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 March 30, 1996
--------------
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 identification no.)
incorporation or organization)
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 X 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 X No
--- ---
Number of shares of $1 par value common stock outstanding as of April 26,
1996: 52,786,792
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
INDEX TO FORM 10-Q
------------------
Page No.
--------
Part I. Financial Information (Unaudited):
Financial Statements:
Condensed Consolidated Balance Sheet
March 30, 1996 and December 30, 1995 3
Consolidated Statement of Income
Quarters Ended March 30, 1996 and April 1, 1995 4
Condensed Consolidated Statement of Cash Flows
Quarters Ended March 30, 1996 and April 1, 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information:
Submission of Matters to a Vote of Security Holders,
Exhibits and Reports on Form 8-K 10
Signatures 11
2
PART I. FINANCIAL INFORMATION
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
March 30, 1996 December 30, 1995
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 5.3 $ 27.0
Trade accounts receivable, net 460.0 444.1
Inventories, net 229.0 223.2
Prepaid expenses 25.0 21.9
Other current assets 77.6 83.9
-------- --------
Total current assets 796.9 800.1
Property, plant and equipment, at cost 1,665.0 1,652.1
Accumulated depreciation (755.2) (744.7)
-------- --------
909.8 907.4
Intangibles resulting from business acquisitions, net 122.6 124.3
Other assets 133.9 131.8
-------- --------
$1,963.2 $1,963.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 124.2 $ 115.4
Accounts payable 164.7 169.9
Accrued liabilities 334.9 387.2
-------- --------
Total current liabilities 623.8 672.5
Long-term debt 374.9 334.0
Deferred taxes and other long-term liabilities 146.1 141.3
Shareholders' equity:
Common stock - $1 par value
Authorized - 200,000,000 shares; Issued - 62,063,312
shares at March 30, 1996 and December 30, 1995 62.1 62.1
Capital in excess of par value 190.7 191.6
Retained earnings 861.9 837.8
Cumulative foreign currency translation adjustment 34.9 33.8
Cost of unallocated ESOP shares (27.0) (27.0)
Minimum pension liability (2.6) (2.6)
Treasury stock at cost, 9,294,930 shares at March 30,
1996 and 9,003,763 shares at December 30, 1995 (301.6) (279.9)
-------- --------
Total shareholders' equity 818.4 815.8
-------- --------
$1,963.2 $1,963.6
======== ========
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
------------------------------
March 30, 1996 April 1, 1995
-------------- -------------
Net sales $796.6 $773.2
Cost of products sold 549.9 528.4
------ ------
Gross profit 246.7 244.8
Marketing, general and
administrative expense 175.3 180.0
Interest expense 8.9 10.0
------ ------
Income before taxes 62.5 54.8
Taxes on income 22.5 20.3
------ ------
Net income $ 40.0 $ 34.5
====== ======
Weighted average number of common
shares outstanding 52.9 53.4
====== ======
PER COMMON SHARE AMOUNTS:
Net income $ .76 $ .65
====== ======
Dividends $ .30 $ .27
====== ======
See Notes to Consolidated Financial Statements
4
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Quarter Ended
-------------------------------
March 30, 1996 April 1, 1995
-------------- -------------
OPERATING ACTIVITIES:
- --------------------
Net income $ 40.0 $ 34.5
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 24.9 26.1
Amortization 2.6 3.5
Deferred taxes 6.4 0.9
Net change in assets and liabilities net of the effect of
foreign currency translation and business divestitures (74.6) (49.3)
------ ------
Net cash (used in) provided by operating activities (.7) 15.7
------ ------
INVESTING ACTIVITIES:
- --------------------
Purchase of property, plant and equipment (38.3) (36.7)
Proceeds from sale of assets and business divestitures 3.8 0.2
Other 2.4 (6.5)
------ ------
Net cash used in investing activities (32.1) (43.0)
------ ------
FINANCING ACTIVITIES:
- --------------------
Net increase in short-term debt 8.7 7.0
Net increase in long-term debt 40.9 47.3
Dividends paid (15.9) (14.4)
Purchase of treasury stock (25.1) (14.5)
Other 2.5 2.0
------ ------
Net cash provided by financing activities 11.1 27.4
------ ------
Effect of foreign currency translation on cash balances -- 0.2
------ ------
(Decrease) increase in cash and cash equivalents (21.7) 0.3
------ ------
Cash and cash equivalents, beginning of period 27.0 3.1
------ ------
Cash and cash equivalents, end of period $ 5.3 $ 3.4
====== ======
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 1995 annual
financial statements and notes.
The first quarters of 1996 and 1995 consisted of thirteen-week periods ending
March 30, 1996 and April 1, 1995, 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 1996 and 1995 resulted in losses of $.6 million and $.4
million, respectively.
3. INVENTORIES
Inventories consisted of (in millions):
March 30, 1996 December 30, 1995
-------------- -----------------
Raw materials $ 80.9 $ 78.5
Work in progress 66.7 72.4
Finished goods 118.4 109.6
LIFO adjustment (37.0) (37.3)
------ ------
$229.0 $223.2
====== ======
4. INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Accumulated amortization of intangible assets at March 30, 1996 and December
30, 1995 was $41.3 and $40.3 million, respectively.
5. RESEARCH AND DEVELOPMENT
Research and development expense for the first quarters of 1996 and 1995 was
$13.3 million and $12.3 million, respectively.
6
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. NEW ACCOUNTING STANDARDS
During the first quarter of 1996, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 121 on accounting for the impairment of long-
lived assets and certain identifiable intangibles to be disposed of. SFAS No.
121 establishes guidance for recognizing and measuring impairment losses. If
it is determined the carrying amount of an asset is not recoverable, the
Company is required to recognize an impairment loss. The Company's
implementation of the new standard had no effect on the first quarter 1996
financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". The standard encourages a
fair value based method of accounting for an employee stock option or similar
equity instrument, but allows continued use of the intrinsic value based
method of accounting prescribed by Accounting Principles Board (APB) No. 25,
"Accounting for Stock Issued to Employees". The Company will continue to
follow the provisions set forth in APB No. 25 and will therefore make the pro
forma disclosures that will be required by SFAS No. 123 in its financial
statements for the year ended December 28, 1996.
7
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Quarterly sales increased to $796.6 million, a 3 percent increase over first
quarter 1995 sales of $773.2 million. Excluding the impact of sales from the
divested label converting businesses and changes in foreign currency rates,
sales increased 4.8 percent.
The gross profit margin for the quarter was 31 percent compared to 31.7 percent
for the first quarter of 1995. The decrease was due to a shift in product mix
and startup costs for new capacity and geographic expansion.
Marketing, general and administrative expense, as a percent of sales, was 22
percent as compared to 23.3 percent for the first quarter of 1995. The
improvement was the result of cost reduction actions taken in previous years and
increased sales.
During the first quarter of 1996, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 121 on accounting for the impairment of long-
lived assets and certain identifiable intangibles to be disposed of. The
Company's implementation of the new standard had no effect on the first quarter
1996 financial statements.
Income before taxes as a percent of sales increased to 7.8 percent for the
quarter as compared to 7.1 percent for the first quarter of 1995 due to lower
marketing, general and administrative and interest expenses as a percent of
sales. Interest expense as a percent of sales was 1.1 percent for the first
quarter of 1996 compared to 1.3 percent for the first quarter of 1995. The
decrease in interest expense was due primarily to the expiration of interest
rate swap agreements during the fourth quarter of 1995. Net income increased 16
percent to $40 million compared to $34.5 million in the first quarter of 1995.
Earnings per share for the quarter were $.76 compared to $.65 in the same period
last year, a 17 percent increase.
Results of Operations by Business Sector
The pressure-sensitive adhesives and materials sector reported increased sales
for the first quarter of 1996 compared to the same period last year. Excluding
the impact of significant geographic and capacity expansion, sector
profitability was comparable to the prior year. The U.S. operations reported
sales growth for the quarter while costs associated with capacity expansion
impacted profitability. The international businesses reported increased sales.
Profitability improved modestly in the international businesses due to increased
sales volume and pricing actions, but were partially offset by continued costs
related to geographic expansion.
The office products sector reported increased sales and profitability for the
quarter. Increased sales in the U.S. operations were led by sales growth for
Avery-brand labels and indexes. Profitability improved as a result of
successful new products and the implementation of cost reduction programs,
including the consolidations of distribution warehouses and sales forces in the
United States. The European office products businesses reported higher sales
due to growth at its label businesses; however, this increase in sales was
partially offset by the Company's French operations. Profitability for these
European businesses declined primarily due to its operations in France.
8
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Excluding the impact of divested operations, the converted products sector
reported increased sales and profitability. The U.S. operations reported
increased sales due to the growth at its stamp and battery label businesses.
Profitability also improved primarily due to increased sales volume and
operating improvements at the Company's stamp operations. Successful new
products resulted in improved sales for the international converting businesses
while an improved product mix and lower operating expenses as a percent of sales
resulted in increased profitability.
FINANCIAL CONDITION
- -------------------
During the first quarter of 1996, total debt increased $49.7 million to $499.1
million from year end 1995 as a result of increased working capital requirements
needed to fund the Company's sales growth. Total debt to total capital was 37.9
percent as of the end of the first quarter of 1996 and 35.5 percent at year end
1995.
Average working capital, excluding short-term debt, as a percentage of sales,
increased to 10 percent from 9.3 percent a year ago. The increase was primarily
the result of an increase in accounts receivable and current deferred taxes
which was partially offset by an increase in accrued liabilities and sales.
Average inventory turns for the first quarter of 1996 was 9.6 turns compared to
9.0 turns for the first quarter of 1995; the average number of days sales
outstanding in accounts receivable was 55 days compared to 54 days a year ago.
Shareholders' equity increased to $818.4 million from $815.8 million at year end
1995. During the first quarter of 1996, the Company purchased 474,000 shares of
common stock at a cost of $25.1 million. The cost of treasury stock held, net of
shares reissued under the Company's stock and incentive plans, increased during
the quarter by $21.7 million to $301.6 million from year end 1995.
Net cash flows used in operating activities totalled $700,000 for the first
quarter of 1996 compared to $15.7 million in net cash flows provided by
operating activities for the first quarter of 1995. The decrease in net cash
flows provided by operating activities is primarily due to greater reductions in
interest, tax and restructuring liabilities. In addition to cash flows from
operations, the Company has more than adequate financing arrangements to conduct
its operations.
9
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 25, 1996. The
stockholders voted to re-elect three directors to the Board of Directors as
follows:
Number of Shares Voted/1/
----------------------------------------------
For Withheld
------------------- ---------------------
Charles D. Miller 43,292,503 614,094
Richard M. Ferry 43,223,225 683,372
Dwight L. Allison 43,369,117 537,480
/1/There were no abstentions or shares otherwise not voted by brokers.
The result of the voting on the following additional item was as follows:
Broker
For Opposed Abstained Non-Votes
---------- ---------- --------- ----------
Amendment to the 1990 Incentive and
Stock Option Plan for Key Employees 30,484,264 12,919,528 502,805 --
- --------------------------------------------------------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a. Exhibits: 3(ii) By-Laws of Avery Dennison Corporation - Amended and
Restated April 25, 1996
11 Computation of Net Income Per Share Amounts
27 Financial Data Schedule
b. Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended March 30, 1996.
10
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)
/s/ Gregory Jenkins
-----------------------------------
R. Gregory Jenkins
Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
/s/ Thomas E. Miller
-----------------------------------
Thomas E. Miller
Vice President and Controller
(Chief Accounting Officer)
May 13, 1996
11