Avery Dennison Reports 4th Quarter and Year-End 2005 Results.PASADENA, Calif. -- Avery Dennison Avery Dennison Corporation (NYSE: AVY) produces pressure-sensitive materials (such as self-adhesive labels), office products, and various paper products. R. Stanton Avery founded Avery in 1935. Avery Dennison Corporation was created in 1990 by merger of Avery and Dennison. Corporation (NYSE NYSE See: New York Stock Exchange :AVY AVY may refer to:
tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis, compared with fully diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of $0.83 a year ago. Reported results included the impact of previously announced restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). actions, product line divestitures and discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. , as well as the effects of a legal accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. related to a patent lawsuit lawsuit: see procedure; tort. and gain on sale of a leased asset. Excluding these costs, fourth quarter diluted earnings per share were $0.92 compared with $0.83 a year ago, above the Company's guidance for the quarter. (See Attachment See attach a file. A-3: "Preliminary Reconciliation of GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). to Non-GAAP Measures".) Compared to the prior year fourth quarter, earnings before restructuring and divestiture-related charges increased on lower sales due to improved profitability, primarily related to reductions in operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. and the tax rate. Severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and non-cash charges Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. associated with the restructuring actions and divestitures totaled $130 million before tax in the fourth quarter, or $98 million after tax. "We made significant progress in 2005 to improve the profitability of our businesses," said Dean A. Scarborough Scarborough, town (1991 pop. 36,665) and district, North Yorkshire, NE England, on the North Sea. The town, primarily a resort, is also an important conference and retirement center. The area was recognized at an early time for its strategic location. , president and chief executive officer of Avery Dennison. "The charges that reduced fourth quarter reported earnings reflect our steps to fine-tune our portfolio and improve our global operating efficiencies. These actions will enhance our ability to meet both our top-line growth and margin improvement objectives." Pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta charges associated with restructuring actions include $28 million in severance costs for a previously announced reduction in headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 700 employees, and $14 million in asset and lease impairments, with actions impacting all of the Company's segments and most regions. Pre-tax savings associated with these actions are expected to total $50 to $60 million in 2006, increasing to a total of $65 to $70 million per year when fully implemented. The Company anticipates additional restructuring actions in 2006, which could result in further headcount reductions totaling an estimated 80 to 100 positions, with restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. in the range of $10 to $15 million expected to be incurred during the first half of 2006. These actions are expected to yield a further $15 to $20 million in savings per year when fully implemented. Pending divestitures include several non-strategic, low margin product lines. Pre-tax costs recognized in the fourth quarter in connection with these divestitures include $6 million in severance for a reduction in headcount of approximately 150 employees, and $83 million in non-cash charges associated with the impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of goodwill and other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. . (See Pending divestitures, below, for more information.) A portion of the benefits from restructuring actions and divestitures will be used to fund investments in ongoing Horizons initiatives and future growth opportunities, as well as actions to drive additional productivity gains. Other financial highlights from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the for the fourth quarter of 2005:
-- Sales declined by approximately 4 percent from the prior year
to $1.36 billion due to a reduction in unit volume. The unit
volume reduction reflected an extra week of sales which
benefited the fourth quarter of the prior year, as well as an
increase in year-end orders by several large customers in the
Office and Consumer Products segment, which likewise benefited
the prior year.
Excluding the estimated benefit of the extra week and advance
orders, unit volume was comparable to the prior year.
-- Gross profit margin improved by 10 basis points compared to
the fourth quarter of 2004, reflecting the benefits of pricing
actions and productivity gains, offset by the impact of lower
sales, unfavorable segment mix, and higher spending associated
with the development of the Company's radio frequency
identification (RFID) business.
Gross profit margin improved by 130 basis points compared to
the third quarter of 2005, reflecting favorable product mix.
The benefit of product mix was partially offset by
sequentially higher raw material costs, which the Company
expects to mitigate with price increases during the first
quarter of 2006.
-- Marketing, general and administrative expenses as a percent of
sales improved by 50 basis points compared to the same quarter
a year ago, reflecting spending controls implemented during
the year.
-- Excluding restructuring and asset impairment costs, gain on
sale of a leased asset, and a legal accrual related to a
patent suit in the fourth quarter of 2005, operating margin
improved by 60 basis points over the fourth quarter of 2004,
due to improved gross profit margin and the reduction in
marketing, general and administrative expenses as a percentage
of sales. (See Attachment A-3: "Preliminary Reconciliation of
GAAP to Non-GAAP Measures".)
-- Continued improvements in the Company's global tax structure
reduced the quarterly effective tax rate on income from
continuing operations to 19.7 percent, while the tax effect of
restructuring and divestiture-related charges reduced the rate
further to 2.4 percent, compared to 23.9 percent in the same
quarter a year ago.
Segment results from continuing operations Sales for the Company's Pressure-sensitive Materials segment declined by approximately 3 percent from the prior year to $763 million due to a reduction in unit volume, reflecting the extra week of sales which benefited the fourth quarter of the prior year. Excluding the benefit of the extra week in the prior year, unit volume increased by an estimated 1 percent. Before the effects of restructuring and asset impairment costs and the legal accrual, operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: for the segment improved to 8.6 percent compared with 8.0 percent a year ago, reflecting productivity improvement initiatives and spending controls. With the exception of cost inflation incurred during the fourth quarter of 2005, the benefit of price increases covered higher raw material costs. (See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information".) Sales for the Office and Consumer Products segment declined by approximately 11 percent from the prior year to $293 million due to a reduction in unit volume, primarily reflecting the extra week of sales and increased year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. orders by large customers, both of which benefited the fourth quarter of the prior year. Excluding these factors, unit volume declined by an estimated 3 percent. Before the effects of restructuring and asset impairment costs, operating margin for the segment increased to 22.4 percent compared with 19.7 percent a year ago, reflecting the benefit of productivity improvement efforts, spending controls and pricing. Price increases, effective January January: see month. 1, 2005, have covered cumulative raw material inflation for the segment over the past two years. (See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information".) Sales for the Retail Information Services See Information Systems. segment declined by approximately 3 percent from the prior year to $170 million due to a reduction in unit volume, reflecting the extra week of sales which benefited the fourth quarter of the prior year. Excluding the benefit of the extra week in the prior year, unit volume was up slightly. Before the effects of restructuring, asset impairment and lease cancellation cancellation (See: cancel) CANCELLATION. Its general acceptation, is the act of crossing a writing; it is used sometimes to signify the manual operation of tearing or destroying the instrument itself. Hyde v. Hyde, 1 Eq. Cas. Abr. 409; Rob. charges, operating margin for the segment increased to 8.0 percent in the fourth quarter, compared with 7.0 percent a year ago, reflecting productivity improvement efforts, including movement of production from Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. to lower cost operations in mainland Mainland. 1 Island (1991 pop. 14,150), 178 sq mi (461 sq km), N Scotland. The largest of the Orkney Islands, it is also called Pomona. Kirkwall, the seat of the Orkney Islands council area, is on the island. China, as well as spending controls. (See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information".) Businesses in the Other Specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. Converting group reported sales of approximately $138 million, up approximately 1 percent compared to the fourth quarter of 2004 due to unit volume growth. Excluding the benefit of the extra week in the prior year, unit volume increased by an estimated 5 percent. Before the effects of restructuring and asset impairment costs, operating margin for these businesses decreased to 1.7 percent from 2.1 percent a year ago, due to higher spending related to the Company's radio frequency identification See RFID. (RFID (Radio Frequency IDentification) A data collection technology that uses electronic tags for storing data. The tag, also known as an "electronic label," "transponder" or "code plate," is made up of an RFID chip attached to an antenna. ) division, partially offset by the benefit of productivity initiatives. (See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information".) Financial highlights for the year: --Earnings per share, on a diluted basis, were $2.25, compared with $2.78 per share in 2004. Net income was $226.4 million, compared with $279.7 million in 2004. Excluding restructuring and divestiture-related charges and transition costs, the incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. tax expense associated with the repatriation Repatriation The process of converting a foreign currency into the currency of one's own country. Notes: If you are American, converting British Pounds back to U.S. dollars is an example of repatriation. of earnings of certain foreign subsidiaries, expense accrual related to a patent infringement patent infringement n. the manufacture and/or use of an invention or improvement for which someone else owns a patent issued by the government, without obtaining permission of the owner of the patent by contract, license or waiver. case, and gain on sale of assets, annual earnings per share and net income were $3.46 and $348.0 million, respectively. On a comparable basis, earnings per share and net income grew 13 percent. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures"). --Reported sales from continuing operations grew approximately 3 percent to $5.47 billion, compared with $5.32 billion in 2004. --Excluding restructuring, asset impairment and plant transition costs, as well as gain on sale of assets and an expense accrual related to a patent infringement case, operating margin improved by 20 basis points compared with 2004. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures"). --The full-year effective tax rate on income from continuing operations was 20.4 percent, down 470 basis points compared with last year. The full-year tax rate includes $14 million of incremental expense associated with the repatriation of foreign earnings under the Homeland A homeland (rel. country of origin and native land) is the concept of the territory (cultural geography) to which an ethnic group holds a long history and a deep cultural association with —the country in which a particular national identity began. Investment Act; this cost was more than offset by favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. global tax audit settlements of $9 million in the third quarter of 2005, $7 million of restructuring-related tax savings, as well as the benefit of geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map. geographic pertaining to geography. income mix and continued improvements in our global tax structure. The 2004 tax rate included a favorable tax audit settlement of $4 million in the second quarter of that year. Pending divestitures: The Company is currently in discussions to sell a business consisting of raised reflective Refers to light hitting an opaque surface such as a printed page or mirror and bouncing back. See reflective media and reflective LCD. pavement pavement, the wearing surface of a road, street, or sidewalk. Parts of Babylon and Troy are believed to have been paved; Roman roads were noted for their durable stone paving. Cobblestones were common from late medieval times into the 19th cent. markers. The financial results for this business have been included as discontinued operations. Sales for the approximately break-even business were $23 million in 2005. Divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). of this business would not impact the Company's reflective films business; the Company will continue to manufacture and market reflective films for the graphics and highway and traffic safety markets, utilizing its proprietary glass beaded beaded /bead·ed/ (bed´ed) having the appearance of beads or a string of beads. bead·ed adj. 1. Having numerous small rounded projections often in a row. 2. and microreplication technology. In addition, the Company is also negotiating the sale of two product lines, which would reduce annual sales by approximately $70 million, with minimal impact to earnings from operations. Outlook for 2006 Avery Dennison announced that it expects fully diluted earnings for 2006 to be in the range of $3.45 to $3.80 per share. This range includes an estimated $0.12 per share impact from stock option expense, not included in 2005 reported earnings. The Company's expectation for stock option expense is below its previous estimated range of $0.13 to $0.18 per share, following the finalization Writing the table of contents (TOC) on a recordable CD or DVD disc. The finalization process ensures that the disc can be played back on most CD and DVD players. See disc-at-once. of its accounting methodology. The Company's expected range in earnings excludes the impact of additional restructuring charges related to plans that have not yet been finalized See finalization. . Based on plans to date, these charges could reduce full year earnings by $0.08 to $0.12 per share; this range may increase as planning continues. The Company's earnings expectations reflect an assumption of reported revenue growth from continuing operations in the range of 2 to 3 percent, including an estimated 3 percent negative impact primarily from currency translation and product line divestitures. "Even though we faced a challenging business environment in 2005, we built momentum through disciplined cost control and rigorous pricing execution," said Scarborough. "We will maintain that tight discipline going forward, driving solid margin improvement in 2006, while simultaneously si·mul·ta·ne·ous adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics pursuing growth opportunities, including expansion in the rapidly growing emerging markets, as well as new product and service innovations out of our Horizons pipeline." "We are especially pleased with the progress we have made in developing our RFID business this past year," added Scarborough. "We continue to improve the operating efficiency of our new high-speed high-speed adj. 1. Operated or designed for operation at high speed: a high-speed food processor. 2. Taking place at high speed: a high-speed chase. 3. manufacturing process, and are seeing good traction Traction Definition Traction is the use of a pulling force to treat muscle and skeleton disorders. Purpose Traction is usually applied to the arms and legs, the neck, the backbone, or the pelvis. with customers who are moving to the Gen 2 RFID chip standard. We believe that we are very well positioned to achieve our market share objectives as industry demand accelerates." Avery Dennison is a global leader in pressure-sensitive labeling materials, office products and retail tag, ticketing and branding systems. Based in Pasadena, Calif., Avery Dennison is a FORTUNE 500 company with 2005 sales of $5.5 billion. Avery Dennison employs more than 22,000 individuals in 48 countries worldwide who apply the Company's technologies to develop, manufacture and market a wide range of products for both consumer and industrial markets. Products offered by Avery Dennison include Avery-brand office products and graphics imaging media, Fasson-brand self-adhesive self-ad·he·sive adj. Having a surface coated with an adhesive and not needing any substance, such as glue or paste, applied to form a bond: self-adhesive wallpaper; self-adhesive labels. materials, peel-and-stick postage stamps This is a list of postage stamps that are especially notable in some way. The best-known stamps:
Goods, such as appliances and automobiles, that have a useful life over a number of periods. Firms that produce durable goods are often subject to wide fluctuations in sales and profits. Also called consumer durables. applications, brand identification and supply chain management products for the retail and apparel industries, and specialty tapes and polymers. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Certain information presented in this news release may constitute "forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. " statements. These statements are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or expected results depending on a variety of factors, including but not limited to fluctuations in cost and availability of raw materials; ability of the Company to achieve and sustain targeted cost reductions; foreign exchange rates; worldwide and local economic conditions; selling prices; impact of legal proceedings All actions that are authorized or sanctioned by law and instituted in a court or a tribunal for the acquisition of rights or the enforcement of remedies. , including the U.S. Department of Justice ("DOJ (Department Of Justice) The legal arm of the U.S. government that represents the public interest of the United States. It is headed by the Attorney General. ") criminal investigation, as well as the European Commission European Commission, branch of the governing body of the European Union (EU) invested with executive and some legislative powers. Located in Brussels, Belgium, it was founded in 1967 when the three treaty organizations comprising what was then the European Community ("EC"), Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. Department of Justice, and Australian Competition and Consumer Commission For the other Australian organisation with the same acronym, see . The Australian Competition and Consumer Commission (ACCC) is an independent authority of the government of Australia. investigations, into industry competitive practices and any related proceedings or lawsuits pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to these investigations or to the subject matter thereof (including purported pur·port·ed adj. Assumed to be such; supposed: the purported author of the story. pur·port  ed·ly adv. class actions seeking
treble damages A recovery of three times the amount of actual financial losses suffered which is provided by statute for certain kinds of cases.The statute authorizing treble damages directs the judge to multiply by three the amount of monetary damages awarded by the jury in those cases for alleged unlawful Contrary to or unauthorized by law; illegal. When applied to promises, agreements, or contracts, the term denotes that such agreements have no legal effect. The law disapproves of such conduct because it is immoral or contrary to public policy. competitive practices, and purported class actions related to alleged disclosure violations pertaining to alleged unlawful competitive practices, which were filed after the announcement of the DOJ investigation, as well as a likely fine by the EC in respect of certain employee misconduct MISCONDUCT. Unlawful behaviour by a person entrusted in any degree: with the administration of justice, by which the rights of the parties and the justice of the, case may have been affected. 2. in Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). ); impact of
potential violations of the U.S. Foreign Corrupt Practices Act Foreign Corrupt Practices ActAn amendment to the Securities Exchange Act created to sanction bribery of foreign officials by publicly held US companies. Foreign Corrupt Practices Act based on issues in China; impact of epidemiological epidemiological emanating from or pertaining to epidemiology. epidemiological associations the associative relationships between the frequency of occurrence of a disease and its determinants, its predisposing and precipitating events on the economy and the Company's customers and suppliers; successful integration of acquired companies, financial condition and inventory strategies of customers; development, introduction and acceptance of new products; fluctuations in demand affecting sales to customers; and other matters referred to in the Company's SEC filings. The financial information presented in this news release represents preliminary financial results, but the audit has not yet been completed. Under Section 404 of the Sarbanes-Oxley Act See SOX. , integrated audit requirements will not be met until the Company has completed all of the steps necessary to file these financial statements with the SEC. The Company believes that the most significant risk factors that could affect its ability to achieve its stated financial expectations in the near-term near-term adj. Of, for, or involving a short period of time in the near future. include (1) potential adverse developments in legal proceedings and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. investigations regarding competitive activities; (2) the degree to which higher raw material costs can be passed on to customers through selling price increases (and previously implemented selling price increases can be sustained), without a significant loss of volume; (3) the impact of economic conditions on underlying demand for the Company's products; and (4) ability of the Company to achieve and sustain targeted cost reductions. For more information and to listen to a live broadcast or an audio replay of the 4th Quarter conference call with analysts, visit the Avery Dennison Web site at www.investors.averydennison.com
AVERY DENNISON A-1
PRELIMINARY CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(UNAUDITED)
Three Months Ended Twelve Months Ended
--------------------- ---------------------
Dec. 31, Jan. 01, Dec. 31, Jan. 01,
2005 2005 2005 2005
(14 Weeks) (53 Weeks)
------------------------------------------------ ---------------------
Net sales $ 1,364.0 $ 1,427.8 $ 5,473.5 $ 5,317.0
Cost of products sold 949.4 995.7 3,852.4 3,742.0
-------------------------- --------------------- ---------------------
Gross profit 414.6 432.1 1,621.1 1,575.0
Marketing, general &
administrative expense 286.2 306.3 1,132.8 1,105.8
Interest expense 13.0 15.4 57.9 58.7
Other expense, net (1) 56.9 -- 63.6 35.2
-------------------------- --------------------- ---------------------
Income from continuing
operations before taxes 58.5 110.4 366.8 375.3
Taxes on income 1.4 26.4 75.0 94.3
-------------------------- --------------------- ---------------------
Income from continuing
operations 57.1 84.0 291.8 281.0
Loss from discontinued
operations, net of taxes (64.0) (0.4) (65.4) (1.3)
-------------------------- --------------------- ---------------------
Net Income (Loss) $ (6.9)$ 83.6 $ 226.4 $ 279.7
-------------------------- --------------------- ---------------------
Per share amounts:
Income (Loss) per common share,
assuming dilution
Continuing operations $ 0.57 $ 0.83 $ 2.90 $ 2.79
Discontinued operations (0.64) --- (0.65) (0.01)
-------------------------- --------------------- ---------------------
Net Income (Loss) $ (0.07)$ 0.83 $ 2.25 $ 2.78
-------------------------- --------------------- ---------------------
Average common shares
outstanding, assuming
dilution 100.4 100.6 100.5 100.5
-------------------------- --------------------- ---------------------
Common shares outstanding
at period end 99.7 100.1 99.7 100.1
-------------------------- --------------------- ---------------------
Certain prior year amounts have been reclassified to conform with the
2005 financial statement presentation.
(1) Other expense, net, for the fourth quarter of 2005 includes
restructuring costs, asset impairment and lease cancellation
charges of $55.5 and legal accrual related to a patent lawsuit of
$3.8, partially offset by gain on sale of a leased asset of
($2.4).
Other expense, net, for 2005 YTD includes restructuring costs,
asset impairment and lease cancellation charges of $65.6 and legal
accrual related to a patent lawsuit of $3.8, partially offset by
gain on sale of assets of ($5.8).
Other expense for 2004 YTD includes $35.2 of restructuring costs,
asset impairment and lease cancellation charges.
A-2
Reconciliation of Non-GAAP Financial Measures in Accordance with SEC
Regulation G
Avery Dennison reports financial results in accordance with U.S. GAAP,
and herein provides some non-GAAP measures. These non-GAAP measures
are not in accordance with, nor are they a substitute for, GAAP
measures. These non-GAAP measures are intended to supplement the
Company's presentation of its financial results that are prepared in
accordance with GAAP.
Avery Dennison uses the non-GAAP measures presented to evaluate and
manage the Company's operations internally. Avery Dennison is also
providing this information to assist investors in performing
additional financial analysis that is consistent with financial models
developed by research analysts who follow the Company.
The reconciliation set forth below is provided in accordance with
Regulations G and S-K and reconciles the non-GAAP financial measures
with the most directly comparable GAAP financial measures.
AVERY DENNISON A-3
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
(UNAUDITED)
Three Months Ended Twelve Months Ended
-------------------- --------------------
Dec. 31, Jan. 01, Dec. 31, Jan. 01,
2005 2005 2005 2005
(14 Weeks) (53 Weeks)
------------------------------------------------ --------------------
Reconciliation of GAAP to
Non-GAAP Operating Margin:
Net sales $ 1,364.0 $ 1,427.8 $ 5,473.5 $ 5,317.0
-------------------- --------------------
Income from continuing
operations before taxes $ 58.5 $ 110.4 $ 366.8 $ 375.3
--------------------------- -------------------- --------------------
GAAP Operating Margin 4.3% 7.7% 6.7% 7.1%
------------------------------------------------ --------------------
Income from continuing
operations before taxes $ 58.5 $ 110.4 $ 366.8 $ 375.3
Non-GAAP adjustments:
Restructuring and
transition costs (1) 32.9 --- 39.8 23.6
Asset impairment and
lease cancellation
charges 22.6 --- 28.1 11.6
Other (2) 1.4 --- (2.0) ---
Interest expense 13.0 15.4 57.9 58.7
-------------------- --------------------
Adjusted non-GAAP operating
income before taxes and
interest expense $ 128.4 $ 125.8 $ 490.6 $ 469.2
------------------------------------------------ --------------------
Adjusted Non-GAAP Operating
Margin 9.4% 8.8% 9.0% 8.8%
------------------------------------------------ --------------------
Reconciliation of GAAP to Non-GAAP Net Income:
As reported net income
(loss) $ (6.9)$ 83.6 $ 226.4 $ 279.7
Non-GAAP adjustments, net of taxes:
Restructuring and
transition costs 20.6 --- 25.9 17.6
Asset impairment and
lease cancellation
charges 14.1 --- 18.4 8.7
Tax expense on
repatriated earnings --- --- 13.6 ---
Other 0.9 --- (1.7) ---
Loss from discontinued
operations 64.0 0.4 65.4 1.3
--------------------------- -------------------- --------------------
Adjusted Non-GAAP Net
Income $ 92.7 $ 84.0 $ 348.0 $ 307.3
------------------------------------------------ --------------------
Reconciliation of GAAP to Non-GAAP Earnings Per Share:
As reported income (loss)
per common share, assuming
dilution $ (0.07)$ 0.83 $ 2.25 $ 2.78
Non-GAAP adjustments per
share, net of taxes:
Restructuring and
transition costs 0.20 --- 0.26 0.18
Asset impairment and
lease cancellation
charges 0.14 --- 0.18 0.09
Tax expense on
repatriated earnings --- --- 0.14 ---
Other 0.01 --- (0.02) ---
Loss from discontinued
operations 0.64 --- 0.65 0.01
--------------------------- -------------------- --------------------
Adjusted Non-GAAP income
per common share, assuming
dilution $ 0.92 $ 0.83 $ 3.46 $ 3.06
------------------------------------------------ --------------------
Average common shares
outstanding, assuming
dilution 100.4 100.6 100.5 100.5
------------------------------------------------ --------------------
Certain prior year amounts have been reclassified to conform with the
2005 financial statement presentation.
(1) 2005 QTD includes restructuring costs of $32.9.
2005 YTD includes restructuring and transition costs of $37.5 and
$2.3, respectively, primarily related to plant closures.
(2) 2005 QTD includes legal accrual related to a patent lawsuit of
$3.8, partially offset by gain on sale of a leased asset of
($2.4).
2005 YTD includes gain on sale of assets of ($5.8), partially
offset by legal accrual related to a patent lawsuit of $3.8.
AVERY DENNISON A-4
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
(UNAUDITED)
Fourth Quarter Ended
-------------------------------------------------
NET SALES OPERATING INCOME OPERATING
MARGINS
------------------ ---------------- -------------
2005 2004 2005 (1) 2004 2005 2004
(14 (14 (14
Weeks) Weeks) Weeks)
------------------ -------- ------- ----- -------
Pressure-sensitive
Materials $763.2 $788.2 $43.9 $62.9 5.8% 8.0%
Office and Consumer
Products 292.9 327.8 48.2 64.6 16.5% 19.7%
Retail Information
Services 170.3 175.2 6.1 12.3 3.6% 7.0%
Other specialty
converting
businesses 137.6 136.6 (3.0) 2.9 -2.2% 2.1%
Corporate Expense N/A N/A (23.7) (16.9) N/A N/A
Interest Expense N/A N/A (13.0) (15.4) N/A N/A
------------------ -------- ------- ----- -------
TOTAL FROM CONTINUING
OPERATIONS $1,364.0 $1,427.8 $58.5 $110.4 4.3% 7.7%
================== ======== ======= ===== =======
(1) Operating income for the fourth quarter of 2005 includes
restructuring costs, asset impairment and lease cancellation charges
of $55.5 and legal accrual related to a patent lawsuit of $3.8,
partially offset by gain on sale of a leased asset of ($2.4), of
which the Pressure-sensitive Materials segment recorded $21.4, the
Office and Consumer Products segment recorded $17.5, the Retail
Information Services segment recorded $7.5, other specialty
converting businesses recorded $5.4 and Corporate recorded $5.1.
Certain prior year amounts have been reclassified to conform with the
2005 financial statement presentation.
RECONCILIATION OF GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
Fourth Quarter Ended
-----------------------------------
OPERATING INCOME OPERATING MARGINS
-----------------------------------
2005 2004 2005 2004
-------- -------- -------- --------
Pressure-sensitive Materials
----------------------------
Operating income, as reported $ 43.9 $ 62.9 5.8% 8.0%
Non-GAAP adjustments:
Legal accrual related to a patent
lawsuit 3.8 --- 0.5% ---
Restructuring costs 15.1 --- 2.0% ---
Asset impairment charges 2.5 --- 0.3% ---
-------- -------- -------- --------
Adjusted non-GAAP operating income $ 65.3 $ 62.9 8.6% 8.0%
======== ======== ======== ========
Office and Consumer Products
----------------------------
Operating income, as reported $ 48.2 $ 64.6 16.5% 19.7%
Non-GAAP adjustments:
Restructuring costs 6.8 --- 2.3% ---
Asset impairment charges 10.7 --- 3.6% ---
-------- -------- -------- --------
Adjusted non-GAAP operating income $ 65.7 $ 64.6 22.4% 19.7%
======== ======== ======== ========
Retail Information Services
---------------------------
Operating income, as reported $ 6.1 $ 12.3 3.6% 7.0%
Non-GAAP adjustments:
Restructuring costs 5.6 --- 3.3% ---
Asset impairment and lease
cancellation charges 1.9 --- 1.1% ---
-------- -------- -------- --------
Adjusted non-GAAP operating income $ 13.6 $ 12.3 8.0% 7.0%
======== ======== ======== ========
Other specialty converting businesses
-------------------------------------
Operating income (loss), as
reported $ (3.0)$ 2.9 -2.2% 2.1%
Non-GAAP adjustments:
Restructuring costs 2.5 --- 1.8% ---
Asset impairment charges 2.9 --- 2.1% ---
-------- -------- -------- --------
Adjusted non-GAAP operating income $ 2.4 $ 2.9 1.7% 2.1%
======== ======== ======== ========
AVERY DENNISON A-5
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
(UNAUDITED)
Twelve Months Year-to-Date
---------------------------------------------------
NET SALES OPERATING INCOME OPERATING
MARGINS
------------------- ----------------- -------------
2005 2004 2005 (1) 2004 (2) 2005 2004
(53 (53 (53
Weeks) Weeks) Weeks)
--------- --------- -------- -------- ----- -------
Pressure-sensitive
Materials $3,114.5 $2,984.5 $259.6 $221.4 8.3% 7.4%
Office and
Consumer Products 1,136.1 1,172.5 168.0 186.4 14.8% 15.9%
Retail Information
Services 674.8 636.1 42.7 47.8 6.3% 7.5%
Other specialty
converting
businesses 548.1 523.9 9.5 35.5 1.7% 6.8%
Corporate Expense N/A N/A (55.1) (57.1) N/A N/A
Interest Expense N/A N/A (57.9) (58.7) N/A N/A
--------- --------- -------- -------- ----- -------
TOTAL FROM
CONTINUING
OPERATIONS $5,473.5 $5,317.0 $366.8 $375.3 6.7% 7.1%
========= ========= ======== ======== ===== =======
(1) Operating income for 2005 includes restructuring costs, asset
impairment charges, lease cancellation charges and transition costs
of $67.9 and legal accrual related to a patent lawsuit of $3.8,
partially offset by gain on sale of assets of ($5.8), of which the
Pressure-sensitive Materials segment recorded $23, the Office and
Consumer Products segment recorded $24.1, the Retail Information
Services segment recorded $7.5, other specialty converting businesses
recorded $6.2 and Corporate recorded $5.1.
(2) Operating income for 2004 includes $35.2 of restructuring costs,
asset impairment and lease cancellation charges, of which the
Pressure-sensitive Materials segment recorded $34.4, the Office and
Consumer Products segment recorded $.5 and the Retail Information
Services segment recorded $.3.
Certain prior year amounts have been reclassified to conform
with the 2005 financial statement presentation.
RECONCILIATION OF GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
Twelve Months Year-to-Date
----------------------------
OPERATING OPERATING
INCOME MARGINS
--------------- ------------
2005 2004 2005 2004
------ ------ ------ -----
Pressure-sensitive Materials
-----------------------------------------
Operating income, as reported $259.6 $221.4 8.3% 7.4%
Non-GAAP adjustments:
Legal accrual related to a patent lawsuit 3.8 --- 0.1% ---
Restructuring costs 15.5 22.8 0.5% 0.8%
Asset impairment and lease cancellation
charges 7.1 11.6 0.3% 0.4%
Gain on sale of assets (3.4) --- (0.1%) ---
------ ------ ------ -----
Adjusted non-GAAP operating income $282.6 $255.8 9.1% 8.6%
====== ====== ====== =====
Office and Consumer Products
-----------------------------------------
Operating income, as reported $168.0 $186.4 14.8% 15.9%
Non-GAAP adjustments:
Restructuring and transition costs (1) 13.4 0.5 1.2% ---
Asset impairment charges 10.7 --- 0.9% ---
------ ------ ------ -----
Adjusted non-GAAP operating income $192.1 $186.9 16.9% 15.9%
====== ====== ====== =====
Retail Information Services
-----------------------------------------
Operating income, as reported $ 42.7 $ 47.8 6.3% 7.5%
Non-GAAP adjustments:
Restructuring costs 5.6 0.3 0.8% 0.1%
Asset impairment and lease cancellation
charges 1.9 --- 0.3% ---
------ ------ ------ -----
Adjusted non-GAAP operating income $ 50.2 $ 48.1 7.4% 7.6%
====== ====== ====== =====
Other specialty converting businesses
-----------------------------------------
Operating income, as reported $ 9.5 $ 35.5 1.7% 6.8%
Non-GAAP adjustments:
Restructuring costs 2.5 --- 0.5% ---
Asset impairment charges 3.7 --- 0.7% ---
------ ------ ------ -----
Adjusted non-GAAP operating income $ 15.7 $ 35.5 2.9% 6.8%
====== ====== ====== =====
(1) For 2005, amount includes restructuring and transition costs of
$11.1 and $2.3, respectively, primarily related to plant closures.
AVERY DENNISON A-6
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
(UNAUDITED)
ASSETS Dec. 31, Jan. 01,
2005 2005
----------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 105.5 $ 84.7
Trade accounts receivable, net 863.2 883.9
Inventories, net 439.7 431.9
Other current assets 149.9 141.9
----------------------------------------------------------------------
Total current assets 1,558.3 1,542.4
Property, plant and equipment, net 1,295.7 1,374.4
Goodwill 673.1 710.6
Intangibles resulting from business
acquisitions, net 98.7 115.8
Other assets 578.1 656.1
----------------------------------------------------------------------
$4,203.9 $4,399.3
----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------
Current
liabilities:
Short-term and current portion of long-term
debt $ 364.7 $ 204.5
Accounts payable 577.9 616.7
Other current liabilities 583.0 566.1
----------------------------------------------------------------------
Total current liabilities 1,525.6 1,387.3
Long-term debt 723.0 1,007.2
Other long-term liabilities 443.4 456.1
Shareholders'
equity:
Common stock 124.1 124.1
Capital in excess of par value 729.5 766.1
Retained earnings 1,945.3 1,887.6
Accumulated other comprehensive loss (89.1) (2.7)
Cost of unallocated ESOP shares (7.7) (9.7)
Employee stock benefit trusts (552.0) (619.1)
Treasury stock at cost (638.2) (597.6)
----------------------------------------------------------------------
Total shareholders' equity 1,511.9 1,548.7
----------------------------------------------------------- ----------
$4,203.9 $4,399.3
----------------------------------------------------------------------
Certain prior year amounts have been reclassified to conform with the
2005 financial statement presentation.
AVERY DENNISON A-7
PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(UNAUDITED)
Twelve Months Ended
--------------------------------
Dec. 31, 2005 Jan. 01, 2005
(53 Weeks)
------------------------------------------------------ ---------------
Operating Activities:
Net income $ 226.4 $ 279.7
Less: Loss from discontinued
operations, net of taxes (65.4) (1.3)
------- -------
Income from continuing operations 291.8 281.0
Adjustments to reconcile net income from
continuing operations to net cash
provided by operating activities:
Depreciation 154.2 145.8
Amortization 43.8 38.9
Deferred taxes (2.3) 91.9
Asset impairment and net (gain) loss on
sale of assets 33.5 11.7
Other non-cash items, net (7.5) (0.5)
------- -------
513.5 568.8
Changes in assets and liabilities (68.8) (56.2)
------- -------
Net cash provided by operating
activities 444.7 512.6
------- -------
Investing Activities:
Purchase of property, plant and
equipment (162.3) (177.3)
Purchase of software and other
deferred charges (25.8) (21.8)
Payments for acquisitions (2.8) (15.0)
Proceeds from sale of assets 21.8 8.2
Other 1.7 (9.4)
------- -------
Net cash used in investing activities (167.4) (215.3)
------- -------
Financing Activities:
Net increase/(decrease) in borrowings
(maturities of 90 days or less) 62.5 (37.2)
Additional borrowings (maturities
longer than 90 days) 75.7 302.8
Payments of debt (maturities longer
than 90 days) (214.9) (382.0)
Dividends paid (168.7) (164.6)
Purchase of treasury stock (40.9) (0.7)
Proceeds from exercise of stock
options, net 11.1 19.1
Other 18.5 18.2
------- -------
Net cash used in financing activities (256.7) (244.4)
------- -------
Effect of foreign currency translation
on cash balances 0.2 2.4
------- -------
Increase in cash and cash equivalents 20.8 55.3
------- -------
Cash and cash equivalents, beginning
of period 84.7 29.4
------- -------
Cash and cash equivalents, end of
period $ 105.5 $ 84.7
======= =======
Certain prior year amounts have been reclassified to conform with the
2005 financial statement presentation.
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