Large Format Review - Business News

Electronics For Imaging, Inc., a world leader in customer-focused digital printing innovation, today announced its results for the first quarter of 2010. For the quarter ended March 31, 2010, the Company reported revenues of $110.8 million, compared to first quarter 2009 revenue of $96.1 million.

GAAP net loss was $(11.4) million or $(0.25) per diluted share in the first quarter of 2010, compared to GAAP net income of $26.7 million or $0.52 per diluted share for the same period in 2009.

Non-GAAP net loss was $(0.1) million or $(0.00) per diluted share in the first quarter of 2010, compared to non-GAAP net loss of $(4.3) million or $(0.08) per diluted share for the same period in 2009.

"Our product portfolio performed very well in the first quarter, with Inkjet growing 37% over the prior year and Fiery showing strong results during a normally seasonally weak period," said Guy Gecht, CEO of EFI. "Going forward, we expect new innovative products to maintain our growth momentum, as we remain focused on investing in innovation, helping our customers to be more competitive and profitable."

Separately, the Company announced that it has reached an agreement to purchase Radius Solutions, a leading provider of Print MIS applications for the packaging industry, an area that EFI is strategically targeting with its line of Jetrion printers. While the terms of the acquisition were not disclosed, the cash transaction is expected to be slightly accretive to full year 2010 results. The transaction is subject to various closing conditions.

The Company also announced that its Chief Financial Officer, John Ritchie, plans to leave the Company after the filing of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010 to pursue another opportunity.  The Company intends to appoint Gordon Heneweer, currently Vice President, Finance, as the Company's interim Chief Financial Officer.  The Company has initiated a search for a new CFO.

"I would like to extend my sincere thanks to John for his significant contribution to EFI over the past 10 years and wish him all the best in his new role," said Guy Gecht, CEO of EFI.

 

About our Non-GAAP Net Income and Adjustments

To supplement our consolidated financial results prepared under generally accepted accounting principles, or GAAP, we use non-GAAP measures of net income and earnings per diluted share that are GAAP net income and GAAP earnings per diluted share adjusted to exclude certain recurring and non-recurring costs, expenses and gains.

We believe that the presentation of non-GAAP net income and non-GAAP earnings per diluted share provides important supplemental information to management and investors regarding non-cash expenses, significant recurring and non-recurring items that we believe are important to understanding our financial and business trends relating to our financial condition and results of operations.  Non-GAAP net income and non-GAAP earnings per diluted share are among the primary indicators used by management as a basis for planning and forecasting future periods and by management and our board of directors to determine whether our operating performance has met specified targets and thresholds. Management uses non-GAAP net income and non-GAAP earnings per diluted share when evaluating operating performance because it believes that the exclusion of the items described below, for which the amounts and/or timing may vary significantly depending upon the Company's activities and other factors, facilitates comparability of the Company's operating performance from period to period.  We have chosen to provide this information to investors so they can analyze our operating results in the same way that management does and use this information in their assessment of our business and the valuation of our Company.

We compute non-GAAP net income and non-GAAP earnings per diluted share by adjusting GAAP net income and GAAP earnings per diluted share to remove the impact of recurring amortization of acquisition-related intangibles, stock-based compensation expense, as well as restructuring related and non-recurring charges and gains and the tax effect of these adjustments.  Such non-recurring charges and gains include project abandonment costs, asset impairment charges, certain legal settlements, our sale of certain real estate assets, and acquisition-related transaction costs and legal expenses.  Examples of these excluded items are described below:

Amortization of acquisition-related intangibles. Intangible assets acquired to date are being amortized on a straight-line basis.

Stock-based compensation expense is recognized in accordance with FASB Accounting Standards Codification, Topic 718, Stock Compensation.

 

Non-recurring charges and gains, including:

Restructuring related charges.  We have incurred restructuring charges as we reduce the number and size of our facilities and the size of our workforce.

Asset impairment costs consist of equipment and non-cancellable purchase orders incurred relating to a planned product that was cancelled and a facility closure.

Gain on sale of building and land. On January 29, 2009, we sold a portion of the Foster City, California campus for a final amount of $137.3 million to Gilead Sciences, Inc., resulting in a gain on sale of approximately $79.4 million as of March 31, 2009.

Acquisition-related transaction costs and legal expenses. In line with our previously disclosed acquisition strategy, we have identified targets for potential acquisition and have incurred expenses of $0.6 million related thereto in the first quarter of 2010.

Tax effect of these adjustments. After removing the non-GAAP items, we apply the principles of ASC 740, Income Taxes, to estimate the non-GAAP income tax provision in each jurisdiction in which we operate.

These non-GAAP measures are not in accordance with or an alternative for GAAP and may be materially different from other non-GAAP measures, including similarly titled non-GAAP measures, used by other companies.  The presentation of this additional information should not be considered in isolation from, as a substitute for, or superior to, net income or earnings per diluted share prepared in accordance with GAAP.  Non-GAAP financial measures have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results.  We expect to continue to incur expenses of a nature similar to the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP net income and non-GAAP earnings per diluted share should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

Electronics For Imaging, Inc., a world leader in customer-focused digital printing innovation, today announced that it has reached an agreement to acquire Radius Solutions, a leading provider of Print MIS solutions for the packaging industry. Radius Solutions is a leading ERP/MIS software provider focused exclusively on the packaging and printing industry.

While the terms of the acquisition were not disclosed, the cash transaction is expected to be slightly accretive to full year 2010 results. The transaction is subject to various closing conditions.

"We are very pleased to add Radius to our growing portfolio of industry-leading software solutions targeted to the print industry," said Marc Olin, Sr. VP/GM APPS of EFI. "EFI's goal is to offer our customers a complete product portfolio that assists them from job creation to production, while allowing them to be more efficient and effective, and ultimately, more profitable. Radius allows us to bring this concept to the packaging market, which is one of the largest segments of the print market and an area of strategic focus for EFI, joining our Pace and Monarch MIS systems which are targeted to the display graphics and commercial print markets."

Radius Solutions will become part of the Advanced Professional Print Software (APPS) division of EFI. EFI intends to integrate a number of its award winning products including Fiery, VUTEk, Jetrion, Digital StoreFront, PrintFlow and Auto-Count, with the Radius product line. The Radius acquisition further strengthens EFI's growing product portfolio of software tools, UV Inkjet digital presses and inks, and MIS solutions for the packaging market, which is one of the largest printing markets in the world.

Radius Solutions is headquartered in Chicago, Illinois with direct operations in the United States and Europe. Radius brings many years of experience developing and deploying applications developed specifically to manage the unique needs of packaging and printing organizations. Radius has established itself as a leading provider of management information systems specifically designed to help flexible packaging, folding carton and label printers manage their operations.

"We are very excited to have Radius Solutions join the EFI family," said David Taylor, President and CEO of Radius Solutions. "Our ERP packaging software fits strategically within EFI's solutions portfolio. Our clients will gain a supplier with a global footprint and the additional resources of a tier one organization. I look forward to managing the Radius product line within their world class organization."

Nothing at all to do with large format printing, but we are all interested in what HP are up to, right?

HP and Palm, Inc. today announced that they have entered into a definitive agreement under which HP will purchase Palm, a provider of smartphones powered by the Palm webOS mobile operating system, at a price of $5.70 per share of Palm common stock in cash or an enterprise value of approximately $1.2 billion. The transaction has been approved by the HP and Palm boards of directors.

The combination of HP's global scale and financial strength with Palm's unparalleled webOS platform will enhance HP's ability to participate more aggressively in the fast-growing, highly profitable smartphone and connected mobile device markets. Palm's unique webOS will allow HP to take advantage of features such as true multitasking and always up-to-date information sharing across applications.

"Palm's innovative operating system provides an ideal platform to expand HP's mobility strategy and create a unique HP experience spanning multiple mobile connected devices," said Todd Bradley, executive vice president, Personal Systems Group, HP. "And, Palm possesses significant IP assets and has a highly skilled team. The smartphone market is large, profitable and rapidly growing, and companies that can provide an integrated device and experience command a higher share. Advances in mobility are offering significant opportunities, and HP intends to be a leader in this market."

"We're thrilled by HP's vote of confidence in Palm's technological leadership, which delivered Palm webOS and iconic products such as the Palm Pre. HP's longstanding culture of innovation, scale and global operating resources make it the perfect partner to rapidly accelerate the growth of webOS," said Jon Rubinstein, chairman and chief executive officer, Palm. "We look forward to working with HP to continue to deliver industry-leading mobile experiences to our customers and business partners."

Under the terms of the merger agreement, Palm stockholders will receive $5.70 in cash for each share of Palm common stock that they hold at the closing of the merger. The merger consideration takes into account the updated guidance and other financial information being released by Palm this afternoon. The acquisition is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of Palm's stockholders. The transaction is expected to close during HP's third fiscal quarter ending July 31, 2010.

Avery Dennison Corporation  today announced preliminary, unaudited first quarter 2010 results.

"We are off to an encouraging start in 2010," said Dean A. Scarborough, chairman, president and CEO of Avery Dennison. "First-quarter volumes increased and organic sales growth was solid in all regions, particularly emerging markets. We're especially pleased with the increased demand benefiting our Pressure-sensitive Materials and Retail Information Services segments. Increased operating leverage has driven gross profit margin well above pre-recession levels despite lower volumes."

"Going forward, we're more confident about a modest economic recovery," Scarborough said. "We expect raw material inflation to be a challenge throughout the year and we are taking pricing actions accordingly. We are playing aggressive offense, increasing investment in marketing and business development, while continuing to deliver productivity improvements to help fund long-term, profitable growth."

For more details on the Company's results, see the Company's supplemental presentation materials, "First Quarter 2010 Financial Review and Analysis," posted at the Company's Web site at www.investors.averydennison.com, and furnished under Form 8-K with the SEC.

 

First Quarter 2010 Results by Segment

All references to sales reflect comparisons on an organic basis, which exclude the impact of acquisitions, foreign currency translation, and the impact of an extra week in the first quarter of 2009. All references to operating margin exclude the impact of restructuring, asset impairment charges, and other items.

 

Pressure-sensitive Materials (PSM)

- Roll Materials sales growth was led by strength in emerging markets, and mid single-digit growth in Europe and North America. Sales grew low double-digits in the Graphics and Reflective Products division.

- Operating margin increased due to higher volume and the benefits from restructuring and o'ther initiatives to drive productivity.

 

Retail Information Services (RIS)

- Sales growth reflected increased demand, due in part to significant inventory destocking that occurred among apparel retailers in the first half of 2009.

- Operating margin expanded due to increased volume and the benefit of restructuring and other productivity initiatives.

- RIS continues to introduce new products and value-added services to increase its share of this large market, while reducing fixed costs and streamlining its operations.

 

Office and Consumer Products (OCP)

- The decline in sales reflected weak end-market demand and changes in customer programs, partially offset by the impact of inventory destocking in the first quarter of 2010 compared to that in the first quarter of 2009.

- Operating margin declined due to increased spending related to customer programs, as well as higher investment in consumer promotions and marketing.

 

Other specialty converting businesses

- Sales growth primarily reflected increased demand for products for automotive applications, which was down sharply in the first quarter of 2009.

- The improvement in operating margin reflected increased volume and the benefit of restructuring and productivity actions.

 

Consolidated Items and Actions

- In the fourth quarter of 2008, the Company began a restructuring program to reduce costs across all segments of the business. The Company is on track to achieve its goal of $180 million in annualized savings by mid-2010. In the first quarter of 2010, the Company delivered approximately $25 million in incremental savings from these actions, net of transition costs.

- The adjusted tax rate in the first quarter was approximately 22 percent, representing the high end of the expected range for the full-year rate.

 

2010 Outlook

In the Company's supplemental presentation materials, "First Quarter 2010 Financial Review and Analysis," the Company provides a list of factors that it believes will contribute to its 2010 financial results. Based on the factors listed and other assumptions, the Company expects reported revenue growth of 5 to 7 percent, and Adjusted (non-GAAP) Earnings Per Share of $2.50 to $2.80. The Company estimates Free Cash Flow in 2010 of $300 to $350 million.

In July 2009, Reed Elsevier announced that the RBI-US controlled circulation magazines and certain other print titles, representing approximately 45% of the revenues of RBI-US, were to be divested.  Since then, the following titles, representing approximately two thirds of the revenues of the portfolio to be divested, have been sold in seven separate transactions:

• On 30 November 2009, NewBay Media LLC acquired Broadcasting & Cable, Multichannel News and This Week in Consumer Electronics (TWICE).
• On 16 February 2010, Canon Communications acquired Electronic Design News (EDN), Design News, Test & Measurement World and Packaging Digest.
• On 26 February 2010, Media Source Inc. acquired Library Journal, School Library Journal and Library Hotline.
• On 17 March 2010, Sandow Media acquired Interior Design, Furniture Today, Gifts & Decorative Accessories, Home Textiles Today, Casual Living, Home Accents Today, Kids Today and Playthings.
• On 31 March 2010, two management buyouts took place for Tracom and In-Stat.
• On 2 April 2010, Publishers Weekly was acquired by former PW publisher George Slowik, JR. and Partners.

To conclude the divestment process, the publishing operations of the remaining RBI-US controlled circulation titles are to be closed: Building Design+Construction, Chain Leader, Construction Bulletin, Construction Equipment, Consulting-Specifying Engineer, Control Engineering, Converting, Foodservice Equipment & Supplies, Graphic Arts Blue Book, Graphic Arts Monthly, HOTELS, Logistics Management, Material Handling Product News, Modern Materials Handling, Plant Engineering, Professional Builder, Professional Remodeler, Purchasing, Restaurants & Institutions, Semiconductor International, Spec Check, Supply Chain Management Review and Tradeshow Week.

Variety, Marketcast and 411 Publishing, the RCD (Reed Construction Data) businesses and the Buyerzone lead generation business were not part of the divestment process and are retained. Jewelers’ Circular Keystone (JCK) has been transferred to Reed Exhibitions which runs the JCK Jewelry event and DM2 has been merged with Mardev in the UK to form a global list management operation.

Highlights first quarter:

• Some markets showed signs of recovery
• Revenues € 614 million (-5% organically)
• Operating income € 7 million
• Free cash flow - € 64 million
• Net loss € 5 million
• Canon transaction closed successfully
• Priority on cross-selling opportunities with Canon

 

Comments by Rokus van Iperen, Chairman of the Board of Executive Directors:

‘Although our revenues were still declining in first quarter 2010, the decrease was less significant than in each of the three previous quarters. Some of our key markets are showing signs of either stabilizing or even picking up.

Europe remained very weak in all segments but customers in the United States and Asia appeared to gain confidence and cautiously started buying again. Our cost savings program continued to be well on track but could only partly mitigate the effects of the revenue decline.

Between January and March 2010, a total of 85% outstanding Océ common shares were acquired by Canon, enabling this compelling combination to close successfully. Our priority and focus in the short term is cross-selling of Canon products in Océ channels and vice versa. Integration activities will be carefully considered, taking the current shareholding structure into account.’

Highlights

Some markets showed signs of recovery; printing industry decline bottomed out Some markets showed signs of recovery. For example, the corporate markets including the Financial Services segment improved. Other markets, like the  construction sector and the Graphic Arts market remained weak.

As in 2009 the markets continued to impact the printing industry. The decline in the industry bottomed out, mainly driven by growth in sales of low-end equipment. Sales of other equipment continued to be impacted by the lower activity levels in key market sectors compared to the first quarter of 2009.

Document management services slowed down as existing business showed lower customer activity levels in many sectors. In addition new contracts were delayed and smaller, as customers chose to use the available free internal capacity.

Océ revenues declined in line with printing industry development

Following these market developments, Océ revenues showed an organic decline of 5% versus the first quarter of 2009. This decline bottomed out compared to the organic revenue decline in the third and fourth quarter of 2009 which amounted to 12% and 11% respectively. Océ believes the company holds strong positions in key markets based on innovative products such as the printing systems of the Océ JetStream®, the Océ VarioPrint® and the Océ ColorWave® series.

Savings program

Our action program continued to be well on track but could only partly mitigate the effects of the revenue decline, as reflected in the above table. In the first quarter Océ realized a cost reduction of € 17 million, exclusive of inflation and restructuring cost. In the first quarter Océ realized a headcount reduction of 310 FTEs compared to the fourth quarter 2009.

Combination Canon and Océ

On 16 November 2009 Canon and Océ announced that they had reached conditional agreement to combine their printing activities through a recommended public cash offer. This transaction closed successfully on 9 March 2010.

The first meeting of the Supervisory Board in its new composition as well as the first meeting of the Integration Steering Committee have taken place. Also the cross-selling between Canon and Océ has been initiated.

With these actions, Canon and Océ successfully took the first steps in their aim to create the overall No. 1 presence in the printing industry.

In order to continue to support our customers a new agreement with Konica Minolta was concluded.

Océ Group results first quarter 2010

Revenues

Total revenues in the first quarter amounted to € 614 million, a decrease of 7%. The organic decrease was 5% compared to the first quarter of 2009.

The share of color in Océ total revenues continued to grow and now accounts for 30%, up from 27% at the end of the first quarter 2009.

Non-recurring revenues amounted to € 161 million, a decrease of 5%. The organic decline was 4%.

Recurring revenues amounted to € 453 million, a decrease of 7%. The organic decline was 6%.

The normalization items have been aligned with the definitions of the bank covenants. The table below provides an overview of these normalization items and shows that reported operating income and normalized income are equal.

Gross margin and operating income

In the first quarter of 2010 normalized gross margin was 37.9% (2009: 39.3%).

The year on year decrease in gross margin was the result of three elements. First, compared to the first quarter of 2009, the changes in foreign currency exchange rates caused a positive hedge variance of € 1 million, leading to a gross margin increase of 0.2 percentage points. Second, the difference in business mix at group level, mainly due to a larger share of OBS in total revenues, resulted in a gross margin decline of 0.2 percentage points (OBS is a services business with a different margin profile). Third, the business development resulted in a gross margin decrease of 1.4 percentage points. This is mainly caused by lower utilization of the supply centers, due to the € 44 million lower revenues, as well as mix effects within the business units.

Normalized operating expenses amounted to 36.7% (2009: 34.7%). The increase was the result of the strong revenue decline versus first quarter 2009, as well as incidentals in the first quarter of 2009, partly mitigated by the savings program. In constant currencies, operating expenses were stable.

On balance, normalized operating income amounted to € 7 million (2009: € 30 million).

Operating income amounted to € 7 million (2009: € 30 million).

Finance expenses and net income

Finance expenses (net) amounted to € 11 million (2009: € 13 million).

The taxation charge to net income amounted to € 1 million (2009: € 4 million).

On balance, net income amounted to –€ 5 million (2009: € 15 million).

Balance sheet and RoCE

The balance sheet total was € 2,314 million, compared to € 2,568 million at the end of the first quarter of 2009.

Net Capital Employed was € 1,133 million, compared to € 1,340 million at the end of the first quarter of 2009. In relation to normalized operating income, RoCE amounted to 1.0% (2009: 5.1%).

Free cash flow and financial covenants Free cash flow in the first quarter 2010 remained unchanged at –€ 64 million. This was the net effect of a lower operating income, an increase in inventories and trade and other receivables and a reduction in trade and other liabilities. Cash flow from operating activities changed slightly to –€ 40 million (2009: –€ 38 million). The cash flow from investing activities was –€ 24 million (2009: –€ 26 million).

At the end of the first quarter 2010, the net debt/EBITDA ratio amounted to 2.7 (financial covenants maximum of 3.5) and EBITDA/interest (net) amounted to 5.6 (financial covenants minimum of 3.5).

SBU results first quarter

• Digital Document Systems (DDS)

Compared to the last quarters of 2009, the decline in the markets served by DDS bottomed out. However, year on year the markets showed lower activity levels resulting in € 25 million revenue decline. As a result revenues in DDS amounted to € 344 million. Organically, revenues declined by 5%. The share of color was 25% of revenues (2009: 22%).

Non-recurring revenues amounted to € 106 million. Organically, revenues declined by 1%.

As a result of the decline in multiple market sectors, equipment sales in Printroom as well as black & white continuous feed systems were lower compared to the first quarter of 2009. DDS showed good sales in Office as well as TransPromo and Graphic Arts through the continuous feed color printers.

Recurring revenues amounted to € 238 million. Organically, revenues declined by 6%. The market deterioration resulted in lower print volumes and subsequently lower revenues in Office and black & white continuous feed. The production cutsheet revenue growth slowed down. Normalized operating income amounted to € 1 million (2009: € 16 million) and was impacted by the lower market demand.

Wide Format Printing Systems (WFPS)

Compared to the last quarters of 2009 the decline in the markets served by WFPS also bottomed out. However, year on year the market showed lower activity levels especially in Construction and Manufacturing resulting in € 16 million revenue decline. As a result revenues in WFPS amounted to € 159 million. Organically, revenues declined by 9%. The share of color increased to 45% (2009: 41%).

Non-recurring revenues amounted to € 55 million. Organically, revenues declined by 8%.

Recurring revenues amounted to € 104 million. Organically, recurring revenues declined by 9% due to the decline in print volumes in market sectorsserved by Technical Document Systems and Imaging Supplies. Imaging Supplies revenue declined organically by 13% mainly due to lower print volumes.

Normalized operating income amounted to € 3 million (2009: € 11 million) impacted by the lower market demand mainly for technical documentation systems.

Océ Business Services (OBS)

The document outsourcing market declined as business at existing customers is experiencing declining activity levels in many market segments and organizations, which delayed or reduced the outsourcing of document related processes.

Revenues in OBS amounted to € 111 million. Organically, revenues remained unchanged. Revenue growth in Europe continued although at a lower pace. Revenues in the United States continued to remain under pressure.

OBS is taking actions to maximize existing opportunities and further reduce cost.

Normalized operating income amounted to € 3 million (2009: € 3 million).

Outlook

In 2010 the market circumstances are expected to remain challenging and continue to impact the printing industry. In the first quarter of 2010 some markets show sign of recovery and the printing industry decline bottomed out.

Customers are expected to invest in systems and services that directly add value to their business. Therefore Océ will continue to introduce innovations for all market segments.

Canon and Océ will continue to work towards creating the best combination in the printing industry.

As a consequence of the change of control, substantial one-off items will be recorded in the second quarter results of 2010. These will include costs and interest charges in connection with the refinancing by Canon Inc.