<PAGE>
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 October 1, 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
----- -----
Number of shares of $1 par value common stock outstanding as of October 28,
1994: 55,006,213
<PAGE>
AVERY DENNISON CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information (Unaudited):
Financial Statements:
Condensed Consolidated Balance Sheet
October 1, 1994 and January 1, 1994 3
Consolidated Statement of Income
Three and Nine Months Ended October 1, 1994
and October 2, 1993 4
Condensed Consolidated Statement of Cash Flows
Nine Months Ended October 1, 1994
and October 2, 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 12
Signatures 13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
October 1, 1994 January 1, 1994
----------------- ----------------
<S> <C> <C>
ASSETS
- - - ------
Current assets:
Cash and cash equivalents $ 3.4 $ 5.8
Trade accounts receivable 419.7 356.7
Inventories 211.8 184.1
Prepaid expenses 16.6 13.5
Deferred taxes and other current assets 60.0 54.5
------------ -----------
Total current assets 711.5 614.6
Property, plant and equipment, at cost 1,522.8 1,412.7
Accumulated depreciation (715.4) (654.2)
------------ -----------
807.4 758.5
Intangibles resulting from business acquisitions, net 129.4 129.2
Other assets 133.3 136.7
------------ -----------
$1,781.6 $1,639.0
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - - ------------------------------------
Current liabilities:
Short-term debt and current portion of long-term debt $ 63.2 $ 86.5
Accounts payable 146.1 140.8
Accrued liabilities 302.7 245.7
------------ ----------
Total current liabilities 512.0 473.0
Long term debt 364.5 311.0
Deferred taxes and other long-term liabilities 147.4 135.9
Shareholders' equity:
Common stock - $1 par value:
Authorized - 200,000,000 shares; Issued - 62,063,312
shares at October 1, 1994 and January 1, 1994 62.1 62.1
Capital in excess of par value 192.0 194.4
Retained earnings 739.5 698.9
Cumulative foreign currency translation adjustment 19.8 (10.1)
Cost of unallocated ESOP shares (52.7) (53.2)
Minimum pension liability (8.9) (8.9)
Treasury stock at cost, 6,801,797 shares at October 1,
1994 and 5,869,683 shares at January 1, 1994 (194.1) (164.1)
------------ ----------
Total shareholders' equity 757.7 719.1
------------ ----------
$1,781.6 $1,639.0
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ ------------------------------------
October 1, 1994 October 2, 1993 October 1, 1994 October 2, 1993
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Sales $733.7 $638.1 $2,120.0 $1,966.8
Cost of products sold 501.1 439.2 1,447.2 1,350.7
----------------- ----------------- ----------------- --------------
Gross profit 232.6 198.9 672.8 616.1
Marketing, general and
administrative expense 179.3 157.0 511.8 482.6
----------------- ----------------- ----------------- --------------
Operating profit 53.3 41.9 161.0 133.5
Interest expense 9.7 11.7 33.1 31.9
----------------- ----------------- ----------------- --------------
Income before taxes on income 43.6 30.2 127.9 101.6
Taxes on income 15.8 11.2 47.0 37.6
----------------- ----------------- ----------------- --------------
Income before cumulative effect
of changes in accounting
principles 27.8 19.0 80.9 64.0
Cumulative effect of changes in
accounting principles -- -- -- 1.1
----------------- ----------------- ----------------- --------------
Net income $27.8 $19.0 $80.9 $65.1
================= ================= ================= ==============
Weighted average number of
common shares outstanding 55.4 57.8 55.9 58.3
================= ================= ================= ==============
PER COMMON SHARE AMOUNTS:
Income before cumulative effect
of changes in accounting
principles $0.50 $0.33 $1.45 $1.10
Cumulative effect of changes in
accounting principles -- -- -- 0.02
----------------- ----------------- ----------------- --------------
Net income $0.50 $0.33 $1.45 $1.12
================= ================= ================= ==============
Dividends $0.24 $0.22 $0.72 $0.66
================= ================= ================= ==============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------
October 1, 1994 October 2, 1993
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
- - - ---------------------
Net income $80.9 $65.1
Depreciation 64.3 60.9
Amortization 10.6 7.9
Deferred taxes and other long-term liabilities 19.4 (10.8)
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 (33.6) 19.8
----------------- -------------
Net cash provided by operating activities 141.6 141.8
----------------- -------------
INVESTING ACTIVITIES:
- - - ---------------------
Purchase of property, plant and
equipment (100.6) (66.4)
Proceeds from sale of assets and business
divestitures 11.8 4.5
Other 2.4 (7.8)
----------------- -------------
Net cash used in investing activities (86.4) (69.7)
----------------- --------------
FINANCING ACTIVITIES:
- - - ---------------------
Net increase in debt 26.0 10.5
Dividends paid (40.2) (38.5)
Purchase of treasury stock (43.6) (47.3)
----------------- --------------
Net cash used by financing activities (57.8) (75.3)
----------------- --------------
Effect of foreign currency
translation on cash balances .2 --
----------------- --------------
Decrease in cash and cash equivalents (2.4) (3.2)
----------------- --------------
Cash and cash equivalents,
beginning of period 5.8 3.9
----------------- --------------
Cash and cash equivalents, end of period $3.4 $0.7
================= ==============
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
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 to the current period's 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 1993 annual financial
statements and notes.
The third quarters of 1994 and 1993 consisted of thirteen-week periods
ending October 1, 1994 and October 2, 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 three
and nine months ended October 1, 1994 and October 2, 1993 resulted in a
gain of $.4 million and a loss of $.4 million, respectively, during 1994
and losses of $.2 million and $2.1 million, respectively, during 1993.
3. INVENTORIES
Inventories consisted of (in millions):
<TABLE>
<CAPTION>
October 1, 1994 January 1, 1994
---------------- ----------------
<S> <C> <C>
Raw materials $ 80.1 $ 75.7
Work in progress 53.7 43.2
Finished goods 114.1 101.9
LIFO adjustment (36.1) (36.7)
---------------- ----------------
$211.8 $184.1
================ ================
</TABLE>
Certain inventories were reduced in 1993 resulting in the liquidation of
LIFO inventory. The effect was to reduce cost of products sold by
approximately $3.5 million and $7.0 million for the three and nine months
ended October 2, 1993, respectively. The liquidation of LIFO inventory was
not significant for the three and nine months ended October 1, 1994.
6
<PAGE>
AVERY DENNISON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Accumulated amortization of intangible assets at October 1, 1994 and
January 1, 1994 was $34.7 million and $30.4 million, respectively.
5. RESEARCH AND DEVELOPMENT
Research and development expense for the three and nine months ended
October 1, 1994 and October 2, 1993, was $12.1 million and $35.9 million,
respectively, during 1994 and $10.7 million and $34.8 million,
respectively, during 1993.
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 (SFAS No. 106) (14.2)
Accounting for Postemployment Benefits (SFAS No. 112) ( 1.0)
--------
Increase in Net Income $ 1.1
========
</TABLE>
7
<PAGE>
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
- - - -------------------
During the first nine months of 1994, total debt increased $30.2 million to
$427.7 million. Total debt to total capital was 36.1 percent at October 1, 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 the third quarter, all of the notes had been issued in increments of $500,000
to $10.0 million. The medium-term notes have an average interest rate of 7.7
percent and maturities from August 2002 through August 2004.
Average working capital, excluding short-term debt, as a percentage of sales
decreased to 10.0 percent compared to 12.1 percent in the third quarter of
1993. The decrease was primarily due to higher sales, improvement in inventory
turnover and days sales outstanding in accounts receivable, and an increase in
accrued liabilities. Average inventory turnover for the quarter ended October
1, 1994 was 9.5 compared to 9.0 in the corresponding period of the prior year;
the average number of days sales outstanding in accounts receivable was 56 days
for the third quarter of 1994 compared to 59 days in the third quarter of 1993.
Net cash provided by operating activities during the first nine months of 1994
was $141.6 million compared to $141.8 million in the corresponding period of
1993. In addition to cash flow from operations, the Company has more than
adequate financing arrangements available to conduct its business.
Capital spending for the third quarter was $48.0 million compared to $28.0
million a year ago. For the nine months, capital spending totalled $100.6
million compared to $66.4 million for the first nine months of 1993, primarily
due to increased spending in the pressure-sensitive adhesives and materials
businesses. Total capital spending for 1994 is expected to be between $140 and
$150 million.
Shareholders' equity increased to $757.7 million from $719.1 million at year
end 1993. In October 1994, the Board of Directors increased the quarterly
dividend by $.03 per share to $.27 per share. During the third quarter of 1994,
the Company repurchased 713,000 shares at a cost of $23 million. For the first
nine months, 1.4 million shares were repurchased for $43.6 million. The cost of
treasury stock held, net of shares reissued under the Company's stock option and
incentive plans, increased $30.0 million to $194.1 million at October 1, 1994
from year end 1993.
Results of Operations: For the Quarter
- - - ---------------------------------------
Sales for the third quarter of 1994 were up 15 percent compared to the
corresponding period of 1993. Excluding the impact of foreign currency
translation, sales increased 13 percent.
The gross profit margin for the quarter was 31.7 percent compared to 31.2
percent for the third quarter of 1993. The gross profit margin increased
despite higher raw material costs and the absence of benefits from LIFO
inventory reductions in the third quarter of 1994 compared to the same period a
year ago. The improved gross profit margin was primarily due to productivity
improvements throughout the Company, pricing actions and an improved product mix
on increased sales.
8
<PAGE>
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations: For the Quarter (Continued)
- - - ---------------------------------------------------
Marketing, general and administrative expense, as a percent of sales, declined
to 24.4 percent for the third quarter of 1994, compared to 24.6 percent for the
third quarter of 1993. The decrease was primarily attributable to cost
reduction efforts throughout the Company on increased sales.
Interest expense, as a percent of sales, was 1.3 percent compared to 1.8 percent
during the third quarter of 1993. The decrease was primarily due to a decline
in interest expense in Brazil due to lower inflation.
Income before taxes, as a percent of sales, was 5.9 percent for the current
quarter and 4.7 percent for the third quarter of 1993. The increase was due to
improved gross profit margins, lower operating expenses as a percent of sales
and lower interest expense. The effective tax rate for the quarter was 36.2
percent compared to 37.1 percent for the third quarter of 1993. The lower tax
rate was primarily due to the utilization of net operating loss carry forwards
from foreign operations.
Net income was $27.8 million, or $.50 per share, compared to $19.0 million, or
$.33 per share, for the third quarter of 1993. Improvements for the quarter
were primarily a result of increased sales and improved gross profit margins.
The pressure-sensitive adhesives and materials sector reported significant sales
and profitability improvements over the corresponding period of the prior year.
Both the U.S. and European materials businesses reported significant sales and
profitability increases for the quarter. The increases in the U.S. were
primarily due to unit volume and revenue growth as a result of new products and
improved economic conditions in major markets. The European operations
benefitted from improved economic conditions, pricing actions, productivity
improvements and cost reduction programs.
The office products sector reported solid sales growth for the quarter.
Profitability also increased despite higher costs related to the consolidations
of distribution warehouses and sales forces in the U.S., and the absence of
benefits from LIFO inventory reductions in 1994 compared to 1993. Solid sales
and profitability growth for the U.S. businesses was primarily due to new
product introductions, the impact from successful promotional programs and an
improved product mix. The European businesses reported higher sales and
profitability for the quarter due to increased volume growth for certain product
lines, an improved product mix and cost reduction actions.
The converted products sector reported significant sales and profitability
improvements compared to the third quarter of 1993. Profitability increased
despite higher restructuring costs and the absence of benefits from LIFO
inventory reductions in 1994 compared to 1993. The Soabar and Fastener
businesses reported significant sales and profitability increases due to
improving retail and apparel markets, new products and lower operating expenses
as a result of cost reduction programs. The international converting businesses
reported increased sales and profitability due to improved economic conditions,
the elimination of unprofitable lines of business and cost reduction actions.
The U.S. label businesses reported significantly improved sales and
profitability due to the automotive and consumer goods markets and lower
operating expenses as a percent of sales.
9
<PAGE>
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations: Nine Months Year-To-Date
- - - ------------------------------------------------
Sales for the first nine months of 1994 were up 8 percent compared to the
corresponding period of 1993. Excluding the impact of changes in foreign
currency translation, sales increased 9 percent.
The gross profit margin for the first nine months was 31.7 percent compared to
31.3 percent for the first nine months of 1993. The improved gross profit
margin was primarily due to productivity improvements throughout the Company and
an improved product mix on increased sales. The gross profit margin increased
despite significantly lower LIFO benefits in 1994 compared to 1993. No LIFO
benefits are expected overall for 1994. Raw material price increases did not
materially impact the gross profit margin for the first nine months. However,
additional raw material price increases are anticipated for the fourth quarter
and appropriate pricing actions are planned to mitigate the impact of these
increases.
Marketing, general and administrative expense, as a percent of sales, declined
to 24.1 percent for the first nine months of 1994 compared to 24.5 percent for
the first nine months of 1993. The decrease was primarily attributable to cost
reduction efforts throughout the Company on increased sales.
Interest expense, as a percent of sales, was 1.6 percent for 1994 and 1993. The
favorable impact of increased sales in 1994 was offset by higher interest
expense in Brazil earlier this year.
Income before taxes, as a percent of sales, was 6.0 percent for the first nine
months of 1994 compared to 5.2 percent for the first nine months of 1993. The
increase was primarily due to improved gross profit margins and lower operating
expenses as a percent of sales. The year-to-date effective tax rate was 36.7
percent for 1994 and 37 percent for 1993. The lower tax rate was primarily due
to the utilization of net operating loss carryforwards from foreign operations.
Net income was $80.9 million, or $1.45 per share, for the first nine months of
1994 compared to $65.1 million, or $1.12 per share, for the first nine months of
1993. Excluding the effect of accounting changes, net income for the first nine
months of 1993 was $64.0 million, or $1.10 per share.
The pressure-sensitive adhesives and materials sector reported significant sales
and profitability improvements for the first nine months of 1994 compared to
1993. The U.S. operations reported significant sales and profitability
improvements primarily due to unit volume and revenue growth as a result of new
products, improved economic conditions in major markets and cost reduction
programs. Improved economic conditions, pricing actions and volume growth led to
a solid sales increase for the European operations. The sales growth, coupled
with productivity improvements and cost reduction programs, resulted in
significant profitability increases for the foreign operations.
The office products sector reported a modest growth in sales and profitability
for the nine months ended October 1, 1994 compared to the prior year. In the
U.S., sales and profitability increased primarily as a result of successful new
product introductions and promotional programs, an improved product mix and
lower operating costs as a percent of sales. Profitability improved modestly at
the U.S. operations despite significantly lower LIFO benefits in 1994 compared
to 1993, costs related to the divestiture of a non-core business unit and higher
costs related to the consolidations of distribution warehouses and sales
forces. The European office product businesses reported significantly lower
sales and profitability
10
<PAGE>
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations: Nine Months Year-To-Date (Continued)
- - - ------------------------------------------------------------
due primarily to the weak French economy earlier this year, the effects of non-
core product pruning and the cost of on-going restructuring programs, including
the shut down of a non-core business.
The converted products sector reported significant profitability improvements on
modest sales growth for the first nine months of 1994 compared to 1993.
Profitability increased despite higher restructuring costs and significantly
lower LIFO benefits in 1994 compared to 1993. The Soabar and Fastener
businesses reported an increase in sales due to improving retail and apparel
markets and new products which were partially offset by the effects of product
pruning. Profitability was up significantly primarily due to increased sales,
coupled with the elimination of unprofitable product lines and lower operating
expenses as a result of cost reduction actions. The international converting
businesses reported flat sales but increased profitability through cost
reduction programs and the elimination of unprofitable lines of business. The
U.S. label businesses reported a solid increase in sales and significant
profitability gains due primarily to increased sales to the automotive and
durable and consumer goods markets and lower operating expenses as a percent of
sales.
11
<PAGE>
PART II. OTHER INFORMATION
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - - -----------------------------------------
a. None.
b. Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended October 1, 1994.
12
<PAGE>
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
(Principle Financial Officer)
/s/ Thomas E. Miller
-------------------------------------
Thomas E. Miller
Vice President and Controller
(Chief Accounting Officer)
November 10, 1994
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JUL-03-1994
<PERIOD-END> OCT-01-1994
<CASH> 3,400
<SECURITIES> 0
<RECEIVABLES> 419,700<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 211,800
<CURRENT-ASSETS> 711,500
<PP&E> 1,522,800
<DEPRECIATION> (715,400)
<TOTAL-ASSETS> 1,781,600
<CURRENT-LIABILITIES> 512,000
<BONDS> 364,500
<COMMON> 62,100
0
0
<OTHER-SE> 695,600
<TOTAL-LIABILITY-AND-EQUITY> 1,781,600
<SALES> 2,120,000
<TOTAL-REVENUES> 2,120,000
<CGS> 1,447,200
<TOTAL-COSTS> 1,447,200
<OTHER-EXPENSES> 511,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,100
<INCOME-PRETAX> 127,900
<INCOME-TAX> 47,000
<INCOME-CONTINUING> 80,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,900
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 0
<FN>
<F1> Accounts receivable are shown net of any allowances.
</FN>
</TABLE>
