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0000950134-08-001243.txt : 200801290000950134-08-001243.hdr.sgml : 2008012920080129084545ACCESSION NUMBER:0000950134-08-001243CONFORMED SUBMISSION TYPE:8-KPUBLIC DOCUMENT COUNT:23CONFORMED PERIOD OF REPORT:20080129ITEM INFORMATION:Results of Operations and Financial ConditionITEM INFORMATION:Financial Statements and ExhibitsFILED AS OF DATE:20080129DATE AS OF CHANGE:20080129
FILER:
COMPANY DATA:COMPANY CONFORMED NAME:AVERY DENNISON CORPORATIONCENTRAL INDEX KEY:0000008818STANDARD INDUSTRIAL CLASSIFICATION:CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670]IRS NUMBER:951492269STATE OF INCORPORATION:DEFISCAL YEAR END:1229
FILING VALUES:FORM TYPE:8-KSEC ACT:1934 ActSEC FILE NUMBER:001-07685FILM NUMBER:08556028
BUSINESS ADDRESS:STREET 1:150 N ORANGE GROVE BLVDCITY:PASADENASTATE:CAZIP:91103BUSINESS PHONE:6263042000
MAIL ADDRESS:STREET 1:150 N ORANGE GROVE BLVDCITY:PASADENASTATE:CAZIP:91103
FORMER COMPANY:FORMER CONFORMED NAME:AVERY INTERNATIONAL CORPDATE OF NAME CHANGE:19901030
FORMER COMPANY:FORMER CONFORMED NAME:AVERY PRODUCTS CORPDATE OF NAME CHANGE:19760518
8-K1a37439e8vk.htmFORM 8-K
e8vk
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Pursuant to Section13 OR 15(d) of
The Securities Exchange Act of 1934
Date of Report
Delaware
1 -7685
95-1492269
(State or other jurisdiction
(Commission
(IRS Employer
of incorporation)
File Number)
Identification No.)
150 North Orange Grove Boulevard
Pasadena, California
91103
(Address of principal executive offices)
(Zip Code)
o Written communications pursuant to Rule425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item2.02 Results of Operations and Financial ConditionItem9.01 Financial Statements and ExhibitsSIGNATURESEXHIBIT LISTEXHIBIT 99.1EXHIBIT 99.2
Table of Contents
Item2.02 Results of Operations and Financial Condition.
Item9.01 Financial Statements and Exhibits.
On January29, 2008, Avery Dennison Corporation issued a news release announcing itspreliminary, unaudited financial results for the fourth quarter ending December29, 2007,along with earnings guidance for the 2008 fiscal year.
On January29, 2008, Avery Dennison Corporation provided a presentation regarding itspreliminary financial review and analysis for the fourth quarter ending December29, 2007,along with earnings guidance for the 2008 fiscal year.
Table of Contents
Table of Contents
AVERY DENNISON CORPORATION
By: /s/ Daniel R. OBryant
Name:
Daniel R. OBryant
Title:
Executive Vice President, Finance
and Chief Financial Officer
Table of Contents
Exhibit No. Description
News release dated January29, 2008.
Presentation dated January29, 2008.
EX-99.12a37439exv99w1.htmEXHIBIT 99.1
exv99w1
4th QUARTER AND YEAR-END 2007 EARNINGS
Reported net income per share of $0.81 for the fourth quarter, down from $1.04 pershare last year, due to integration costs and interest expense related to the $1.3billionacquisition of Paxar and other restructuring charges
Adjusted earnings per share of $1.08, excluding the impact of restructuring andasset impairment charges and transition costs related to the Paxar integration.
Net sales increased approximately 21percent to $1.71billion
Sales before the impact of the Paxar acquisition and foreign currency translationdeclined approximately 1percent
On track to achieve estimated $115 to $125million of annual cost synergies from Paxarintegration by end of 2009
(For a more detailed presentation of the Companys results for the quarter, seeFourth Quarter 2007 Financial Review and Analysis, posted at the Companys Web site atwww.investors.averydennison.com.)
Operating margin (GAAP basis) was 5.7percent, compared to 8.1percent for the sameperiod last year. Excluding interest expense, the effect of transition costs associatedwith the Paxar integration, restructuring and asset impairment charges, and other items,operating margin was 9.6percent, compared to 9.4percent for the previous year. (SeeAttachment A-3: Preliminary Reconciliation of GAAP to Non-GAAP Measures.)
The effective tax rate for the quarter and full year 2007 was approximately 19percent,in line with the Companys guidance.
(See Attachment A-4: Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAPSupplementary Information for adjusted operating margins included below.)
Pressure-sensitive Materials reported sales of $890million, up 9percent from theprior year. Organic sales growth for the segment was approximately 2percent, reflectingsoft market conditions in North America and Europe.
Segment operating margin (GAAP basis) was 8.9percent, compared to 9.1percent for the sameperiod last year. Before restructuring and asset impairment charges, and other items,operating margin declined 40 basis points to 9percent.
Retail Information Services sales grew 144percent to $411million, or about 1percentbefore the benefits from the Paxar acquisition and currency translation. Growth of thecore business continued to be slow due to the decline in orders for apparel shipped toNorth American retailers and brand owners, reflecting a weak domestic retail environment.
Segment operating margin (GAAP basis) was 0.5percent, compared to 5.7percent for the sameperiod last year. Before restructuring and asset impairment charges, transition costsassociated with the Paxar integration, and other items, operating margin was 6.8percent.
Office and Consumer Products sales declined 5percent to $272million. Organic salesdecline for the segment was approximately 8percent, due to customer inventory reductions.
Segment operating margin (GAAP basis) was 20.6percent, unchanged from the prior year.Before restructuring and asset impairment charges, and other items, operating margin was21.9percent, compared to 19.9percent for the same period last year.
Quarter conference call with analysts, visit the Avery Dennison Web site at
www.investors.averydennison.com
PRELIMINARY CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(UNAUDITED)
Three Months Ended Twelve Months Ended
Dec. 29, 2007 Dec. 30, 2006 Dec. 29, 2007 Dec. 30, 2006
$ 1,714.0 $ 1,411.4 $ 6,307.8 $ 5,575.9
1,232.5 1,016.8 4,585.4 4,037.9
481.5 394.6 1,722.4 1,538.0
333.0 262.4 1,182.5 1,011.1
34.3 13.3 105.2 55.5
16.2 5.1 59.4 36.2
98.0 113.8 375.3 435.2
18.6 8.7 71.8 76.7
79.4 105.1 303.5 358.5
(0.4 ) 14.7
$ 79.4 $ 104.7 $ 303.5 $ 373.2
$ 0.81 $ 1.04 $ 3.07 $ 3.57
0.15
$ 0.81 $ 1.04 $ 3.07 $ 3.72
98.6 100.4 98.9 100.4
98.4 98.3 98.4 98.3
(1) Other expense for the fourth quarter of 2007 includes $16.2 of restructuringcosts, asset impairment and lease cancellation charges.
Other expense, net, for the fourth quarter of 2006 includes restructuring costs,asset impairment and lease cancellation charges of $10.4, partially offset bygain on sale of assets of ($5.3).
Other expense, net, for 2007 includes $57.5 of asset impairment charges,restructuring costs and lease cancellation charges, $4.8 ofcertain non-recurring financing costs and $.3 of expenses related to adivestiture, partially offset by a reversal of ($3.2) related to a patentlawsuit.
Other expense, net, for 2006 includes restructuring costs, asset impairmentand lease cancellation charges of $29.8, environmental remediation costs of $13, legal accrual related to a patent lawsuit of $.4, miscellaneoustaxes of $.4 related to a divestiture and charitable contribution of $10 toAvery Dennison Foundation, partially offset by gain on sale of investment of($10.5), gain on sale of assets of ($5.3) and gain from curtailment andsettlement of a pension obligation of ($1.6).
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
(UNAUDITED)
Three Months Ended Twelve Months Ended
Dec. 29, 2007 Dec. 30, 2006 Dec. 29, 2007 Dec. 30, 2006
$ 1,714.0 $ 1,411.4 $ 6,307.8 $ 5,575.9
$ 98.0 $ 113.8 $ 375.3 $ 435.2
5.7 % 8.1 % 5.9 % 7.8 %
$ 98.0 $ 113.8 $ 375.3 $ 435.2
11.1 6.5 21.6 21.1
5.1 3.9 17.5 8.7
18.4
16.8 43.0
(5.3 ) 1.9 6.4
34.3 13.3 105.2 55.5
$ 165.3 $ 132.2 $ 582.9 $ 526.9
9.6 % 9.4 % 9.2 % 9.4 %
$ 79.4 $ 104.7 $ 303.5 $ 373.2
9.0 6.1 17.6 17.6
4.2 3.6 14.4 7.4
14.6
13.6 34.6
(5.0 ) 1.8 2.2
0.4 (14.7 )
$ 106.2 $ 109.8 $ 386.5 $ 385.7
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
(UNAUDITED)
Three Months Ended Twelve Months Ended
Dec. 29, 2007 Dec. 30, 2006 Dec. 29, 2007 Dec. 30, 2006
$ 0.81 $ 1.04 $ 3.07 $ 3.72
0.09 0.06 0.18 0.18
0.04 0.04 0.14 0.07
0.15
0.14 0.35
(0.05 ) 0.02 0.02
(0.15 )
$ 1.08 $ 1.09 $ 3.91 $ 3.84
98.6 100.4 98.9 100.4
(1) 2007 YTD includes asset impairment charges primarily related to software assets.
(2) 2007 QTD includes $16.8 of Paxar integration costs and change-in-control costs reported in marketing, general & administrativeexpense.
2007 YTD includes $39.7 of Paxar integration costs and change-in-control costs reported in marketing, general & administrative expense and $3.3of inventory step-up impact reported in costs of products sold.
(3) 2007 YTD includes $4.8 of certain non-recurring financing costs and $.3 of expenses related to a divestiture, partially offset by reversal of anaccrual for a patent lawsuit of ($3.2).
2006 QTD includes gain on sale of assets of ($5.3).
2006 YTD includes $13 related to environmental remediation costs, legal accrual related to a patentlawsuit of $.4, miscellaneous taxes of $.4 related to a divestiture and charitable contribution of $10 to Avery Dennison Foundation, partially offsetby gain on sale of investment of ($10.5), gain on sale of assets of ($5.3) and gain from curtailment and settlement of a pension obligation of ($1.6).
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
(UNAUDITED)
Fourth Quarter Ended
NET SALES OPERATING INCOME OPERATING MARGINS
2007 2006 2007(1) 2006(2) 2007 2006
$ 890.1 $ 814.3 $ 79.0 $ 74.3 8.9 % 9.1 %
410.7 168.1 1.9 9.6 0.5 % 5.7 %
272.2 285.0 56.1 58.6 20.6 % 20.6 %
141.0 144.0 0.2 0.6 0.1 % 0.4 %
N/A N/A (4.9 ) (16.0 ) N/A N/A
N/A N/A (34.3 ) (13.3 ) N/A N/A
$ 1,714.0 $ 1,411.4 $ 98.0 $ 113.8 5.7 % 8.1 %
Fourth Quarter Ended
OPERATING INCOME OPERATING MARGINS
2007 2006 2007 2006
$ 79.0 $ 74.3 8.9 % 9.1 %
1.0 1.9 0.1 % 0.2 %
1.6 0.2 %
(1.1 ) (0.1 %)
$ 80.0 $ 76.7 9.0 % 9.4 %
$ 1.9 $ 9.6 0.5 % 5.7 %
6.2 1.8 1.5 % 1.1 %
3.1 1.5 0.7 % 0.9 %
16.8 4.1 %
$ 28.0 $ 12.9 6.8 % 7.7 %
$ 56.1 $ 58.6 20.6 % 20.6 %
3.4 1.5 1.3 % 0.5 %
0.8 0.3 %
(4.2 ) (1.5 %)
$ 59.5 $ 56.7 21.9 % 19.9 %
$ 0.2 $ 0.6 0.1 % 0.4 %
1.1 1.3 0.8 % 0.9 %
1.6 1.2 %
$ 2.9 $ 1.9 2.1 % 1.3 %
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
(UNAUDITED)
Twelve Months Year-to-Date
NET SALES OPERATING INCOME OPERATING MARGINS
2007 2006 2007(1) 2006(2) 2007 2006
$ 3,497.7 $ 3,236.3 $ 318.7 $ 301.6 9.1 % 9.3 %
1,174.5 667.7 (4.0 ) 45.7 (0.3 %) 6.8 %
1,016.2 1,072.0 173.6 187.4 17.1 % 17.5 %
619.4 599.9 25.4 17.3 4.1 % 2.9 %
N/A N/A (33.2 ) (61.3 ) N/A N/A
N/A N/A (105.2 ) (55.5 ) N/A N/A
$ 6,307.8 $ 5,575.9 $ 375.3 $ 435.2 5.9 % 7.8 %
Twelve Months Year-to-Date
OPERATING INCOME OPERATING MARGINS
2007 2006 2007 2006
$ 318.7 $ 301.6 9.1 % 9.3 %
6.1 7.3 0.2 % 0.2 %
10.9 2.7 0.3 % 0.1 %
(3.2 ) 0.4 (0.1 %)
(1.1 )
$ 332.5 $ 310.9 9.5 % 9.6 %
$ (4.0 ) $ 45.7 (0.3 %) 6.8 %
9.7 9.4 0.8 % 1.4 %
3.1 1.8 0.2 % 0.3 %
18.4 1.6 %
43.0 3.7 %
$ 70.2 $ 56.9 6.0 % 8.5 %
$ 173.6 $ 187.4 17.1 % 17.5 %
4.1 2.3 0.4 % 0.2 %
0.4 0.8 0.1 % 0.1 %
0.3
(4.2 ) (0.4 %)
(1.6 ) (0.1 %)
0.4
$ 178.4 $ 185.1 17.6 % 17.3 %
$ 25.4 $ 17.3 4.1 % 2.9 %
2.3 2.1 0.4 % 0.4 %
1.9 1.6 0.3 % 0.2 %
$ 29.6 $ 21.0 4.8 % 3.5 %
AVERY DENNISON
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Full Year 2008 Estimates)
2008
Guidance
$3.80 - $4.20
~ $0.35
$4.15 to $4.55
(1) Subject to revision as plans are finalized
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
(UNAUDITED)
ASSETS
Dec. 29,
2007 Dec. 30,
2006
$ 71.5 $ 58.5
1,113.8 910.2
631.0 496.9
242.0 221.1
2,058.3 1,686.7
1,591.4 1,309.4
2,597.0 1,328.8
$ 6,246.7 $ 4,324.9
$ 1,110.8 $ 466.4
679.2 630.1
676.8 602.3
2,466.8 1,698.8
1,145.0 501.6
640.6 428.3
124.1 124.1
781.1 881.5
2,290.2 2,155.6
89.7 (50.1 )
(3.8 ) (5.7 )
(428.8 ) (602.5 )
(858.2 ) (806.7 )
1,994.3 1,696.2
$ 6,246.7 $ 4,324.9
PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(UNAUDITED)
Twelve Months Ended
Dec. 29, 2007 Dec. 30, 2006
$ 303.5 $ 373.2
184.1 154.3
50.5 43.6
(28.1 ) (7.3 )
44.0 (7.8 )
21.6 24.1
(15.4 ) (6.5 )
560.2 573.6
(60.8 ) (62.8 )
499.4 510.8
(190.5 ) (161.9 )
(64.3 ) (33.4 )
(1,291.9 ) (13.4 )
4.9 15.4
35.4
(1.4 ) 3.0
(1,543.2 ) (154.9 )
792.2 (137.8 )
688.8
(222.0 ) (2.3 )
(171.8 ) (171.8 )
(63.2 ) (157.7 )
36.2 54.1
(4.8 ) 17.7
1,055.4 (397.8 )
1.4 1.9
13.0 (40.0 )
58.5 98.5
$ 71.5 $ 58.5
EX-99.23a37439exv99w2.htmEXHIBIT 99.2
exv99w2
Fourth Quarter and Full Year 2008
Financial Review and Analysis
(Unaudited)
January 29, 2007
DRAFT: Friday Evening Final
Certain statements contained in this document are "forward-looking statements" intended to qualify for the safe harborfrom liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements andfinancial or other business targets are subject to certain risks and uncertainties. Actual results and trends may differmaterially from historical or expected results depending on a variety of factors, including but not limited to risks anduncertainties relating to investment in development activities and new production facilities; fluctuations in cost andavailability of raw materials; ability of the Company to achieve and sustain targeted cost reductions, including synergiesexpected from the integration of the Paxar business in the time and at the cost anticipated; ability of the Company togenerate sustained productivity improvement; successful integration of acquisitions; successful implementation of newmanufacturing technologies and installation of manufacturing equipment; the financial condition and inventory strategiesof customers; customer and supplier concentrations; changes in customer order patterns; loss of significant contract(s)or customer(s); timely development and market acceptance of new products; fluctuations in demand affecting sales tocustomers; impact of competitive products and pricing; selling prices; business mix shift; credit risks; ability of theCompany to obtain adequate financing arrangements; fluctuations in interest rates; fluctuations in pension, insuranceand employee benefit costs; impact of legal proceedings, including the Australian Competition and ConsumerCommission investigation into industry competitive practices, and any related proceedings or lawsuits pertaining to thisinvestigation or to the subject matter thereof or of the concluded investigations by the U.S. Department of Justice("DOJ"), the European Commission, and the Canadian Department of Justice (including purported class actions seekingtreble damages for alleged unlawful competitive practices, which were filed after the announcement of the DOJinvestigation), as well as the impact of potential violations of the U.S. Foreign Corrupt Practices Act based on issues inChina; changes in governmental regulations; changes in political conditions; fluctuations in foreign currency exchangerates and other risks associated with foreign operations; worldwide and local economic conditions; impact ofepidemiological events on the economy and the Company's customers and suppliers; acts of war, terrorism, naturaldisasters; and other factors.
The Company believes that the most significant risk factors that could affect its ability to achieve its stated financialexpectations in the near-term include (1) the impact of economic conditions on underlying demand for the Company'sproducts; (2) the degree to which higher raw material and energy-related costs can be passed on to customers throughselling price increases, without a significant loss of volume; (3) the impact of competitors' actions, including pricing,expansion in key markets, and product offerings; (4) potential adverse developments in legal proceedings and/orinvestigations regarding competitive activities, including possible fines, penalties, judgments or settlements; and (5) theability of the Company to achieve and sustain targeted cost reductions, including expected synergies associated withthe Paxar acquisition.
The financial information presented in this document represents preliminary, unaudited financial results.
Slide 3
Use of Non-GAAP Financial Measures
This presentation contains certain non-GAAP measures as defined by SEC rules. Themost directly comparable GAAP measures have been included in the earnings newsrelease for the quarter. Reconciliations of non-GAAP measures to the most directlycomparable GAAP measures are included with the financial statements accompanying theearnings news release for the quarter, along with certain supplemental analysis provided inthis document. (See Attachments A-2 through A-5 to Exhibit 99.1, news release datedJanuary 29, 2007, and Slides 18 and 19 of this document.)
The Company's non-GAAP financial measures exclude the impact of certain events,activities or strategic decisions. The accounting effects of these events, activities ordecisions, which are included in the GAAP measures, may make it difficult to assess theunderlying performance of the Company in a single period. By excluding certainaccounting effects, both positive and negative (e.g., gains on sales of assets, restructuringcharges, asset impairments, effects of acquisitions and related costs, etc.), from certain ofthe Company's GAAP measures, the Company believes that it is providing meaningfulsupplemental information to facilitate an understanding of the Company's "core" or"underlying" operating results. These non-GAAP measures are used internally to evaluatetrends in the Company's underlying business, as well as to facilitate comparison to theresults of competitors for a single period. The Company applies a quarterly tax rate to theaccounting adjustments in order for the year-to-date tax rate on non-GAAP income to beconsistent with the year-to-date GAAP tax rate. (See Attachment A-2 to Exhibit 99.1 fordiscussion of limitations associated with the use of these non-GAAP measures.)
The information in this document has been furnished (not filed) under Form 8-K with theSEC and is posted at the Investors section of the Company's Web site.
Slide 3
Full Year 2007 Overview
Total sales up approximately 1% on an organic basis, reflectingsoft market conditions in several key segments (particularly insecond half of the year) and inventory reductions by OfficeProducts customers
Reported sales up 13%, driven primarily by the Paxar acquisitionand currency translation
Challenging year driven by economic and market conditions,including competitive price environment for the roll materialsbusiness in North America and Europe
Continued strength in emerging markets, particularly for materialsbusinesses in China, India, and the ASEAN region
Completion of Paxar acquisition; identification of $115 to $125 mil.in annual cost synergies when integration is complete
Actions taken to drive annualized cost savings of $45 to $50million (in addition to acquisition integration savings); furtheractions underway
Fourth Quarter Overview
Net sales increased 21.4% over prior year
Net effect of Paxar acquisition was approx. 15%
Currency added 7% ($0.05 benefit to earnings per share)
Sales declined modestly (0.6%) on an organic basis
Operating margin before restructuring and asset impairmentcharges and transition costs associated with the Paxar integrationincreased by 20 basis points vs. prior year
Restructuring and other productivity initiatives more than offset thecost of raw material inflation and competitive price environment
Headwinds also included 40 basis points of margin compression fromaddition of base Paxar business (margin of base business is lowerthan Company-average before integration savings)
Benefited from lower than anticipated corporate expense
Fourth Quarter Overview (continued)
Effective tax rate for the quarter and year was approximately 19%.Annual tax rate expected to be in the 18-20% range for theforeseeable future
Reported E.P.S. of $0.81 includes $0.27 of restructuring charges,asset impairment, and transition costs for Paxar integration
$0.13 of restructuring and asset impairment charges, including $0.08related to Paxar
$0.14 of transition costs associated with Paxar integration
Adjusted E.P.S. of $1.08
Adjusted earnings per share includes $0.03 of estimated accretionfrom the base Paxar business, including interest on acquisitiondebt and amortization of intangibles
Reported Sales Growth 3.5% 3.9% 8.1% 18.5% 21.4%
Management Analysis of Underlying Sales Trends
(1) Reported Sales Growth less the impacts of foreign currency translation andacquisitions, net of divestitures (calculation may not tie due to rounding).
Q4-06
Q1-07
Q2-07
Organic Sales Growth(1) 2.0% 1.3% 2.0% (0.1)% (0.6%)
Acquisitions, Net of
Divestitures (1.1)% (0.8)% 2.5% 14.5% 15.1%
Currency 2.6% 3.5% 3.5% 4.1% 7.0%
Q3-07
Q4-07
Gross Profit Margin (Total Company) 28.1% 29.0% 27.7%
Operating Margin (non-GAAP(2)):
Pressure-Sensitive Materials 9.0% 9.4% 9.5%
Retail Information Services (RIS) 6.8% 7.0% 3.0%
Office and Consumer Products 21.9% 19.9% 18.5%
Other Specialty Converting 2.1% 1.3% 5.7%
Total Company 9.6% 9.0% 9.0%
Impact of RFID on reported margin: (0.4)% (0.4)% (0.4)%
Total Company Excluding RFID 10.0% 9.4% 9.4%
(1) See Slides 18 and 19 for reconciliation to reported results for Total Company and RIS.
(2) Earnings before interest and taxes, restructuring and asset impairment charges, and other items
detailed in Attachments A-3 and A-4 of Exhibit 99.1.
Q4-07 Q4-06 Q3-07
Margin Analysis
(prior periods restated for change in LIFO accounting)
Adjusted(1)
Key Factors Impacting Margin
(see Slide 18 for prior year reconciliation for Paxar)
Gross profit margin before Paxar integration costs improved 10 basispoints compared to prior year margin, as reported
Adjusting the prior year number to include Paxar, gross profit margindeclined 90 basis points
This decline reflects impact of price competition and higher raw materialcosts, as well as negative segment and product mix shifts, partially offset byrestructuring savings and other sources of productivity
Marketing, general and administrative (MG&A) expense ratio beforePaxar integration costs improved by 20 basis points compared to prioryear MG&A ratio, as reported
Adjusting the prior year number to include Paxar, MG&A expense ratioimproved by 170 basis points
Absolute MG&A spending was down about $13 mil. vs. adjusted prior year,as cost reductions more than offset the effects of currency (approx. $11mil.), amortization of intangibles related to Paxar acquisition (approx. $6mil.), and general inflation
PRESSURE-SENSITIVE MATERIALS
Reported sales of $890 mil., up 9% compared with prior year
Organic sales growth of approx. 2%, a modest improvement over Q3 pace
Change in sales for roll materials business by region, adjusted for the effectof currency:
Europe up at low single digit rate, a modest improvement vs. Q3 trend
North America declined at low single digit rate, similar to Q3
Asia growth in mid-teens
South America up mid single digit
Graphics & Reflective business increased at mid single-digit rate beforecurrency
Excluding restructuring and asset impairment charges, operating margindeclined 40 basis points vs. prior year to 9.0%, as the negative effects ofpricing and raw material inflation more than offset benefits from restructuringand other productivity initiatives
Q4-2007 Segment Overview
Q4-2007 Segment Overview (continued)
RETAIL INFORMATION SERVICES
Reported sales of $411 mil., up 144% compared with prior year primarilydue to the Paxar acquisition
Organic sales growth of approx. 1%
Slowdown vs. historical trend and long-term target reflects decline in ordersfor apparel shipped to North American retailers and brand owners, reflectinga weak domestic retail market. Sales on products destined for Europeanmarket remain solid (> 10%)
Operating margin before transition costs, restructuring, and assetimpairment charges declined 90 basis points to 6.8%
Adjusting the prior year number to include Paxar (see Slide 19), operatingmargin before transition costs, restructuring, and asset impairmentcharges declined 20 basis points
Integration synergies of approx. $11 mil. more than offset the effects ofintangible amortization (approx. $6 mil.) and higher corporate cost allocation(approx. $4 mil.)
Realized volume growth insufficient to cover inflation in employee-relatedcosts (e.g., headcount additions and rapid salary inflation in China)
Target Target Est. Pre-Tax Target
Pre-Tax Cost Annual E.P.S. Depreciation & EBITDA(1)
Savings Accretion(1) Amortization Accretion
2008 $80 - $90 $0.35 - $0.45 ~ $70 $175 - $190
2009 $110 - $120 $0.65 - $0.80 ~ $75 $215 - $235
2010 $115 - $125 $0.85 - $1.00 ~ $75 $240 - $260
Financing
Weighted average interest expense of 5% based on current short-term rates
Combination of senior notes, mandatory convertibles, and short-term debt (47% floating)
Maintained BBB+ credit rating
Estimated One-Time Cash Integration Costs(2)
Cash Restructuring / Transition Costs(3): $125 - $135
Capital / IT Investments: $ 40 - $ 45
Total Cash Costs: $165 - $180
(1) Excluding one-time integration costs. Reflects near-term margin compression in base business, offset by lowerinterest expense than previously assumed, with productivity improvement over time. Assumes 3% to 5%compound annual growth on 2007 sales through 2010, with 2008 range reflecting 1% to 4% top line growth.
(2) Excludes non-cash charges (e.g., asset write-offs) taken to either the P&L or balance sheet
(3) Severance, change in control payments, consulting fees, etc.
Paxar Financial Outlook
(Millions,
except as noted)
Estimated Timingof Cash Outflows
2007 45%
2008 35-40%
2009 15-20%
Q4-2007 Segment Overview (continued)
OFFICE AND CONSUMER PRODUCTS
Reported sales of $272 mil., down 5% compared with prior year
Organic sales decline of approx. 8%, due to customer inventory reductions($18 mil. estimated impact to net sales)
Excluding restructuring and asset impairment charges, operating marginincreased 200 basis points to 21.9%, reflecting the benefits of:
Restructuring actions and other productivity initiatives
Tight management of expenses
Selective price increases (effective January 2007) and lower volume-basedrebates
OTHER SPECIALTY CONVERTING
Reported sales of $141 mil., down 2% compared with prior year
Organic sales decline of approx. 6%, or a decline of 2% adjusted for exit of lowmargin distribution business
Excluding restructuring and asset impairment charges, operating marginincreased by 80 basis points to 2.1%, reflecting improvement in RFID
FY 2007 Cash Flow and Y/E Debt-To-Total Capital (Millions, except as noted) 2007 2006
Cash flow from operations $499.4 $510.8 Payment for capital expenditures $190.5 $161.9 Payment for software and other deferred charges $ 64.3 $ 33.4 Free Cash Flow(1) $244.6 $315.5 Dividends $171.8 $171.8 Share Repurchase $ 63.2 $157.7 Total debt to total capital at year-end 53.1% 36.3%
(1) Cash flow from operations less payment for capital expenditures, software and other deferred charges(1) Cash flow from operations less payment for capital expenditures, software and other deferred charges(1) Cash flow from operations less payment for capital expenditures, software and other deferred charges(1) Cash flow from operations less payment for capital expenditures, software and other deferred charges(1) Cash flow from operations less payment for capital expenditures, software and other deferred charges
2008 Earnings Guidance:
Key Considerations
Guidance for adjusted (non-GAAP) earnings per share (see Slide 17 for reconciliationto GAAP): $4.15 to $4.55
Performance within range is highly dependent on organic growth
Low end of range assumes organic growth of 1%, net of about $50 mil. inassumed price reductions Company-wide
High end of range assumes organic growth of 3%, with a more neutral impact frompricing (carryover of 2007 price decline partially offset with increases)
Positive factors contributing to our outlook:
Incremental cost synergies from Paxar integration ($60 to $70 mil.)
Restructuring actions already announced ($25 to $30 mil. incremental to 2007)
Other restructuring and ongoing productivity initiatives
Price increases to offset raw material inflation
Reduced loss from building RFID business ($10 mil.)
Currency translation benefit of 2% to 3% to top-line (E.P.S. benefit of ~ $0.08)
Offsetting factors vs. 2007:
Higher interest ($20 to $30 mil.) and stock option expense (~ $10 mil.)
Raw material inflation (1.5% to 2.0% before cost-outs, or approx. $50 to $55 mil.)
General inflation and reinvestment of savings for growth
Summary of Assumptions:
Reported revenue up 9.5% to 12.5%, including 2% to 3% benefit fromcurrency, and 6.5% from Paxar acquisition effect (anniversary in mid-June)
1.5% to 2.0% inflation in overall raw material costs, offset with benefitfrom global sourcing strategies, material cost-outs, and priceincreases
Operating margin of 9.0% to 10.0%
Interest expense of $125 to $135 mil.
Tax rate in the range of 18% to 20%
Negligible change in shares outstanding
Seasonal considerations - Q1 approx. 20% of full year earnings:
RIS business is seasonally stronger in Q2 and Q4 (impact to totalCompany magnified with Paxar acquisition)
Savings from recently announced productivity actions ramp up in backhalf of the year
Stock option expense is higher in Q1
2008 Earnings Guidance:
Assumptions
2008 Earnings and Free Cash Flow Guidance
2008
Guidance
Reported (GAAP) Earnings Per Share
$3.80 - $4.20
Add Back:
Estimated Integration Transition Costs, Restructuring and
Asset Impairment Charges*
~ $0.35
Adjusted (non-GAAP) Earnings Per Share
$4.15 to $4.55
* Subject to revision as plans are finalized
Capital Expenditures & Investments in Software (ex-integration)
~ $195 mil.
Free Cash Flow (before dividends)
$400 to $450 mil.
Cash Costs of Paxar Integration (before tax)
~ $ 65 mil.
Backup: Fourth Quarter Margin Comparison
Reconciliation for Effects of Paxar - Total Company
Reconciliation for Effects of Paxar - Total CompanyReconciliation for Effects of Paxar - Total Company
Backup: Fourth Quarter Margin Comparison
Reconciliation for Effects of Paxar - RIS
Reconciliation for Effects of Paxar - RISReconciliation for Effects of Paxar - RIS
Back-up: Prior Period Restatements forChange in LIFO Accounting
Rationale for discontinuing LIFO accounting:
Time-consuming to track with no economic benefit
Inconsistent accounting methodology across business units within theCompany (e.g., LIFO accounting only used within the U.S.)
Magnitude of annual LIFO adjustment is typically immaterial to total results:
For summary of adjustments to restate prior period operating income bysegment, see "Q4-07 Restatement for LIFO", posted at the InvestorRelations section of our website
Relations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our websiteRelations section of our website
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