UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 1, 1995
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER 1-7685
AVERY DENNISON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-1492269
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
150 NORTH ORANGE GROVE BOULEVARD, PASADENA, CALIFORNIA 91103
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (818) 304-2000
Indicate by a check (checkmark) whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes (checkmarked) No
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Number of shares of $1 par value common stock outstanding as of April 28,
1995: 53,292,103
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
INDEX TO FORM 10-Q
------------------
Page No.
--------
Part I. Financial Information (Unaudited):
Financial Statements:
Condensed Consolidated Balance Sheet
April 1, 1995 and December 31, 1994 3
Consolidated Statement of Income
Quarters Ended April 1, 1995 and April 2, 1994 4
Condensed Consolidated Statement of Cash Flows
Quarters Ended April 1, 1995 and April 2, 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information:
Exhibits and Reports on Form 8-K 9
Signatures 10
2
PART I. FINANCIAL INFORMATION
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
April 1, 1995 December 31, 1994
-------------------------------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 3.4 $ 3.1
Trade accounts receivable, net 431.6 391.8
Inventories, net 236.1 206.4
Prepaid expenses 19.1 16.5
Other current assets 69.4 59.1
-------------------------------------
Total current assets 759.6 676.9
Property, plant and equipment, at cost 1,600.4 1,532.3
Accumulated depreciation (736.7) (700.7)
-------------------------------------
863.7 831.6
Intangibles resulting from business
acquisitions, net 128.8 127.6
Other assets 132.0 127.0
-------------------------------------
$1,884.1 $1,763.1
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short-term debt and current portion of
long-term debt $ 84.8 $ 73.4
Accounts payable 178.6 181.5
Accrued liabilities 323.4 299.2
-------------------------------------
Total current liabilities 586.8 554.1
Long-term debt 395.2 347.3
Deferred taxes and other long-term 139.8 132.7
liabilities
Shareholders' equity:
Common stock - $1 par value:
Authorized - 200,000,000 shares; Issued
- 62,063,312 shares at April 1, 1995
and December 31, 1994 62.1 62.1
Capital in excess of par value 192.2 193.0
Retained earnings 773.3 753.2
Cumulative foreign currency translation
adjustment 42.4 16.7
Cost of unallocated ESOP shares (37.6) (37.6)
Minimum pension liability (5.0) (5.0)
Treasury stock at cost, 8,794,315
shares at April 1, 1995 and 8,513,642
shares at December 31, 1994 (265.1) (253.4)
-------------------------------------
Total shareholders' equity 762.3 729.0
-------------------------------------
$1,884.1 $1,763.1
=====================================
See Notes to Consolidated Financial Statements
3
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Quarter Ended
--------------------------------
April 1, 1995 April 2, 1994
--------------------------------
Net sales $773.2 $667.7
Cost of products sold 528.4 455.2
--------------------------------
Gross profit 244.8 212.5
Marketing, general and
administrative expense 180.0 161.0
--------------------------------
Operating profit 64.8 51.5
Interest expense 10.0 11.5
--------------------------------
Income before taxes 54.8 40.0
Taxes on income 20.3 14.8
--------------------------------
Net income $ 34.5 $ 25.2
================================
Weighted average number of common
shares outstanding 53.4 56.2
================================
Per common share amounts:
Net income $ .65 $ .45
================================
Dividends $ .27 $ .24
================================
See Notes to Consolidated Financial Statements
4
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
Quarter Ended
---------------------------------
April 1, 1995 April 2, 1994
---------------------------------
OPERATING ACTIVITIES:
- ---------------------
Net income $ 34.5 $ 25.2
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 26.1 21.0
Amortization 3.5 3.1
Deferred taxes .9 5.0
Net change in assets and liabilities
net of the effect of foreign
currency translation and business
divestitures (49.3) (48.5)
---------------------------------
Net cash provided by operating
activities 15.7 5.8
---------------------------------
INVESTING ACTIVITIES:
- ---------------------
Purchase of property, plant and
equipment (36.7) (19.2)
Proceeds from sale of assets and
business divestitures .2 2.9
Other (6.5) (5.2)
---------------------------------
Net cash used in investing activities (43.0) (21.5)
---------------------------------
FINANCING ACTIVITIES:
- ---------------------
Net increase in short-term debt 7.0 12.8
Net increase in long-term debt 47.3 10.4
Dividends paid (14.4) (13.5)
Purchase of treasury stock (14.5) (1.9)
Other 2.0 3.2
---------------------------------
Net cash provided by financing
activities 27.4 11.0
---------------------------------
Effect of foreign currency translation
on cash balances .2 --
---------------------------------
Increase (decrease) in cash and cash
equivalents .3 (4.7)
---------------------------------
Cash and cash equivalents, beginning
of period 3.1 5.8
---------------------------------
Cash and cash equivalents, end of
period $ 3.4 $ 1.1
=================================
See Notes to Consolidated Financial Statements
5
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements include normal
recurring adjustments necessary for a fair presentation of the Company's
interim results. Certain prior year amounts have been reclassified to
conform with current year presentation. The condensed financial statements
and notes in this Form 10-Q are presented as permitted by Regulation S-X, and
as such, they do not contain certain information included in the Company's
1994 annual financial statements and notes.
The first quarters of 1995 and 1994 consisted of thirteen-week periods ending
April 1, 1995 and April 2, 1994, respectively. The interim results of
operations are not necessarily indicative of future financial results.
2. FOREIGN CURRENCY TRANSLATION
Transactions in foreign currencies and translation of financial statements of
subsidiaries operating in hyperinflationary economies during the first
quarters ended 1995 and 1994 resulted in losses of $.4 million and $1.4
million, respectively.
3. INVENTORIES
Inventories consisted of (in millions):
April 1, 1995 December 31, 1994
-------------------------------------
Raw materials $ 89.0 $ 81.6
Work in progress 65.1 55.9
Finished goods 119.6 105.2
LIFO adjustment (37.6) (36.3)
-------------------------------------
$236.1 $206.4
=====================================
During the first quarter of 1994, certain inventories were reduced resulting
in the liquidation of LIFO inventory carried at costs which were lower than
current costs. The effect was to reduce the cost of products sold by
approximately $1 million in the first quarter of 1994. There was no
liquidation of LIFO inventories in the first quarter of 1995.
4. INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Accumulated amortization of intangible assets at April 1, 1995 and December
31, 1994 was $37.3 million and $35.3 million, respectively.
5. RESEARCH AND DEVELOPMENT
Research and development expense for the first quarters of 1995 and 1994 was
$12.3 million and $11.5 million, respectively.
6
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Quarterly sales increased to a record $773.2 million, a 16 percent increase over
first quarter 1994 sales of $667.7 million. Excluding the impact of changes in
foreign currency rates, sales increased 13 percent. A reduced growth rate for
the U.S. economy is projected for the second quarter of 1995 and as such, the
Company expects a lower sales growth rate for the second quarter as compared to
the first quarter of 1995.
The gross profit margin for the quarter was 31.7 percent compared to 31.8
percent for the first quarter of 1994. The decrease was due to plant and major
equipment start-up costs, plus $1.3 million in expense related to LIFO
inventories compared to a benefit of $1 million in first quarter 1994.
Excluding these factors, gross profit margin was higher than prior year.
Marketing, general and administrative expense, as a percent of sales, was 23.3
percent as compared to 24.1 percent for the first quarter of 1994. The
improvement was the result of increased sales and cost reduction actions taken
in previous years.
Income before taxes as a percent of sales increased to 7.1 percent for the
quarter as compared to 6 percent for the first quarter of 1994 due to lower
marketing, general and administrative and interest expenses as a percent of
sales. Interest expense as a percent of sales was 1.3 percent for the first
quarter of 1995 compared to 1.7 percent for the first quarter of 1994. The
decrease in interest expense was due primarily to a decline in interest expense
for our Brazilian operations as a result of lower inflation and debt levels.
Net income increased 37 percent to $34.5 million compared to $25.2 million in
the first quarter of 1994. Earnings per share for the quarter reached $.65
compared to $.45 in the same period last year, a 44 percent increase;
approximately $.03 of the increase in earnings per share was attributable to a
reduction in the number of outstanding shares.
Results of Operations by Business Sector
The pressure-sensitive adhesives and materials sector reported significantly
improved sales and profitability for the first quarter of 1995 compared to the
same period last year. The U.S. operations reported a significant sales
increase primarily due to unit volume growth and pricing actions. In addition,
first quarter sales reflected some pre-price increase buying. The sales growth
rate for the second quarter of 1995 may moderate in the U.S. due to slower
economic growth. Solid profitability improvement was primarily due to sales
growth which was partially offset by plant and major equipment start-up costs.
The European operations reported a significant sales increase due to pricing
actions and sales volume growth from improved economic conditions. This sales
growth coupled with productivity improvements and effective cost reduction
programs resulted in significant profitability increases for the European
operations.
7
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The office products sector reported significant sales and profitability growth
for the quarter compared to the same period last year. In the U.S., sales
increased primarily as a result of successful new products, an improved product
mix and increased demand for the Company's products. Sales for the U.S.
operations may grow at a slower rate for the second quarter of 1995 when
compared to first quarter 1995 and year end 1994 as there appeared to be a rise
in inventory levels for the wholesale channel during the first quarter of 1995.
Profitability for the U.S. operations increased significantly as a result of
increased sales and lower operating expenses as a percent of sales. The
European office products businesses reported increased sales primarily as a
result of changes in foreign currency rates and improved economic conditions. A
more favorable product mix coupled with cost reduction actions taken in previous
years led to significant profitability increases over the same period last year.
The converted products sector also reported significant sales and profitability
improvements. The international converting businesses reported a significant
improvement in sales and profitability. Sales increased primarily as a result
of an improved European economy and changes in foreign currency rates.
Profitability for the international converting businesses benefitted
significantly from cost reduction actions. The U.S. label businesses also
reported a significant sales and profitability improvement due to increased
sales to the automotive, durable and consumer goods markets and lower operating
expenses as a percent of sales.
FINANCIAL CONDITION
- -------------------
During the first quarter of 1995, total debt increased $54.3 million to $480
million from year end 1994 as a result of increased working capital requirements
needed to fund the Company's sales growth. Total debt to total capital was 38.6
percent as of the end of the first quarter of 1995 and 36.6 percent at year end
1994.
Average working capital, excluding short-term debt as a percentage of sales,
decreased to 9.3 percent from 11.5 percent a year ago primarily as a result of
increased sales and current liabilities. Average inventory turns for the first
quarters of 1995 and 1994 were nine; the average number of days sales
outstanding in accounts receivable was 54 days compared to 55 days a year ago.
Shareholders' equity increased to $762.3 million from $729 million at year end
1994. During the first quarter of 1995, the Company purchased 386,000 shares of
common stock at a cost of $14.5 million. The cost of treasury stock held, net
of shares reissued under the Company's stock and incentive plans, increased
during the quarter by $11.7 million to $265.1 million from year end 1994.
Net cash flows provided by operating activities totalled $15.7 million for the
first quarter of 1995 and $5.8 million for the first quarter of 1994. In
addition to cash flows from operations, the Company has more than adequate
financing arrangements to conduct its operations.
8
PART II. OTHER INFORMATION
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The registrant held its annual stockholders' meeting on April 27, 1995. The
stockholders voted to re-elect four directors to the Board of Directors as
follows:
Number of Shares Voted/1/
--------------------------------
For Withheld
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Frank V. Cahouet 44,585,465 364,403
Peter W. Mullin 44,585,207 364,661
Joan T. Bok 44,567,421 382,447
Philip M. Neal 44,581,459 368,409
/1/There were no abstentions or shares otherwise not voted by brokers.
The results of the voting on the following additional items were as follows:
Broker
For Opposed Abstained Non-Votes
---------- --------- ----------- ----------
Amendments to the 1988 Stock
Option Plan for
Non-Employee Directors 33,497,889 8,809,557 2,513,839 128,583
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a. Exhibits: 3(ii) Bylaws of Avery Dennison Corporation - amended and
restated April 27, 1995
11 Computation of Net Income Per Share Amounts
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule, Article 5
b. Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended April 1, 1995.
9
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AVERY DENNISON CORPORATION
--------------------------
(Registrant)
R. GREGORY JENKINS
----------------------------------------
R. Gregory Jenkins
Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
THOMAS E. MILLER
----------------------------------------
Thomas E. Miller
Vice President and Controller
(Chief Accounting Officer)
May 12, 1995
10