Avery Dennison Reports Second Quarter Earnings.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:
Highlights from Continuing Operations:
-- Earnings per share from continuing operations of $0.96, up 8%
-- Earnings per share before restructuring and other charges
of $0.99, up 9%
-- Net sales of $1.41 billion, approximately even with second
quarter of 2005
-- Organic sales growth of 2%
-- Company raised estimate of annualized savings from
restructuring efforts to $85 to $100 million by year-end
Avery Dennison Corporation (NYSE:AVY) today reported net income of $112 million or $1.12 per share, compared with $89.4 million or $0.89 per share in the prior year. Second quarter 2006 results included an after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. benefit of $15.6 million or $0.16 per share related to the tax effect of a 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). that partially offset previously recognized losses Recognized Loss The amount of loss reported for income tax purposes. Notes: You can defer recognizing some losses and then deduct the losses for the following year(s). from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. . Second quarter 2006 earnings 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 were $96.4 million or $0.96 per share, up 8 percent from $89.6 million or $0.89 per share in the prior year. In both years, results included 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). and asset 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. charges and other items. Excluding these items, second quarter earnings per share from continuing operations increased by 9 percent over the same quarter last year to $0.99. (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".) The increase in earnings reflected improvements in the Company's productivity that led to a higher gross profit margin Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. and lower 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. ratio. The Company also raised its estimate of annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. savings from restructuring efforts to $85 to $100 million by 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. , including the benefit of new productivity actions identified during the quarter. Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the second quarter were $1.41 billion, approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. even with the same quarter last year. Organic sales growth, which excludes the impact of acquisitions, divestitures and foreign currency translation, was 2 percent. This increase was attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to both unit volume growth and positive changes in pricing and product mix. "We continued to make steady progress in reaching our goals this quarter, and in developing new sources of future top line growth and productivity improvement," 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. "We remain committed to the pursuit of a balanced long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. strategy to drive both solid sales growth and continued margin expansion. "Underlying unit growth improved sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen for the roll materials business in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , as customers continue to value our service and product advantages," Scarborough added. "We expect volume growth to accelerate in the second half of the year. "I am particularly encouraged by the continued strength of the materials operations in the emerging markets of Asia, Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. , and Eastern Europe Eastern Europe The countries of eastern Europe, especially those that were allied with the USSR in the Warsaw Pact, which was established in 1955 and dissolved in 1991. ," Scarborough said. "Retail Information Services See Information Systems. also delivered solid sales growth and outstanding margin improvement. We expect these businesses, as well as radio frequency identification See RFID. and other important Horizon initiatives, to play key roles in driving top line growth and improved profitability." Additional Second Quarter Financial Highlights From Continuing Operations (For a more detailed presentation of the Company's results for the quarter, see Second Quarter 2006 Financial Review and Analysis, posted at the Company's Web site at www.investors.averydennison.com.) --Core unit volume grew approximately 1 percent compared with the prior year. However, core unit volume growth was an estimated 2.5 percent when adjusted for a shift in the timing of back-to-school orders, the decision to exit certain private label businesses and other comparability considerations. Changes in pricing and product mix contributed approximately 1 point to top line growth. --Excluding restructuring and asset impairment charges and other items, operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: improved by 60 basis points. (See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAP Measures".) --The recognition of stock option expense added approximately $4 million of pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta cost compared with the prior year, which reduced operating margin by 30 basis points and reduced after-tax earnings by $0.03 per share. --The effective tax rate for continuing operations was 22.3 percent, compared to the prior year at 22.6 percent, in line with the Company's expectations. Segment Highlights (See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information" for adjusted operating margins included below.) --Pressure-sensitive Materials reported sales of $810 million, up 1 percent from the prior year. Organic sales growth for the segment was 2 percent. Operating margin, before restructuring and asset impairment charges, increased 30 basis points to 9.8 percent. --Office and Consumer Products sales declined 12 percent to $265 million. Half of the decline in sales was due to the previously announced divestiture of low-margin filing product lines 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). . The
balance of the decline was due in equal measure to the decision to exit
certain low-margin private label business and to a shift in the timing
of back-to-school orders compared to last year, which is expected to
benefit third quarter comparisons. Operating margin, before
restructuring charges restructuring chargeThe expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. and other items, declined 50 basis points to 16.5 percent, due to transition costs associated with the divestiture, which more than offset productivity savings. --Retail Information Services sales grew 6 percent to $181 million on both a reported and organic basis. Operating margin, before restructuring charges, increased 240 basis points to 12.7 percent. Outlook for the Year Reflecting second quarter results, Avery Dennison adjusted its full year guidance for earnings from continuing operations to a range of $3.60 to $3.80 per share before charges associated with ongoing restructuring efforts. The Company previously expected earnings from continuing operations to be in the range of $3.55 to $3.80 per share before restructuring and asset impairment charges. The Company now expects these charges will reduce full year earnings by $0.14 to $0.17 per share, up from the previous estimate of $0.09 to $0.13 per share. Note: Throughout this release, all calculations of amounts on a per share basis reflect fully diluted di·lute 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. shares outstanding. 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 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. 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 and financial or other business targets are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or expected results depending on a variety of factors, including but not limited to fluctuations in cost and availability of raw materials; ability of the Company to achieve and sustain targeted cost reductions; foreign currency exchange rates; worldwide and local economic conditions; impact of competitive products and pricing; 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 and fiduciary duty Noun 1. fiduciary duty - the legal duty of a fiduciary to act in the best interests of the beneficiary legal duty - acts which the law requires be done or forborne 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); impact of potential violations of the U.S. Foreign Corrupt Practices Act Foreign Corrupt Practices Act An 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 acquisitions; financial condition and inventory strategies of customers; timely development and market acceptance of new products; fluctuations in demand affecting sales to customers; and other matters referred to in the Company's SEC filings. 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, including possible fines, penalties, judgments or settlements; (2) the impact of economic conditions on underlying demand for the Company's products; (3) the impact of competitors' actions, including expansion in key markets, product offerings and pricing; (4) the degree to which higher raw material and energy-related 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; and (5) the ability of the Company to achieve and sustain targeted cost reductions. The financial information presented in this news release represents preliminary, unaudited financial results. For more information and to listen to a live broadcast or an audio replay of the 2nd 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 Six Months Ended
--------------------- ------------------
July 01, July 02, July 01, July 02,
2006 2005 2006 2005
------------------------------------------------- -------------------
Net sales $ 1,409.7 $1,411.7 $2,746.9 $2,754.5
Cost of products sold 1,016.7 1,023.6 1,998.7 2,014.5
-------------------------- ---------------------- -------------------
Gross profit 393.0 388.1 748.2 740.0
Marketing, general &
administrative expense 251.3 254.5 496.1 508.9
Interest expense 13.6 15.7 28.1 30.2
Other expense, net (1) 4.0 2.1 11.6 5.4
-------------------------- ---------------------- -------------------
Income from continuing
operations before taxes 124.1 115.8 212.4 195.5
Taxes on income 27.7 26.2 47.1 46.8
-------------------------- ---------------------- -------------------
Income from continuing
operations 96.4 89.6 165.3 148.7
Income (Loss) from
discontinued operations,
net of tax (including
gain on disposal of $1.3
and tax benefit of $15.4
in 2006) 15.6 (0.2) 15.4 (1.6)
-------------------------- --------------------- ------------------
Net Income $ 112.0 $ 89.4 $ 180.7 $ 147.1
-------------------------- ---------------------- -------------------
Per share amounts:
Income (Loss) per common
share, assuming dilution
Continuing operations $ 0.96 $ 0.89 $ 1.65 $ 1.48
Discontinued operations 0.16 --- 0.15 (0.02)
-------------------------- --------------------- ------------------
Net Income $ 1.12 $ 0.89 $ 1.80 $ 1.46
-------------------------- ---------------------- -------------------
Average common shares
outstanding, assuming
dilution 100.4 100.6 100.3 100.6
-------------------------- ---------------------- -------------------
Common shares outstanding
at period end 100.1 100.2 100.1 100.2
-------------------------- ---------------------- -------------------
Certain prior year amounts have been reclassified to conform with the
2006 financial statement presentation.
(1) Other expense, net, for the second quarter of 2006 includes $6.1
of restructuring costs and asset impairment charges, charitable
contribution of $10 to Avery Dennison Foundation, partially offset
by gain on sale of investment of ($10.5) and gain from curtailment
and settlement of a pension obligation of ($1.6).
Other expense for the second quarter of 2005 includes $2.1 of
asset impairment charges and restructuring costs.
Other expense, net, for 2006 YTD includes $13.3 of restructuring
costs and asset impairment charges, legal accrual related to a
patent lawsuit of $.4 and charitable contribution of $10 to Avery
Dennison Foundation, partially offset by gain on sale of
investment of ($10.5) and gain from curtailment and settlement of
a pension obligation of ($1.6).
Other expense, net, for 2005 YTD includes $8.8 of restructuring
costs and asset impairment charges, partially offset by gain on
sale of assets of ($3.4).
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 Six Months Ended
------------------ ------------------
July 01, July 02, July 01, July 02,
2006 2005 2006 2005
---------------------------------------- --------- -------- ---------
Reconciliation of GAAP to Non-
GAAP Operating Margin:
Net sales $1,409.7 $1,411.7 $2,746.9 $2,754.5
-------- --------- -------- ---------
Income from continuing
operations before taxes $ 124.1 $ 115.8 $ 212.4 $ 195.5
------------------------------- -------- --------- -------- ---------
GAAP Operating Margin 8.8% 8.2% 7.7% 7.1%
---------------------------------------- --------- -------- ---------
Income from continuing
operations before taxes $ 124.1 $ 115.8 $ 212.4 $ 195.5
Non-GAAP adjustments:
Restructuring and transition
costs (1) 4.7 1.7 10.1 6.5
Asset impairment charges 1.4 1.5 3.2 4.2
Other (2) (2.1) --- (1.7) (3.4)
Interest expense 13.6 15.7 28.1 30.2
-------- --------- -------- ---------
Adjusted non-GAAP operating
income before taxes and
interest expense $ 141.7 $ 134.7 $ 252.1 $ 233.0
------------------------------- -------- --------- -------- ---------
Adjusted Non-GAAP Operating
Margin 10.1% 9.5% 9.2% 8.5%
---------------------------------------- --------- -------- ---------
Reconciliation of GAAP to Non-
GAAP Net Income:
As reported net income $ 112.0 $ 89.4 $ 180.7 $ 147.1
Non-GAAP adjustments, net of
taxes:
Restructuring and transition
costs 3.6 1.3 7.8 4.9
Asset impairment charges 1.1 1.1 2.5 3.2
Other (1.6) --- (1.3) (2.6)
(Income) Loss from
discontinued operations (15.6) 0.2 (15.4) 1.6
------------------------------- -------- --------- -------- ---------
Adjusted Non-GAAP Net Income $ 99.5 $ 92.0 $ 174.3 $ 154.2
---------------------------------------- --------- -------- ---------
Reconciliation of GAAP to Non-
GAAP Earnings Per Share:
As reported income per common
share, assuming dilution $ 1.12 $ 0.89 $ 1.80 $ 1.46
Non-GAAP adjustments per
share, net of taxes:
Restructuring and transition
costs 0.04 0.01 0.08 0.05
Asset impairment charges 0.01 0.01 0.02 0.03
Other (0.02) --- (0.01) (0.03)
(Income) Loss from
discontinued operations (0.16) --- (0.15) 0.02
------------------------------- -------- --------- -------- ---------
Adjusted Non-GAAP income per
common share, assuming
dilution $ 0.99 $ 0.91 $ 1.74 $ 1.53
---------------------------------------- --------- -------- ---------
Average common shares
outstanding, assuming dilution 100.4 100.6 100.3 100.6
---------------------------------------- --------- -------- ---------
Certain prior year amounts have been reclassified to conform with the
2006 financial statement presentation.
(1) 2006 QTD includes restructuring costs of $4.7.
2006 YTD includes restructuring costs of $10.1.
2005 QTD includes transition and restructuring costs of $1.1 and
$.6, respectively, primarily related to plant closures.
2005 YTD includes restructuring and transition costs of $4.6 and
$1.9, respectively, primarily related to plant closures.
(2) 2006 QTD includes gain from curtailment and settlement of a
pension obligation of ($1.6) and gain on sale of investment of
($10.5), partially offset by charitable contribution of $10
to Avery Dennison Foundation.
2006 YTD includes gain from curtailment and settlement of a
pension obligation of ($1.6) and gain on sale of investment of
($10.5), partially offset by charitable contribution of $10
to Avery Dennison Foundation and legal accrual related to a patent
lawsuit of $.4.
2005 YTD includes gain on sale of assets of ($3.4).
AVERY DENNISON A-4
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
(UNAUDITED)
Second Quarter Ended
--------------------------------------------------
OPERATING
NET SALES OPERATING INCOME MARGINS
------------------- ------------------- -----------
2006 2005 2006(1) 2005(2) 2006 2005
-------- -------- -------- -------------- -----
Pressure-sensitive
Materials $ 809.5 $ 798.8 $ 77.4 $ 75.1 9.6% 9.4%
Office and
Consumer Products 265.4 300.2 45.3 49.5 17.1% 16.5%
Retail Information
Services 181.4 170.6 21.0 17.5 11.6% 10.3%
Other specialty
converting
businesses 153.4 142.1 4.6 3.0 3.0% 2.1%
Corporate Expense N/A N/A (10.6) (13.6) N/A N/A
Interest Expense N/A N/A (13.6) (15.7) N/A N/A
-------- -------- -------- -------- ----- -----
TOTAL FROM
CONTINUING
OPERATIONS $1,409.7 $1,411.7 $ 124.1 $ 115.8 8.8% 8.2%
======== ======== ======== ======== ===== =====
(1) Operating income for the second quarter of 2006 includes $6.1 of
restructuring costs and asset impairment charges, charitable
contribution of $10 to Avery Dennison Foundation, partially offset
by gain on sale of investment of ($10.5) and gain from curtailment
and settlement of a pension obligation of ($1.6); of the total $4,
the Pressure-sensitive Materials segment recorded $2.1, the Office
and Consumer Products segment recorded ($1.6), the Retail
Information Services segment recorded $2, the other specialty
converting businesses recorded $.7 and Corporate recorded $.8.
(2) Operating income for the second quarter of 2005 includes $3.2 of
asset impairment charges, transition and restructuring costs, of
which the Pressure-sensitive Materials segment recorded $1.1, the
Office and Consumer Products segment recorded $1.4 and other
specialty converting businesses recorded $.7.
Certain prior year amounts have been reclassified to conform with
the 2006 financial statement presentation.
RECONCILIATION OF GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
Second Quarter Ended
--------------------------
OPERATING OPERATING
INCOME MARGINS
------------- ------------
2006 2005 2006 2005
------ ------ ------ -----
Pressure-sensitive Materials
-------------------------------------------
Operating income, as reported $77.4 $75.1 9.6% 9.4%
Non-GAAP adjustments:
Restructuring costs 2.0 0.4 0.2% ---
Asset impairment charges 0.1 0.7 --- 0.1%
----- ----- ------ -----
Adjusted non-GAAP operating income $79.5 $76.2 9.8% 9.5%
===== ===== ====== =====
Office and Consumer Products
-------------------------------------------
Operating income, as reported $45.3 $49.5 17.1% 16.5%
Non-GAAP adjustments:
Gain from curtailment and settlement of a
pension obligation (1.6) --- (0.6%) ---
Restructuring and transition costs (1) --- 1.4 --- 0.5%
----- ----- ------ -----
Adjusted non-GAAP operating income $43.7 $50.9 16.5% 17.0%
===== ===== ====== =====
Retail Information Services
-------------------------------------------
Operating income, as reported $21.0 $17.5 11.6% 10.3%
Non-GAAP adjustments:
Restructuring costs 2.0 --- 1.1% ---
----- ----- ------ -----
Adjusted non-GAAP operating income $23.0 $17.5 12.7% 10.3%
===== ===== ====== =====
Other specialty converting businesses
-------------------------------------------
Operating income, as reported $ 4.6 $ 3.0 3.0% 2.1%
Non-GAAP adjustments:
Restructuring costs 0.7 --- 0.5% ---
Asset impairment charges --- 0.7 --- 0.5%
----- ----- ------ -----
Adjusted non-GAAP operating income $ 5.3 $ 3.7 3.5% 2.6%
===== ===== ====== =====
(1) For 2005, amount includes transition and restructuring costs of
$1.1 and $.3, respectively, related to plant closures.
AVERY DENNISON A-5
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)
(UNAUDITED)
Six Months Year-to-Date
------------------------------------------------
OPERATING
NET SALES OPERATING INCOME MARGINS
------------------- ----------------- -----------
2006 2005 2006(1) 2005(2) 2006 2005
-------- -------- ------- ------- ----- -----
Pressure-sensitive
Materials $1,596.7 $1,584.2 $ 143.3 $ 146.4 9.0% 9.2%
Office and Consumer
Products 505.3 558.9 81.1 77.2 16.0% 13.8%
Retail Information
Services 335.2 316.4 28.6 21.9 8.5% 6.9%
Other specialty
converting
businesses 309.7 295.0 10.8 8.1 3.5% 2.7%
Corporate Expense N/A N/A (23.3) (27.9) N/A N/A
Interest Expense N/A N/A (28.1) (30.2) N/A N/A
-------- -------- ------- ------- ----- -----
TOTAL FROM
CONTINUING
OPERATIONS $2,746.9 $2,754.5 $ 212.4 $ 195.5 7.7% 7.1%
======== ======== ======= ======= ===== =====
(1) Operating income for 2006 includes $13.3 of restructuring costs
and asset impairment charges, legal accrual related to a patent
lawsuit of $.4 and charitable contribution of $10 to Avery
Dennison Foundation, partially offset by gain on sale of
investment of ($10.5) and gain from curtailment and settlement of
a pension obligation of ($1.6); of the total $11.6, the
Pressure-sensitive Materials segment recorded $6.1, the Office and
Consumer Products segment recorded ($.8), the Retail Information
Services segment recorded $4.3, the other specialty converting
businesses recorded $.7 and Corporate recorded $1.3.
(2) Operating income for 2005 includes $10.7 of restructuring costs,
asset impairment charges and transition costs, partially offset by
gain on sale of assets of ($3.4); of the total $7.3, the Pressure-
sensitive Materials segment recorded $.4, the Office and Consumer
Products segment recorded $6.2 and other specialty converting
businesses recorded $.7.
Certain prior year amounts have been reclassified to conform with
the 2006 financial statement presentation.
RECONCILIATION OF GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION
Six Months Year-to-Date
-----------------------------
OPERATING OPERATING
INCOME MARGINS
--------------- -------------
2006 2005 2006 2005
------- ------- ------ ------
Pressure-sensitive Materials
----------------------------------------
Operating income, as reported $143.3 $146.4 9.0% 9.2%
Non-GAAP adjustments:
Restructuring costs 4.6 0.4 0.3% 0.1%
Asset impairment and lease cancellation
charges 1.1 3.4 0.1% 0.2%
Legal accrual related to a patent
lawsuit 0.4 --- --- ---
Gain on sale of assets --- (3.4) --- (0.2%)
------ ------ ------ ------
Adjusted non-GAAP operating income $149.4 $146.8 9.4% 9.3%
====== ====== ====== ======
Office and Consumer Products
----------------------------------------
Operating income, as reported $ 81.1 $ 77.2 16.0% 13.8%
Non-GAAP adjustments:
Gain from curtailment and settlement of
a pension obligation (1.6) --- (0.3%) ---
Restructuring and transition costs (1) 0.8 6.2 0.2% 1.1%
------ ------ ------ ------
Adjusted non-GAAP operating income $ 80.3 $ 83.4 15.9% 14.9%
====== ====== ====== ======
Retail Information Services
----------------------------------------
Operating income, as reported $ 28.6 $ 21.9 8.5% 6.9%
Non-GAAP adjustments:
Restructuring costs 4.0 --- 1.2% ---
Asset impairment charges 0.3 --- 0.1% ---
------ ------ ------ ------
Adjusted non-GAAP operating income $ 32.9 $ 21.9 9.8% 6.9%
====== ====== ====== ======
Other specialty converting businesses
----------------------------------------
Operating income, as reported $ 10.8 $ 8.1 3.5% 2.7%
Non-GAAP adjustments:
Restructuring costs 0.7 --- 0.2% ---
Asset impairment charges --- 0.7 --- 0.3%
------ ------ ------ ------
Adjusted non-GAAP operating income $ 11.5 $ 8.8 3.7% 3.0%
====== ====== ====== ======
(1) For 2006, amount includes restructuring costs of $.8.
For 2005, amount includes restructuring and transition costs of
$4.3 and $1.9, respectively, related to plant closures.
AVERY DENNISON A-6
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
(UNAUDITED)
ASSETS July 01, 2006 July 02, 2005
----------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 49.1 $ 31.0
Trade accounts receivable, net 898.2 896.4
Inventories, net 479.7 471.9
Other current assets 161.9 136.8
----------------------------------------------------------------------
Total current assets 1,588.9 1,536.1
Property, plant and equipment, net 1,279.6 1,303.5
Goodwill 684.6 679.3
Intangibles resulting from business
acquisitions, net 96.1 105.9
Other assets 588.1 646.2
----------------------------------------------------------------------
$ 4,237.3 $ 4,271.0
----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------
Current liabilities:
Short-term and current portion of
long-term debt $ 326.5 $ 182.4
Accounts payable 605.4 613.4
Other current liabilities 507.7 508.9
----------------------------------------------------------------------
Total current liabilities 1,439.6 1,304.7
Long-term debt 721.1 976.3
Other long-term liabilities 411.8 438.8
Shareholders' equity:
Common stock 124.1 124.1
Capital in excess of par value 775.9 697.4
Retained earnings 2,040.3 1,950.8
Accumulated other comprehensive loss (71.1) (74.9)
Cost of unallocated ESOP shares (7.7) (9.7)
Employee stock benefit trusts (558.7) (539.2)
Treasury stock at cost (638.0) (597.3)
----------------------------------------------------------------------
Total shareholders' equity 1,664.8 1,551.2
----------------------------------------------------------------------
$ 4,237.3 $ 4,271.0
AVERY DENNISON A-7
PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(UNAUDITED)
Six Months Ended
--------------------------------
July 01, 2006 July 02, 2005
------------------------------------- ---------------- ---------------
Operating Activities:
Net income $ 180.7 $ 147.1
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 77.9 77.1
Amortization 21.3 23.1
Deferred taxes 3.7 (1.2)
Asset impairment and net (gain) loss
on sale of assets (6.1) 2.5
Other non-cash items, net 6.7 (4.6)
--------------- --------------
284.2 244.0
Changes in assets and liabilities (151.2) (155.9)
--------------- --------------
Net cash provided by operating
activities 133.0 88.1
--------------- --------------
Investing Activities:
Purchase of property, plant and
equipment (80.5) (76.8)
Purchase of software and other
deferred charges (15.7) (10.0)
Payments for acquisitions --- (0.6)
Proceeds from sale of assets 0.9 16.5
Proceeds from sale of businesses and
investments 29.3 ---
Other (0.8) 4.1
--------------- --------------
Net cash used in investing activities (66.8) (66.8)
--------------- --------------
Financing Activities:
Net (decrease) increase in borrowings
(maturities of 90 days or less) (55.7) 55.2
Additional borrowings (maturities
longer than 90 days) --- 76.2
Payments of debt (maturities longer
than 90 days) (1.4) (134.2)
Dividends paid (85.7) (83.9)
Purchase of treasury stock --- ---
Proceeds from exercise of stock
options, net 18.6 3.1
Other 8.0 8.4
--------------- --------------
Net cash used in financing activities (116.2) (75.2)
--------------- --------------
Effect of foreign currency
translation on cash balances 0.6 0.1
--------------- --------------
Decrease in cash and cash equivalents (49.4) (53.8)
--------------- --------------
Cash and cash equivalents, beginning
of period 98.5 84.8
--------------- --------------
Cash and cash equivalents, end of
period $ 49.1 $ 31.0
=============== ==============
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