BAS_2007_AnnualInvestorConferencePresentation

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BAS_2007_AnnualInvestorConferencePresentation

  1. 1. Bank of America 37th Annual Investment Conference September 17, 2007 Forward-Looking Statements Certain information in this presentation may constitute “forward-looking” 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 risks and uncertainties relating to investment in development activities and new production facilities; fluctuations in cost and availability of raw materials; ability of the Company to achieve and sustain targeted cost reductions, including synergies expected from the integration of the Paxar business in the time and the cost anticipated; ability of the Company to generate sustained productivity improvement; successful integration of acquisitions; successful implementation of new manufacturing technologies and installation of manufacturing equipment; the financial condition and inventory strategies of customers; customer and supplier concentrations; changes in customer order patterns; loss of significant contract(s) or customer(s); timely development and market acceptance of new products; fluctuations in demand affecting sales to customers; impact of competitive products and pricing; selling prices; business mix shift; credit risks; ability of the Company to obtain adequate financing arrangements; fluctuations in interest rates; fluctuations in pension, insurance and employee benefit costs; impact of legal proceedings, including the Australian Competition and Consumer Commission investigation into industry competitive practices, and any related proceedings or lawsuits pertaining to this investigation or to the subject matter thereof or of the concluded investigations by the U.S. Department of Justice (“DOJ”), the European Commission, and the Canadian Department of Justice (including purported class actions seeking treble damages for alleged unlawful competitive practices, and a purported class action related to alleged disclosure and fiduciary duty violations pertaining to alleged unlawful competitive practices, which were filed after the announcement of the DOJ investigation), as well as the impact of potential violations of the U.S. Foreign Corrupt Practices Act based on issues in China; changes in governmental regulations; changes in political conditions; fluctuations in foreign currency exchange rates and other risks associated with foreign operations; worldwide and local economic conditions; impact of epidemiological events on the economy and the Company’s customers and suppliers; acts of war, terrorism, natural disasters; and other factors. The Company believes that the most significant risk factors that could affect its ability to achieve its stated financial expectations in the near-term include (1) the impact of economic conditions on underlying demand for the Company’s products; (2) the impact of competitors’ actions, including expansion in key markets, product offerings and pricing; (3) 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; (4) potential adverse developments in legal proceedings and/or investigations regarding competitive activities, including possible fines, penalties, judgments or settlements; and (5) the ability of the Company to achieve and sustain targeted cost reductions, including expected synergies associated with the Paxar acquisition. Use of Non-GAAP Financial Measures This presentation contains certain non-GAAP measures as defined by SEC rules. As required by these rules, we have provided a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, included in the Appendix section of this presentation. Bank of America 37th Annual Investment Conference Dan O’Bryant EVP and Chief Financial Officer Monday, September 17, 2007 1
  2. 2. Bank of America 37th Annual Investment Conference September 17, 2007 Catalysts for value creation 1. Paxar integration will drive significant earnings accretion and free cash flow over the medium term 2. Annual P&L hit from RFID investment will decline 3. Notwithstanding challenging near-term market conditions, fundamentals of core businesses are strong 3 Overview of Today’s Portfolio Revenue by Segment (after intercompany eliminations) 2006 Actual Proforma, With Paxar Other Specialty Other Specialty Converting Converting Retail Information Retail Services Information Services Pressure- Pressure- sensitive Office and sensitive Materials Consumer Materials Products Office and Consumer Products 2006 Net Sales = $5.6 billion 2006 Net Sales = $6.4 billion 4 2
  3. 3. Bank of America 37th Annual Investment Conference September 17, 2007 Overview of Today’s Portfolio 2006 Revenue by Region (before intergeographic eliminations) Other* Latin America Asia U.S. Eastern Europe Western Europe * “Other” includes Canada, Australia, and South Africa 5 Snapshot of Pressure-sensitive Materials Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $3.2 B + 3.6% + 3.1% + 9.6% 9.6% 9.0% 8.6% (1) Excluding currency, acquisitions, and divestitures – see Appendix for detail (2) Excluding restructuring charges and other items – see Appendix for detail 6 3
  4. 4. Bank of America 37th Annual Investment Conference September 17, 2007 PSM Strategy and Outlook • Leverage global and regional scale advantages; backward integration in films and adhesives • Expand in faster-growing international markets Other* Roll Materials Group Latin America 2007 estimated revenues U.S. by geography, before Asia intergeographic eliminations Eastern Europe Western * “Other” includes Canada, Australia, and South Africa Europe 7 PSM Strategy and Outlook (continued) • Leverage global and regional scale advantages; backward integration in films and adhesives • Expand in faster-growing international markets • Drive increased PS penetration of food and beverage segments (shift from glue-applied labels) through product innovation and marketing • Recapture share in North America 8 4
  5. 5. Bank of America 37th Annual Investment Conference September 17, 2007 Strategy for Mature Markets • Growth Priorities: – Enhance customer value: • Competitive differentiators – breadth of product offerings (films, paper, various adhesives) and innovation… combined with superior service and quality • “Contract for Value” and Fasson Optimum Performance – Pursue aggressive marketing / new product development efforts: • Food and beverage applications • Low end durable applications • New, affordable films (i.e. GCX) • State of the art R&D facility in Mentor, Ohio • Accelerate productivity to protect market position • Shutter least productive assets • Optimize production of “fighting core” products • New Films coater in U.S. 9 Snapshot of Office and Consumer Products Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $1.1 B - 0.4% - 0.6% - 5.1% 16.5% 16.7% 15.9% (1) Excluding currency, acquisitions, and divestitures – see Appendix for detail (2) Excluding restructuring charges and other items – see Appendix for detail 10 5
  6. 6. Bank of America 37th Annual Investment Conference September 17, 2007 OCP Strategy and Outlook • Grow Printable Media categories – Under-penetrated categories – Share recapture through feature differentiation • Manage other categories for margin • Expand operating margin: – Mix improvement – Ongoing restructuring and productivity improvement 11 Productivity Improvement for Office Products NA Fixed Assets Direct Labor Costs ROTC down 29% down 43% up 13 points '01 '02 '03 '04 '05 '06 '01 '02 '03 '04 '05 '06 '01 '02 '03 '04 '05 '06 Improved capital efficiency and ROTC 12 6
  7. 7. Bank of America 37th Annual Investment Conference September 17, 2007 Snapshot of Retail Information Services Pre-Paxar Results: Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $0.7 B + 4.8% + 3.1% + 9.8% 8.4% 7.2% 7.4% Targets Post-Paxar: 6-8% organic sales growth; 12%+ operating margin (1) Excluding currency, acquisitions, and divestitures – see Appendix for detail (2) Excluding restructuring charges and other items – see Appendix for detail 13 RIS Strategy and Outlook • Industry consolidation driving share gain for global providers… customers want global quality (data integrity, color consistency) and speed • Labels and tags are low cost / high value to retailers • Rapid growth in Asia (China, India, other countries in region) – proximity to manufacturers is key to success • Paxar acquisition – a perfect fit 14 7
  8. 8. Bank of America 37th Annual Investment Conference September 17, 2007 Acquisition... Value Drivers: • Enhances top-line growth potential – Increases our presence (more than doubles RIS sales) in the expanding, highly fragmented, retail information and brand identification market – Combines complementary strengths… broadens our range of product and service capabilities – Improves ability to meet customer demands for product innovation and improved quality and speed of service – Facilitates expansion into new product and geographic segments • $115 to $125 mil. of cost synergies – Similar infrastructure – areas of overlap include SG&A (e.g., corporate overhead, back office support) and production – Proven track record with acquisition integration on global scale… high degree of confidence in ability to quickly achieve the savings 15 Other Specialty Converting Businesses Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $0.6 B + 2.3% + 4.9% + 8.2% 3.5% 3.4% 7.0% (1) Excluding currency, acquisitions, and divestitures – see Appendix for detail (2) Excluding restructuring charges and other items – see Appendix for detail 16 8
  9. 9. Bank of America 37th Annual Investment Conference September 17, 2007 The RFID tag market continues to expand RFID Market Unit Volume Compound Annual Growth: 2006-2012 Even conservative 120 estimates define 100 huge market by 2012 80 Percent Estimates of RFID Unit 60 Volume By 2012 40 40 B Vandergraf Int’l 30 B ABI 20 8B VDC 0 ma G l s ve e tai nt ion nic r CP ar he ar oti me Re hC tat tro Ph Ot tom rn or ec alt ve sp Au El He Go an Tr 17 Summary • Short-Term: Challenging market environment – Accelerate productivity improvement • Long-Term: Paxar RFID Strong core business fundamentals Substantial increase in free cash flow over medium term 18 9
  10. 10. Bank of America 37th Annual Investment Conference September 17, 2007 19 APPENDIX 20 10
  11. 11. Bank of America 37th Annual Investment Conference September 17, 2007 Reconciliation of Non-GAAP Financial Measures to GAAP 21 Total Company Adjusted Organic Sales Growth 2002 2003 2004 2005* 2006* Reported Sales Growth 10.6% 14.6% 12.1% 2.9% 1.9% Less Impact of Currency 0.6% 6.1% 4.7% 1.4% 0.3% Less Impact of Acquisitions, Net of Divestitures 5.1% 6.0% 0.1% 0.3% (1.0%) Organic Sales Growth 4.9% 2.5% 7.4% 1.2% 2.6% Comparability Adjustments (1.4%) 1.3% 0.3% Adjusted Organic Sales Growth 4.9% 2.5% 5.9% 2.5% 2.8% * From continuing operations Note: Columns may not foot due to minor rounding differences 22 11
  12. 12. Bank of America 37th Annual Investment Conference September 17, 2007 Organic Sales Growth by Segment: 2004 Pressure Office and Retail Other Specialty Sensitive Consumer Information Converting Materials Products Services Businesses 2003 GAAP Sales $2,572.6 $1,168.1 $552.7 $469.2 Impact of 2004 Currency Changes $145.6 $35.1 $12.3 $14.5 2003 Adjusted Non-GAAP Sales $2,718.1 $1,203.2 $565.1 $483.7 2004 GAAP Sales $3,008.5 $1,172.5 $636.1 $523.8 Est. Impact of Acq.& Divestitures $0.0 $0.0 $10.1 ($5.3) Other Comparability Adjustments $28.3 $30.5 $5.8 $5.8 2004 Adjusted Non-GAAP Sales $2,980.2 $1,142.0 $620.2 $523.3 GAAP Sales Growth 16.9% 0.4% 15.1% 11.6% Adj. Organic Sales Growth 9.6% -5.1% 9.8% 8.2% 23 Organic Sales Growth by Segment: 2005 Pressure Office and Retail Other Specialty Sensitive Consumer Information Converting Materials Products Services Businesses 2004 GAAP Sales $2,984.5 $1,172.5 $636.1 $523.8 Impact of 2005 Currency Changes $57.8 $7.7 $6.7 $4.4 2004 Adjusted Non-GAAP Sales $3,042.3 $1,180.2 $642.8 $528.2 2005 GAAP Sales $3,114.5 $1,136.1 $674.8 $548.1 Est. Impact of Acq.& Divestitures $0.0 $0.0 $17.8 $0.0 Other Comparability Adjustments ($22.8) ($37.1) ($5.8) ($5.8) 2005 Adjusted Non-GAAP Sales $3,137.3 $1,173.2 $662.8 $553.9 GAAP Sales Growth 4.4% -3.1% 6.1% 4.6% Adj. Organic Sales Growth 3.1% -0.6% 3.1% 4.9% 24 12
  13. 13. Bank of America 37th Annual Investment Conference September 17, 2007 Organic Sales Growth by Segment: 2006 Pressure Office and Retail Other Specialty Sensitive Consumer Information Converting Materials Products Services Businesses 2005 GAAP Sales* $3,114.5 $1,136.1 $630.4 $592.5 Impact of 2006 Currency Changes $15.4 $1.2 $3.4 $0.6 2005 Adjusted Non-GAAP Sales $3,129.9 $1,137.3 $633.8 $593.1 2006 GAAP Sales $3,236.3 $1,072.0 $667.7 $599.9 Est. Impact of Acq.& Divestitures $0.0 ($51.0) $3.2 ($6.6) Other Comparability Adjustments ($5.0) ($10.2) $0.0 $0.0 2006 Adjusted Non-GAAP Sales $3,241.3 $1,133.2 $664.5 $606.5 GAAP Sales Growth 3.9% -5.6% 5.9% 1.2% Adj. Organic Sales Growth 3.6% -0.4% 4.8% 2.3% * 2005 GAAP sales have been re-stated for Business Media reporting change from RIS to Other Specialty Converting. 25 Total Company Operating Margin FY 2003 FY 2004 FY 2005 FY 2006 ($ in millions, except as noted) Net Sales 4,736.8 5,317.0 5,473.5 5,575.9 Operating income, as reported 397.1 434.0 424.7 481.1 Operating margin, as reported (GAAP) 8.4% 8.2% 7.8% 8.6% Non-GAAP adjustments: Restructuring costs, asset impairment, lease cancellation costs, and environmental remediation, net of gains on asset sales 30.5 35.2 63.6 36.2 Adjusted non-GAAP operating income 427.6 469.2 488.3 517.3 Adjusted non-GAAP operating margin 9.0% 8.8% 8.9% 9.3% 26 13
  14. 14. Bank of America 37th Annual Investment Conference September 17, 2007 Total Company Return on Total Capital FY 2003 FY 2004 FY 2005 FY 2006 ($ in millions, except as noted) GAAP Average Invested Capital (5 point average) 2,503.2 2,663.2 2,707.6 2,655.4 Net Income 267.9 279.7 226.4 367.2 Addback: After-tax interest expense 42.4 43.8 46.1 46.0 Return on Average Total Capital 12.4% 12.1% 10.1% 15.6% Pro-forma Adj. Average Invested Capital (5 point average) 2,503.6 2,682.7 2,742.8 2,683.3 Net Income 267.9 279.7 226.4 367.2 Addback: After-tax interest expense 42.4 43.8 46.1 46.0 Addback: After-tax restructuring costs, asset impairment, lease cancellation costs, environmental remediation, and impact of discontinued ops, net of gains on asset sales -0.8 27.6 119.8 12.5 Pro-forma Return on Average Total Capital 12.4% 13.1% 14.3% 15.9% 27 OPERATING MARGIN BY SEGMENT FY 2004 FY 2005 FY 2006 ($ in millions, except as noted) Pressure Sensitive Materials Net Sales 2,984.8 3,114.5 3,236.3 Operating income, as reported 221.4 258.1 301.2 Operating margin, as reported 7.4% 8.3% 9.3% Non-GAAP adjustments: Restructuring costs, asset impairment, and lease cancellation costs, net of gains on asset sales 34.4 23.0 9.3 Adjusted non-GAAP operating income 255.8 281.1 310.5 Adjusted non-GAAP operating margin 8.6% 9.0% 9.6% Office and Consumer Products Net Sales 1,172.5 1,136.1 1,072.0 Operating income, as reported 186.4 168.0 179.0 Operating margin, as reported 15.9% 14.8% 16.7% Non-GAAP adjustments: Restructuring costs, asset impairment, and lease cancellation costs, net of gains on asset sales 0.5 21.8 (2.3) Adjusted non-GAAP operating income 186.9 189.8 176.7 Adjusted non-GAAP operating margin 15.9% 16.7% 16.5% 28 14
  15. 15. Bank of America 37th Annual Investment Conference September 17, 2007 OPERATING MARGIN BY SEGMENT FY 2004 FY 2005 FY 2006 ($ in millions, except as noted) Retail Information Services Net Sales 592.7 630.4 667.7 Operating income, as reported 43.4 37.7 45.0 Operating margin, as reported 7.3% 6.0% 6.7% Non-GAAP adjustments: Restructuring costs, asset impairment, and lease cancellation costs, net of gains on asset sales 0.3 7.5 11.2 Adjusted non-GAAP operating income 43.7 45.2 56.2 Adjusted non-GAAP operating margin 7.4% 7.2% 8.4% Other Specialty Converting Businesses Net Sales 567.0 592.5 599.9 Operating income, as reported 39.9 14.1 17.2 Operating margin, as reported 7.0% 2.4% 2.9% Non-GAAP adjustments: Restructuring costs, asset impairment, and lease cancellation costs, net of gains on asset sales 0.0 6.2 3.7 Adjusted non-GAAP operating income 39.9 20.3 20.9 Adjusted non-GAAP operating margin 7.0% 3.4% 3.5% 29 Historical Earnings Per Share, GAAP vs. Pro-Forma 2003 2004 2005 2006 2.68 2.78 2.25 3.66 GAAP EPS Restructuring & asset impairment, increase 0.26 0.26 1.07 0.33 to environmental reserve Gains on sale of business/assets, legal (0.24) - (0.02) (0.22) settlements, and other items - - 0.14 - Tax Expense on Repatriated Earnings 2.70 3.04 3.44 3.77 Pro-forma EPS Note: Historical figures have NOT been adjusted to remove the contribution from businesses subsequently divested or discontinued. 30 15
  16. 16. Bank of America 37th Annual Investment Conference September 17, 2007 Paxar Financial Outlook Paxar Financial Outlook Annual Estimated E.P.S. Accretion (Dilution) (excluding integration costs / one-time charges) 2007 $(0.07) 2008 $0.40 - $0.50 2009 $0.70 - $0.80 2010 $0.90 - $1.00 Estimated After-Tax Amortization of Intangibles (per share, included in E.P.S. above) 2007 $ 0.10 to $ 0.15 2008 and on $ 0.20 to $ 0.30 Estimated Integration Costs / One-Time Charges amount, timing and accounting treatment (P&L vs. goodwill adjustment) to be determined… Restructuring, Asset Impairment, and Integration-Related Costs: $125 to $135 mil. IT-Related Costs: $ 50 to $ 75 mil. Total: $175 to $210 mil. (~ 85% cash) 32 16
  17. 17. Bank of America 37th Annual Investment Conference September 17, 2007 Paxar Financial Outlook (continued) Estimated cost synergies (net of potential offsets): $115 to $125 mil. (90%+ cash) Timing to achieve savings (% of target savings achieved) 2007 Year-End Run Rate: 30% - 40% 2008 Mid-Year Run Rate: 60% - 70% 2008 Year-End Run Rate: 90%+ Financing Weighted average interest rate of 6.5% to 7.0% (higher than original expectation due to interest rate increases since transaction was announced, and anticipated mix of financial instruments, including the issuance of hybrid securities) 33 17

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