<PAGE>
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 2, 1994
---------------
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
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Number of shares of $1 par value common stock outstanding as of April 29,
1994: 56,236,346
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AVERY DENNISON CORPORATION
AND SUBSIDIARIES
INDEX TO FORM 10-Q
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<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. Financial Information (Unaudited):
Financial Statements:
Condensed Consolidated Balance Sheet
April 2, 1994 and January 1, 1994 3
Consolidated Statement of Income
Quarters Ended April 2, 1994 and April 3, 1993 4
Condensed Consolidated Statement of Cash Flows
Quarters Ended April 2, 1994 and April 3, 1993 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information:
Exhibits and Reports on Form 8-K 10
Signatures 11
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2
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PART I. FINANCIAL INFORMATION
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
April 2, 1994 January 1, 1994
---------------------------------
ASSETS
- - ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1.1 $ 5.8
Trade accounts receivable 377.1 356.7
Inventories 202.4 184.1
Prepaid expenses 17.6 13.5
Other current assets 56.9 54.5
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Total current assets 655.1 614.6
Property, plant and equipment, at cost 1,422.7 1,412.7
Accumulated depreciation (668.0) (654.2)
--------------- -------------
754.7 758.5
Intangibles resulting from business
acquisitions, net 128.4 129.2
Other assets 135.8 136.7
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$1,674.0 $1,639.0
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Short-term debt and current portion of
long-term debt $ 99.0 $ 86.5
Accounts payable 145.0 140.8
Accrued liabilities 232.9 245.7
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Total current liabilities 476.9 473.0
Long-term debt 320.8 311.0
Deferred taxes and other long-term
liabilities 144.8 135.9
Shareholders' equity:
Common stock - $1 par value:
Authorized - 200,000,000 shares; Issued -
62,063,312 shares at April 2, 1994
and January 1, 1994 62.1 62.1
Capital in excess of par value 195.1 194.4
Retained earnings 710.5 698.9
Cumulative foreign currency translation
adjustment (11.1) (10.1)
Cost of unallocated ESOP shares (52.7) (53.2)
Minimum pension liability (8.9) (8.9)
Treasury stock at cost, 5,825,879 shares at
April 2, 1994 and 5,869,683 shares at
January 1, 1994 (163.5) (164.1)
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Total shareholders' equity 731.5 719.1
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$1,674.0 $1,639.0
=============== =============
</TABLE>
See Notes to Consolidated Financial Statements
3
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AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------
April 2, 1994 April 3, 1993
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<S> <C> <C>
Net sales $667.7 $666.5
Cost of products sold 455.2 456.5
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Gross profit 212.5 210.0
Marketing, general and
administrative expense 161.0 164.4
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Operating profit 51.5 45.6
Interest expense 11.5 9.8
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Income before taxes on income 40.0 35.8
Taxes on income 14.8 13.6
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Income before cumulative effect
of changes in accounting
principles 25.2 22.2
Cumulative effect of changes in
accounting principles -- 1.1
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Net income $ 25.2 $ 23.3
=============== ===============
Weighted average number of common
shares outstanding 56.2 58.8
=============== ===============
Per common share amounts:
Income before cumulative effect of
changes in accounting principles $ .45 $ .38
Cumulative effect of changes in
accounting principles -- .02
--------------- ---------------
Net income $ .45 $ .40
=============== ===============
Dividends $ .24 $ .22
=============== ===============
</TABLE>
4
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See Notes to Consolidated Financial Statements
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------
April 2, 1994 April 3, 1993
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Operating Activities:
- - --------------------
<S> <C> <C>
Net income $ 25.2 $ 23.3
Depreciation 21.0 20.1
Amortization 3.1 2.5
Non-current deferred taxes 5.6 3.5
Cumulative effect of changes in accounting
principles -- (1.1)
Net change in assets and liabilities net of
the effect of foreign currency translation
and divested operations (54.6) (14.0)
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Net cash provided by operating activities .3 34.3
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Investing Activities:
- - --------------------
Purchase of property, plant and equipment (19.2) (15.5)
Proceeds from sale of assets and business
divestitures 2.9 --
Other 3.5 3.3
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Net cash used in investing activities (12.8) (12.2)
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Financing Activities:
- - --------------------
Net change in debt 23.2 (.2)
Dividends paid (13.5) (12.9)
Purchase of treasury stock (1.9) (4.2)
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Net cash provided by (used in) financing
activities 7.8 (17.3)
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Effect of foreign currency translation on cash
balances -- (.4)
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(Decrease) increase in cash and cash
equivalents (4.7) 4.4
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Cash and cash equivalents, beginning of period 5.8 3.9
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Cash and cash equivalents, end of period $ 1.1 $ 8.3
============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
5
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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. 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 1993 annual financial
statements and notes.
The first quarters of 1994 and 1993 consisted of thirteen-week periods ending
April 2, 1994 and April 3, 1993, 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 1994 and 1993 resulted in losses of $1.4 million and $1
million, respectively.
3. Inventories
Inventories consisted of (in millions):
<TABLE>
<CAPTION>
April 2, 1994 January 1, 1994
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<S> <C> <C>
Raw materials $ 78.6 $ 75.7
Work in progress 48.2 43.2
Finished goods 111.9 101.9
LIFO adjustment (36.3) (36.7)
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$202.4 $184.1
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</TABLE>
During the first quarters of 1994 and 1993, 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 $1.0 million in the first quarters of 1994 and 1993.
4. Intangibles Resulting From Business Acquisitions
Accumulated amortization of intangible assets at April 2, 1994 and January 1,
1994 was $31.4 and $30.4 million, respectively.
6
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AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Research and Development
Research and development expense for the first quarters of 1994 and 1993 was
$11.5 million and $11.6 million, respectively.
6. Changes in Accounting Principles
During the first quarter of 1993, the Company adopted three accounting
standards issued by the Financial Accounting Standards Board which had a one-
time cumulative effect on net income of (in millions):
<TABLE>
<CAPTION>
Income
(Expense)
-------------
<S> <C>
Accounting for income taxes (SFAS No. 109) $ 16.3
Accounting for postretirement benefits, net of tax (SFAS
No. 106) (14.2)
Accounting for postemployment benefits, net of tax(SFAS No.
112) ( 1.0)
-------------
Increase in net income $ 1.1
=============
</TABLE>
7
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AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
- - -------------------
During the first quarter of 1994, total debt increased $22.3 million to $419.8
million from year end 1993. Total debt to total capital was 36.5 percent as of
the end of the first quarter of 1994 and 35.6 percent at year end 1993.
During the first quarter of 1994, the Company registered with the Securities and
Exchange Commission $100 million in principal amount of medium-term notes. As
of May 11, 1994, no notes had been issued.
Average working capital, excluding short-term debt, as a percentage of sales
decreased to 11.5% from 13.4% a year ago. The decrease was primarily
attributable to improvements in inventory turnover. Inventory turns for the
first quarter of 1994 was 9.0 times as compared to 8.1 times in the
corresponding period of the prior year.
Shareholders' equity increased to $731.5 million from $719.1 million at year end
1993.
Net cash flows provided by operating activities totalled $300,000 for the first
quarter of 1994 and $34.3 million for the first quarter of 1993. The decrease
in cash provided by operating activities was primarily due to changes in
inventory, accrued liabilities and tax accounts. In addition to cash flows from
operations, the Company has more than adequate financing arrangements to conduct
its operations.
Results of Operations
- - ---------------------
First quarter sales were flat compared to the first quarter of 1993. Excluding
the impact of changes in foreign currency rates, sales increased 3.0 percent.
The gross profit margin for the quarter was 31.8 percent, as compared to 31.5
percent for the first quarter of 1993. The increased gross profit margin was
due primarily to productivity improvements throughout the Company and an
improved product mix.
Marketing, general and administrative expense, as a percent of sales, was 24.1
percent as compared to 24.7 percent for the first quarter of 1993. Marketing,
general and administrative expenses decreased primarily due to cost reduction
efforts throughout the Company.
Income before taxes as a percent of sales increased to 6.0 percent for the
quarter as compared to 5.4 percent for the first quarter of 1993 due to improved
gross profit margins and lower marketing, general and administrative expenses.
Interest expense as a percent of sales was 1.7 percent for the first quarter of
1994 compared to 1.5 percent for the first quarter of 1993. The increase in
interest expense was due primarily to higher interest rates in Brazil. Net
income was $25.2 million, or $.45 per share, for the quarter as compared to
$23.3 million, or $.40 per share, for the first quarter of 1993. Excluding the
effect of accounting changes, net income for the first quarter of 1993 was $22.2
million, or $.38 per share.
8
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AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The pressure-sensitive adhesives and materials sector reported improved
profitability on a modest increase in sales for the first quarter of 1994
compared to the same period last year. The U.S. operations reported improved
sales and operating results. The U.S. specialty tape and chemical businesses
reported strong sales and profitability growth, while other domestic operations
were impacted by adverse weather conditions. The foreign operations reported
significant profitability improvements on a slight decline in sales for the
quarter. Effective cost reduction programs continued to positively impact the
profitability of the foreign operations, while the effects of foreign currency
translation resulted in lower reported sales.
The office products sector reported an increase in profitability on decreased
sales from the first quarter of 1993. In the United States, sales and
profitability increased primarily due to an improved product mix, successful new
product introductions, cost reduction programs, and lower overall promotional
costs. These increases, however, were partially offset by poor weather
conditions and inventory reductions by certain customers. Sales and
profitability were down significantly at the European office products businesses
primarily due to the weak French economy and the cost of on-going restructuring
programs.
The converted products sector (formerly product identification and control
systems) showed significant profitability improvements on decreased sales. The
elimination of unprofitable product lines decreased combined sales for the
Soabar businesses, while lower operating expenses resulted in significant
profitability improvements. The international converting businesses reported a
decline in sales due to the negative effects of foreign currency translation,
while profitability remained flat. Overall, the North American label businesses
reported flat sales and decreased profitability for the quarter.
9
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PART II. OTHER INFORMATION
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - -----------------------------------------
a. Exhibits: 12 - Computation of Ratio of Earnings to Fixed Charges.
b. Reports on Form 8-K: Registrant filed a Current Report on Form 8-K on March
29, 1994, with respect to its execution on the same date of certain
agreements in connection with Medium-Term Notes to be issued by the
Registrant (Registration No. 33-52737).
10
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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/ R. 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 12, 1994
<PAGE>
AVERY DENNISON CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
First Quarter Ended
-------------------
1994 1993
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<S> <C> <C>
Earnings:
Income before income taxes $40.0 $35.8
Add: Fixed charges* 16.1 14.2
Amortization of capitalized interest .3 .2
Less: Capitalized interest (.7) (.4)
-------- --------
$55.7 $49.8
======== ========
*Fixed charges:
Interest expense $11.5 $ 9.8
Capitalized interest .7 .4
Amortization of debt issuance .1 .1
Interest portion of leases 3.8 3.9
-------- --------
$16.1 $14.2
======== ========
Ratio of Earnings to Fixed Charges 3.5 3.5
======== ========
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, "earnings" consist of income before taxes plus
fixed charges (excluding capitalized interest), and "fixed charges" consist of
interest expense, capitalized interest, amortization of debt issuance costs and
the portion of rent expense (estimated to be 35%) on operating leases deemed
representative of interest.
Exhibit 12
