangibles resulting from business acquisitions, net |
|
66.7 |
|
45.8 |
|
|
Non-current deferred income taxes |
|
313.2 |
|
372.2 |
|
|
Other assets |
|
402.9 |
|
406.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 4,396.4 |
|
$ 4,133.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt and capital leases |
|
$ 579.1 |
|
$ 95.3 |
|
|
Accounts payable |
|
841.9 |
|
814.6 |
|
|
Other current liabilities |
|
583.3 |
|
549.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
2,004.3 |
|
1,459.1 |
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases |
|
713.4 |
|
963.6 |
|
|
Other long-term liabilities |
|
753.2 |
|
745.3 |
|
|
Shareholders’ equity: |
|
|
|
|
|
|
Common stock |
|
124.1 |
|
124.1 |
|
|
Capital in excess of par value |
|
852.0 |
|
834.0 |
|
|
Retained earnings |
|
2,473.3 |
|
2,277.6 |
|
|
Treasury stock at cost |
|
(1,772.0 |
) |
(1,587.0 |
) |
|
Accumulated other comprehensive loss |
|
(751.9 |
) |
(683.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
925.5 |
|
965.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 4,396.4 |
|
$ 4,133.7 |
|
|
|
|
|
|
|
|
-more-
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
(UNAUDITED) |
| ||
|
|
|
|
| ||
|
|
|
Twelve Months Ended |
| ||
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
Dec. 31, 2016 |
|
Jan. 02, 2016 |
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ 320.7 |
|
$ 274.3 |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
117.5 |
|
125.2 |
|
|
|
|
|
|
|
|
|
Amortization |
|
62.6 |
|
63.1 |
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts and sales returns |
|
54.4 |
|
46.5 |
|
|
|
|
|
|
|
|
|
Net losses from asset impairments and sales/disposals of assets |
|
1.5 |
|
12.2 |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
27.2 |
|
26.3 |
|
|
|
|
|
|
|
|
|
Loss from settlement of pension obligations |
|
41.4 |
|
--- |
|
|
|
|
|
|
|
|
|
Other non-cash expense and loss |
|
46.2 |
|
50.1 |
|
|
Changes in assets and liabilities and other adjustments |
|
(86.2 |
) |
(124.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
585.3 |
|
473.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
(176.9 |
) |
(135.8 |
) |
|
|
|
|
|
|
|
|
Purchases of software and other deferred charges |
|
(29.7 |
) |
(15.7 |
) |
|
|
|
|
|
|
|
|
Proceeds from sales of property, plant and equipment |
|
8.5 |
|
7.6 |
|
|
|
|
|
|
|
|
|
Purchases of investments, net |
|
(0.1 |
) |
(0.5 |
) |
|
|
|
|
|
|
|
|
Payments for acquisitions and equity method investments, net of cash acquired |
|
(237.2 |
) |
--- |
|
|
|
|
|
|
|
|
|
Other |
|
--- |
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
(435.4 |
) |
(142.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in borrowings (maturities of 3 months or less) |
|
234.9 |
|
(98.4 |
) |
|
|
|
|
|
|
|
|
Payments of debt (maturities greater than 3 months) |
|
(2.7 |
) |
(7.4 |
) |
|
|
|
|
|
|
|
|
Dividends paid |
|
(142.5 |
) |
(133.1 |
) |
|
|
|
|
|
|
|
|
Share repurchases |
|
(262.4 |
) |
(232.3 |
) |
|
|
|
|
|
|
|
|
Proceeds from exercises of stock options, net |
|
71.0 |
|
104.0 |
|
|
|
|
|
|
|
|
|
Other |
|
(4.5 |
) |
(0.1 |
) |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
(106.2 |
) |
(367.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash balances |
|
(7.4 |
) |
(11.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
36.3 |
|
(48.4 |
) |
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
158.8 |
|
207.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ 195.1 |
|
$ 158.8 |
|
|
|
|
|
|
|
|
-more-
Reconciliation of Non-GAAP Financial Measures in Accordance with SEC Regulations G and S-K
We report our financial results in conformity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures. These non-GAAP financial measures are intended to supplement presentation of our financial results that are prepared in accordance with GAAP. Based upon feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessment of our performance and operating trends, as well as liquidity.
Our 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 financial measures, may make it difficult to assess our underlying performance in a single period. By excluding the accounting effects, both positive and negative, of certain items (e.g., restructuring charges, legal settlements, certain effects of strategic transactions and related costs, losses from debt extinguishments, losses from curtailment and settlement of pension obligations, gains or losses on sales of certain assets, and other items), we believe that we are providing meaningful supplemental information to facilitate an understanding of our core operating results and liquidity measures. These non-GAAP financial measures are used internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single period. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency, or timing.
We use the following non-GAAP financial measures in the accompanying news release and presentation:
Organic sales change refers to the increase or decrease in sales excluding the estimated impact of currency translation, product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year. The estimated impact of currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations. We believe that organic sales change assists investors in evaluating the sales growth from the ongoing activities of our businesses and provides greater ability to evaluate our results from period to period.
Adjusted operating margin refers to income from continuing operations before interest expense and taxes, excluding restructuring charges and other items, as a percentage of sales.
Adjusted income from continuing operations refers to reported income from continuing operations tax-effected at the full year tax rate, and adjusted for tax-effected restructuring charges and other items.
Adjusted EPS refers to reported income from continuing operations per common share, assuming dilution, tax-effected at the full year tax rate, and adjusted for tax-effected restructuring charges and other items.
We believe that adjusted operating margin, adjusted income from continuing operations, and adjusted EPS assist investors in understanding our core operating trends and comparing our results with those of our competitors.
Free cash flow refers to cash flow from operations, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from sales (purchases) of investments, plus (minus) free cash outflow (inflow) from discontinued operations. We believe that free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions.
The following reconciliations are provided in accordance with Regulations G and S-K and reconcile our non-GAAP financial measures with the most directly comparable GAAP financial measures.
-more-
AVERY DENNISON CORPORATION
PRELIMINARY RECONCILIATION FROM GAAP TO NON-GAAP FINANCIAL MEASURES
(In millions, except % and per share amounts)
|
|
|
(UNAUDITED) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
| ||||
|
|
|
Dec. 31, 2016
|
|
Jan. 02, 2016
|
|
Dec. 31, 2016
|
|
Jan. 02, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from GAAP to Non-GAAP Operating Margins: |
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
1,550.8 |
$ |
1,454.8 |
$ |
6,086.5 |
$ |
5,966.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes |
$ |
126.3 |
$ |
91.5 |
$ |
477.1 |
$ |
408.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes as a percentage of sales |
|
8.1 |
% |
6.3 |
% |
7.8 |
% |
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment: |
|
|
|
|
|
|
|
|
|
|
Interest expense |
$ |
14.5 |
$ |
15.2 |
$ |
59.9 |
$ |
60.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations before interest expense and taxes |
$ |
140.8 |
$ |
106.7 |
$ |
537.0 |
$ |
469.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margins |
|
9.1 |
% |
7.3 |
% |
8.8 |
% |
7.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
As reported income from continuing operations before taxes |
$ |
126.3 |
$ |
91.5 |
$ |
477.1 |
$ |
408.9 |
|
|
Adjustments(1) |
|
N/A |
|
N/A |
|
N/A |
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Previously reported income from continuing operations before taxes |
|
N/A |
|
N/A |
|
N/A |
|
407.9 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
Restructuring charges: |
|
|
|
|
|
|
|
|
|
|
Severance and related costs |
|
4.0 |
|
17.5 |
|
14.7 |
|
52.5 |
|
|
Asset impairment and lease cancellation charges |
|
1.3 |
|
1.5 |
|
5.2 |
|
7.0 |
|
|
Loss from settlement and curtailment of pension obligations |
|
--- |
|
0.3 |
|
41.4 |
|
0.3 |
|
|
Other items(2) |
|
(0.5 |
) |
--- |
|
3.9 |
|
8.5 |
|
|
Interest expense |
|
14.5 |
|
15.2 |
|
59.9 |
|
60.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income from continuing operations before interest expense and taxes (non-GAAP) |
$ |
145.6 |
$ |
126.0 |
$ |
602.2 |
$ |
536.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Margins (non-GAAP) |
|
9.4 |
% |
8.7 |
% |
9.9 |
% |
9.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from GAAP to Non-GAAP Income from Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
As reported income from continuing operations |
$ |
62.0 |
$ |
56.5 |
$ |
320.7 |
$ |
274.4 |
|
|
Adjustments(1) |
|
N/A |
|
N/A |
|
N/A |
|
(0.6 |
) |
|
Previously reported income from continuing operations |
|
N/A |
|
N/A |
|
N/A |
|
273.8 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
Restructuring charges |
|
5.3 |
|
19.0 |
|
19.9 |
|
59.5 |
|
|
Loss from settlement and curtailment of pension obligations |
|
--- |
|
0.3 |
|
41.4 |
|
0.3 |
|
|
Other items(2) |
|
(0.5 |
) |
--- |
|
3.9 |
|
8.5 |
|
|
Tax effect of pre-tax adjustments |
|
22.2 |
|
2.5 |
|
(21.4 |
) |
(22.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Income from Continuing Operations (non-GAAP) |
$ |
89.0 |
$ |
78.3 |
$ |
364.5 |
$ |
319.5 |
|
|
|
|
|
|
|
|
|
|
|
|
-more-
A-5
(continued)
AVERY DENNISON CORPORATION
PRELIMINARY RECONCILIATION FROM GAAP TO NON-GAAP FINANCIAL MEASURES
(In millions, except % and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
(UNAUDITED) |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
Three Months Ended |
|
Twelve Months Ended |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
Dec. 31, 2016 |
|
Jan. 02, 2016 |
|
Dec. 31, 2016 |
|
Jan. 02, 2016 |
| |||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
Reconciliation from GAAP to Non-GAAP Income per Common Share from Continuing Operations: |
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
As reported income per common share from continuing operations, assuming dilution |
|
$ |
0.69 |
|
$ |
0.61 |
|
$ |
3.54 |
|
$ |
2.95 |
| |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Adjustments(1) |
|
N/A |
|
N/A |
|
N/A |
|
--- |
| |||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
Previously reported income per common share from continuing operations, assuming dilution |
|
N/A |
|
N/A |
|
N/A |
|
2.95 |
| |||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
Adjustments per common share, net of tax: |
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
Restructuring charges, loss from settlement and curtailment of pension obligations, and other items(2) |
|
0.30 |
|
0.24 |
|
0.48 |
|
0.49 |
| |||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
Adjusted Income per Common Share from Continuing Operations, assuming dilution (non-GAAP) |
|
$ |
0.99 |
|
$ |
0.85 |
|
$ |
4.02 |
|
$ |
3.44 |
| |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Weighted average number of common shares outstanding, assuming dilution |
|
90.1 |
|
92.5 |
|
90.7 |
|
92.9 |
| |||||
(1) GAAP adjustment for 2015 reflects the previously disclosed impact of the third quarter of 2015 revision to certain benefit plan balances, which had an immaterial impact to the non-GAAP amounts.
(2) Includes transaction costs, loss on sale of product line and related exit costs, gain/loss on sales of assets, and legal settlements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
(UNAUDITED) |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
Three Months Ended |
|
Twelve Months Ended |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
Dec. 31, 2016 |
|
Jan. 02, 2016 |
|
Dec. 31, 2016 |
|
Jan. 02, 2016 |
| |||||
|
|
|
|
|
|
|
|
|
|
| |||||
|
Reconciliation of Free Cash Flow: |
|
|
|
|
|
|
|
|
| |||||
|
Net cash provided by operating activities |
|
$ |
219.6 |
|
$ |
191.5 |
|
$ |
585.3 |
|
$ |
473.7 |
| |
|
Purchases of property, plant and equipment |
|
|
(72.0) |
|
|
(46.2 |
) |
|
(176.9) |
|
|
(135.8) |
| |
|
Purchases of software and other deferred charges |
|
|
(13.1) |
|
|
(6.7 |
) |
|
(29.7) |
|
|
(15.7) |
| |
|
Proceeds from sales of property, plant and equipment |
|
|
4.2 |
|
|
0.5 |
|
|
8.5 |
|
|
7.6 |
| |
|
Sales (purchases) of investments, net |
|
|
0.7 |
|
|
(0.3 |
) |
|
(0.1) |
|
|
(0.5) |
| |
|
Plus: free cash (inflow) outflow from discontinued operations |
|
|
--- |
|
|
(0.5 |
) |
|
--- |
|
|
0.1 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Free Cash Flow - Continuing Operations (non-GAAP) |
|
$ |
139.4 |
|
$ |
138.3 |
|
$ |
387.1 |
|
$ |
329.4 |
| |
-more-
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions, except %)
(UNAUDITED)
|
|
|
Fourth Quarter Ended |
| ||||||||||||||
|
|
|
NET SALES |
|
OPERATING INCOME |
|
OPERATING MARGINS | |||||||||||
|
|
|
2016 |
|
2015 |
|
2016 (1) |
|
2015 (2) |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Label and Graphic Materials |
|
$ |
1,063.8 |
|
$ |
970.6 |
|
$ |
120.6 |
|
$ |
102.5 |
|
11.3% |
|
10.6% |
|
|
Retail Branding and Information Solutions |
|
375.9 |
|
363.2 |
|
34.8 |
|
11.8 |
|
9.3% |
|
3.2% |
| ||||
|
Industrial and Healthcare Materials |
|
111.1 |
|
121.0 |
|
9.8 |
|
15.0 |
|
8.8% |
|
12.4% |
| ||||
|
Corporate Expense |
|
N/A |
|
N/A |
|
(24.4) |
|
(22.6) |
|
N/A |
|
N/A |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
TOTAL FROM CONTINUING OPERATIONS |
|
$ |
1,550.8 |
|
$ |
1,454.8 |
|
$ |
140.8 |
|
$ |
106.7 |
|
9.1% |
|
7.3% |
|
(1) Operating income for the fourth quarter of 2016 includes severance and related costs of $4, asset impairment and lease cancellation charges of $1.3, and transaction costs of $.9, partially offset by gain on sale of assets of $1.4. Of the total $4.8, the Label and Graphic Materials segment recorded $2, the Retail Branding and Information Solutions segment recorded $2.7, the Industrial and Healthcare Materials segment recorded $1, and Corporate recorded ($.9).
(2) Operating income for the fourth quarter of 2015 includes severance and related costs of $17.5, asset impairment and lease cancellation charges of $1.5, and net loss from curtailment and settlement of pension obligations of $.3. Of the total $19.3, the Label and Graphic Materials segment recorded $2.3, the Retail Branding and Information Solutions segment recorded $16.4, the Industrial and Healthcare Materials segment recorded $.5, and Corporate recorded $.1.
Previously reported segment results have been reclassified to reflect our new operating structure.
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
|
|
|
Fourth Quarter Ended |
| ||||||||
|
|
OPERATING INCOME |
|
OPERATING MARGINS | ||||||||
|
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||
|
Label and Graphic Materials |
|
|
|
|
|
|
|
|
| ||
|
Operating income and margins, as reported |
|
$ |
120.6 |
|
$ |
102.5 |
|
11.3% |
|
10.6% |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
| ||
|
Restructuring charges: |
|
|
|
|
|
|
|
|
| ||
|
Severance and related costs |
|
1.0 |
|
1.5 |
|
0.1% |
|
0.1% |
| ||
|
Asset impairment charges |
|
0.2 |
|
0.6 |
|
--- |
|
0.1% |
| ||
|
Transaction costs |
|
0.8 |
|
--- |
|
0.1% |
|
--- |
| ||
|
Net loss from curtailment and settlement of pension obligations |
|
--- |
|
0.2 |
|
--- |
|
--- |
| ||
|
Adjusted operating income and margins (non-GAAP) |
|
$ |
122.6 |
|
$ |
104.8 |
|
11.5% |
|
10.8% |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Retail Branding and Information Solutions |
|
|
|
|
|
|
|
|
| ||
|
Operating income and margins, as reported |
|
$ |
34.8 |
|
$ |
11.8 |
|
9.3% |
|
3.2% |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
| ||
|
Restructuring charges: |
|
|
|
|
|
|
|
|
| ||
|
Severance and related costs |
|
3.0 |
|
15.5 |
|
0.8% |
|
4.3% |
| ||
|
Asset impairment and lease cancellation charges |
|
1.1 |
|
0.9 |
|
0.3% |
|
0.3% |
| ||
|
Gain on sale of assets |
|
(1.4) |
|
--- |
|
(0.4%) |
|
--- |
| ||
|
Adjusted operating income and margins (non-GAAP) |
|
$ |
37.5 |
|
$ |
28.2 |
|
10.0% |
|
7.8% |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Industrial and Healthcare Materials |
|
|
|
|
|
|
|
|
| ||
|
Operating income and margins, as reported |
|
$ |
9.8 |
|
$ |
15.0 |
|
8.8% |
|
12.4% |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
| ||
|
Restructuring charges: |
|
|
|
|
|
|
|
|
| ||
|
Severance and related costs |
|
--- |
|
0.5 |
|
--- |
|
0.4% |
| ||
|
Transaction costs |
|
1.0 |
|
--- |
|
0.9% |
|
--- |
| ||
|
Adjusted operating income and margins (non-GAAP) |
|
$ |
10.8 |
|
$ |
15.5 |
|
9.7% |
|
12.8% |
|
-more-
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions, except %)
(UNAUDITED)
|
|
|
Twelve Months Year-to-Date |
| ||||||||||||||
|
|
|
NET SALES |
|
OPERATING INCOME |
|
OPERATING MARGINS | |||||||||||
|
|
|
2016 |
|
2015 |
|
2016 (1) |
|
2015 (2) |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Label and Graphic Materials |
|
$ |
4,187.3 |
|
$ |
4,032.1 |
|
$ |
516.2 |
|
$ |
453.4 |
|
12.3% |
|
11.2% |
|
|
Retail Branding and Information Solutions |
|
1,445.4 |
|
1,443.4 |
|
102.6 |
|
51.6 |
|
7.1% |
|
3.6% |
| ||||
|
Industrial and Healthcare Materials |
|
453.8 |
|
491.4 |
|
54.6 |
|
57.1 |
|
12.0% |
|
11.6% |
| ||||
|
Corporate Expense |
|
N/A |
|
N/A |
|
(136.4) |
|
(92.7) |
|
N/A |
|
N/A |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
TOTAL FROM CONTINUING OPERATIONS |
|
$ |
6,086.5 |
|
$ |
5,966.9 |
|
$ |
537.0 |
|
$ |
469.4 |
|
8.8% |
|
7.9% |
|
(1) Operating income for fiscal year 2016 includes severance and related costs of $14.7, asset impairment and lease cancellation charges of $5.2, loss from settlement of pension obligations of $41.4, and transaction costs of $5, partially offset by net gain on sales of assets of $1.1. Of the total $65.2, the Label and Graphic Materials segment recorded $13, the Retail Branding and Information Solutions segment recorded $9.8, the Industrial and Healthcare Materials segment recorded $1.9, and Corporate recorded $40.5.
(2) Operating income for fiscal year 2015 includes severance and related costs of $52.5, asset impairment and lease cancellation charges of $7, loss on sale of product line and related exit costs of $10.5, and net loss from curtailment and settlement of pension obligations of $.3, partially offset by gain on sale of asset of $1.7 and legal settlements of $.3. Of the total $68.3, the Label and Graphic Materials segment recorded $12.1, the Retail Branding and Information Solutions segment recorded $45.7, the Industrial and Healthcare Materials segment recorded $8, and Corporate recorded $2.5.
Previously reported segment results have been reclassified to reflect our new operating structure.
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
|
|
|
Twelve Months Year-to-Date |
| ||||||||
|
|
|
OPERATING INCOME |
|
OPERATING MARGINS |
| ||||||
|
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||
|
Label and Graphic Materials |
|
|
|
|
|
|
|
|
| ||
|
Operating income and margins, as reported |
|
$ |
516.2 |
|
$ |
453.4 |
|
12.3% |
|
11.2% |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
| ||
|
Restructuring charges: |
|
|
|
|
|
|
|
|
| ||
|
Severance and related costs |
|
5.8 |
|
12.8 |
|
0.1% |
|
0.3% |
| ||
|
Asset impairment charges |
|
2.7 |
|
0.8 |
|
0.1% |
|
--- |
| ||
|
Transaction costs |
|
4.5 |
|
--- |
|
0.1% |
|
--- |
| ||
|
Gain on sale of asset |
|
--- |
|
(1.7) |
|
--- |
|
--- |
| ||
|
Net loss from curtailment and settlement of pension obligations |
|
--- |
|
0.2 |
|
--- |
|
--- |
| ||
|
Adjusted operating income and margins (non-GAAP) |
|
$ |
529.2 |
|
$ |
465.5 |
|
12.6% |
|
11.5% |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Retail Branding and Information Solutions |
|
|
|
|
|
|
|
|
| ||
|
Operating income and margins, as reported |
|
$ |
102.6 |
|
$ |
51.6 |
|
7.1% |
|
3.6% |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
| ||
|
Restructuring charges: |
|
|
|
|
|
|
|
|
| ||
|
Severance and related costs |
|
8.4 |
|
34.1 |
|
0.6% |
|
2.3% |
| ||
|
Asset impairment and lease cancellation charges |
|
2.1 |
|
1.6 |
|
0.2% |
|
0.1% |
| ||
|
Net gain on sales of assets |
|
(1.1) |
|
--- |
|
(0.1%) |
|
--- |
| ||
|
Loss on sale of product line and related transaction and exit costs |
|
0.4 |
|
10.5 |
|
--- |
|
0.7% |
| ||
|
Legal settlement |
|
--- |
|
(0.5) |
|
--- |
|
--- |
| ||
|
Adjusted operating income and margins (non-GAAP) |
|
$ |
112.4 |
|
$ |
97.3 |
|
7.8% |
|
6.7% |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Industrial and Healthcare Materials |
|
|
|
|
|
|
|
|
| ||
|
Operating income and margins, as reported |
|
$ |
54.6 |
|
$ |
57.1 |
|
12.0% |
|
11.6% |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
| ||
|
Restructuring charges: |
|
|
|
|
|
|
|
|
| ||
|
Severance and related costs |
|
0.5 |
|
3.4 |
|
0.1% |
|
0.7% |
| ||
|
Asset impairment charges |
|
0.4 |
|
4.6 |
|
0.1% |
|
0.9% |
| ||
|
Transaction costs |
|
1.0 |
|
--- |
|
0.3% |
|
--- |
| ||
|
Adjusted operating income and margins (non-GAAP) |
|
$ |
56.5 |
|
$ |
65.1 |
|
12.5% |
|
13.2% |
|
-more-
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(UNAUDITED)
|
|
|
Fourth Quarter 2016 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company |
|
Label and Graphic Materials |
|
Retail Branding |
|
Industrial and |
|
|
Reconciliation of GAAP to Non-GAAP sales change |
|
|
|
|
|
|
|
|
|
|
Reported sales change |
|
7% |
|
10% |
|
3% |
|
(8%) |
|
|
Foreign currency translation |
|
1% |
|
1% |
|
1% |
|
1% |
|
|
Acquisitions/divestitures |
|
(3%) |
|
(3%) |
|
--- |
|
(3%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic sales change (non-GAAP)(1) |
|
5% |
|
7% |
|
5% |
|
(10%) |
|
|
|
|
Full Year 2016 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Label and |
|
Retail Branding |
|
Industrial and |
|
|
Reconciliation of GAAP to Non-GAAP sales change |
|
|
|
|
|
|
|
|
|
|
Reported sales change |
|
2% |
|
4% |
|
--- |
|
(8%) |
|
|
Foreign currency translation |
|
3% |
|
3% |
|
2% |
|
2% |
|
|
Acquisitions/divestitures |
|
(1%) |
|
(1%) |
|
2% |
|
(2%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic sales change (non-GAAP)(1) |
|
4% |
|
5% |
|
3% |
|
(8%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Totals may not sum due to rounding. |
|
|
|
|
|
|
|
|
|
####
Exhibit 99.2
Fourth Quarter and Full Year 2016 Financial Review and Analysis (preliminary, unaudited) Supplemental Presentation Materials Unless otherwise indicated, the discussion of the company’s results is focused on its continuing operations, and comparisons are to the same periods in the prior year. February 1, 2017
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. These 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 the following: fluctuations in demand affecting sales to customers; worldwide and local economic conditions; fluctuations in currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in customer preferences; fluctuations in cost and availability of raw materials; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; the impact of competitive products and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; integration of acquisitions and completion of potential dispositions; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; fluctuations in pension, insurance, and employee benefit costs; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety; changes in governmental laws and regulations; protection and infringement of intellectual property; changes in political conditions; the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other factors. We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impacts of global economic conditions and political uncertainty on underlying demand for our products and foreign currency fluctuations; (2) competitors' actions, including pricing, expansion in key markets, and product offerings; and (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. 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 our 2015 Form 10-K, filed on February 24, 2016 with the Securities and Exchange Commission, and subsequent quarterly reports on Form 10-Q. The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.
Use of Non-GAAP Financial Measures This presentation contains certain non-GAAP financial measures as defined by SEC rules. We report our financial results in conformity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures. These non-GAAP financial measures are intended to supplement presentation of our financial results that are prepared in accordance with GAAP. Based upon feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessment of our performance and operating trends, as well as liquidity. In accordance with Regulations G and S-K, reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures, including limitations associated with these non-GAAP financial measures, are provided in Appendix B of this document and the financial schedules accompanying the earnings news release for the quarter (see Attachments [A-4 through A-8] to news release dated February 1, 2017). Our 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 financial measures, may make it difficult to assess our underlying performance in a single period. By excluding the accounting effects, both positive and negative, of certain items (e.g., restructuring charges, legal settlements, certain effects of strategic transactions and related costs, losses from debt extinguishments, losses from curtailment and settlement of pension obligations, gains or losses on sales of certain assets, and other items), we believe that we are providing meaningful supplemental information to facilitate an understanding of our core operating results and liquidity measures. These non-GAAP financial measures are used internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single period. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency, or timing. We use the following non-GAAP financial measures in this presentation: Organic sales change refers to the increase or decrease in sales excluding the estimated impact of currency translation, product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year. The estimated impact of currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations. Sales change (ex. currency) refers to the increase or decrease in sales excluding the estimated impact of currency translation. We believe that organic sales and sales change (ex. currency) assists investors in evaluating the sales growth from the ongoing activities of our businesses and provides greater ability to evaluate our results from period to period. Adjusted operating margin refers to income from continuing operations before interest expense and taxes, excluding restructuring charges and other items, as a percentage of sales. Adjusted income from continuing operations refers to reported income from continuing operations tax-effected at the full year tax rate, and adjusted for tax-effected restructuring charges and other items. Adjusted EPS refers to reported income from continuing operations per common share, assuming dilution, tax-effected at the full year tax rate, and adjusted for tax-effected restructuring charges and other items. Adjusted EBITDA refers to earnings before interest expense, taxes, depreciation, and amortization, excluding restructuring costs and other items. We believe that adjusted operating margin, adjusted income from continuing operations, adjusted EPS and adjusted EBITDA assist investors in understanding our core operating trends and comparing our results with those of our competitors. Net debt to adjusted EBITDA refers to total debt less cash and cash equivalents, divided by adjusted EBITDA. We believe that the net debt to adjusted EBITDA ratio assists investors in understanding our leverage position. Return on total capital refers to income from continuing operations excluding the expense and tax benefit of debt financing divided by the average of beginning and ending invested capital. We believe that return on total capital assists investors in understanding our ability to generate returns from our capital. Free cash flow refers to cash flow from operations, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from sales (purchases) of investments, plus (minus) free cash outflow (inflow) from discontinued operations. We believe that free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions. This document has been furnished (not filed) on Form 8-K with the SEC and may be found on our website at www.investors.averydennison.com.
Full Year Overview Delivered double-digit EPS growth, above expectations Reported EPS of $3.54; up 20% Adjusted EPS (non-GAAP) of $4.02; up 17% Strong topline performance driven by accelerated growth in high value categories and disciplined execution in the base Reported sales growth of 2% (~4% organic, ~1% from M&A) Executing M&A strategy focused on high value categories Operating margin up 90 bps driven by productivity and volume leverage Executing our disciplined capital allocation strategy: increasing pace of investment, including M&A, and return of cash to shareholders Free cash flow of $387 mil. Repurchased 3.8 mil. shares (2 mil. net of dilution)
Full Year Overview (cont.) and Outlook Label and Graphic Materials delivered another year of strong organic sales growth and margin expansion Retail Branding and Information Solutions delivered solid organic growth while accelerating margin expansion Continued strength in RFID and solid volume growth in the base business On track to deliver long-term profitability target despite challenging apparel market Industrial and Healthcare Materials results as anticipated Results reflected anticipated loss in broader healthcare categories Segment expected to return to profitable growth in 2H 2017 Targeting continued progress toward our long-term goals in 2017 Reported EPS of $4.10 to $4.30 Adjusted EPS (non-GAAP) of $4.30 to $4.50
Realigned reporting segments to reflect new operating structure Label and Graphic Materials (LGM) $4.2 bil.(1) Retail Branding and Information Solutions (RBIS) $1.4 bil.(1) Industrial and Healthcare Materials (IHM) $0.5 bil. (1) Label and Packaging Materials(2) Graphics Solutions(2) Reflective Solutions(2) Tickets, tags and labels for apparel Radio-frequency identification Printer Solutions Performance Tapes(2) Fasteners Solutions(3) Vancive Medical Technologies 2016 Net Sales Previously part of Pressure-sensitive Materials segment Previously part of Retail Branding and Information Solutions segment
Full year segment results ($ in millions) New Segments Net Sales Rptd. Sales Change GAAP Oper. Income GAAP Oper. Margin LGM $4,187 4% LGM $516 12.3% RBIS $1,445 0% RBIS $103 7.1% IHM $454 -8% IHM $55 12.0% Previous Segments Segment New Segments Net Sales Org. Sales Change Adj. Net Sales Org. Sales Change PSM $4,503 4% ($316) LGM $4,187 5% RBIS $1,522 3% ($76) RBIS $1,445 3% Vancive $62 -15% $392 IHM $454 -8% Previous Segments Segment New Segments Adj. Oper. Income Adj. Oper. Margin Adj. Adj. Oper. Income Adj. Oper. Margin PSM $567 12.6% ($37) LGM $529 12.6% RBIS $133 8.7% ($20) RBIS $112 7.8% Vancive ($1) -1.2% $57 IHM $57 12.5%
Fourth Quarter Overview Fourth quarter EPS above expectations driven by strong sales growth Reported sales of $1.55 bil., up approximately 7% compared to prior year Sales growth (ex. currency) of 8% Organic sales growth of ~5% Operating margin, as reported, improved 180 basis points, primarily due to lower restructuring charges Adjusted operating margin improved 70 basis points as the impact of higher volume and productivity initiatives was partly offset by other items Reported EPS of $0.69 Adjusted EPS (non-GAAP) of $0.99 Free cash flow of $139 mil.
Fourth Quarter Segment Overview Label and Graphic Materials Reported sales of $1.06 bil., up approximately 10% compared to prior year Sales up ~7% on organic basis Sales in Label and Packaging Materials increased mid-single digits and the combined Graphics and Reflective businesses increased low-double digits on an organic basis Operating margin improved 70 basis points to 11.3% as the impact of higher volume was partially offset by other items Adjusted operating margin improved 70 basis points to 11.5% Retail Branding and Information Solutions Reported sales of $376 mil., up approximately 3% compared to prior year Sales up ~5% on an organic basis Operating margin improved 610 basis points to 9.3%, primarily due to lower restructuring charges Adjusted operating margin improved 220 basis points to 10.0% as the net savings associated with the business model transformation and the impact of higher volume were partially offset by higher employee-related costs
Fourth Quarter Segment Overview Industrial and Healthcare Materials Reported sales of $111 mil., down approximately 8% compared to prior year Sales down ~10% on an organic basis, as expected Strong growth in industrial was more than offset by expected decline in healthcare categories Operating margin declined 360 basis points to 8.8% as the impact of lower volume was only partially offset by the benefit of productivity initiatives Adjusted operating margin declined 310 basis points to 9.7%
On track to achieve 2018 targets 4% – 5% CAGR(1) Organic Sales Growth 9%–10% in 2018 Operating Margin 16%+ in 2018 Return on Total Capital (ROTC) 12% – 15%+ CAGR(1) Adjusted(2) EPS Growth 1.7x to 2.0x Net Debt to Adjusted(2) EBITDA 2014 – 2018 TARGETS 4% 3 Yr CAGR 8.8% in 2016 Adj(2): 9.9% in 2016 17% in 2016 14% 3 Yr CAGR 1.4x in 2016 2014 – 2016 RESULTS (1) Reflects five-year compound annual growth rates, with 2013 as the base period (2) Excluding restructuring charges and other items
Contributing Factors to 2017 Results Reported net sales change of 1.5% to 3.0%: Ex. currency sales growth of 4.5% to 6.0% Organic sales growth of 3.0% to 4.0% Currency translation EBIT headwind of ~$22 mil., assuming recent rates Incremental savings of $40 mil. to $50 mil. from restructuring actions Fixed and IT capital spend of ~$215 mil. Free cash flow conversion of ~100% (GAAP net income) Tax rate in the low-thirty percent range Average shares outstanding (assuming dilution) of 88 mil. to 89 mil. 2017 EPS Guidance Add Back: Est. restructuring costs and other items ~$0.20 Adjusted EPS (non-GAAP) Reported EPS $4.10 – $4.30 $4.30 – $4.50
Appendix A: Supplemental segment results
Historical trends – new reporting segments (1) Excludes severance and related costs, asset impairment and lease cancellation charges, and other items. ($ in millions) FY12 FY13 FY14 1Q15 2Q15 3Q15 4Q15 FY15 1Q16 2Q16 3Q16 4Q16 FY16 Label and Graphic Materials Reported Sales $ 3,959.8 $ 4,137.3 $ 4,298.7 $ 1,032.9 $ 1,029.0 $ 999.6 $ 970.6 $ 4,032.1 $ 1,012.6 $ 1,064.6 $ 1,046.3 $ 1,063.8 $ 4,187.3 Organic Sales Change 3% 5% 4% 4% 6% 5% 6% 5% 5% 5% 4% 7% 5% Adjusted Operating Income (non-GAAP)(1) $ 370.2 $ 421.6 $ 438.4 $ 117.3 $ 123.6 $ 119.8 $ 104.8 $ 465.5 $ 128.7 $ 144.5 $ 133.4 $ 122.6 $ 529.2 Adjusted Operating Margin (non-GAAP)(1) 9.3% 10.2% 10.2% 11.4% 12.0% 12.0% 10.8% 11.5% 12.7% 13.6% 12.7% 11.5% 12.6% Retail Branding and Information Solutions Reported Sales $ 1,462.6 $ 1,534.9 $ 1,516.0 $ 368.8 $ 364.2 $ 347.2 $ 363.2 $ 1,443.4 $ 359.5 $ 358.5 $ 351.5 $ 375.9 $ 1,445.4 Organic Sales Change 3% 5% -2% 2% -2% 4% 8% 3% 5% 2% 2% 5% 3% Adjusted Operating Income (non-GAAP)(1) $ 63.7 $ 84.4 $ 90.5 $ 20.0 $ 25.0 $ 24.1 $ 28.2 $ 97.3 $ 24.7 $ 25.5 $ 24.7 $ 37.5 $ 112.4 Adjusted Operating Margin (non-GAAP)(1) 4.4% 5.5% 6.0% 5.4% 6.9% 6.9% 7.8% 6.7% 6.9% 7.1% 7.0% 10.0% 7.8% Industrial and Healthcare Materials Reported Sales $ 441.1 $ 467.8 $ 515.6 $ 126.3 $ 122.8 $ 121.3 $ 121.0 $ 491.4 $ 113.4 $ 118.4 $ 110.9 $ 111.1 $ 453.8 Organic Sales Change 10% 7% 10% 6% 5% 4% 6% 5% -6% -3% -10% -10% -8% Adjusted Operating Income (non-GAAP)(1) $ 26.0 $ 41.1 $ 49.5 $ 14.9 $ 17.5 $ 17.2 $ 15.5 $ 65.1 $ 15.9 $ 17.1 $ 12.7 $ 10.8 $ 56.5 Adjusted Operating Margin (non-GAAP)(1) 5.9% 8.8% 9.6% 11.8% 14.3% 14.2% 12.8% 13.2% 14.0% 14.4% 11.5% 9.7% 12.5% Corporate Expense (non-GAAP)(1) $ (80.6) $ (88.4) $ (82.5) $ (23.1) $ (22.3) $ (23.3) $ (22.5) $ (91.2) $ (24.9) $ (22.2) $ (23.5) $ (25.3) $ (95.9)
Fourth quarter segment results ($ in millions) New Segments Net Sales Rptd. Sales Change GAAP Oper. Income GAAP Oper. Margin LGM $1,064 10% LGM $121 11.3% RBIS $376 3% RBIS $35 9.3% IHM $111 -8% IHM $10 8.8% Previous Segments Segment New Segments Net Sales Org. Sales Change Adj. Net Sales Org. Sales Change PSM $1,142 6% ($78) LGM $1,064 7% RBIS $395 5% ($19) RBIS $376 5% Vancive $14 -21% $97 IHM $111 -10% Previous Segments Segment New Segments Adj. Oper. Income Adj. Oper. Margin Adj. Adj. Oper. Income Adj. Oper. Margin PSM $130 11.4% ($7) LGM $123 11.5% RBIS $42 10.7% ($5) RBIS $38 10.0% Vancive ($1) -8.0% $12 IHM $11 9.7%
Fourth Quarter Segment Sales and Margins 4Q16 Reported Organic Sales Change: Label and Graphic Materials 10% 7% Retail Branding and Information Solutions 3% 5% Industrial and Healthcare Materials (8)% (10)% Total Company 7% 5% Adjusted As Reported (Non-GAAP) 4Q16 4Q15 4Q16 4Q15 Operating Margin: Label and Graphic Materials 11.3% 10.6% 11.5% 10.8% Retail Branding and Information Solutions 9.3% 3.2% 10.0% 7.8% Industrial and Healthcare Materials 8.8% 12.4% 9.7% 12.8% Total Company 9.1% 7.3% 9.4% 8.7%
Full Year Segment Sales and Margins FY16 Reported Organic Sales Change: Label and Graphic Materials 4% 5% Retail Branding and Information Solutions 0% 3% Industrial and Healthcare Materials (8)% (8)% Total Company 2% 4% Adjusted As Reported (Non-GAAP) FY16 FY15 FY16 FY15 Operating Margin: Label and Graphic Materials 12.3% 11.2% 12.6% 11.5% Retail Branding and Information Solutions 7.1% 3.6% 7.8% 6.7% Industrial and Healthcare Materials 12.0% 11.6% 12.5% 13.2% Total Company 8.8% 7.9% 9.9% 9.0%
Appendix B: Reconciliation of GAAP to Non-GAAP Financial Measures
Organic Sales Change (new segments) Totals may not sum due to rounding and other factors. Label and Graphic Materials FY12 FY13 FY14 1Q15 2Q15 3Q15 4Q15 FY15 1Q16 2Q16 3Q16 4Q16 FY16 Reported sales change -1% 4% 4% -2% -6% -6% -11% -6% -2% 3% 5% 10% 4% Estimated change in sales due to: Foreign currency translation 4% 0% 2% 9% 12% 11% 10% 10% 7% 2% 2% 1% 3% Acquisitions, net of divestitures 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% -2% -3% -1% Extra week in fiscal year 0% 0% -1% -3% 0% 0% 7% 1% 0% 0% 0% 0% 0% Organic sales change(1) 3% 5% 4% 4% 6% 5% 6% 5% 5% 5% 4% 7% 5% Retail Branding and Information Solutions FY12 FY13 FY14 1Q15 2Q15 3Q15 4Q15 FY15 1Q16 2Q16 3Q16 4Q16 FY16 Reported sales change 2% 5% -1% 0% -8% -5% -6% -5% -3% -2% 1% 3% 0% Estimated change in sales due to: Foreign currency translation 1% 0% 1% 5% 4% 4% 3% 4% 3% 1% 1% 1% 2% Acquisitions, net of divestitures 0% 0% 0% 0% 1% 4% 4% 2% 4% 2% 0% 0% 2% Extra week in fiscal year 0% 0% -1% -3% 0% 0% 7% 1% 0% 0% 0% 0% 0% Organic sales change(1) 3% 5% -2% 2% -2% 4% 8% 3% 5% 2% 2% 5% 3% Industrial and Healthcare Materials FY12 FY13 FY14 1Q15 2Q15 3Q15 4Q15 FY15 1Q16 2Q16 3Q16 4Q16 FY16 Reported sales change 4% 6% 10% 0% -6% -5% -8% -5% -10% -4% -9% -8% -8% Estimated change in sales due to: Foreign currency translation 6% 0% 1% 8% 11% 9% 7% 9% 4% 0% 2% 1% 2% Acquisitions, net of divestitures 0% 1% 0% 0% 0% 0% 0% 0% 0% 0% -3% -3% -2% Extra week in fiscal year 0% 0% -1% -3% 0% 0% 7% 1% 0% 0% 0% 0% 0% Organic sales change(1) 10% 7% 10% 6% 5% 4% 6% 5% -6% -3% -10% -10% -8%
Reconciliation of Adjusted Operating Margin (new segments) ($ in millions) Label and Graphic Materials Reconciliation of Operating Margins: FY12 FY13 FY14 1Q15 2Q15 3Q15 4Q15 FY15 1Q16 2Q16 3Q16 4Q16 FY16 Net Sales $ 3,959.8 $ 4,137.3 $ 4,298.7 $ 1,032.9 $ 1,029.0 $ 999.6 $ 970.6 $ 4,032.1 $ 1,012.6 $ 1,064.6 $ 1,046.3 $ 1,063.8 $ 4,187.3 Operating income, as reported 337.8 411.0 396.9 112.8 119.2 118.9 102.5 453.4 126.6 138.3 130.7 120.6 516.2 Non-GAAP adjustments: Severance and related costs 30.4 6.9 38.2 6.2 4.2 0.9 1.5 12.8 2.1 2.1 0.6 1.0 5.8 Asset impairment and lease cancellation charges 2.6 3.7 1.9 - 0.2 - 0.6 0.8 - 2.4 0.1 0.2 2.7 Other items (0.6) - 1.4 (1.7) - - 0.2 (1.5) - 1.7 2.0 0.8 4.5 Adjusted operating income (non-GAAP) $ 370.2 $ 421.6 $ 438.4 $ 117.3 $ 123.6 $ 119.8 $ 104.8 $ 465.5 $ 128.7 $ 144.5 $ 133.4 $ 122.6 $ 529.2 Operating Margins 8.5% 9.9% 9.2% 10.9% 11.6% 11.9% 10.6% 11.2% 12.5% 13.0% 12.5% 11.3% 12.3% Adjusted Operating Margins (non-GAAP) 9.3% 10.2% 10.2% 11.4% 12.0% 12.0% 10.8% 11.5% 12.7% 13.6% 12.7% 11.5% 12.6% Retail Branding and Information Solutions Reconciliation of Operating Margins: FY12 FY13 FY14 1Q15 2Q15 3Q15 4Q15 FY15 1Q16 2Q16 3Q16 4Q16 FY16 Net Sales $ 1,462.6 $ 1,534.9 $ 1,516.0 $ 368.8 $ 364.2 $ 347.2 $ 363.2 $ 1,443.4 $ 359.5 $ 358.5 $ 351.5 $ 375.9 $ 1,445.4 Operating income, as reported 39.0 64.8 68.5 14.6 5.1 20.1 11.8 51.6 21.5 23.1 23.2 34.8 102.6 Non-GAAP adjustments: Severance and related costs 14.3 19.6 16.0 3.3 11.7 3.6 15.5 34.1 2.8 1.3 1.3 3.0 8.4 Asset impairment and lease cancellation charges 3.4 8.5 5.3 - 0.5 0.2 0.9 1.6 0.4 0.4 0.2 1.1 2.1 Other items 7.0 (8.5) 0.7 2.1 7.7 0.2 - 10.0 - 0.7 - (1.4) (0.7) Adjusted operating income (non-GAAP) $ 63.7 $ 84.4 $ 90.5 $ 20.0 $ 25.0 $ 24.1 $ 28.2 $ 97.3 $ 24.7 $ 25.5 $ 24.7 $ 37.5 $ 112.4 Operating Margins 2.7% 4.2% 4.5% 4.0% 1.4% 5.8% 3.2% 3.6% 6.0% 6.4% 6.6% 9.3% 7.1% Adjusted Operating Margins (non-GAAP) 4.4% 5.5% 6.0% 5.4% 6.9% 6.9% 7.8% 6.7% 6.9% 7.1% 7.0% 10.0% 7.8%
Reconciliation of Adjusted Operating Margin (new segments) ($ in millions) Industrial and Healthcare Materials Reconciliation of Operating Margins: FY12 FY13 FY14 1Q15 2Q15 3Q15 4Q15 FY15 1Q16 2Q16 3Q16 4Q16 FY16 Net Sales $ 441.1 $ 467.8 $ 515.6 $ 126.3 $ 122.8 $ 121.3 $ 121.0 $ 491.4 $ 113.4 $ 118.4 $ 110.9 $ 111.1 $ 453.8 Operating income, as reported 20.0 40.4 45.2 12.6 14.1 15.4 15.0 57.1 15.6 16.9 12.3 9.8 54.6 Non-GAAP adjustments: Severance and related costs 1.9 0.4 0.1 1.9 0.9 0.1 0.5 3.4 0.3 0.2 - - 0.5 Asset impairment and lease cancellation charges 0.2 0.3 4.2 0.4 2.5 1.7 - 4.6 - - 0.4 - 0.4 Other items 3.9 - - - - - - - - - - 1.0 1.0 Adjusted operating income (non-GAAP) $ 26.0 $ 41.1 $ 49.5 $ 14.9 $ 17.5 $ 17.2 $ 15.5 $ 65.1 $ 15.9 $ 17.1 $ 12.7 $ 10.8 $ 56.5 Operating Margins 4.5% 8.6% 8.8% 10.0% 11.5% 12.7% 12.4% 11.6% 13.8% 14.3% 11.1% 8.8% 12.0% Adjusted Operating Margins (non-GAAP) 5.9% 8.8% 9.6% 11.8% 14.3% 14.2% 12.8% 13.2% 14.0% 14.4% 11.5% 9.7% 12.5% Reconciliation of Corporate Expense: FY12 FY13 FY14 1Q15 2Q15 3Q15 4Q15 FY15 1Q16 2Q16 3Q16 4Q16 FY16 Corporate expense, as reported $ (88.7) $ (89.3) $ (86.5) $ (24.7) $ (21.8) $ (23.6) $ (22.6) $ (92.7) $ (24.9) $ (63.6) $ (23.5) $ (24.4) $ (136.4) Adjustments 2.4 (4.8) 3.6 (0.5) (0.5) n/a n/a (1.0) n/a n/a n/a n/a n/a Corporate expense, as previously reported (86.3) (94.1) (82.9) (25.2) (22.3) (23.6) (22.6) (93.7) n/a n/a n/a n/a n/a Non-GAAP adjustments: Severance and related costs 2.7 0.3 0.4 2.1 - 0.1 - 2.2 - - - - - Asset impairment and lease cancellation charges 0.3 0.6 - - - - - - - - - - - Other items 2.7 4.8 - - - 0.2 0.1 0.3 - 41.4 - (0.9) 40.5 Corporate Expense (non-GAAP) $ (80.6) $ (88.4) $ (82.5) $ (23.1) $ (22.3) $ (23.3) $ (22.5) $ (91.2) $ (24.9) $ (22.2) $ (23.5) $ (25.3) $ (95.9)
Organic Sales Change (Total Company) Totals may not sum due to rounding and other factors. ($ in millions) 3-Yr CAGR 2013 2014 2015 2016 Net sales $6,140.0 $6,330.3 $5,966.9 $6,086.5 Reported sales change 3.1% -5.7% 2.0% Foreign currency translation 1.1% 8.6% 2.6% Sales change (ex. currency) 4.2% 2.9% 4.6% Extra week impact ~-1.2% ~1.2% Acquisitions/Divestiture 0.6% -0.7% Organic sales change(1) 3.1% 4.6% 3.9% 3.9%
Adjusted Net Income and Adjusted EPS GAAP adjustment for prior periods reflects the previously disclosed impact of the third quarter of 2015 revision to certain benefit plan balances, which had an immaterial impact to the non-GAAP amounts. Net Income ($ in millions) 2013 2014 2015 2016 As reported net income from continuing operations $ 241.7 $ 247.3 $ 274.4 $320.7 Adjustments(1) $ 2.6 $ 3.8 $ (0.6) $ - Previously reported net income from continuing operations 244.3 251.1 273.8 320.7 Non-GAAP adjustments: Restructuring charges and other items $ 36.6 $ 68.2 $ 68.3 $ 65.2 Tax effect of pre-tax adjustments $ (12.3) $ (21.3) $ (22.6) $ (21.4) Adjusted Net Income from Continuing Operations (non-GAAP) $ 268.6 $ 298.0 $ 319.5 $364.5 EPS 3-Yr CAGR 2013 2014 2015 2016 As reported net income per common share from continuing operations, assuming dilution $ 2.41 $ 2.58 $ 2.95 $ 3.54 Adjustments(1) $ 0.03 $ 0.04 $ - $ - Previously reported net income per common share from continuing operations, assuming dilution $ 2.44 $ 2.62 $ 2.95 $ 3.54 Non-GAAP adjustments per common share, net of tax: Restructuring charges and other items $ 0.24 $ 0.49 $ 0.49 $ 0.48 Adjusted Net Income per Common Share from Continuing Operations, assuming dilution (non-GAAP) $ 2.68 $ 3.11 $ 3.44 $ 4.02 14.5%
Return on Total Capital (ROTC) ($ in millions) 2015 2016 As reported net income from continuing operations $ 320.7 Interest expense, net of tax benefit $ 40.3 Effective Tax Rate 32.8% Income from continuing operations, excluding expense and tax benefit of debt financing (non-GAAP) $ 361.0 Total debt $ 1,058.9 $ 1,292.5 Shareholders' equity $ 965.7 $ 925.5 Return on Total Capital (ROTC) (non-GAAP) 17.0%
Net Debt to Adjusted EBITDA GAAP adjustment for prior periods reflects the previously disclosed impact of the third quarter of 2015 revision to certain benefit plan balances, which had an immaterial impact to the non-GAAP amounts. 4-pt ($ in millions) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Avg. Net sales $1,528.0 $1,516.0 $1,468.1 $1,454.8 $1,485.5 $1,541.5 $1,508.7 $1,550.8 As reported net income $ 71.9 $ 63.7 $ 81.7 $ 57.0 $ 89.6 $ 80.0 $ 89.1 $ 62.0 Interest expense $ 15.3 $ 15.3 $ 14.7 $ 15.2 $ 15.3 $ 15.4 $ 14.7 $ 14.5 Income taxes $ 28.1 $ 36.6 $ 34.8 $ 35.0 $ 33.9 $ 19.3 $ 38.9 $ 64.3 Provision for loss (income) from discontinued operations $ - $ 1.0 $ (0.4) $ (0.5) $ - $ - $ - $ - Operating income from continuing operations before interest and taxes, as reported $ 115.3 $ 116.6 $ 130.8 $ 106.7 $ 138.8 $ 114.7 $ 142.7 $ 140.8 Adjustments(1) $ (0.5) $ (0.5) n/a n/a n/a n/a n/a n/a Operating income from continuing operations before interest and taxes, previously reported $ 114.8 $ 116.1 $ 130.8 $ 106.7 $ 138.8 $ 114.7 $ 142.7 $ 140.8 Non-GAAP Adjustments: Restructuring costs: Severance and related costs $ 13.5 $ 16.8 $ 4.7 $ 17.5 $ 5.2 $ 3.6 $ 1.9 $ 4.0 Asset impairment and lease cancellation charges $ 0.4 $ 3.2 $ 1.9 $ 1.5 $ 0.4 $ 2.8 $ 0.7 $ 1.3 Other items $ 0.4 $ 7.7 $ 0.4 $ 0.3 $ - $ 43.8 $ 2.0 $ (0.5) Adjusted operating income from continuing operations before interest expense and taxes (non-GAAP) $ 129.1 $ 143.8 $ 137.8 $ 126.0 $ 144.4 $ 164.9 $ 147.3 $ 145.6 Depreciation $ 33.2 $ 31.7 $ 30.4 $ 29.9 $ 29.0 $ 29.6 $ 30.2 $ 28.7 Amortization $ 16.1 $ 15.7 $ 15.7 $ 15.6 $ 15.3 $ 15.5 $ 15.9 $ 15.9 Adjusted net income before interest, taxes, depreciation & amortization ("EBITDA") (non-GAAP) $ 178.4 $ 191.2 $ 183.9 $ 171.5 $ 188.7 $ 210.0 $ 193.4 $ 190.2 Total Debt $1,206.0 $1,146.9 $1,049.0 $1,058.9 $1,228.2 $1,161.9 $1,300.6 $1,292.5 Less: Cash and cash equivalents $ 189.0 $ 225.7 $ 143.8 $ 158.8 $ 169.6 $ 216.1 $ 189.4 $ 195.1 Net Debt $1,017.0 $ 921.2 $ 905.2 $ 900.1 $1,058.6 $ 945.8 $1,111.2 $1,097.4 Net Debt to Adjusted LTM* EBITDA ( Non-GAAP) 1.4 1.3 1.5 1.4 1.4 *LTM = Last twelve months
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