- 4Q17 Reported EPS of ($0.66), incl.
impact of the U.S. tax legislation change
- Adjusted EPS (non-GAAP) of $1.33
- 4Q17 Net sales increased 11.9% to $1.74
billion
- Sales change ex. currency (non-GAAP) of
9.1%
- Organic sales change (non-GAAP) of
4.7%
- FY17 Reported EPS of $3.13
- FY17 Net sales increased 8.7% to $6.61
billion
- Sales change ex. currency of 8.2%
- Organic sales change of 4.2%
- Expect FY18 Reported EPS of $5.50 to
$5.75
- Adjusted EPS of $5.70 to $5.95
Avery Dennison Corporation (NYSE:AVY) today announced
preliminary, unaudited results for its fourth quarter and year
ended December 30, 2017. All non-GAAP financial measures referenced
in this document are reconciled to GAAP in the attached tables.
Unless otherwise indicated, comparisons are to the same period in
the prior year.
“2017 marked the company’s sixth consecutive year of strong
top-line growth, margin expansion, and double-digit adjusted EPS
growth,” said Mitch Butier, President and CEO. “Strong top-line
performance in 2017 reflected a balance of contributions from
acquisitions and organic growth, driven by our focus on
faster-growing high value categories and large presence in emerging
markets.
“Label and Graphic Materials delivered another year of strong
growth and continued margin expansion. Retail Branding and
Information Solutions’ operating income rose significantly,
reflecting outstanding performance in terms of both top-line growth
and margin expansion. And we expanded the platform for Industrial
and Healthcare Materials, through both acquisitions and a return to
solid organic growth in the back half of the year.
“In 2018, we expect to once again deliver a strong top-line and
double-digit EPS growth, while further increasing our level of
investment for the future,” said Butier. “I would like to thank our
employees for their dedication to creating superior value for our
customers, investors, and the communities in which we operate. We
remain confident that the consistent execution of our strategies
will enable us to continue this momentum for years to come.”
For more details on the company’s results, see the summary table
accompanying this news release, as well as the supplemental
presentation materials, “Fourth Quarter and Full Year 2017
Financial Review and Analysis,” posted on the company’s website at
www.investors.averydennison.com, and furnished to the SEC on Form
8-K.
Fourth Quarter 2017 Results by
Segment
Sales change ex. currency refers to the increase or decrease in
sales excluding the estimated impact of currency translation. The
estimated impact of currency translation is calculated on a
constant currency basis, with prior period results translated at
current period average exchange rates to exclude the effect of
currency fluctuations. Organic sales change refers to the increase
or decrease in sales excluding the estimated impact of currency
translation, product line exits, and acquisitions and divestitures.
Adjusted operating margin refers to income before interest expense
and taxes, excluding restructuring charges and other items, as a
percentage of sales.
Label and Graphic Materials
- Reported sales increased 9.2 percent.
Sales ex. currency increased 5.6 percent; on an organic basis,
sales grew 4.6 percent. Sales increased mid-single digits on an
organic basis in Label and Packaging Materials, as well as in the
combined Graphics and Reflective Solutions businesses.
- Reported operating margin increased 60
basis points to 11.9 percent as the benefits of increased volume
and productivity more than offset higher employee-related costs and
the net impact of pricing and raw material costs. Adjusted
operating margin increased 70 basis points to 12.2 percent.
Retail Branding and Information Solutions
- Reported sales increased 5.2 percent;
on an organic basis, sales grew 4.7 percent driven by strength in
both RFID and the base business.
- Reported operating margin increased 150
basis points to 10.8 percent as the benefits from productivity,
increased volume, and reduced amortization expense were partially
offset by higher employee-related costs and the net impact of
pricing and raw material costs. Adjusted operating margin increased
190 basis points to 11.9 percent.
Industrial and Healthcare Materials
- Reported sales increased 60.3 percent.
Sales ex. currency increased 56.9 percent; on an organic basis,
sales grew 5.7 percent. Sales on an organic basis increased
high-single digits in industrial categories and increased
low-single digits in healthcare categories.
- Reported operating margin declined 160
basis points to 7.2 percent, with roughly half of the decline due
to acquisitions, and the balance reflecting near-term operational
challenges and investments. Adjusted operating margin declined 210
basis points to 7.6 percent.
Other
Share Repurchases / Equity Dilution from Long-Term
Incentives
In 2017, the company repurchased 1.5 million shares at an
aggregate cost of $130 million ($108 million net of proceeds from
stock option exercises). Net of dilution, the company’s share count
increased by 0.1 million.
Income Taxes
The enactment of the Tax Cuts and Jobs Act (“TCJA”) in December
2017 resulted in a charge of $172 million in the fourth quarter.
This charge includes a tax on deemed repatriation of accumulated
untaxed foreign earnings and the revaluation of deferred tax assets
and liabilities, reflecting the company’s provisional estimate of
the new legislation’s impact under recent SEC guidance. As new
information becomes available, including issuance of
interpretations by regulatory bodies, the company may update this
estimate.
The company’s effective tax rate, including the impact of the
TCJA, was 138 percent for the fourth quarter, and 52 percent for
the full year. The company’s adjusted (non-GAAP) tax rate was 28
percent for both the fourth quarter and full year; this rate
excludes the charge associated with the TCJA and incorporates $29
million of estimated charges related to repatriation actions
previously planned for the fourth quarter that were not implemented
as a result of U.S. tax reform.
The company’s 2018 tax rate is expected to be in the mid-twenty
percent range, which reflects the company’s current estimated
impact of the TCJA.
Cost Reduction Actions
In 2017, the company realized approximately $59 million in
pre-tax savings from restructuring, net of transition costs, and
incurred pre-tax restructuring charges of approximately $33
million, the majority of which represents cash charges.
Outlook
In its supplemental presentation materials, “Fourth Quarter and
Full Year 2017 Financial Review and Analysis,” the company provides
a list of factors that it believes will contribute to its 2018
financial results. Based on the factors listed and other
assumptions, the company expects 2018 reported earnings per share
of $5.50 to $5.75.
Excluding an estimated $0.20 per share for restructuring charges
and other items, the company expects adjusted earnings per share of
$5.70 to $5.95.
Note: Throughout this release and the supplemental presentation
materials, amounts on a per share basis reflect fully diluted
shares outstanding.
About Avery Dennison
Avery Dennison (NYSE:AVY) is a global materials science company
specializing in the design and manufacture of a wide variety of
labeling and functional materials. The company’s products, which
are used in nearly every major industry, include pressure-sensitive
materials for labels and graphic applications; tapes and other
bonding solutions for industrial, medical, and retail applications;
tags, labels, and embellishments for apparel; and radio frequency
identification (RFID) solutions serving retail apparel and other
markets. Headquartered in Glendale, California, the company employs
approximately 30,000 employees in more than 50 countries. Reported
sales in 2017 were $6.6 billion. Learn more at
www.averydennison.com.
“Safe Harbor” Statement under the Private
Securities Litigation Reform Act of 1995
Certain statements contained in this document are
"forward-looking statements" intended to qualify for the safe
harbor from liability established by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements,
and financial or other business targets, are subject to certain
risks and uncertainties. Actual results and trends may differ
materially from historical or anticipated results depending on a
variety of factors, including but are not limited to, risks and
uncertainties relating to the following: fluctuations in demand
affecting sales to customers; worldwide and local economic
conditions; changes in political conditions; changes in
governmental laws and regulations; fluctuations in currency
exchange rates and other risks associated with foreign operations,
including in emerging markets; the financial condition and
inventory strategies of customers; changes in customer preferences;
fluctuations in cost and availability of raw materials; our ability
to generate sustained productivity improvement; our ability to
achieve and sustain targeted cost reductions; the impact of
competitive products and pricing; loss of significant contracts or
customers; collection of receivables from customers; selling
prices; business mix shift; execution and integration of
acquisitions and completion of potential dispositions; timely
development and market acceptance of new products, including
sustainable or sustainably-sourced products; investment in
development activities and new production facilities; amounts of
future dividends and share repurchases; customer and supplier
concentrations; successful implementation of new manufacturing
technologies and installation of manufacturing equipment;
disruptions in information technology systems, including
cyber-attacks or other intrusions to network security; successful
installation of new or upgraded information technology systems;
data security breaches; volatility of financial markets; impairment
of capitalized assets, including goodwill and other intangibles;
credit risks; our ability to obtain adequate financing arrangements
and maintain access to capital; fluctuations in interest and tax
rates; changes in tax laws and regulations, and uncertainties
associated with interpretations of such laws and regulations;
outcome of tax audits; fluctuations in pension, insurance, and
employee benefit costs; the impact of legal and regulatory
proceedings, including with respect to environmental, health and
safety; protection and infringement of intellectual property; the
impact of epidemiological events on the economy and our customers
and suppliers; acts of war, terrorism, and natural disasters; and
other factors.
We believe that the most significant risk factors that could
affect our financial performance in the near-term include: (1) the
impacts of global economic conditions and political uncertainty on
underlying demand for our products and foreign currency
fluctuations; (2) the degree to which higher costs can be offset
with productivity measures and/or passed on to customers through
selling price increases, without a significant loss of volume; (3)
competitors’ actions, including pricing, expansion in key markets,
and product offerings; and (4) the execution and integration of
acquisitions.
For a more detailed discussion of these and other factors, see
“Risk Factors” and “Management’s Discussion and Analysis of Results
of Operations and Financial Condition” in our 2016 Form 10-K, filed
on February 23, 2017 with the Securities and Exchange Commission,
and subsequent quarterly reports on Form 10-Q. The forward-looking
statements included in this document are made only as of the date
of this document, and we undertake no obligation to update these
statements to reflect subsequent events or circumstances, other
than as may be required by law.
For more information and to listen to a live broadcast or an
audio replay of the quarterly conference call with analysts, visit
the Avery Dennison website at
www.investors.averydennison.com.
Fourth Quarter Financial Summary - Preliminary,
unaudited (In millions, except % and per share amounts)
% Change
vs. P/Y 4Q 4Q Ex.
2017 2016
Reported Currency (a)
Organic (b) Net sales, by segment: Label
and Graphic Materials
$ 1,161.7 $
1,063.8 9.2 % 5.6 % 4.6 % Retail Branding and
Information Solutions
395.5 375.9 5.2 %
4.7 % 4.7 % Industrial and Healthcare Materials
178.1
111.1 60.3 % 56.9 % 5.7 % Total net
sales
$ 1,735.3 $ 1,550.8 11.9
% 9.1 % 4.7 %
As Reported (GAAP) Adjusted Non-GAAP
(c) 4Q 4Q
% % of Sales 4Q
4Q %
% of Sales 2017
2016 Change
2017
2016 2017
2016 Change
2017
2016
Operating income (loss) / operating
margins before interest and taxes, by segment:
Label and Graphic Materials
$ 138.0 $
120.6 11.9 % 11.3 % $ 142.1 $
122.6 12.2 % 11.5 % Retail Branding and Information Solutions
42.8 34.8 10.8 % 9.3 %
46.9 37.5 11.9 % 10.0 % Industrial and Healthcare Materials
12.9 9.8 7.2 % 8.8 % 13.5
10.8 7.6 % 9.7 % Corporate expense
(23.1 )
(24.4 ) (22.9 ) (25.3 )
Total operating income before interest and
taxes / operating margins
$ 170.6 $ 140.8 21 %
9.8 % 9.1 % $ 179.6 $ 145.6 23 % 10.3 %
9.4 % Interest expense
$ 13.3 $
14.5 $ 13.3 $ 14.5 Income before taxes
$
157.3 $ 126.3 25 % 9.1
% 8.1 % $ 166.3 $ 131.1 27 % 9.6 % 8.5 %
Provision for income taxes (d)
$ 216.9
$ 64.3 $ 46.6 $ 42.1 Net (loss) income
($59.6 ) $ 62.0 (196 %)
(3.4 %) 4.0 % $ 119.7 $ 89.0 34 % 6.9 %
5.7 % Net (loss) income per common share, assuming dilution
($0.66 ) $ 0.69 (196 %) $
1.33 $ 0.99 34 %
2017
2016 4Q Free Cash Flow (d)(e) $ 165.7 $ 139.4
See accompanying schedules A-4 to A-8 for
reconciliations from GAAP to non-GAAP financial measures.
(a) Percentage change in sales excluding the estimated impact of
currency translation. (b) Percentage change in sales
excluding the estimated impact of currency translation, product
line exits, acquisitions and divestitures, and, where applicable,
the extra week in our fiscal year. (c) Excludes the impact
of the Tax Cuts and Jobs Act ("TCJA"), restructuring charges, other
items, and includes the impact of previously planned repatriation
of foreign earnings for Q4 2017. (d) "Provision for income
taxes" for the fourth quarter of 2017 includes the estimated impact
of TCJA enacted in the U.S. on December 22, 2017. The TCJA
significantly revises U.S. corporate income tax law by, among other
changes, lowering corporate income tax rates, implementing a
territorial tax regime, and imposing a one-time transition tax
through a deemed repatriation of accumulated untaxed earnings of
foreign subsidiaries. This provision includes a reasonable estimate
("provisional amount") of the impact of the TCJA on our tax
provision following the guidance of SEC Staff Accounting Bulletin
No. 118 (SAB 118). In the first quarter of 2017, we adopted
Accounting Standards Update (ASU) 2016-09, Improvements to Employee
Share-Based Payment Accounting. This ASU requires that all tax
effects related to share-based payments at settlement or expiration
be recognized through the provision for income taxes, a change from
the previous requirement that certain tax effects be recognized in
shareholders' equity. As required by this ASU, this change was
applied prospectively after the date of adoption. This ASU
also requires that all tax-related cash flows resulting from
share-based payments be reported as operating activities on the
statements of cash flows, a change from the previous requirement
that windfall tax benefits be presented as an inflow from financing
activities and an outflow from operating activities. As permitted
by this ASU, prior periods were not retrospectively adjusted for
this change. (e) Free cash flow refers to cash flow from
operations, less payments for property, plant and equipment,
software and other deferred charges, plus proceeds from sales of
property, plant and equipment, plus (minus) net proceeds from sales
(purchases) of investments.
Full Year Financial Summary - Preliminary,
unaudited (in millions, except % and per share amounts)
% Change vs. P/Y FY FY
Ex. 2017 2016
Reported Currency (a)
Organic (b) Net sales, by segment: Label
and Graphic Materials
$ 4,511.7 $
4,187.3 7.7 % 6.9 % 4.2 % Retail Branding and
Information Solutions
1,511.2 1,445.4 4.6
% 5.0 % 5.0 % Industrial and Healthcare Materials
590.9 453.8 30.2 % 29.9 % 2.0 %
Total net sales
$ 6,613.8 $ 6,086.5
8.7 % 8.2 % 4.2 %
As Reported (GAAP) Adjusted
Non-GAAP (c) FY FY
% % of Sales
FY FY
% % of Sales
2017 2016
Change 2017
2016 2017
2016 Change
2017
2016
Operating income (loss) / operating
margins before interest and taxes, by segment:
Label and Graphic Materials
$ 567.3 $
516.2 12.6 % 12.3 % $ 581.8 $
529.2 12.9 % 12.6 % Retail Branding and Information Solutions
122.9 102.6 8.1 % 7.1 %
141.0 112.4 9.3 % 7.8 % Industrial and Healthcare Materials
50.5 54.6 8.5 % 12.0 %
54.2 56.5 9.2 % 12.5 % Corporate expense
(88.2
) (136.4 ) (88.0 ) (95.9
)
Total operating income before interest and
taxes / operating margins
$ 652.5 $ 537.0 22 %
9.9 % 8.8 % $ 689.0 $ 602.2 14 % 10.4 %
9.9 % Interest expense
$ 63.0 $
59.9 $ 63.0 $ 59.9 Income before taxes
$
589.5 $ 477.1 24 % 8.9
% 7.8 % $ 626.0 $ 542.3 15 % 9.5 % 8.9 %
Provision for income taxes (d)
$ 307.7
$ 156.4 $ 175.3 $ 177.8 Net income
$
281.8 $ 320.7 (12 %) 4.3
% 5.3 % $ 450.7 $ 364.5 24 % 6.8 % 6.0 %
Net income per common share, assuming dilution
$
3.13 $ 3.54 (12 %) $ 5.00 $ 4.02
24 %
2017 2016 Free
Cash Flow (d)(e) $ 421.7 $ 387.1 See
accompanying schedules A-4 to A-8 for reconciliations from GAAP to
non-GAAP financial measures. (a) Percentage change in sales
excluding the estimated impact of currency translation. (b)
Percentage change in sales excluding the estimated impact of
currency translation, product line exits, acquisitions and
divestitures, and, where applicable, the extra week in our fiscal
year. (c) Excludes the impact of TCJA, restructuring
charges, other items, and includes the impact of previously planned
repatriation of foreign earnings for Q4 2017. (d) "Provision
for income taxes" for the fourth quarter of 2017 includes the
estimated impact of the TCJA. The TCJA significantly revises U.S.
corporate income tax law by, among other changes, lowering
corporate income tax rates, implementing a territorial tax regime,
and imposing a one-time transition tax through a deemed
repatriation of accumulated untaxed earnings of foreign
subsidiaries. This provision includes a reasonable estimate
("provisional amount") of the impact of the TCJA on our tax
provision following the guidance of SEC Staff Accounting Bulletin
No. 118 (SAB 118). In the first quarter of 2017, we adopted
Accounting Standards Update (ASU) 2016-09, Improvements to Employee
Share-Based Payment Accounting. This ASU requires that all tax
effects related to share-based payments at settlement or expiration
be recognized through the provision for income taxes, a change from
the previous requirement that certain tax effects be recognized in
shareholders' equity. As required by this ASU, this change was
applied prospectively after the date of adoption. This ASU
also requires that all tax-related cash flows resulting from
share-based payments be reported as operating activities on the
statements of cash flows, a change from the previous requirement
that windfall tax benefits be presented as an inflow from financing
activities and an outflow from operating activities. As permitted
by this ASU, prior periods were not retrospectively adjusted for
this change. (e) Free cash flow refers to cash flow from
operations, less payments for property, plant and equipment,
software and other deferred charges, plus proceeds from sales of
property, plant and equipment, plus (minus) net proceeds from sales
(purchases) of investments.
A-1
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (In millions, except per
share amounts)
(UNAUDITED)
Three Months Ended Twelve Months Ended Dec.
30, 2017 Dec. 31, 2016 Dec. 30, 2017 Dec. 31,
2016
Net sales $ 1,735.3 $
1,550.8 $ 6,613.8 $ 6,086.5 Cost of products sold 1,269.7
1,125.4 4,801.6 4,386.8
Gross profit 465.6
425.4 1,812.2 1,699.7 Marketing, general and administrative
expense 286.0 279.8 1,123.2 1,097.5 Other expense, net(1)
9.0 4.8 36.5 65.2 Interest expense 13.3 14.5 63.0 59.9
Income before taxes 157.3 126.3 589.5
477.1 Provision for income taxes(2) 216.9 64.3 307.7 156.4
Net (loss) income $ (59.6 ) $
62.0 $ 281.8 $ 320.7
Per share
amounts: Net (loss) income per common share, assuming
dilution $ (0.66 ) $ 0.69 $ 3.13 $ 3.54
Weighted average number of common shares
outstanding, assuming dilution
89.9
90.1
90.1
90.7
(1) "Other expense, net" for the fourth
quarter of 2017 includes severance and related costs of $9.5, lease
cancellation charges of $.1, and transaction costs of $1.5,
partially offset by net gain on sales of assets of $2.1.
"Other expense, net" for the fourth quarter of 2016 includes
severance and related costs of $4, asset impairment and lease
cancellation charges of $1.3, and transaction costs of $.9,
partially offset by gain on sale of assets of $1.4. "Other
expense, net" for fiscal year 2017 includes severance and related
costs of $31.2, asset impairment and lease cancellation charges of
$2.2, and transaction costs of $5.2, partially offset by net gain
on sales of assets of $2.1. "Other expense, net" for fiscal
year 2016 includes severance and related costs of $14.7, asset
impairment and lease cancellation charges of $5.2, loss from
settlement of pension obligations of $41.4, and transaction costs
of $5, partially offset by net gain on sales of assets of $1.1.
(2) "Provision for income taxes" for fiscal year 2017
includes the estimated impact of the Tax Cuts and Jobs Act ("TCJA")
enacted in the U.S. on December 22, 2017. The TCJA significantly
revises U.S. corporate income tax law by, among other changes,
lowering corporate income tax rates, implementing a territorial tax
regime, and imposing a one-time transition tax through a deemed
repatriation of accumulated untaxed earnings of foreign
subsidiaries. This provision includes a reasonable estimate
("provisional amount") of the impact of the TCJA on our tax
provision following the guidance of SEC Staff Accounting Bulletin
No. 118 (SAB 118). In the first quarter of 2017, we adopted
Accounting Standards Update (ASU) 2016-09, Improvements to Employee
Share-Based Payment Accounting. This ASU requires that all tax
effects related to share-based payments at settlement or expiration
be recognized through the provision for income taxes, a change from
the previous requirement that certain tax effects be recognized in
shareholders' equity. As required by this ASU, this change was
applied prospectively after the date of adoption.
A-2
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED BALANCE SHEETS (In millions)
(UNAUDITED) ASSETS
Dec. 30, 2017 Dec. 31, 2016 Current
assets: Cash and cash equivalents $ 224.4 $ 195.1 Trade accounts
receivable, net 1,180.3 1,001.0 Inventories, net 609.6 519.1 Assets
held for sale 6.3 6.8 Other current assets 217.3 182.8
Total current assets 2,237.9 1,904.8 Property, plant
and equipment, net 1,097.9 915.2 Goodwill and other intangibles
resulting from business acquisitions, net 1,151.4 860.3 Non-current
deferred income taxes 196.3 313.2 Other assets 453.4 402.9
$ 5,136.9 $ 4,396.4
LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities:
Short-term borrowings and current portion of long-term debt and
capital leases $ 265.4 $ 579.1 Accounts payable 1,007.2 841.9 Other
current liabilities 699.2 583.3 Total current
liabilities 1,971.8 2,004.3 Long-term debt and capital
leases 1,316.3 713.4 Other long-term liabilities 802.6 753.2
Shareholders' equity: Common stock 124.1 124.1 Capital in excess of
par value 862.6 852.0 Retained earnings 2,596.7 2,473.3 Treasury
stock at cost (1,856.7 ) (1,772.0 ) Accumulated other comprehensive
loss (680.5 ) (751.9 ) Total shareholders' equity
1,046.2 925.5 $ 5,136.9 $ 4,396.4
A-3
AVERY DENNISON CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)
(UNAUDITED) Twelve Months Ended
Dec. 30, 2017
Dec. 31, 2016
Operating Activities: Net
income $ 281.8 $ 320.7 Adjustments to reconcile net income
to net cash provided by operating activities: Depreciation
126.6 117.5 Amortization 52.1 62.6 Provision for
doubtful accounts and sales returns 37.6 54.4 Net losses
from asset impairments and sales/disposals of assets 1.4 1.5
Stock-based compensation 30.2 27.2 Loss from settlement of
pension obligations --- 41.4 Other non-cash expense and loss
53.9 46.2 Changes in assets and liabilities and other
adjustments 66.5 (86.2 )
Net cash provided by operating
activities 650.1 585.3
Investing Activities:
Purchases of property, plant and equipment (190.5 ) (176.9 )
Purchases of software and other deferred charges (35.6 ) (29.7 )
Proceeds from sales of property, plant and equipment 6.0 8.5
Purchases of investments, net (8.3 ) (0.1 ) Payments
for acquisitions, net of cash acquired, and investments in
businesses (319.3 ) (237.2 )
Net cash used in investing
activities (547.7 ) (435.4 )
Financing Activities:
Net (decrease) increase in borrowings (maturities of three
months or less) (89.2 ) 234.9 Additional long-term
borrowings 542.9 --- Repayments of long-term debt (253.8 )
(2.7 ) Dividends paid (155.5 ) (142.5 ) Share
repurchases (129.7 ) (262.4 ) Proceeds from exercises of
stock options, net 22.0 71.0 Tax withholding for and excess
tax benefit from stock-based compensation, net (20.6 ) (4.5 )
Net cash used in financing activities (83.9 ) (106.2 )
Effect of foreign currency translation on cash balances 10.8
(7.4 )
Increase in cash and cash equivalents 29.3 36.3
Cash and cash equivalents, beginning of year 195.1 158.8
Cash and cash equivalents, end of year $ 224.4 $ 195.1
In the
first quarter of 2017, we adopted the provisions of Accounting
Standards Update (ASU) 2016-09, Improvements to Employee
Share-Based Payment Accounting. This ASU requires that all
tax-related cash flows resulting from share-based payments be
reported as operating activities on the statements of cash flows, a
change from the previous requirement that windfall tax benefits be
presented as an inflow from financing activities and an outflow
from operating activities. As permitted by this ASU, prior periods
were not retrospectively adjusted.
A-4
Reconciliation of Non-GAAP Financial Measures in Accordance with
SEC Regulations G and S-K We report our financial
results in conformity with accounting principles generally accepted
in the United States of America, or GAAP, and also communicate with
investors using certain non-GAAP financial measures. These non-GAAP
financial measures are not in accordance with, nor are they a
substitute for or superior to, the comparable GAAP financial
measures. These non-GAAP financial measures are intended to
supplement presentation of our financial results that are prepared
in accordance with GAAP. Based upon feedback from investors and
financial analysts, we believe that the supplemental non-GAAP
financial measures we provide are useful to their assessment of our
performance and operating trends, as well as liquidity. Our
non-GAAP financial measures exclude the impact of certain events,
activities, or strategic decisions. The accounting effects of these
events, activities or decisions, which are included in the GAAP
financial measures, may make it difficult to assess our underlying
performance in a single period. By excluding the accounting
effects, positive or negative, of certain items (e.g.,
restructuring charges, legal settlements, certain effects of
strategic transactions and related costs, losses from debt
extinguishments, losses from curtailment and settlement of pension
obligations, gains or losses on sales of certain assets, and other
items), we believe that we are providing meaningful supplemental
information that facilitates an understanding of our core operating
results and liquidity measures. These non-GAAP financial measures
are used internally to evaluate trends in our underlying
performance, as well as to facilitate comparison to the results of
competitors for a single period. While some of the items we exclude
from GAAP financial measures recur, they tend to be disparate in
amount, frequency, or timing. We use the following non-GAAP
financial measures in the accompanying news release and
presentation: Sales change ex. currency refers to the
increase or decrease in sales excluding the estimated impact of
currency translation. The estimated impact of currency translation
is calculated on a constant currency basis, with prior period
results translated at current period average exchange rates to
exclude the effect of currency fluctuations. Organic sales
change refers to the increase or decrease in sales excluding the
estimated impact of currency translation, product line exits,
acquisitions and divestitures, and, where applicable, the extra
week in our fiscal year. We believe that sales change ex.
currency and organic sales change assist investors in evaluating
the sales growth from the ongoing activities of our businesses and
provide greater ability to evaluate our results from period to
period. Adjusted operating margin refers to income before
interest expense and taxes, excluding restructuring charges and
other items, as a percentage of sales. Adjusted tax rate
refers to the full-year GAAP tax rate, adjusted to include the
impact of previously planned repatriation of foreign earnings for
Q4 2017 and exclude the reasonable estimate ("provisional amount")
of the impact of the TCJA. Adjusted net income refers to
income before taxes, tax-effected at the adjusted tax rate, and
adjusted for tax-effected restructuring charges and other items.
Adjusted net income per common share, assuming dilution
(adjusted EPS) refers to adjusted net income divided by weighted
average number of common shares outstanding, assuming dilution.
We believe that adjusted operating margin, adjusted net
income, and adjusted EPS assist investors in understanding our core
operating trends and comparing our results with those of our
competitors. Free cash flow refers to cash flow from
operations, less payments for property, plant and equipment,
software and other deferred charges, plus proceeds from sales of
property, plant and equipment, plus (minus) net proceeds from sales
(purchases) of investments. We believe that free cash flow assists
investors by showing the amount of cash we have available for debt
reductions, dividends, share repurchases, and acquisitions.
The following reconciliations are provided in accordance with
Regulations G and S-K and reconcile our non-GAAP financial measures
with the most directly comparable GAAP financial measures.
A-5
AVERY DENNISON CORPORATION PRELIMINARY RECONCILIATION
FROM GAAP TO NON-GAAP FINANCIAL MEASURES (In millions,
except % and per share amounts) (UNAUDITED)
Three Months Ended Twelve Months Ended
Dec. 30, 2017 Dec. 31, 2016 Dec. 30, 2017
Dec. 31, 2016
Reconciliation
from GAAP to Non-GAAP Operating Margins: Net sales $
1,735.3 $ 1,550.8 $ 6,613.8 $ 6,086.5
Income before taxes $ 157.3 $ 126.3 $
589.5 $ 477.1
Income before taxes as a
percentage of sales
9.1 % 8.1 %
8.9 % 7.8 %
Adjustment: Interest expense $ 13.3 $ 14.5 $ 63.0 $ 59.9
Operating
income before interest expense and taxes $ 170.6 $ 140.8 $ 652.5 $
537.0
Operating Margins
9.8 % 9.1 % 9.9 %
8.8 %
Income
before taxes $ 157.3 $ 126.3 $ 589.5 $ 477.1 Adjustments:
Restructuring charges: Severance and related costs
9.5 4.0 31.2 14.7 Asset impairment and lease cancellation
charges 0.1 1.3 2.2 5.2 Transaction costs 1.5 0.9 5.2 5.0
Loss from settlement of pension obligations --- --- --- 41.4
Net gain on sales of assets (2.1 ) (1.4 ) (2.1 ) (1.1 )
Interest expense 13.3 14.5 63.0 59.9
Adjusted operating income before
interest expense and taxes (non-GAAP) $ 179.6 $ 145.6 $ 689.0 $
602.2
Adjusted Operating Margins
(non-GAAP) 10.3 % 9.4 % 10.4 % 9.9 %
Reconciliation from GAAP to Non-GAAP Net (loss)
income: As reported net (loss) income $ (59.6 ) $ 62.0 $
281.8 $ 320.7 Adjustments: Restructuring charges 9.6
5.3 33.4 19.9 Transaction costs 1.5 0.9 5.2 5.0 Loss from
settlement of pension obligations --- --- --- 41.4 Net gain on
sales of assets (2.1 ) (1.4 ) (2.1 ) (1.1 ) Tax effect on pre-tax
adjustments and impact of adjusted tax rate(1) 27.7 22.2 (10.2 )
(21.4 ) Estimated tax provision impact resulting from the TCJA
172.0 --- 172.0 --- Impact of previously planned repatriation of
foreign earnings for Q4 2017 (29.4 ) --- (29.4 ) ---
Adjusted Net income (non-GAAP) $ 119.7 $ 89.0 $ 450.7
$ 364.5
A-5
(continued)
AVERY DENNISON CORPORATION PRELIMINARY RECONCILIATION
FROM GAAP TO NON-GAAP FINANCIAL MEASURES (In millions,
except % and per share amounts)
(UNAUDITED) Three Months Ended
Twelve Months Ended Dec. 30, 2017 Dec. 31,
2016 Dec. 30, 2017 Dec. 31, 2016
Reconciliation from GAAP to Non-GAAP Net
(loss) income per Common Share: As reported net (loss)
income per common share, assuming dilution $ (0.66 ) $ 0.69 $ 3.13
$ 3.54 Adjustments per common share, net of tax:
Restructuring charges, transaction costs,
loss from settlement of pension obligations, and net gain on sales
of assets(1)
0.41 0.30 0.29 0.48 Estimated tax provision impact resulting from
the TCJA 1.91 --- 1.91 --- Impact of previously planned
repatriation of foreign earnings for Q4 2017 (0.33 ) --- (0.33 )
---
Adjusted net income per common share, assuming dilution
(non-GAAP) $ 1.33 $ 0.99 $ 5.00 $ 4.02
Weighted average number of
common shares outstanding, assuming dilution 89.9 90.1 90.1 90.7
(1) The adjusted tax rate was
28% for the three and twelve months ended December 30, 2017, and
32.1% and 32.8% for the three and twelve months ended December 31,
2016, respectively.
(UNAUDITED)
Three Months Ended Twelve Months Ended Dec.
30, 2017 Dec. 31, 2016 Dec. 30, 2017 Dec. 31,
2016
Reconciliation of Free Cash Flow: Net cash
provided by operating activities $ 257.5 $ 219.6 $ 650.1 $ 585.3
Purchases of property, plant and equipment (79.1 ) (72.0 )
(190.5 ) (176.9 ) Purchases of software and other deferred
charges (12.1 ) (13.1 ) (35.6 ) (29.7 ) Proceeds from sales
of property, plant and equipment 3.0 4.2 6.0 8.5 (Purchases)
sales of investments, net (3.6 ) 0.7 (8.3 ) (0.1 )
Free Cash Flow (non-GAAP) $
165.7 $ 139.4
$ 421.7 $ 387.1
A-6
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Fourth Quarter Ended NET SALES OPERATING
INCOME OPERATING MARGINS 2017 2016
2017(1)
2016(2)
2017 2016 Label and Graphic Materials $
1,161.7 $ 1,063.8 $ 138.0 $ 120.6 11.9 % 11.3 % Retail Branding and
Information Solutions 395.5 375.9 42.8 34.8 10.8 % 9.3 % Industrial
and Healthcare Materials 178.1 111.1 12.9 9.8 7.2 % 8.8 % Corporate
Expense N/A N/A (23.1 )
(24.4 ) N/A
N/A TOTAL FROM OPERATIONS $ 1,735.3
$ 1,550.8 $ 170.6 $ 140.8
9.8 % 9.1 %
(1)
Operating income for the fourth quarter of
2017 includes severance and related costs of $9.5, lease
cancellation charges of $.1, and transaction costs of $1.5,
partially offset by net gain on sales of assets of $2.1. Of the
total $9, the Label and Graphic Materials segment recorded $4.1,
the Retail Branding and Information Solutions segment recorded
$4.1, the Industrial and Healthcare Materials segment recorded $.6,
and Corporate recorded $.2.
(2)
Operating income for the fourth quarter of
2016 includes severance and related costs of $4, asset impairment
and lease cancellation charges of $1.3, and transaction costs of
$.9, partially offset by gain on sale of assets of $1.4. Of the
total $4.8, the Label and Graphic Materials segment recorded $2,
the Retail Branding and Information Solutions segment recorded
$2.7, the Industrial and Healthcare Materials segment recorded $1,
and Corporate recorded ($.9).
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY
INFORMATION
Fourth Quarter Ended
OPERATING INCOME OPERATING MARGINS 2017 2016
2017 2016
Label and Graphic
Materials
Operating income and margins, as reported $ 138.0 $ 120.6 11.9 %
11.3 % Adjustments: Restructuring charges: Severance and related
costs 4.9 1.0 0.4 % 0.1 % Asset impairment charges --- 0.2 --- ---
Transaction costs --- 0.8 --- 0.1 % Gain on sale of assets
(0.8 ) --- (0.1 %)
--- Adjusted operating income and margins (non-GAAP)
$ 142.1 $ 122.6 12.2 %
11.5 %
Retail Branding
and Information Solutions
Operating income and margins, as reported $ 42.8 $ 34.8 10.8 % 9.3
% Adjustments: Restructuring charges: Severance and related costs
4.6 3.0 1.2 % 0.8 % Asset impairment and lease cancellation charges
0.1 1.1 --- 0.3 % Transaction costs related to sale of product line
0.9 --- 0.3 % --- Gain on sales of assets (1.5 )
(1.4 ) (0.4 %) (0.4 %)
Adjusted operating income and margins (non-GAAP) $ 46.9
$ 37.5 11.9 % 10.0
%
Industrial and
Healthcare Materials
Operating income and margins, as reported $ 12.9 $ 9.8 7.2 % 8.8 %
Adjustments: Transaction costs 0.6
1.0 0.4 % 0.9 % Adjusted
operating income and margins (non-GAAP) $ 13.5
$ 10.8 7.6 % 9.7 %
A-7
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (In millions, except %) (UNAUDITED)
Twelve Months Year-to-Date NET SALES OPERATING
INCOME OPERATING MARGINS 2017 2016
2017(1)
2016(2)
2017 2016 Label and Graphic Materials $
4,511.7 $ 4,187.3 $ 567.3 $ 516.2 12.6 % 12.3 % Retail Branding and
Information Solutions 1,511.2 1,445.4 122.9 102.6 8.1 % 7.1 %
Industrial and Healthcare Materials 590.9 453.8 50.5 54.6 8.5 %
12.0 % Corporate Expense N/A N/A
(88.2 ) (136.4 ) N/A
N/A TOTAL FROM OPERATIONS $
6,613.8 $ 6,086.5 $ 652.5
$ 537.0 9.9 % 8.8 %
(1)
Operating income for fiscal year 2017
includes severance and related costs of $31.2, asset impairment and
lease cancellation charges of $2.2, and transaction costs of $5.2,
partially offset by net gain on sales of assets of $2.1. Of the
total $36.5, the Label and Graphic Materials segment recorded
$14.5, the Retail Branding and Information Solutions segment
recorded $18.1, the Industrial and Healthcare Materials segment
recorded $3.7, and Corporate recorded $.2.
(2)
Operating income for fiscal year 2016
includes severance and related costs of $14.7, asset impairment and
lease cancellation charges of $5.2, loss from settlement of pension
obligations of $41.4, and transaction costs of $5, partially offset
by net gain on sales of assets of $1.1. Of the total $65.2, the
Label and Graphic Materials segment recorded $13, the Retail
Branding and Information Solutions segment recorded $9.8, the
Industrial and Healthcare Materials segment recorded $1.9, and
Corporate recorded $40.5.
RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY
INFORMATION
Twelve Months
Year-to-Date OPERATING INCOME OPERATING MARGINS 2017
2016 2017 2016
Label and Graphic
Materials
Operating income and margins, as reported $ 567.3 $ 516.2 12.6 %
12.3 % Adjustments: Restructuring charges: Severance and related
costs 14.5 5.8 0.3 % 0.1 % Asset impairment and lease cancellation
charges 0.3 2.7 --- 0.1 % Transaction costs 0.5 4.5 --- 0.1 % Gain
on sale of assets (0.8 ) ---
--- --- Adjusted
operating income and margins (non-GAAP) $ 581.8
$ 529.2 12.9 % 12.6 %
Retail Branding
and Information Solutions
Operating income and margins, as reported $ 122.9 $ 102.6 8.1 % 7.1
% Adjustments: Restructuring charges: Severance and related costs
16.5 8.4 1.1 % 0.6 % Asset impairment and lease cancellation
charges 1.9 2.1 0.1 % 0.2 % Net gain on sales of assets (1.5 ) (1.1
) (0.1 %) (0.1 %) Transaction costs related to sale of product line
1.2 0.4 0.1 %
--- Adjusted operating income and
margins (non-GAAP) $ 141.0 $ 112.4
9.3 % 7.8 %
Industrial and
Healthcare Materials
Operating income and margins, as reported $ 50.5 $ 54.6 8.5 % 12.0
% Adjustments: Restructuring charges: Severance and related costs
0.2 0.5 0.1 % 0.1 % Asset impairment charges --- 0.4 --- 0.1 %
Transaction costs 3.5 1.0
0.6 % 0.3 % Adjusted operating income
and margins (non-GAAP) $ 54.2 $ 56.5
9.2 % 12.5 %
A-8
AVERY DENNISON CORPORATION PRELIMINARY SUPPLEMENTARY
INFORMATION (UNAUDITED) Fourth Quarter
2017
Total
Company
Label and
Graphic
Materials
Retail Branding
and Information
Solutions
Industrial and
Healthcare
Materials
Reconciliation of GAAP to Non-GAAP sales change Reported
sales change 11.9 % 9.2 % 5.2 % 60.3 % Foreign currency translation
(2.8 %) (3.6 %)
(0.5 %) (3.4 %) Sales change ex.
currency (non-GAAP) 9.1 % 5.6 % 4.7 % 56.9 % Acquisitions
(4.4 %) (1.1 %)
--- (51.2 %) Organic
sales change (non-GAAP)(1) 4.7 %
4.6 % 4.7 % 5.7 %
Full Year 2017
Total
Company
Label and
Graphic
Materials
Retail Branding
and Information
Solutions
Industrial and
Healthcare
Materials
Reconciliation of GAAP to Non-GAAP sales change Reported
sales change 8.7 % 7.7 % 4.6 % 30.2 % Foreign currency translation
(0.5 %) (0.8 %)
0.4 % (0.4 %) Sales change ex.
currency (non-GAAP)(1) 8.2 % 6.9 % 5.0 % 29.9 % Acquisitions
(3.9 %) (2.7 %)
--- (27.9 %) Organic
sales change (non-GAAP)(1) 4.2 %
4.2 % 5.0 % 2.0 %
(1)
Totals may not sum due to rounding.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180131005488/en/
Avery Dennison CorporationMedia Relations:Rob
Six, (626)
304-2361rob.six@averydennison.comorInvestor
Relations:Cynthia S. Guenther, (626)
304-2204investorcom@averydennison.com
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