<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 2, 1999
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)
<TABLE>
<S> <C>
Delaware 95-1492269
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150 North Orange Grove Boulevard 91103
Pasadena, California (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (626) 304-2000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each
exchange on which
Title of Each Class registered
------------------- -----------------
<S> <C>
Common stock, $1 par value New York Stock Exchange
Pacific Exchange
Preferred Share Purchase Rights New York Stock Exchange
Pacific Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Not applicable.
Indicate by check mark 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates as of
March 1, 1999, was approximately $5,246,115,237.
Number of shares of common stock, $1 par value, outstanding as of March 1,
1999: 113,813,785.
The following documents are incorporated by reference into the Parts of this
report below indicated:
<TABLE>
<CAPTION>
Document Incorporated by reference into:
-------- -------------------------------
<S> <C>
Annual Report to Shareholders for fiscal
year ended January 2, 1999 (the "1998
Annual Report")......................... Parts I, II
Definitive Proxy Statement for Annual
Meeting of Stockholders to be held April
29, 1999 (the "1999 Proxy Statement")... Parts III, IV
</TABLE>
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<PAGE>
PART I
Item 1. BUSINESS
Avery Dennison Corporation ("Registrant") was incorporated in 1977 in the
state of Delaware as Avery International Corporation, the successor
corporation to a California corporation of the same name which was
incorporated in 1946. In 1990, Registrant merged one of its subsidiaries into
Dennison Manufacturing Company ("Dennison"), as a result of which Dennison
became a wholly owned subsidiary of Registrant, and in connection with which
Registrant's name was changed to Avery Dennison Corporation.
The business of Registrant and its subsidiaries (Registrant and its
subsidiaries are sometimes hereinafter referred to as the "Company") includes
the production of pressure-sensitive adhesives and materials and the
production of consumer and converted products. Some pressure-sensitive
adhesives and materials are "converted" into labels and other products through
embossing, printing, stamping and die-cutting, and some are sold in
unconverted form as base materials, tapes and reflective sheeting. The Company
also manufactures and sells a variety of consumer and converted products and
other items not involving pressure-sensitive components, such as notebooks,
three-ring binders, organizing systems, markers, fasteners, business forms,
tickets, tags, and imprinting equipment.
A self-adhesive material is one that adheres to a surface by mere press-on
contact. It consists of four elements--a face material, which may be paper,
metal foil, plastic film or fabric; an adhesive which may be permanent or
removable; a release coating; and a backing material to protect the adhesive
against premature contact with other surfaces, and which can also serve as the
carrier for supporting and dispensing individual labels. When the products are
to be used, the release coating and protective backing are removed, exposing
the adhesive, and the label or other device is pressed or rolled into place.
Self-adhesive materials may initially cost more than materials using heat or
moisture activated adhesives, but their use often effects substantial cost
savings because of their easy and instant application, without the need for
adhesive activation. They also provide consistent and versatile adhesion,
minimum adhesive deterioration and are available in a large selection of
materials in nearly any size, shape or color.
International operations, principally in Western Europe, constitute a
significant portion of the Company's business. In addition, the Company is
currently expanding its operations in Asia Pacific, Latin America and Eastern
Europe. As of January 2, 1999, the Company manufactured and sold its products
from 200 manufacturing facilities and sales offices located in 39 countries,
and employed a total of approximately 16,100 persons worldwide.
On January 26, 1999, the Company announced plans for a major realignment of
its cost structure to streamline operations and improve profitability. In
connection with this realignment, the Company will close eight manufacturing
facilities, three of which have been announced: Rochelle, Illinois; Rancho
Cucamonga, California; and Haan, Germany. As a result of these closures,
approximately 1,500 positions will be eliminated, representing approximately
nine percent of the Company's total workforce.
The Company is subject to certain risks referred to in Exhibit 99 hereto,
including those normally attending international and domestic operations, such
as changes in economic or political conditions, currency fluctuation, exchange
control regulations and the effect of international relations and domestic
affairs of foreign countries on the conduct of business, availability and
pricing of raw materials, legal proceedings, and the impact of the Year 2000
issue.
Except as set forth below, no material part of the Company's business is
dependent upon a single customer or a few customers and the loss of a
particular customer or a few customers generally would not have a material
adverse effect on the Company's business. However, sales and related accounts
receivable of the Company's U.S. consumer products are increasingly
concentrated in a small number of major customers, principally discount office
products superstores and distributors (see Note 4 of Notes to Consolidated
Financial Statements on page 41
1
<PAGE>
of the 1998 Annual Report, which is incorporated by reference). United States
export sales are not a significant part of the Company's business. Backlogs
are not considered material in the industries in which the Company competes.
Pressure-Sensitive Adhesives and Materials Sector
The Pressure-Sensitive Adhesives and Materials sector manufactures and sells
Fasson and Avery Dennison-brand pressure-sensitive base materials, specialty
tapes, graphic films and chemicals. Base materials consist primarily of
papers, fabrics, plastic films and metal foils which are primed and coated
with Company-developed and purchased adhesives, and then laminated with
specially coated backing papers and films for protection. They are sold in
roll or sheet form with either solid or patterned adhesive coatings, and are
available in a wide range of face materials, sizes, thicknesses and adhesive
properties. The business of this sector is not seasonal.
Base material products consist of a wide range of pressure-sensitive coated
papers, films and foils which are sold to label printers and converters for
labeling, decorating, fastening, electronic data processing and special
applications. Other product offerings include paper and film stock for use in
a variety of industrial, commercial and consumer applications. The Company
also manufactures and sells proprietary film face stocks, release-coated
materials and specialty insulation paper.
Specialty tape products are single- and double-coated tapes and transfer
adhesives for use in non-mechanical fastening systems in various industries
and are sold to industrial and medical converters, original equipment
manufacturers and disposable-diaper producers worldwide.
Graphic products consist of a variety of films and other products sold to
the worldwide automotive, architectural, commercial sign, digital, printing,
and other related markets. The Company also sells durable cast and reflective
films to the construction, automotive, fleet transportation, sign and
industrial equipment markets, and reflective films for government and traffic
applications. In addition, the Company sells specialty print-receptive films
to the industrial label market, metallic dispersion products to the packaging
industry and proprietary woodgrain film laminates for housing exteriors and
automotive applications. The Company's graphics businesses are organized on a
worldwide basis to serve the expanding commercial graphic arts market,
including wide-format digital printing applications.
Chemical products include a range of solvent and emulsion-based acrylic
polymer adhesives, protective coatings and binders for internal uses as well
as for sale to other companies.
During 1998, the Company established coating operations in India and
completed a manufacturing facility in Thailand to market and sell a variety of
pressure-sensitive materials. In late 1998, the Company also increased its
majority ownership position in its base materials operation in Argentina.
In this sector, the Company competes, both domestically and internationally,
with a number of medium to large firms. Entry of competitors into the field of
pressure-sensitive adhesives and materials is limited by high capital
requirements and a need for sophisticated technical know-how.
Consumer and Converted Products Sector
The Consumer and Converted Products sector manufactures and sells a wide
range of Avery-brand consumer products, custom label products, high
performance specialty films and labels, automotive applications and fasteners.
The business of this sector is not seasonal except for certain consumer
products sold during the back-to-school season.
The Company's principal consumer products are generally sold worldwide
through wholesalers and dealers, mass market channels of distribution, and
discount superstores. The Company manufactures and sells a wide range of
Avery-brand products for home, school and office uses, including copier, laser
and ink-jet printer labels, related computer software, presentation and
organizing systems, laser-printer card and index products; data-processing
labels; notebooks; notebook and presentation dividers; three-ring binders;
sheet protectors; and
2
<PAGE>
various vinyl and heat-sealed products. A wide range of other stationery
products is offered, including children's laser and ink-jet labels, markers,
adhesives and specialty products under brand names such as Avery, Avery Kids,
Marks-A-Lot and HI-LITER, and accounting products, note pads and presentation
products under the National brand name. The extent of product offerings varies
by geographic market. Operations in Latin America, Asia Pacific and Europe
have been established to market and distribute the Avery-brand line of stock
self-adhesive products, including copier, laser and ink-jet labels and related
software; laser printed card products and other unprinted labels.
Custom label products in North America primarily consist of custom pressure-
sensitive and heat-transfer labels for automotive and durable goods industries
and custom pressure-sensitive labels and specialty combination products for
the electronic data-processing market. These products are sold directly to
manufacturers and packagers and retailers, as well as through international
subsidiaries, distributors and licensees. Label products in Europe include
custom and stock labels, labeling machinery and data printing systems, which
are marketed to a wide range of industrial and retail users.
The Company designs, fabricates and sells a wide variety of tags and labels,
including bar-coded tags and labels, and a line of machines for imprinting,
dispensing and attaching preprinted roll tags and labels. The machine products
are generally designed for use with tags and labels as a complete system. The
Company also designs, assembles and sells labeling systems for integration
into a customer's shipping and receiving operations. Principal markets include
apparel, retail and industrial for identification, tracking and control
applications principally in North America, Europe and Asia Pacific. Fastener
products include plastic tying and attaching products for retail and
industrial users.
The Company also manufactures and sells on-battery labels to battery
manufacturers, and self-adhesive stamps to the U.S. and international postal
services. The Company is an integrated supplier of adhesive coating, security
printing and converting technologies for postage stamp production. Specialty
automotive films products are used for interior and exterior vehicle finishes,
striping decoration and identification. Other products include pressure-
sensitive sheeted and die-cut papers and films, which are sold through fine-
paper merchants.
During 1998, the Company acquired an office products company in Italy, and
broadened its distribution of Avery-brand products in Asia Pacific and Latin
America. In late 1998, the Company acquired Spartan International, a
distributor of pressure-sensitive products to the commercial graphics, sign
making, vehicle marking and automotive markets. In February 1999, the Company
also acquired certain assets and the graphic film business of Universal
Products, Inc., another distributor of films for digital printing
applications. In early 1999, the Company formed a joint venture with a German
office products company. The Company holds a majority ownership position in
the joint venture, which provides a platform for further expansion in the
office products market in Europe.
In this sector, the Company competes, both domestically and internationally,
with a number of small to large firms (among the principal competitors are
Esselte AB, Fortune Brands, Inc., and Minnesota Mining and Manufacturing Co.).
The Company believes that its ability to service its customers with an
extensive product line; its distribution strength; its ability to develop
internally and to commercialize new products successfully; and its diverse
technical foundation, including a range of electronic imprinting and automatic
labeling systems, are among the more significant factors in developing and
maintaining its competitive position.
Research and Development
Many of the Company's current products are the result of its own research
and development efforts. The Company expended $65 million, $61.1 million, and
$54.6 million, in 1998, 1997 and 1996, respectively, on research related
activities by operating units and the Avery Research Center (the "Research
Center"), located in Pasadena, California. A substantial amount of the
Company's research and development activities are conducted at the Research
Center. Much of the effort of the Research Center applies to both of the
Company's industry sectors.
3
<PAGE>
The operating units' research efforts are directed primarily toward
developing new products and processing operating techniques and improving
product performance, often in close association with customers. The Research
Center supports the operating units' patent and product development work, and
focuses on research and development in new adhesives, materials and coating
processes. Research and development generally focuses on projects affecting
more than one industry sector in such areas as printing and coating
technologies, and adhesive, release, coating and ink chemistries.
The loss of any of the Company's individual patents or licenses would not be
material to the business of the Company taken as a whole, nor to either one of
the Company's industry sectors. The Company's principal trademarks are Avery,
Fasson and Avery Dennison. These trademarks are significant in the markets in
which the Company's products compete.
Three-Year Summary of Sector Information
The Business Sector Information attributable to the Company's operations for
the three years ended January 2, 1999, which appears in Note 10 of Notes to
Consolidated Financial Statements on pages 47 through 48 of the 1998 Annual
Report, is incorporated herein by reference.
Other Matters
The raw materials used by the Company are primarily paper, plastic and
chemicals which are purchased from a variety of commercial and industrial
sources. Although from time to time shortages could occur, these raw materials
are currently generally available.
At present, the Company produces a majority of its self-adhesive materials
using non-solvent technology. However, a significant portion of the Company's
manufacturing process for self-adhesive materials utilizes certain evaporative
organic solvents which, unless controlled, would be emitted into the
atmosphere. Emissions of these substances are regulated by agencies of
federal, state, local and foreign governments. During the past several years,
the Company has made a substantial investment in solvent capture and control
units and solvent-free systems. Installation of these units and systems has
reduced atmospheric emissions.
Efforts have been directed toward development of new adhesives and solvent-
free adhesive processing systems. Emulsion, hot-melt adhesives or solventless
silicone systems have been installed in the Company's facilities in Peachtree
City, Georgia; Fort Wayne and Greenfield, Indiana; Quakertown, Pennsylvania;
Rodange, Luxembourg; Turnhout, Belgium; Hazerswoude, The Netherlands;
Cramlington, England; and Gotha, Germany as well as other plants in the United
States, Argentina, Australia, Brazil, Colombia, France, Germany, Korea, China,
India and Thailand.
The Company does not believe that the costs of complying with applicable
laws regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, will have a material effect
upon the capital expenditures, earnings or competitive position of the
Company.
The Company wishes to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, and is including Exhibit 99
to this filing to incorporate this safe harbor statement.
For information regarding the Company's potential responsibility for cleanup
costs at certain hazardous waste sites, see "Legal Proceedings" (Part I, Item
3) and "Management's Discussion and Analysis of Results of Operations and
Financial Condition" (Part II, Item 7). For information regarding the
Company's actions to address the Year 2000 Issue, see "Management's Discussion
and Analysis of Results of Operations and Financial Condition" (Part II, Item
7).
4
<PAGE>
Item 2. PROPERTIES
The Company operates approximately 29 principal manufacturing facilities
ranging in size from approximately 100,000 square feet to approximately
270,000 square feet and totaling approximately 5 million square feet. The
following sets forth the locations of such principal facilities and the
business sectors for which they are presently used:
Pressure-Sensitive Adhesives and Materials Sector
Domestic--Painesville and Fairport, Ohio; Peachtree City, Georgia;
Quakertown, Pennsylvania; and Greenfield, Fort Wayne, Lowell, and
Schererville, Indiana.
Foreign--Hazerswoude, The Netherlands; Cramlington, England; Champ-sur-
Drac, France; Turnhout, Belgium; Ajax, Canada; Rodange, Luxembourg;
and Gotha, Germany.
Consumer and Converted Products Sector
Domestic--Gainesville, Georgia; Chicopee and Framingham, Massachusetts;
Meridian, Mississippi; Philadelphia, Pennsylvania; Clinton, South
Carolina; and Crossville, Tennessee.
Foreign--Bowmanville, Canada; La Monnerie, France; Hong Kong (S.A.R.),
China; Juarez, Mexico; Utrecht, The Netherlands; Maidenhead, U.K.;
and Oberlaidern, Germany.
In addition to the Company's principal manufacturing facilities described
above, the Company's principal facilities include its corporate headquarters
facility and research center in Pasadena, California, and offices located in
Maidenhead, England; Leiden, The Netherlands; Concord, Ohio and Framingham,
Massachusetts.
All of the Company's principal properties identified above are owned in fee
except the facilities in Ajax, Canada and Juarez, Mexico; and portions of the
facilities in Framingham, Massachusetts and La Monnerie, France, which are
leased.
All of the buildings comprising the facilities identified above were
constructed after 1954, except parts of the Framingham, Massachusetts plant
and office complex. All buildings owned or leased are well maintained and of
sound construction, and are considered suitable and generally adequate for the
Company's present needs. The Company will expand capacity and provide
facilities to meet future increased demand as needed. Owned buildings and
plant equipment are insured against major losses from fire and other usual
business risks. The Company knows of no material defects in title to, or
encumbrances on, any of its properties except for mortgage liens against four
other facilities not listed separately above.
Item 3. LEGAL PROCEEDINGS
The Company, like other U.S. corporations, has periodically received notices
from the U.S. Environmental Protection Agency ("EPA") and state environmental
agencies alleging that the Company is a potentially responsible party ("PRP")
for past and future cleanup costs at hazardous waste sites. The Company has
been designated by the EPA and/or other responsible state agencies as a PRP at
17 waste disposal or waste recycling sites which are the subject of separate
investigations or proceedings concerning alleged soil and/or groundwater
contamination and for which no settlement of the Company's liability has been
agreed upon. Litigation has been initiated by a governmental authority with
respect to two of these sites, but the Company does not believe that any such
proceedings will result in the imposition of monetary sanctions. The Company
is participating with other PRPs at all such sites, and anticipates that its
share of cleanup costs will be determined pursuant to remedial agreements
entered into in the normal course of negotiations with the EPA or other
governmental authorities. The Company has accrued liabilities for all sites,
including sites in which governmental agencies have designated the Company as
a PRP, where it is probable that a loss will be incurred and the amount of the
loss can be reasonably estimated. However, because of the uncertainties
associated with environmental assessment and remediation activities, future
expense to remediate the currently identified sites, and sites which could
5
<PAGE>
be identified in the future for cleanup, could be higher than the liability
currently accrued. Based on current site assessments, management believes the
potential liability over the amounts currently accrued would not materially
affect the Company.
The Registrant and its subsidiaries are involved in various other lawsuits,
claims and inquiries, most of which are routine to the nature of the business.
In the opinion of the Company's management, the resolution of these matters
will not materially affect the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
6
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EXECUTIVE OFFICERS OF THE REGISTRANT*
<TABLE>
<CAPTION>
Served as
Executive Former Positions and
Name Age Officer since Offices with Registrant
- ---- --- ------------- -------------------------------------------
<S> <C> <C> <C>
Charles D. Miller............ 71 May 1965 1964-1983 Various positions of increasing
Chairman (also Director of responsibility
Registrant) 1983-1998 Chairman and Chief Executive
Officer
Philip M. Neal............... 58 January 1974 1974-1990 Various positions of increasing
President and Chief responsibility
Executive Officer 1990-1998 President and Chief Operating
(also Director of Officer
Registrant)
Kim A. Caldwell.............. 51 June 1990 1990-1997 Senior Group V.P., Worldwide
Executive Vice President, Materials--Americas and
Global Technology and Asia
New Business Development
Robert M. Calderoni.......... 39 October 1997 **1994-1996 V.P., Finance IBM Storage
Senior Vice President, Systems Division
Finance and Chief Financial **1996-1997 Senior V.P., Finance Apple
Officer Computer, Inc.
Robert G. van Schoonenberg... 52 December 1981 1981-1996 V.P., General Counsel and
Senior Vice President, Secretary
General Counsel and
Secretary
Wayne H. Smith............... 57 June 1979 None
Vice President and Treasurer
Thomas E. Miller............. 51 March 1994 1993-1994 V.P. and Assistant Controller
Vice President and
Controller
Diane B. Dixon............... 47 December 1985 1985-1997 V.P., Corporate
Vice President, Worldwide Communications
Communications and
Advertising
Geoffrey T. Martin........... 44 January 1994 1994-1997 Senior V.P., Worldwide Tape &
Senior Group Vice President, Converting and Materials--
Worldwide Converting, Europe
Graphic Systems and
Specialty Tapes
Stephanie A. Streeter........ 41 March 1996 1993-1996 V.P. and General Manager,
Group Vice President, Avery Dennison Brands
Worldwide Office Products
Dean A. Scarborough.......... 43 August 1997 1993-1995 V.P. and General Manager,
Group Vice President, Fasson Fasson Roll Division--
Roll--North America and Europe
Europe
1995-1997 V.P. and General Manager,
Fasson Roll Division--U.S.
</TABLE>
- --------
* All officers are elected to serve a one year term and until their successors
are elected and qualify.
** Business experience prior to service with Registrant.
7
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PART II
Item 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information called for by this item appears on page 52 of Registrant's
1998 Annual Report and is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
Selected financial data for each of Registrant's last five fiscal years
appears on pages 26 and 27 of Registrant's 1998 Annual Report and is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(Dollars in millions)
<S> <C> <C> <C>
Net sales........................................ $3,459.9 $3,345.7 $3,222.5
Cost of products sold............................ 2,315.4 2,263.0 2,204.2
-------- -------- --------
Gross profit..................................... 1,144.5 1,082.7 1,018.3
Marketing, general and administrative expense.... 773.2 739.8 712.4
Net gain on divestitures and restructuring
charges......................................... -- -- 2.1
-------- -------- --------
Earnings before interest and taxes............... $ 371.3 $ 342.9 $ 308.0
</TABLE>
Sales increased 3.4 percent to $3.46 billion in 1998, compared to $3.35
billion in 1997. Excluding changes in foreign currency exchange rates, sales
increased 4.8 percent. The Company's 1998 fiscal year reflected a 53-week
period compared to 52-week periods in 1997 and 1996. The extra week in 1998
was reflected in the fourth quarter; however, this was a slow shipping period
due to the holidays and carried a full week of expense. As a result, the
impact on profit was immaterial. In 1997, sales increased 3.8 percent over
1996 sales of $3.22 billion. Excluding the impact of changes in foreign
currency exchange rates for 1997, sales increased 6.6 percent.
Gross profit margins for the years ended 1998, 1997 and 1996 were 33.1
percent, 32.4 percent and 31.6 percent, respectively. The improvements in 1998
and 1997 were primarily due to increased productivity, cost control and an
improved product mix.
Marketing, general and administrative expense as a percent of sales was 22.3
percent in 1998 and 22.1 percent in 1997 and 1996. The increase in 1998 over
1997 was primarily due to the extra week of expenses incurred in 1998. The
expense for 1997 benefited from cost control and lower costs for certain
employee benefit plans; however, these benefits were offset by increased
expenditures for marketing, and research and development activities.
During the third quarter of 1996, restructuring actions were taken,
resulting in a net pretax gain of $2.1 million. The Company sold its equity
interest in a label operation in Japan for $28.4 million, resulting in a
pretax gain of $17.9 million. The Company also recorded $15.8 million of
restructuring charges, which included an asset impairment write-down of $6.3
million for long-lived assets held in the Company's Consumer and Converted
Products sector. The restructuring program also included the reorganization of
certain manufacturing, distribution and administrative sites. These costs
consisted of severance and related costs for approximately 200 positions
worldwide ($7.4 million) and the discontinuance of product lines and related
asset write-offs ($2.1 million). These actions were completed during the third
quarter of 1997.
8
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Interest expense for the years ended 1998, 1997 and 1996 was $34.6 million,
$31.7 million and $37.4 million, respectively. The increase in 1998 compared
to 1997 was primarily due to higher average borrowings to support a more
aggressive share repurchase program. The decrease in 1997 compared to 1996 was
primarily due to lower weighted-average interest rates and lower average
borrowings.
Income before taxes, as a percent of sales, was 9.7 percent for 1998, 9.3
percent for 1997 and 8.4 percent for 1996. The improvement during 1998 was
primarily due to higher gross profit margins. The improvement during 1997
compared to 1996 was primarily due to higher gross profit margins and lower
interest expense as a percent of sales. The effective tax rate was 33.7
percent in 1998, 34.2 percent in 1997 and 35 percent in 1996. The decrease in
1998 was primarily due to an increase in U.S. tax credits for research and
experimentation. The decrease in 1997 compared to 1996 was primarily due to
the utilization of foreign tax loss carryforwards and an increase in U.S. tax
credits for research and experimentation. The Company estimates that the
effective tax rate for 1999 will be 34 percent to 34.5 percent.
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(In millions, except
per share amounts)
<S> <C> <C> <C>
Net income............................................. $223.3 $204.8 $175.9
Net income per common share............................ 2.20 1.99 1.68
Net income per common share, assuming dilution......... 2.15 1.93 1.63
</TABLE>
Net income increased to $223.3 million in 1998 compared to $204.8 million in
1997, reflecting a 9 percent increase over 1997. Net income in 1996 was $175.9
million. Net income, as a percent of sales, was 6.5 percent, 6.1 percent and
5.5 percent in 1998, 1997 and 1996, respectively.
Net income per common share increased 10.6 percent to $2.20 in 1998,
compared to $1.99 in 1997. Net income per common share was $1.68 in 1996. Net
income per common share, assuming dilution, increased 11.4 percent to $2.15 in
1998 compared to $1.93 in 1997. Net income per common share, assuming dilution
was $1.63 in 1996.
Results of Operations by Business Sector
Pressure-Sensitive Adhesives and Materials:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In millions)
<S> <C> <C> <C>
Net sales........................................ $1,874.1 $1,823.8 $1,783.8
Income from operations before interest and taxes. 170.3 172.1 160.7
</TABLE>
The Pressure-Sensitive Adhesives and Materials Sector reported increased
sales for 1998 compared to 1997. Sales increased in the U.S. operations
primarily due to strong unit volume growth in the core U.S. roll materials
business. Income for total U.S. operations in the sector decreased slightly,
primarily due to changes in product mix and start-up costs for new products.
However, operating margins for the core roll materials business in 1998
remained constant relative to prior year. Total international operations in
the sector reported increased sales, reflecting strong unit volume growth in
Europe and geographic expansion efforts. This increase in sales was partially
offset by changes in foreign currency rates. Income for the international
operations was down slightly from the prior year mainly due to pricing
pressures in Europe and costs associated with new plant start-ups.
In the fourth quarter of 1998, the Company increased its investment in its
Argentine business, the largest base material company in that region. The
Company now has a substantial majority in this venture.
The Pressure-Sensitive Adhesives and Materials Sector reported increased
sales and profitability for 1997 compared to 1996. The U.S. operations' sales
growth was primarily led by increased sales volume for products in the
pharmaceutical, variable imprint and graphics businesses; however, sales were
partially impacted by paper
9
<PAGE>
price deflation and product mix. Income from the U.S. operations benefited
from improved capacity utilization and the extent of restructuring charges
taken in 1996 compared to 1997. The international businesses reported
increased sales and profitability primarily due to higher unit volume and
geographic expansion, which were partially offset by changes in foreign
currency rates.
Consumer and Converted Products:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In millions)
<S> <C> <C> <C>
Net sales........................................ $1,742.1 $1,672.6 $1,580.1
Income from operations before interest and taxes. 227.0 188.5 158.5
</TABLE>
The Consumer and Converted Products sector reported increased sales and
profits for 1998 compared to 1997. Increased sales in the U.S. operations were
led by growth of the Avery-brand products, despite several major retailers
implementing inventory reduction programs. The Company experienced some
negative impact from these programs during the last half of 1998 and expects
the inventory reduction programs to continue into 1999. However, point-of-sale
data obtained from these customers through February 1999 continued to show
strong demand for Avery-brand products. Increased sales in the U.S. operations
were also attributed to growth from the high performance films businesses,
including Avloy-brand products. Income from the U.S. operations increased
primarily as a result of the consumer packaging, high performance films, and
office products businesses. The international operations reported increased
sales primarily due to strong unit volume growth in the European office
products operations, ticketing business and Asian and Latin American
businesses. This increase in sales was partially offset by changes in foreign
currency rates. Income increased in the international operations primarily due
to improved performance in the European converting and office products
operations and the ticketing businesses.
In the fourth quarter of 1998, the Company acquired Spartan International,
Inc. ("Spartan"), a privately held specialty converting company based in Holt,
Michigan. Spartan supplies pressure-sensitive products to the commercial
graphics, sign making, vehicle marking and automotive markets.
The Consumer and Converted Products sector reported increased sales and
profitability for 1997 compared to 1996. Increased sales in the U.S.
operations continued to be led by growth of the Avery-brand products, new
products and other consumer products. Profitability in the U.S. businesses
improved primarily as a result of the Avery-brand products, new products and
an improved product mix. Sales for the international businesses in 1997 were
comparable to 1996. Sales for 1997 benefited from geographic expansion;
however, this increase was offset by changes in foreign currency rates and
sales declines at certain European operations. Profitability for the
international businesses was primarily impacted by operations in France,
decreased sales at other select European operations due to the softness of
certain economies, and investment for the market expansion of new products.
Financial Condition
Average working capital, excluding short-term debt, as a percent of sales
was 7.1 percent in 1998, 8 percent in 1997 and 9.1 percent in 1996. The
decrease in 1998 was primarily due to improved payables management. The
decrease in 1997 compared to 1996 was primarily due to increased sales,
reduced days sales outstanding in accounts receivable, improved inventory
turnover and better payables management programs. Average inventory turnover
was 9.9 turns in 1998, 9.5 turns in 1997 and 9.3 turns in 1996; the average
number of days sales outstanding in accounts receivable was 52 days in 1998
and 1997 and 55 days in 1996.
Total debt increased $89.5 million to $537.2 million compared to year end
1997. Total debt to total capital increased to 39.2 percent at year end 1998
compared to 34.8 percent at year end 1997. Long-term debt as a percent of
total long-term capital increased to 35.9 percent from 32.6 percent at year
end 1997.
Shareholders' equity decreased to $833.3 million from $837.2 million at year
end 1997. During 1998, the Company repurchased 4 million shares of common
stock at a cost of $192.6 million. As of year end 1998, a
10
<PAGE>
cumulative 31.9 million shares of common stock had been repurchased since 1991
and 3.5 million shares remained available for repurchase under the Board of
Directors' authorization. The market value of shares held in the employee
stock benefit trust, after the issuance of shares under the Company's stock
and incentive plans, decreased by $52.7 million to $677.6 million from year
end 1997.
Return on average shareholders' equity was 26.7 percent in 1998, 24.8
percent in 1997 and 21.4 percent in 1996. Return on average total capital for
those three years was 19 percent, 18.1 percent and 16.4 percent, respectively.
The improvements in 1998 and 1997 for these returns were primarily due to an
increase in profitability, more effective utilization of the Company's assets
and the impact from share repurchases.
The Company, like other U.S. corporations, has periodically received notices
from the U.S. Environmental Protection Agency and state environmental agencies
alleging that the Company is a potentially responsible party (PRP) for past
and future cleanup costs at hazardous waste sites. The Company has received
requests for information, notices and/or claims with respect to 17 waste sites
in which the Company has no ownership interest. Litigation has been initiated
by a governmental authority with respect to two of these sites, but the
Company does not believe that any such proceedings will result in the
imposition of monetary sanctions. Environmental investigatory and remediation
projects are also being undertaken on property presently owned by the Company.
The Company has accrued liabilities for all sites where it is probable that a
loss will be incurred and the minimum cost or amount of the loss can be
reasonably estimated. However, because of the uncertainties associated with
environmental assessments and remediation activities, future expense to
remediate the currently identified sites, and sites which could be identified
in the future for cleanup, could be higher than the liability currently
accrued. Based on current site assessments, management believes that the
potential liability over the amounts currently accrued would not materially
affect the Company.
Liquidity and Capital Resources
Net cash flow from operating activities was $422.8 million in 1998, $368.4
million in 1997 and $304 million in 1996. The increase in net cash flow in
1998 and 1997 was primarily due to changes in working capital requirements and
the Company's improved profitability.
In addition to cash flow from operations, the Company has more than adequate
financing arrangements, at competitive rates, to conduct its operations.
During the fourth quarter of 1996, the Company registered with the
Securities and Exchange Commission $150 million in principal amount of
uncollaterized medium-term notes, of which $50 million and $60 million in
notes were issued in 1998 and 1997, respectively. No notes were issued in
1996. Proceeds from the medium-term notes were used to refinance short-term
debt and for other general corporate purposes. The Company's outstanding
medium-term notes have maturities from 2000 through 2025 and have a weighted-
average interest rate of 6.95 percent.
The Company's 1996 restructuring program was completed in 1997 and included
the $28.4 million sale of its equity interest in a label operation in Japan.
The restructuring program had a cost of $15.8 million.
Capital expenditures were $159.7 million in 1998 and $177.3 million in 1997.
Capital expenditures for 1999 are expected to be approximately $150 million.
The annual dividend per share increased to $.87 in 1998 from $.72 in 1997
and $.62 in 1996. This was the 23rd consecutive year the Company increased
dividends.
The Company continues to expand its operations in Europe, Latin America and
Asia Pacific. The Company's future results are subject to changes in political
and economic conditions and the impact of fluctuations in foreign currency
exchange and interest rates. To reduce its exposure to these fluctuations, the
Company may enter into foreign exchange forward, option and swap contracts,
and interest rate contracts, where appropriate and available.
11
<PAGE>
In 1998 and 1997, the Company's Mexican operations were treated as being in
a hyperinflationary economy for accounting purposes due to the cumulative
inflation rate over the past three years. In 1998, the Company's Brazilian
operations were no longer treated as being in a hyperinflationary economy as
they had been in 1997. For operations in hyperinflationary economies, all
translation gains and losses were included in net income. These operations
were not significant to the Company's consolidated financial position.
Beginning in 1999, Mexico will no longer be treated as being in a
hyperinflationary economy for accounting purposes. As a result, all asset and
liability accounts for the Company's Mexican operations will be translated
into U.S. dollars at current rates and related losses and gains will be
recorded directly to a component of other comprehensive income. Gains and
losses resulting from foreign currency transactions will be included in net
income on a current basis.
Subsequent Events
On January 12, 1999, the Company completed a transaction with Steinbeis
Holding GmbH to combine substantially all of the Company's office products
businesses in Europe with Zweckform Buro-Produkte GmbH (Zweckform), a German
office products supplier. Zweckform produces labels, films and specialty
papers for use with personal computers, desktop printers and copiers.
Zweckform had sales of approximately $120 million in 1997. The Company has a
substantial majority position in the venture.
On January 26, 1999, the Company announced plans for a major realignment of
its cost structure to increase operating efficiencies and improve
profitability. This restructuring program will include the closure of eight
manufacturing facilities in the Consumer and Converted Products and Pressure-
sensitive Adhesives and Materials sectors and will result in the elimination
of approximately 1,500 positions, or nine percent of the Company's current
workforce. In addition, a portion of the restructuring program will involve
the consolidation of some of its office products manufacturing facilities into
a new facility in Northern Mexico, which will involve the addition of some
positions in the year 2000.
The restructuring program is expected to result in a one-time pretax charge
of $60 million to $65 million, or $.40 to $.42 per diluted share after tax, in
the first quarter of 1999. Approximately two-thirds of the total estimated
charge is related to severance costs. The remainder of the charge represents
related asset write-offs and other one-time costs. After taxes, the cash
requirements to fund the restructuring will be in the range of $20 million to
$25 million in 1999. The restructuring program will be funded through
operating cash flow. The Company plans to complete the restructuring program
in the year 2000, with a significant portion of the actions planned for the
next four quarters.
Cost savings associated with the restructuring will begin to be recognized
in the second quarter of 1999. The Company expects 1999 pretax savings in the
range of $15 million to $18 million for the year. When fully implemented, the
Company expects annual pretax savings of $58 million to $62 million.
Future Accounting Requirements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives will be recorded each period in current earnings
or other comprehensive income. The new rules will be effective the first
quarter of 2000. The Company is in the process of determining the impact of
this new standard and, based on current market conditions, anticipates that it
will not have a material impact on the Company's financial results when
effective.
Year 2000
The Year 2000 (Y2K) issue is the result of computer programs being written
for, or microprocessors using, two digits (rather than four) to define the
applicable year. Company computer programs that have date-sensitive
12
<PAGE>
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in system failures or miscalculations. The Company is
currently working to mitigate the Y2K issue and has established processes for
assessing the risks and associated costs.
The Company categorizes its Y2K efforts as follows: hardware, software,
embedded processors, vendors and customers. Progress in assessing and
remediating information technology systems (hardware and software) and non-
information technology systems (embedded processors) continues to be tracked
in phases including assessment, identification of non-compliant systems,
remediation, testing and verification. Hardware, software and embedded
processors have been assessed and remediation is in progress. The Company's
Y2K project is progressing and a large portion of its internal remediation
work was completed at year end 1998. The Company is using internal and
external resources to remediate and test its systems.
The Company has initiated communications with significant vendors and
customers to coordinate the Y2K issue, and is in the process of determining
the Company's vulnerability if these companies fail to remediate their Y2K
issues. There can be no guarantee that the systems of other companies will be
timely remediated, or that other companies' failure to remediate Y2K issues
would not have a material adverse effect on the Company. The Company continues
to develop contingency plans to mitigate risks associated with the Y2K issue.
Costs incurred to date in addressing the Y2K issue have been expensed as
incurred and are not material. Based on current information, the total cost to
remediate and test the Company's systems is not expected to be material.
The Company presently believes that with remediation, Y2K risks can be
mitigated. Although the Company is not currently aware of any material
internal operational or financial Y2K related issues, the Company cannot
provide assurances that the computer systems, products, services or other
systems upon which the Company depends will be Y2K ready on schedule, that the
costs of its Y2K program will not become material or that the Company's
contingency plans will be adequate. The Company is currently unable to
evaluate accurately the magnitude, if any, of the Y2K related issues arising
from the Company's vendors and customers. If any such risks (either with
respect to the Company or its vendors or customers) materialize, the Company
could experience serious consequences to its business which could have
material adverse effects on the Company's financial condition, results of
operations and liquidity.
Euro Conversion
On January 1, 1999, a single currency called the euro was introduced in
Europe. Eleven of the fifteen member countries of the European Union adopted
the euro as their common legal currency on that date. Fixed conversion rates
between these countries' existing currencies (legacy currencies) and the euro
were established on that date. The legacy currencies are scheduled to remain
legal tender in these participating countries between January 1, 1999 and July
1, 2002. During this transition period, parties may settle transactions using
either the euro or a participating country's legacy currency.
Certain of the Company's European facilities adopted the euro as their
functional currency in January 1999. The cost of system modifications to
accommodate the euro was not material.
Based on currently available information, the euro conversion has not had a
material adverse impact on the Company's business or financial condition.
Safe Harbor Statement
Except for historical information contained herein, the matters discussed in
the Management's Discussion and Analysis of Results of Operations and
Financial Condition, Market-Sensitive Instruments and Risk Management and
other sections of this annual report contain "forward-looking statements"
within the meaning of the Private Securities Reform Act of 1995. These
statements, which are not statements of historical fact, may
13
<PAGE>
contain estimates, assumptions, projections and/or expectations regarding
future events. Such forward-looking statements, and financial or other
business targets, are subject to certain risks and uncertainties which could
cause actual results to differ materially from future results, performance or
achievements of the Company expressed or implied by such forward-looking
statements. Certain of such risks and uncertainties are discussed in more
detail in the Company's Annual Report on Form 10-K for the year ended December
27, 1997 and include, but are not limited to, risks and uncertainties relating
to investment in new production facilities, timely development and successful
marketing of new products, impact of competitive products and pricing,
customer and supplier and manufacturing concentrations, changes in customer
order patterns and inventory levels, increased competition, impact of Year
2000 issues and the euro conversion, legal proceedings, fluctuations in
foreign exchange rates or other risks associated with foreign operations,
changes in economic or political conditions, and other factors.
Any forward looking statements should also be considered in light of the
factors detailed in Exhibit 99 in the Company's Annual Report on Form 10-K for
the years ended January 2, 1999 and December 27, 1997.
The Company's forward-looking statements represent its judgment only on the
dates such statements were made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed or
unanticipated events or circumstances.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market-Sensitive Instruments and Risk Management
The Company is exposed to the impact of interest rate and foreign currency
exchange rate changes.
The Company does not hold or purchase any foreign currency or interest rate
contracts for trading purposes.
The Company's objective in managing the exposure to foreign currency changes
is to reduce the risk to earnings and cash flow associated with foreign
exchange rate changes. As a result, the Company enters into foreign exchange
forward, option and swap contracts to reduce risks associated with the value
of its existing foreign currency assets, liabilities, firm commitments and
anticipated foreign revenues and costs. The gains and losses on these
contracts are intended to offset changes in the related exposures. The Company
does not hedge its foreign currency exposure in a manner that would entirely
eliminate the effects of changes in foreign exchange rates on the Company's
consolidated net income.
The Company's objective in managing its exposure to interest rate changes is
to limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objectives, the Company will
periodically use interest rate contracts to manage net exposure to interest
rate changes related to its borrowings. The Company had no interest rate
contracts outstanding at year end 1998.
In the normal course of operations, the Company also faces other risks that
are either nonfinancial or nonquantifiable. Such risks principally include
changes in economic or political conditions, other risks associated with
foreign operations, commodity price risk and litigation risk which are not
represented in the analyses that follow.
Foreign Exchange Value-at-Risk
The Company uses a "Value-at-Risk" (VAR) model to determine the estimated
maximum potential one-day loss in earnings associated with both its foreign
exchange positions and contracts. This approach assumes that market rates or
prices for foreign exchange positions and contracts are normally distributed.
The VAR model estimates were made assuming normal market conditions. Firm
commitments, receivables and accounts payable denominated in foreign
currencies, which certain of these instruments are intended to hedge, were
included in the model. Forecasted transactions, which certain of these
instruments are intended to hedge, were excluded from the model.
14
<PAGE>
The VAR was estimated using a variance-covariance methodology based on
historical volatility for each currency. The volatility and correlation used
in the calculation were based on historical observations, using one year's
data with equal weightings. This data was obtained from the publicly available
JP Morgan RiskMetrics data set on the Internet. A 95 percent confidence level
was used for a one-day time horizon.
The VAR model is a risk analysis tool and does not purport to represent
actual losses in fair value that could be incurred by the Company, nor does it
consider the potential effect of favorable changes in market factors.
The estimated maximum potential one-day loss in earnings for the Company's
foreign exchange positions and contracts would have been immaterial to the
Company's 1998 earnings.
Interest Rate Sensitivity
An assumed 50 basis point move in interest rates (10 percent of the
Company's weighted-average floating rate interest rates) affecting the
Company's variable-rate borrowings would have had an immaterial effect on the
Company's 1998 earnings.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is contained in Registrant's
Consolidated Financial Statements and the Notes thereto appearing on pages 34
through 48, and in the Report of Independent Certified Public Accountants on
page 49 of Registrant's 1998 Annual Report and is incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors called for by this item is incorporated
by reference from pages 2, 3 and 4 of the 1999 Proxy Statement which has been
filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the end of the fiscal year covered by this report.
Information concerning executive officers called for by this item appears in
Part I of this report. The information concerning late filings under Section
16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by
reference from page 14 of the 1999 Proxy Statement.
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by items 11, 12 and 13 is incorporated by
reference from pages 5 through 21 of the 1999 Proxy Statement which has been
filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the end of the fiscal year covered by this report.
15
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) (2) Financial statements and financial statement schedules filed as
part of this report are listed in the accompanying Index to Financial
Statements and Financial Statement Schedules.
(3) Exhibits filed as a part of this report are listed in the Exhibit
Index, which follows the financial statements and schedules referred to
above. Each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c)
is identified in the Exhibit Index.
(b) Reports on Form 8-K: Registrant filed no Reports on Form 8-K for the
three months ended January 2, 1999, but the Company did file one Report Form
8-K in January 1999:
Form 8-K dated January 26, 1999, in connection the Company's January 26,
1999 news release concerning the Company's 4th quarter and year-end
results, and realignment of the Company's cost structure.
(c) Those Exhibits and the Index thereto, required to be filed by Item 601
of Regulation S-K are attached hereto.
(d) Those financial statement schedules required by Regulation S-X which are
excluded from Registrant's 1998 Annual Report by Rule 14a-3(b)(1), and which
are required to be filed as financial statement schedules to this report, are
indicated in the accompanying Index to Financial Statements and Financial
Statement Schedules.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Robert M. Calderoni
___________________________________
Robert M. Calderoni
Senior Vice President, Finance and
Chief Financial Officer
Dated: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles D. Miller Chairman; Director March 30, 1999
____________________________________
Charles D. Miller
/s/ Philip M. Neal President and Chief March 30, 1999
____________________________________ Executive Officer; Director
Philip M. Neal
/s/ Robert M. Calderoni Senior Vice President, March 30, 1999
____________________________________ Finance and Chief Financial
Robert M. Calderoni Officer (Principal
Financial Officer)
/s/ Thomas E. Miller Vice President and March 30, 1999
____________________________________ Controller (Principal
Thomas E. Miller Accounting Officer)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dwight L. Allison, Jr. Director March 30, 1999
____________________________________
Dwight L. Allison, Jr.
/s/ John C. Argue Director March 30, 1999
____________________________________
John C. Argue
/s/ Joan T. Bok Director March 30, 1999
____________________________________
Joan T. Bok
/s/ Frank V. Cahouet Director March 30, 1999
____________________________________
Frank V. Cahouet
/s/ Richard M. Ferry Director March 30, 1999
____________________________________
Richard M. Ferry
/s/ Kent Kresa Director March 30, 1999
____________________________________
Kent Kresa
/s/ Peter W. Mullin Director March 30, 1999
____________________________________
Peter W. Mullin
/s/ Sidney R. Petersen Director March 30, 1999
____________________________________
Sidney R. Petersen
/s/ John B. Slaughter Director March 30, 1999
____________________________________
John B. Slaughter
</TABLE>
18
<PAGE>
AVERY DENNISON CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Reference (Page)
-------------------
Form
10-K Annual
Annual Report to
Report Shareholders
------ ------------
<S> <C> <C>
Data incorporated by reference from the attached portions
of the 1998 Annual
Report to Shareholders of Avery Dennison Corporation:
Report of Independent Certified Public Accountants...... -- 49
Consolidated Balance Sheet at January 2, 1999 and
December 27, 1997...................................... -- 34
Consolidated Statement of Income for 1998, 1997 and
1996................................................... -- 35
Consolidated Statement of Shareholders' Equity for 1998,
1997 and 1996.......................................... -- 36
Consolidated Statement of Cash Flows for 1998, 1997 and
1996................................................... -- 37
Notes to Consolidated Financial Statements.............. -- 38-48
Individual financial statements of 50% or less owned entities accounted for
by the equity method have been omitted because, considered in the aggregate or
as a single subsidiary, they do not constitute a significant subsidiary.
With the exception of the consolidated financial statements and the
accountants' report thereon listed in the above index, and the information
referred to in Items 1, 5 and 6, all of which is included in the 1998 Annual
Report and incorporated herein by reference, the 1998 Annual Report is not to
be deemed "filed" as part of this report.
Data submitted herewith:
Report of Independent Certified Public Accountants...... S-2 --
Financial Statement Schedules (for 1998, 1997 and 1996):
II--Valuation and Qualifying Accounts and Reserves.... S-3 --
Consent of Independent Accountants...................... S-4 --
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
S-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Avery Dennison Corporation
Our report on the consolidated financial statements of Avery Dennison
Corporation and subsidiaries has been incorporated by reference in this Form
10-K from page 49 of the 1998 Annual Report to Shareholders of Avery Dennison
Corporation. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on page S-1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Los Angeles, California
January 26, 1999
S-2
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In millions)
<TABLE>
<CAPTION>
Additions
---------------------
Balance Charged Deductions--
at to Costs Uncollectible Balance
Beginning and From Accounts at End
of Year Expenses Acquisitions Written Off of Year
--------- -------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful
accounts.............. $15.6 $2.7 $.2 $2.0 $16.5
===== ==== === ==== =====
1997
Allowance for doubtful
accounts.............. $17.5 $4.3 $-- $6.2 $15.6
===== ==== === ==== =====
1996
Allowance for doubtful
accounts.............. $17.6 $4.1 $-- $4.2 $17.5
===== ==== === ==== =====
</TABLE>
S-3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Avery Dennison Corporation on Form S-3 (File Nos. 333-16375 and 333-38905)
and Form S-8 (File Nos. 33-1132, 33-3645, 33-27275, 33-35995-01, 33-41238, 33-
45376, 33-54411, 33-58921, 33-63979, 333-38707 and 333-38709) of our report,
dated January 26, 1999, which appears on page 49 of the 1998 Annual Report to
Shareholders and is incorporated by reference in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report on the
financial statement schedule listed in the index on page S-1.
PricewaterhouseCoopers LLP
Los Angeles, California
March 30, 1999
S-4
<PAGE>
AVERY DENNISON CORPORATION
EXHIBIT INDEX
For the Year Ended December 27, 1997
INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
Originally
Filed as
Exhibit Exhibit
No. Item No. Document
------- ---- ---------- --------
<C> <S> <C> <C>
(3.1) Restated Articles of B Proxy Statement dated February 28,
Incorporation 1977 for Annual Meeting of
Stockholders March 30, 1977;
located in File No. 0-225 at
Securities and Exchange Commission,
450 5th St., N.W., Washington, D.C.
(3.1.1) Amendment to Certificate 3.1.1 1983 Annual Report on Form 10-K
of Incorporation, filed
April 10, 1984 with
Office of Delaware
Secretary of State
(3.1.2) Amendment to Certificate 3.1.2 1984 Annual Report on Form 10-K
of Incorporation, filed
April 11, 1985 with
Office of Delaware
Secretary of State
(3.1.3) Amendment to Certificate 3.1.3 1986 Annual Report on Form 10-K
of Incorporation filed
April 6, 1987 with
Office of Delaware
Secretary of State
(3.1.4) Amendment to Certificate Current Report on Form 8-K filed
of Incorporation filed October 31, 1990
October 17, 1990 with
Office of Delaware
Secretary of State
(3.1.5) Amendment to Certificate 3 First Quarterly report for 1997 on
of Incorporation filed Form 10-Q
April 28, 1997 with
Office of Delaware
Secretary of State
(3.2) By-laws, as amended 3(ii) Second Quarterly report for 1998 on
Form 10-Q
(4.1) Rights Agreement dated Current Report on Form 8-K filed
as of October 23, 1997 October 24, 1997
(4.2) Indenture, dated as of Registration Statement on Form S-3
March 15, 1991, between (File No. 33-39491)
Registrant and Security
Pacific National Bank,
as Trustee (the
"Indenture")
(4.3) Officers' Certificate Current Report on Form 8-K filed
establishing a series March 25, 1991
of Securities entitled
"Medium-Term Notes"
under the Indenture
(4.4) First Supplemental Registration Statement on Form S-3
Indenture, dated as of (File No. 33-59642)
March 16, 1993, between
Registrant and
BankAmerica National
Trust Company, as
successor Trustee (the
"Supplemental
Indenture")
(4.5) Officers' Certificate Current Report on Form 8-K filed
establishing a series April 7, 1993
of Securities entitled
"Medium-Term Notes"
under the Indenture, as
amended by the
Supplemental Indenture
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Originally
Filed as
Exhibit Exhibit
No. Item No. Document
------- ---- ---------- --------
<C> <S> <C> <C>
(4.6) Officers' Certificate Current Report on Form 8-K filed
establishing a series March 29, 1994
of Securities entitled
"Medium-Term Notes,
Series B" under the
Indenture, as amended
by the Supplemental
Indenture
(4.7) Officers' Certificate Current Report on Form 8-K filed May
establishing a series 12, 1995
of Securities entitled
"Medium-Term Notes,
Series C" under the
Indenture, as amended
by the Supplemental
Indenture
(4.8) Officers' Certificate Current Report on Form 8-K filed
establishing a series December 16, 1996
of Securities entitled
"Medium-Term Notes,
Series D" under the
Indenture, as amended
by the Supplemental
Indenture
(10.1) *Amended 1973 Stock 10.1 1987 Annual Report on Form 10-K
Option and Stock
Appreciation Rights
Plan for Key Employees
of Avery International
Corporation ("1973
Plan")
(10.1.1) *Form of Incentive Stock 10.1.3 1984 Annual Report on Form 10-K
Option Agreement for
use under 1973 Plan
(10.1.2) *Form of Non-Qualified 10.1.4 1987 Annual Report on Form 10-K
Stock Option Agreement
for use under 1973 Plan
(10.1.3) *Form of coupled Stock 10.1.5 1985 Annual Report on Form 10-K
Appreciation Right
Agreement for use under
1973 Plan
(10.1.4) 1985 U.K. Stock Option 10.1.7 1985 Annual Report on Form 10-K
Scheme
(10.1.5) Form of Incentive Stock 10.1.8 1985 Annual Report on Form 10-K
Option Agreement for
use under U.K. Stock
Option Scheme
(10.1.6) Form of Stock Option 10.1.9 1985 Annual Report on Form 10-K
Agreement for use under
U.K. Stock Option
Scheme
(10.2.2) *Form of Incentive Stock 10.2.2 1991 Annual Report on Form 10-K
Option Agreement for
use under 1988 Plan
(10.3) *Deferred Compensation 10.3 1981 Annual Report on Form 10-K
Plan for Directors
(10.5) *Executive Medical and 10.5 1981 Annual Report on Form 10-K
Dental Plan
(description)
(10.6) *Executive Financial 10.6 1981 Annual Report on Form 10-K
Counseling Service
(description)
(10.7.1) *Executive Employment 10.7.1 1982 Annual Report on Form 10-K
Security Policy dated
February 1, 1983
(10.7.2) *Executive Employment 10.13 1984 Annual Report on Form 10-K
Security Policy dated
February 1, 1985
(10.7.3) *Executive Employment 10.7.3 1993 Annual Report on Form 10-K
Security Policy dated
November 19, 1987
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Originally
Filed as
Exhibit Exhibit
No. Item No. Document
------- ---- ---------- --------
<C> <S> <C> <C>
(10.8.1) *Agreement dated October 10.8.1 1990 Annual Report on Form 10-K
24, 1990 with Charles
D. Miller
(10.8.1.1) *Amendment dated April 10.8.1 1997 Annual Report on Form 10-K
15, 1997 to Agreement
with Charles D. Miller
(10.8.1.2) *Amendment dated 10.8.2 1997 Annual Report on Form 10-K
February 26, 1998 to
Agreement with Charles
D. Miller
(10.8.2) *Agreement dated April 10.8.2.1 1997 Annual Report on Form 10-K
15, 1997 with Philip M.
Neal
(10.8.3) *Agreement dated March 10.8.3 1996 Annual Report on Form 10-K
16, 1996 with R.G. van
Schoonenberg
(10.8.4) *Form of Employment 10.8.4 1997 Annual Report on Form 10-K
Agreement dated April
15, 1997
(10.9) *Executive Group Life 10.9 1982 Annual Report on Form 10-K
Insurance Plan
(10.10) *Form of Indemnity 10.10 1986 Annual Report on Form 10-K
Agreements between
Registrant and certain
directors and officers
(10.10.1) *Form of Indemnity 10.10.1 1993 Annual Report on Form 10-K
Agreement between
Registrant and certain
directors and officers
(10.11) *Supplemental Executive 10.11 1983 Annual Report on Form 10-K
Retirement Plan ("SERP")
(10.11.1) *Amended Letter of Grant 10.11.2 1992 Annual Report on Form 10-K
to C.D. Miller under
Supplemental Executive
Retirement Plan
(10.12) *Complete Restatement 10.12 1994 Annual Report on Form 10-K
and Amendment of Avery
Dennison Corporation
Executive Deferred
Compensation Plan
(10.12.1) *Form of Enrollment 10.13.2 1985 Annual Report on Form 10-K
Agreement for use under
Executive Deferred
Compensation Plan
(10.13) *Fourth Amended Avery 10.13.2 1992 Annual Report on Form 10-K
Dennison Retirement
Plan for Directors
(10.15) *1988 Stock Option Plan 10.15 1987 Annual Report on Form 10-K
for Non-- Employee
Directors ("Director
Plan")
(10.15.1) *Amendment No. 1 to 1988 10.15.1 1994 Annual Report on Form 10-K
Stock Option Plan for
Non-Employee Directors
("Director Plan")
(10.15.2) *Form of Non-Employee 10.15.2 1994 Annual Report on Form 10-K
Director Stock Option
Agreement for use under
Director Plan
(10.16) *Complete Restatement 10.16 1994 Annual Report on Form 10-K
and Amendment of Avery
Dennison Corporation
Executive Variable
Deferred Compensation
Plan
(10.16.1) *Form of Enrollment 10.16.1 1987 Annual Report on Form 10-K
Agreement for use under
Executive Variable
Deferred Compensation
Plan
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Originally
Filed as
Exhibit Exhibit
No. Item No. Document
------- ---- ---------- --------
<C> <S> <C> <C>
(10.17) *Complete Restatement 10.17 1994 Annual Report on Form 10-K
and Amendment of Avery
Dennison Corporation
Directors Deferred
Compensation Plan
(10.17.1) *Form of Enrollment 10.17.2 1985 Annual Report on Form 10-K
Agreement for use under
Directors Deferred
Compensation Plan
(10.18) *Complete Restatement 10.18 1994 Annual Report on Form 10-K
and Amendment of Avery
Dennison Corporation
Directors Variable
Deferred Compensation
Plan
(10.18.1) *Form of Enrollment 10.18.1 1989 Annual Report on Form 10-K
Agreement for use under
Directors Variable
Deferred Compensation
Plan
(10.19) *1990 Stock Option and 10.19 1989 Annual Report on Form 10-K
Incentive Plan for Key
Employees of Avery
International
Corporation ("1990
Plan")
(10.19.1) *Amendment No. 1 to 1990 10.19.1 1993 Annual Report on Form 10-K
Plan
(10.19.2) *Form of Incentive Stock 10.19.2 1991 Annual Report on Form 10-K
Option Agreement for
use under 1990 Plan
(10.19.3) *Form of Non-Qualified 10.19.3 1994 Annual Report on Form 10-K
Stock Option Agreement
for use under 1990 Plan
(10.19.4) *Form of Non-Qualified 10.19.4 1994 Annual Report on Form 10-K
Stock Option Agreement
for use under 1990 Plan
(for LTIP Participants)
(10.19.5) *Amendment No. 2 to 1990 10.19.5 1996 Annual Report on Form 10-K
Plan
(10.20.1) *1982 Incentive Stock Registration Statement on Form S-8
Option Plan of Dennison (File No. 33-35995-01)
Manufacturing Company
(10.20.2) *1985 Incentive Stock Registration Statement on Form S-8
Option Plan of Dennison (File No. 33-35995-01)
Manufacturing Company
(10.20.3) *1988 Stock Option Plan Registration Statement on Form S-8
of Dennison (File No. 33-35995-01)
Manufacturing Company
(10.20.4) *Amendments effective as Registration Statement on Form S-8
of October 16, 1990 to (File No. 33-35995-01)
the 1982 Incentive
Stock Option Plan, 1985
Incentive Stock Option
Plan and 1988 Stock
Option Plan of Dennison
Manufacturing Company
(10.21) *1996 Stock Incentive 10.21 1996 Annual Report on Form 10-K
Plan of Avery Dennison
Corporation
(10.27.1) *Amended and Restated 10.27.1 1993 Annual Report on Form 10-K
Key Executive Long-Term
Incentive Plan ("LTIP")
(10.27.2) *Second Amended and 1995 Annual Report on Form 10-K
Restated Key Executive
LTIP
(10.27.3) *Third Amended and 10.27.3 1996 Annual Report on Form 10-K
Restated Key Executive
LTIP
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Originally
Filed as
Exhibit Exhibit
No. Item No. Document
------- ---- ---------- --------
<C> <S> <C> <C>
(10.28) *Complete Restatement 10.28 1994 Annual Report on Form 10-K
and Amendment of Avery
Dennison Corporation
Executive Deferred
Retirement Plan
(10.28.1) *Form of Enrollment 10.28.1 1992 Annual Report on Form 10-K
Agreement for use under
Executive Deferred
Retirement Plan
(10.29) *Executive Incentive 10.29 1993 Annual Report on Form 10-K
Compensation Plan
(10.30) *Senior Executive 10.30 1993 Annual Report on Form 10-K
Incentive Compensation
Plan
(10.31) *Executive Variable 10.31 Registration Statement on Form S-8
Deferred Retirement (File No. 33-63979)
Plan
(10.31.1) *Amended and Restated 10.31.1 1997 Annual Report on Form 10-K
Executive Variable
Deferred Retirement
Plan
(10.32) *Benefit Restoration 10.32 1995 Annual Report on Form 10-K
Plan
(10.33.1) *Restated Trust 10.33.1 1997 Annual Report on Form 10-K
Agreement for Employee
Stock Benefit Trust
(10.33.2) *Common Stock Purchase 10.2 Current Report on Form 8-K filed
Agreement October 24, 1996
(10.33.3) *Restated Promissory 10.33.3 1997 Annual Report on Form 10-K
Note
(10.34.1) *Capital Accumulation 4.1 Registration Statement on Form S-8
Plan ("CAP") (File No. 333-38707)
(10.34.2) *Trust under CAP 4.2 Registration Statement on Form S-8
(File No. 333-38707)
</TABLE>
- --------
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
5
<PAGE>
SUBMITTED HEREWITH:
<TABLE>
<CAPTION>
Exhibit
No. Item
-------- ----
<C> <S>
3.2 Bylaws, as amended on January 28, 1999
10.8.2.1 *Agreement dated May 1, 1998 with P.M. Neal
10.11.1 *Amendment and Restated SERP dated April 23, 1998
10.11.2 *Letter of Grant to P.M. Neal under SERP
12 Computation of Ratio of Earnings to Fixed Changes
13 Portions of Annual Report to Shareholders for fiscal year ended
January 2, 1999
21 List of Subsidiaries
23 Consent of Independent Accountants (see page S-4)
27 Financial Data Schedule
99 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
</TABLE>
- --------
* Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14(c).
STATEMENT AND AGREEMENT REGARDING
LONG-TERM DEBT OF REGISTRANT
Except as indicated above, Registrant has no instrument with respect to
long-term debt under which securities authorized thereunder equal or exceed
10% of the total assets of Registrant and its subsidiaries on a consolidated
basis. Registrant agrees to furnish a copy of its long-term debt instruments
to the Commission upon request.
6
<PAGE>
[Logo of Avery Dennison Corporation]
<PAGE>
Exhibit 3.2
BYLAWS
OF
AVERY DENNISON CORPORATION
ARTICLE I
---------
OFFICES
Section 1. Registered Office. The registered office of Avery Dennison
Corporation (hereinafter called the "corporation") in the State of Delaware
shall be at 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent at that address shall be United States Corporation
Company.
Section 2. Principal Office. The principal executive office for the
transaction of the business of the corporation is hereby fixed and located in
Los Angeles County, California. The board of directors is hereby granted full
power and authority to change said principal executive office from one location
to another within or without the State of California.
Section 3. Other Offices. The corporation may also have offices at such
other places within or without the State of Delaware as the board of directors
may from time to time determine, or the business of the corporation may require.
ARTICLE II
----------
STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the board of
directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. Annual Meetings of Stockholders. The annual meeting of
stockholders shall be held on the last Thursday in April of each year at 1:30
p.m. of said day, or on such other day, which shall not be a legal holiday, as
shall be determined by the board of directors. Any previously scheduled annual
meeting of stockholders may be postponed by resolution of the board of directors
upon public notice given prior to the date previously scheduled for such annual
meeting of stockholders.
Section 3. Special Meetings. A special meeting of the stockholders may be
called at any time by the board of directors, or by a majority of the directors
or by a committee authorized by the board to do so. Any previously scheduled
special meeting of the stockholders may be postponed by resolution of the board
of directors upon public notice given prior to the date previously scheduled for
such special meeting of the stockholders.
Section 4. Notice of Stockholders' Meetings. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed. The notice shall specify the place, date and
hour of the meeting and (i) in case of a special meeting, the general nature of
the business to be transacted, or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the stockholders. The notice of any meeting at which
directors are to be
1
<PAGE>
elected shall include the name of any nominee or nominees who, at the time of
the notice, management intends to present for election.
Section 5. Manner of Giving Notice; Affidavit of Notice. Notice of any
meeting of stockholders shall be given either personally or by mail or
telegraphic or other written communication, charges prepaid, addressed to the
stockholder at the address of such stockholder appearing on the books of the
corporation or given by the stockholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or has been so
given, notice shall be deemed to have been given if sent by mail or telegraphic
or other written communication to the corporation's principal executive office,
or if published at least once in a newspaper of general circulation in the
county where such office is located. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice
of any stockholders' meeting shall be executed by the secretary, assistant
secretary or any transfer agent of the corporation giving such notice, and shall
be filed and maintained in the minute book of the corporation.
Section 6. Quorum. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of stockholders shall
constitute a quorum for the transaction of business. The stockholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. Adjourned Meeting and Notice Thereof. Any stockholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the Chairman of the meeting, but in the absence of a
quorum, no other business may be transacted at such meeting, except as provided
in Section 6 of this Article II.
When any meeting of stockholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than thirty (30) days from the date
set for the original meeting. Notice of any such adjourned meeting, if
required, shall be given to each stockholder of record entitled to vote at the
adjourned meeting in accordance with the provisions of Sections 4 and 5 of this
Article II. At any adjourned meeting the corporation may transact any business
which might have been transacted at the original meeting.
Section 8. Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section 11
of this Article II. Such vote may be by voice vote or by ballot, at the
discretion of the Chairman of the meeting. Any stockholder entitled to vote on
any matter (other than the election of directors) may vote part of the shares in
favor of the proposal and refrain from voting the remaining shares or vote them
against the proposal; but, if the stockholder fails to specify the number of
shares such stockholder is voting affirmatively, it will be conclusively
presumed that the stockholder's approving vote is with respect to all shares
such stockholder is entitled to vote. If a quorum is present, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on any matter shall be the act of the stockholders, unless the vote of a
greater number or voting by classes is required by the Delaware General
Corporation Law or the certificate of incorporation or the certificate of
determination of preferences as to any preferred stock.
2
<PAGE>
At a stockholders' meeting involving the election of directors,
no stockholder shall be entitled to cumulate (i.e., cast for any one or more
candidates a number of votes greater than the number of the stockholder's
shares). The candidates receiving the highest number of votes, up to the number
of directors to be elected, shall be elected.
Section 9. Waiver of Notice or Consent by Absent Stockholders. The
transactions of any meeting of stockholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the business
to be transacted or the purpose of any annual or special meeting of
stockholders. All such waivers, consents or approvals shall be filed with the
corporate records or made part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if such objection is expressly made at the meeting.
Section 10. No Stockholder Action by Written Consent Without a Meeting.
Stockholders may take action only at a regular or special meeting of
stockholders.
Section 11. Record Date for Stockholder Notice and Voting. For purposes
of determining the holders entitled to notice of any meeting or to vote, the
board of directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten (10) days prior to the date of any such
meeting, and in such case only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date fixed as aforesaid, except as
otherwise provided in the Delaware General Corporation Law.
If the board of directors does not so fix a record date, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the business day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
Section 12. Proxies. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy, or (ii) written notice of the death or
incapacity of the maker of such proxy is received by the corporation before the
vote pursuant thereto is counted; provided, however, that no such proxy shall be
valid after the expiration of eleven (11) months from the date of such proxy,
unless otherwise provided in the proxy.
3
<PAGE>
Section 13. Inspectors of Election; Opening and Closing the Polls. The
board of directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors
to replace any inspector who fails to act. If no inspector or alternate has
been appointed to act or is able to act at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by law.
The chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
Section 14. Nomination and Stockholder Business Bylaw..
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the board of directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the corporation's notice of meeting, (b) by or
at the direction of the board of directors or (c) by any stockholder of the
corporation who was a stockholder of record at the time of giving of notice
provided for in this Bylaw, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A) (1) of this Bylaw, the stockholder must have given timely notice thereof in
writing to the secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal
executive offices of the corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
4
<PAGE>
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the board of directors of the corporation is
increased and there is no public announcement by the corporation naming all of
the nominees for director or specifying the size of the increased board of
directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Bylaw shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary at the
principal executive offices of the corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting. Nominations of
persons for election to the board of directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
corporation's notice of meeting (a) by or at the direction of the board of
directors or (b) provided that the board of directors has determined that
directors shall be elected at such meeting, by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice
provided for in this Bylaw, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw. In the event the
corporation calls a special meeting of stockholders for the purpose of electing
one or more directors to the board of directors, any such stockholder may
nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by paragraph (A) (2) of this Bylaw shall be
delivered to the secretary at the principal executive offices of the corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the board of directors to be elected at such meeting. In
no event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Bylaw shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Bylaw and, if any proposed
nomination or business is not in compliance with this Bylaw, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
(i) of stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock, if any, to elect directors under certain
circumstances.
5
<PAGE>
ARTICLE III
-----------
DIRECTORS
Section 1. Powers. Subject to the provisions of the Delaware General
Corporation Law and any limitations in the certificate of incorporation and
these bylaws relating to action required to be approved by the stockholders or
by the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
Without prejudice to such general powers, but subject to the
same limitations, it is hereby expressly declared that the directors shall have
the power and authority to:
(a) Select and remove all officers, agents and employees of the
corporation, prescribe such powers and duties for them as may not be
inconsistent with law, the certificate of incorporation or these bylaws,
fix their compensation, and require from them security for faithful
service.
(b) Change the principal executive office or the principal
business office in the State of California from one location to another;
cause the corporation to be qualified to do business in any other state,
territory, dependency, or foreign country and conduct business within or
outside the State of California; designate any place within or without the
State of California for the holding of any stockholders' meeting or
meetings, including annual meetings; adopt, make and use a corporate seal,
and prescribe the forms of certificates of stock, and alter the form of
such seal and of such certificates from time to time as in their judgment
they may deem best, provided that such forms shall at all times comply with
the provisions of law.
(c) Authorize the issuance of shares of stock of the
corporation from time to time, upon such terms as may be lawful, in
consideration of money paid, labor done or services actually rendered,
debts or securities canceled or tangible or intangible property actually
received.
(d) Borrow money and incur indebtedness for the purpose of the
corporation, and cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations, or other evidences of debt and
securities therefor.
Section 2. Number and Qualification of Directors. The number of directors
of the corporation shall be eleven (11) until changed by a bylaw amending this
Section 2, duly adopted by the board of directors or by the stockholders.
Section 3. Election and Term of Office of Directors. Subject to Section
15 below, one class of the directors shall be elected at each annual meeting of
the stockholders, but if any such annual meeting is not held or the directors
are not elected thereat, the directors may be elected at any special meeting of
stockholders held for that purpose. All directors shall hold office until their
respective successors are elected. Irrespective of the provisions of Section 15
of this Article III and of the preceding sentence, a director shall
automatically be retired on the date of the expiration of the first annual
meeting following his 72nd birthday.
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Section 4. Vacancies. Vacancies in the board of directors may be filled
by a majority of the remaining directors, though less than a quorum, or by a
sole remaining director. Each director elected to fill a vacancy shall hold
office for the remainder of the term of the person whom he succeeds, and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be
deemed to exist in the case of the death, retirement, resignation or removal of
any director, or if the board of directors by resolution declares vacant the
office of a director who has been declared of unsound mind by an order of court
or convicted of a felony, or if the authorized number of directors be increased,
or if the stockholders fail at any meeting of stockholders at which any director
or directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
Any director may resign or voluntarily retire upon giving
written notice to the chairman of the board, the president, the secretary or the
board of directors. Such retirement or resignation shall be effective upon the
giving of the notice, unless the notice specifies a later time for its
effectiveness. If such retirement or resignation is effective at a future time,
the board of directors may elect a successor to take office when the retirement
or resignation becomes effective.
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of his term of
office. No director may be removed during his term except for cause.
Section 5. Place of Meetings and Telephonic Meetings. Regular meetings of
the board of directors may be held at any place within or without the State of
Delaware that has been designated from time to time by resolution of the board.
In the absence of such designation, regular meetings shall be held at the
principal executive office of the corporation. Special meetings of the board
shall be held at any place within or without the State of Delaware that has been
designated in the notice of the meeting or, if not stated in the notice or there
is no notice, at the principal executive office of the corporation. Any meeting,
regular or special, may be held by conference telephone or similar communication
equipment, so long as all directors participating in such meeting can hear one
another, and all such directors shall be deemed to be present in person at such
meeting.
Section 6. Annual Meetings. Immediately following each annual meeting of
stockholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and transaction of
other business. Notice of this meeting shall not be required.
Section 7. Other Regular Meetings. Other regular meetings of the board of
directors shall be held at such time as shall from time to time be determined by
the board of directors. Such regular meetings may be held without notice
provided that notice of any change in the determination of time of such meeting
shall be sent to all of the directors. Notice of a change in the determination
of the time shall be given to each director in the same manner as for special
meetings of the board of directors.
Section 8. Special Meetings. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at his or her
address as it is shown upon the records of the corporation. In case such notice
is mailed, it shall
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be deposited in the United States mail at least four (4) days prior to the time
of the holding of the meeting. In case such notice is delivered personally, or
by telephone or telegram, it shall be delivered personally, or by telephone or
to the telegraph company at least forty-eight (48) hours prior to the time of
the holding of the meeting. Any oral notice given personally or by telephone may
be communicated to either the director or to a person at the office of the
director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose of the
meeting nor the place if the meeting is to be held at the principal executive
office of the corporation.
Section 9. Quorum. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 10. Waiver of Notice. The transactions of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes thereof. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director.
Section 11. Adjournment. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 12. Notice of Adjournment. Notice of the time and place of an
adjourned meeting need not be given, unless the meeting is adjourned for more
than twenty-four (24) hours, in which case notice of such time and place shall
be given prior to the time of the adjourned meeting, in the manner specified in
Section 8 of this Article III, to the directors who were not present at the time
of the adjournment.
Section 13. Action Without Meeting. Any action required or permitted to
be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the board.
Section 14. Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for such services.
Section 15. Classification of Directors. The board of directors shall be
and is divided into three classes, Class I, Class II and Class III. The number
of directors in each class shall be the whole number contained in the quotient
arrived at by dividing the authorized number of directors by three, and if a
fraction is also contained in such quotient then if such fraction is one-third
(1/3) the extra director shall be a member of Class III and if the fraction is
two-thirds (2/3) one of the extra directors shall be a member of Class III and
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the other shall be a member of Class II. Each director shall
serve for a term ending on the date of the third annual meeting following the
annual meeting at which such director was elected.
In the event of any increase or decrease in the authorized
number of directors, (a) each director then serving as such shall nevertheless
continue as a director of the class of which he is a member until the expiration
of his current term, or his prior death, resignation or removal, and (b) the
newly created or eliminated directorships resulting from such increase or
decrease shall be apportioned by the board of directors to such class or classes
as shall, so far as possible, bring the number of directors in the respective
classes into conformity with the formula in this Section 15, as applied to the
new authorized number of directors.
ARTICLE IV
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COMMITTEES
Section 1. Committees of Directors. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, including an executive committee, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent member at any meeting of the committee. Any such
committee, to the extent provided in the resolution of the board, shall have all
the authority of the board, except with respect to:
(a) the approval of any action which, under the General
Corporation Law of Delaware, also requires stockholders' approval or
approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in
any committee;
(c) the fixing of compensation of the directors for serving on
the board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the stockholders of the corporation,
except at a rate or in a periodic amount or within a price range determined
by the board of directors; or
(g) the appointment of any other committees of the board of
directors or the members thereof.
Section 2. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment) and 13 (action without
meetings), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members, except that the time of regular meetings of committees may be
determined by resolution of the board of directors as well as the committee,
special meetings of committees may also be
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called by resolution of the board of directors, and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.
ARTICLE V
---------
OFFICERS
Section 1. Officers. The officers of the corporation shall be the
chairman of the board, the president, a vice president, a secretary and a
treasurer. The corporation may also have, at the discretion of the board of
directors, one or more additional vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V. Any
number of offices may be held by the same person.
Section 2. Election of Officers. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen annually by the board of
directors, and each shall hold his office until he shall resign or be removed or
otherwise disqualified to serve or his successor shall be elected and qualified.
Section 3. Subordinate Officers, etc. The board of directors may appoint,
and may empower the president and chief executive officer to appoint, such other
officers as the business of the corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the bylaws or as the board of directors may from time to time
determine.
Section 4. Removal and Resignation of Officers. Any officer may be
removed, either with or without cause, by the board of directors, at any regular
or special meeting thereof, or, except in case of an officer chosen by the board
of directors, by any officer upon whom such power of removal may be conferred by
the board of directors.
Any officer may resign at any time by giving written notice to
the corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 5. Vacancies in Office. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed in these bylaws for regular appointments to such office.
Section 6. Chairman of the Board. The chairman of the board shall be an
officer of the corporation and shall, subject to the control of the board of
directors, have general responsibility for strategic growth initiatives,
leadership development and other affairs as assigned by the board of directors
of the corporation.
Section 7. President. The president shall be the chief executive officer
of the corporation and shall, subject to the control of the board of directors,
have general supervision, direction and control of the business and affairs of
the corporation.
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Section 8. Vice Presidents. In the absence or disability of the
president, a vice president designated by the board of directors shall perform
all the duties of the president, and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of directors
or the bylaws.
Section 9. Secretary. The secretary shall keep or cause to be kept, at
the principal executive office or such other place as the board of directors may
order, a book of minutes of all meetings and actions of directors, committees of
directors and stockholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the names
of those present at directors' and committee meetings, the number of shares
present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a stock
register, or a duplicate register, showing the names of all stockholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the board of directors required by the
bylaws or by law to be given, and he shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by the bylaws.
Section 10. Treasurer. The treasurer shall keep and maintain, or cause to
be kept and maintained, adequate and correct books and records of accounts of
the properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall be open at all
reasonable times to inspection by any director.
The treasurer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and chief executive officer and directors, whenever they request it,
an account of all of his transactions as treasurer and of the financial
condition of the corporation, and shall have other powers and perform such other
duties as may be prescribed by the board of directors or the bylaws.
Section 11. Assistant Secretaries and Assistant Treasurers. Any assistant
secretary may perform any act within the power of the secretary, and any
assistant treasurer may perform any act within the power of the treasurer,
subject to any limitations which may be imposed in these bylaws or in board
resolutions.
ARTICLE VI
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INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. Indemnification. The corporation shall indemnify, in the
manner and to the full extent permitted by law, any person (or the estate of any
person) who was or is a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the
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right of the corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is a director
or officer of the corporation, and at the discretion of the board of directors
may indemnify any person (or the estate of any person) who is such a party or
threatened to be made such a party by reason of the fact that such person is or
was an employee or agent of the corporation or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. Unless
otherwise permitted by law, the indemnification provided for herein shall be
made only as authorized in the specific case upon a determination, in the manner
provided by law, that indemnification of the director, officer, employee or
agent is proper in the circumstances. The corporation may, to the full extent
permitted by law, purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against him. To the full extent
permitted by law, the indemnification provided herein shall include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
and, in the manner provided by law, any such expenses may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit the
right of the corporation to indemnify any other person for any such expenses to
the full extent permitted by law, nor shall it be deemed exclusive of any other
rights to which any person seeking indemnification from the corporation may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 2. Fiduciaries of Corporate Employee Benefit Plan. This Article
VI does not apply to any proceeding against any trustee, investment manager or
other fiduciary of an employee benefit plan in such person's capacity as such,
even though such person may also be an agent of the corporation as defined in
Section 1 of this Article VI. Nothing contained in this Article VI shall limit
any right to indemnification to which such a trustee, investment manager or
other fiduciary may be entitled by contract or otherwise, which shall be
enforceable to the extent permitted by Section 410 of the Employee Retirement
Income Security Act of 1974, as amended, other than this Article VI.
ARTICLE VII
-----------
RECORDS AND REPORTS
Section 1. Maintenance and Inspection of Stock Register. The corporation
shall keep at its principal executive office, or at the office of its transfer
agent or registrar, if either be appointed, and as determined by resolution of
the board of directors, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of shares held by each
stockholder.
A stockholder or stockholders of the corporation holding at
least five percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of stockholders' names and
addresses and stockholders during usual business hours upon five days prior
written demand upon the corporation, and/or (ii) obtain from the transfer agent
of the corporation, upon written demand and upon the tender of such transfer
agent's usual charges for such list, a list of the stockholders' names and
addresses, who are entitled to vote for the election of directors, and their
shareholdings as of the most recent record date for which such list has been
compiled or as of a date specified by the stockholder subsequent to the date of
demand. Such list shall be made available to such stockholder or stockholders by
the transfer agent on or before the later of five (5) days after the demand is
received or the date specified therein as the date as of which the list is to be
compiled.
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The record of stockholders shall be open to inspection upon the
written demand of any stockholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to such
holder's interests as a stockholder or as the holder of a voting trust
certificate. Any inspection and copying under this Section 1 may be made in
person or by an agent or attorney of the stockholder or holder of a voting trust
certificate making such demand.
Section 2. Maintenance and Inspection of Bylaws. The corporation shall
keep at its principal executive office the original or a copy of the bylaws as
amended to date, which shall be open to inspection by the stockholders at all
reasonable times during office hours.
Section 3. Maintenance and Inspection of Other Corporate Records. The
accounting books and records and minutes of proceedings of the stockholders and
the board of directors and any committee or committees of the board of directors
shall be kept at such place or places designated by the board of directors, or,
in the absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form. Such minutes and accounting books and
records shall be open to inspection upon the written demand of any stockholder
or holder of a voting trust certificate, at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
stockholder or as a holder of a voting trust certificate. Such inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. The foregoing rights of inspection shall extend to the
records of each subsidiary corporation of the corporation.
Section 4. Inspection by Directors. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. Such inspection by a director may be made in
person or by agent or attorney and the right of inspection includes the right to
copy and make extracts.
Section 5. Annual Report to Stockholders. The board of directors shall
cause an annual report to be sent to the stockholders not later than one hundred
twenty (120) days after the close of the fiscal year adopted by the corporation.
Such report shall be sent at least fifteen (15) days prior to the annual meeting
of stockholders to be held during the next fiscal year and in the manner
specified in Section 5 of Article II of these bylaws for giving notice to
stockholders of the corporation. The annual report shall contain a balance
sheet and statement of changes in financial position for such fiscal year,
accompanied by any report thereon of independent accountants.
Section 6. Financial Statements. A copy of any annual financial statement
and any income statement of the corporation for each quarterly period of each
fiscal year, and any accompanying balance sheet for the corporation as of the
end of each such period, that has been prepared by the corporation shall be kept
on file in the principal executive office of the corporation for twelve (12)
months and each such statement shall be exhibited at all reasonable times to any
stockholder demanding an examination of any such statement or a copy shall be
mailed to any such stockholder.
If a stockholder or stockholders holding at least five percent
(5%) of the outstanding shares of any class of stock of the corporation make a
written request to the corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the current fiscal year
ended more than thirty (30) days prior to the date of the request, and a balance
sheet of the corporation as of the end of such period, the treasurer shall cause
such statement to be prepared, if not already prepared, and shall deliver
personally or mail such statement or statements to the person making the request
within thirty (30) days after the receipt of such request. If the corporation
has not sent to the stockholders its annual
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report for the last fiscal year, this report shall likewise be delivered or
mailed to such stockholder or stockholders within thirty (30) days after such
request.
The corporation also shall, upon the written request of any
stockholder, mail to the stockholder a copy of the last annual, semi-annual or
quarterly income statement which it has prepared and a balance sheet as of the
end of such period.
The quarterly income statements and balance sheets referred to
in this section shall be accompanied by the report thereon, if any, of any
independent accountants engaged by the corporation, or the certificate of an
authorized officer of the corporation that such financial statements were
prepared without audit from the books and records of the corporation.
ARTICLE VIII
------------
GENERAL CORPORATE MATTERS
Section 1. Record Date for Purposes Other Than Notice and Voting. For
purposes of determining the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days prior to any such action, and in such case only stockholders of record
on the date so fixed are entitled to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date fixed as aforesaid, except as otherwise provided in the Delaware
General Corporation Law.
If the board of directors does not so fix a record date, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board adopts the resolution relating
thereto, or the sixtieth (60th) day prior to the date of such action, whichever
is later.
Section 2. Checks, Drafts, Evidences of Indebtedness. All checks, drafts
or other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the board of directors.
Section 3. Corporate Contracts and Instruments; How Executed. The board
of directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or to any amount.
Section 4. Stock Certificates. A certificate or certificates for shares
of the capital stock of the corporation shall be issued to each stockholder when
any such shares are fully paid. All certificates shall be signed in the name of
the corporation by the chairman of the board or the president or vice president
and by the treasurer or an assistant treasurer or the secretary or any assistant
secretary, certifying the number of shares and the class or series of shares
owned by the stockholder. Any or all of the signatures on the certificate may
be facsimile. In case any officer, transfer agent or registrar who has signed
or whose
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facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
Section 5. Lost Certificates. Except as hereinafter in this Section 5
provided, no new stock certificate shall be issued in lieu of an old certificate
unless the latter is surrendered to the corporation and canceled at the same
time. The board of directors may in case any stock certificate or certificate
for any other security is lost, stolen or destroyed, authorize the issuance of a
new certificate in lieu thereof, upon such terms and conditions as the board of
directors may require, including provision for indemnification of the
corporation secured by a bond or other adequate security sufficient to protect
the corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.
Section 6. Representation of Stock of Other Corporations. The chairman of
the board, the president, or any vice president, or any other person authorized
by resolution of the board of directors by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all stock
of any other corporation or corporations, foreign or domestic, standing in the
name of the corporation. The authority herein granted to said officers to vote
or represent on behalf of the corporation any and all stock by the corporation
in any other corporation or corporations may be exercised by any such officer in
person or by any person authorized to do so by proxy duly executed by said
officer.
Section 7. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
Delaware General Corporation Law shall govern the construction of the bylaws.
Without limiting the generality of the foregoing, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
Section 8. Fiscal Year. The fiscal year of the corporation shall commence
the first day of the calendar year.
Section 9. Seal. The seal of the corporation shall be round and shall
bear the name of the corporation and words and figures denoting its organization
under the laws of the State of Delaware and year thereof, and otherwise shall be
in such form as shall be approved from time to time by the board of directors.
ARTICLE IX
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AMENDMENTS
Section 1. Amendment by Stockholders. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote of not less than 80% of the total
voting power of all shares of stock of the corporation entitled to vote in the
election of directors, considered for purposes of this Section 1 as one class.
Section 2. Amendment by Directors. Subject to the rights of the
stockholders as provided in Section 1 of this Article IX, to adopt, amend or
repeal bylaws, bylaws may be adopted, amended or repealed by the board of
directors.
As Amended 1/28/99
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EXHIBIT 10.8.2.1
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT is entered into by and between Avery Dennison
Corporation, a Delaware corporation (the "Company") and Philip M. Neal (the
"Executive"), effective as of May 1, 1998.
The Board of Directors of the Company (the "Board") has determined that it is in
the best interests of the Company and its shareholders to enter into a new
Employment Agreement with Executive to assure that the Company will have the
continued dedication of the Executive. This Agreement contains the entire
agreement between the parties with respect to the matters specified herein and
supersedes all prior oral and written employment agreements, understandings and
commitments between the Company and Executive and any Executive Employment
Security Policy of the Company covering the Executive; except that the Option to
Purchase Agreement between the Company and Executive dated February 22, 1993,
relating to a painting located in Executive's office, shall remain in effect.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions
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(a) The "Effective Date" shall mean the date hereof, which is set forth in the
first paragraph of this Agreement.
(b) The "Employment Period" shall mean the period commencing on the Effective
Date and ending on the third anniversary of the Effective Date; provided,
however, that commencing on the first day of the month next following the
Effective Date and on the first day of each month thereafter (the most recent of
such dates is hereinafter referred to as the "Renewal Date"), the Employment
Period shall be automatically extended so as to terminate on the third
anniversary of such Renewal Date (but not later than the date when the Executive
attains age 65), unless the Company or Executive shall give notice to the other
that the Employment Period shall not be further extended prior to any such
Renewal Date.
2. Change of Control
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For the purpose of this Agreement, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i)
the then-outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 2; or
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(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of, respectively, the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly or indirectly, 30%
or more of, respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then-outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination, and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3. Employment Period
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The Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, for the period commencing on the
"Effective Date" and continuing during the "Employment Period," as defined in
Sections 1(a) and (b) above.
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4. Terms of Employment
- ------------------------
(a) Position and Duties
(i) Executive is currently employed as President and Chief Executive
Officer of the Company. During the Employment Period, (A) the Executive's
position (including titles), authority, duties and responsibilities shall be at
least commensurate with the most significant of those held, exercised and
assigned to the Executive at any time during the 120-day period immediately
preceding the Effective Date, and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately preceding
the Effective Date or any office or location less than 50 miles from such
location.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation
- -----------------
(i) Base Salary
During the Employment Period, the Executive shall receive an annual base
salary ("Annual Base Salary") which shall be paid at a monthly rate at least
equal to twelve times the highest monthly base salary paid or payable, including
any base salary which has been earned but deferred, to the Executive by the
Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed no more than 12
months after the last salary increase awarded to the Executive prior to the
Effective Date and thereafter at least annually. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any such
increase, and the term "Annual Base Salary" as utilized in this Agreement shall
refer to Annual Base Salary as so increased; provided, however, that Executive's
Annual Base Salary may be reduced prior to a Change of Control as part of any
general, across the board salary reduction which applies in a comparable manner
to other officers or senior executives of the Company, but not by more than ten
percent (10%) (unless Executive agrees to accept a larger reduction) during any
calendar year. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
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(ii) Annual Bonus
In addition to Annual Base Salary, the Executive shall be eligible to
receive, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") under the Company's Senior Executive Incentive
(Leadership) Compensation Plan, or any comparable bonus under any successor plan
(such plans, collectively, the "Annual Bonus Plans"), including any Annual Bonus
which has been earned but deferred. After a Change of Control, the Executive
shall be awarded for each fiscal year ending during the Employment Period an
Annual Bonus in cash at least equal to the Executive's average Annual Bonus for
the last three full fiscal years prior to the Change of Control (annualized in
the event that the Executive was not employed by the Company for the whole of
such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans
During the Employment Period, the Executive shall be entitled to
participate in all incentive, savings, retirement, deferral (including the plans
described in Section 6(a)(v) below), and nonqualified supplemental pension
(including the Benefit Restoration Plan) plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies. In no event shall such plans, practices, policies and programs
provide the Executive after a Change of Control with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case, which are less favorable, in
the aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices, policies and
programs as in effect at any time during the 120-day period immediately
preceding the Change of Control or, if more favorable to the Executive, those
provided generally at any time after the Change of Control to other peer
executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans
During the Employment Period, the Executive and/or the Executive's family,
as the case may be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs)
to the extent applicable generally to other peer executives of the Company and
its affiliated companies. In no event shall such plans, practices, policies and
programs provide the Executive after a Change of Control with benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the 120-day period immediately preceding the Change of Control or, if more
favorable to the Executive, those provided generally at any time after the
Change of Control to other peer executives of the Company and its affiliated
companies.
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(v) Expenses
During the Employment Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive from time to time. After a
Change of Control, such reimbursement shall be made in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 120-day period
immediately preceding the Change of Control or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits
During the Employment Period, the Executive shall be entitled to fringe
benefits, including, without limitation, if applicable, tax and financial
planning services, payment of club dues, and automobile lease and payment of
related expenses, in accordance with the plans, practices, programs and policies
of the Company and its affiliated companies in effect for the Executive from
time to time. After a Change of Control, such fringe benefits shall be provided
in accordance with the most favorable plans, practices, programs and policies of
the Company and its affiliated companies in effect for the Executive at any time
during the 120-day period immediately preceding the Change of Control or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(vii) Office and Support Staff
During the Employment Period, the Executive shall be entitled to an office
and support staff in accordance with the practices and policies of the Company
and its affiliated companies in effect for the Executive from time to time.
After a Change of Control, the Executive shall be entitled to an office or
offices of a size and with furnishings and other appointments, and to exclusive
personal secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its affiliated
companies at any time during the 120-day period immediately preceding the Change
of Control or, if more favorable to the Executive, as provided generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation
During the Employment Period, the Executive shall be entitled to paid
vacation in accordance with the plans, policies, programs and practices of the
Company and its affiliated companies in effect for the Executive from time to
time. After a Change of Control, the Executive shall be entitled to vacation in
accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the Executive at any
time during the 120-day period immediately preceding the Change or Control or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
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5. Termination of Employment
- ------------------------------
(a) Death or Disability
The Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for a period
of (i) ninety (90) consecutive calendar days or (ii) an aggregate of one hundred
fifty (150) calendar days in any fiscal year of the Company as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause
The Company may terminate the Executive's employment during the Employment
Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board which specifically identifies the manner in which the
Board believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chairman or a senior
officer of the Company or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a notice that the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason
The Executive's employment may be terminated by the Executive during the
Employment Period for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
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(i) without the express written consent of the Executive, the
assignment to the Executive of any duties or any other action by the Company
which results in a material diminution in the Executive's position (including
titles), authority, duties or responsibilities from those contemplated by
Section 4(a)(i) of this Agreement, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location more than 50 miles from the location where the Executive was employed
immediately preceding the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
(d) Notice of Termination
Any termination during the Employment Period by the Company for Cause, or by the
Executive for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than thirty days
after the giving of such notice). The failure by the Executive or the Company
to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination
"Date of Termination" means (i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein, as the case
may be, (ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability, the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment is
terminated by reason of death or Disability, the date of death of the Executive
or the Disability Effective Date, as the case may be.
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6. Obligations of the Company upon Termination
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(a) Good Reason; Other Than for Cause, Death or Disability
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination an amount equal to the present value,
determined in accordance with Section 280G(d)(4) of the Internal Revenue Code of
1986, as amended (the "Code"), of the aggregate of the following amounts under
A, B and C below; provided however, that prior to a Change of Control, the
Company, in its discretion, may determine to pay any such amount when it
otherwise would have been paid if the Executive's employment had not been
terminated until the end of the Employment Period:
(A) the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid and (2) the excess of (A)
the product of (x) (i) if a Change of Control does not occur during the fiscal
year which includes the Date of Termination, the Annual Bonus which would have
been payable to the Executive for such entire fiscal year or (ii) if a Change of
Control does occur during the fiscal year which includes the Date of
Termination, the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus
paid or payable, including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365, over (B) any amounts previously paid to the Executive pursuant to
the terms of the Annual Bonus Plans as bonuses with respect to the year that
includes the Date of Termination (the sum of the amounts described in clauses
(1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and
(B) the amount equal to the product of (1) three (or the number of
years, including partial years, until the end of the Employment Period, if less)
and (2) the Executive's highest combined Annual Base Salary and Annual Bonus
during any of the last three full fiscal years prior to the Date of Termination;
and
(C) an amount equal to the difference between (a) the aggregate
benefit under the Company's qualified defined benefit retirement plans
(collectively, the "Retirement Plan") and any excess or supplemental defined
benefit retirement plans (including the Benefit Restoration Plan) in which the
Executive participates (collectively, the "SRP") which the Executive would have
accrued (whether or not vested) if the Executive's employment had continued for
three years after the Date of Termination, but not after the date on which the
Executive attains age 65, and (b) the actual vested benefit, if any, of the
Executive under the Retirement Plan and the SRP, determined as of the Date of
Termination (with the foregoing amounts to be computed on an actuarial present
value basis, based on the assumption that the Executive's compensation in each
of the three years following such termination would have been that required by
Section 4(b)(i) and Section 4(b)(ii), and using the actuarial assumptions in
effect for purposes of computing benefit entitlements under the Retirement Plan
and the SRP at
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the Date of Termination or, following a Change of Control, using actuarial
assumptions no less favorable to the Executive than the most favorable
assumptions which were in effect for such purposes at any time from the day
before the Change of Control through the Date of Termination;
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families; provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer-provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility, and
for purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
programs, practices and policies, the Executive shall be considered to have
remained employed until three years after the Date of Termination and to have
retired on the last day of such period;
(iii) if the Date of Termination occurs after a Change of Control, the
Company shall, at its sole expense as incurred (but in no event to exceed
$50,000), provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in the Executive's sole
discretion;
(iv) the Executive shall be entitled to purchase at depreciated book
value the automobile (if any) which the Company was providing for the use of
such Executive, and to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, practice or policy or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits");
(v) the Executive shall be treated, for purposes of the Company's
Executive Deferred Compensation Plan, Executive Variable Deferred Compensation
Plan, Executive Deferred Retirement Plan, Executive Variable Deferred Retirement
Plan, and any successor or similar plans, as if he had three more years of
service, and attained an age three years older, than his actual years of service
and age as of the Date of Termination; provided, however, that Executive shall
be credited with the number of years of service and attained age (in addition to
his actual years of service and attained age on the Date of Termination) which
are required in order to satisfy the eligibility requirements for "early
retirement" benefits and to receive the retirement interest rate under such
plans, if the Date of Termination occurs after a Change of Control;
(vi) the Executive shall have the option to have assigned to him at no
cost and with no apportionment of prepaid premiums (to the extent possible under
the terms of the applicable policies) any assignable insurance policy owned by
the Company which relates specifically to the Executive; provided that the
Company shall have no obligation to pay off any loans against said insurance
policy, and the Executive shall reimburse the Company for the cash value of such
insurance policy (if any);
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(vii) the Executive shall be entitled to receive payments of deferred cash
incentive awards under the amended and restated Key Executive Long-Term
Incentive Plan ("LTIP") or any successor plan for performance cycles which
commence while the Executive is employed with the Company equivalent to the
payments which he would have received if he had remained employed with the
Company for three years after the Date of Termination (but not later than age
65), or such other payments (if greater) as may be provided under the LTIP upon
a Change of Control or otherwise; and
(viii) all stock options granted to Executive under the Company's stock
option plans shall become immediately vested on the Date of Termination.
If the Executive should die while receiving payments pursuant to this Section
6(a), the remaining payments which would have been made to the Executive if he
had lived shall be paid to the beneficiary designated in writing by the
Executive; or if there is no effective written designation, then to his spouse;
or if there is neither an effective written designation nor a surviving spouse,
then to his estate. Designation of a beneficiary or beneficiaries to receive
the balance of any such payments shall be made by written notice to the Company,
and the Executive may revoke or change any such designation of beneficiary at
any time by a later written notice to the Company.
(b) Death
If the Executive's employment is terminated by reason of the Executive's death
during the Employment Period, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, after a Change of
Control the term "Other Benefits" as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as were in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Change of Control or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability
If the Executive's employment is terminated by reason of the Executive's
Disability during the Employment Period in accordance with Section 5(a), this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With respect to the
provision of Other Benefits, after a Change of Control the term "Other Benefits"
as utilized in this Section 6(c) shall include, and the Executive shall be
entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally
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provided by the Company and its affiliated companies to disabled executives
and/or their families in accordance with such plans, programs, practices and
policies relating to disability, if any, as were in effect generally with
respect to other peer executives and their families at any time during the 120-
day period immediately preceding the Change of Control or, if more favorable to
the Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason
If the Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive (x) the Annual
Base Salary through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, or retires at age 65 or thereafter, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all
Accrued obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
7. Non-exclusivity of Rights
- ------------------------------
Nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement (other than this Agreement) with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement. The Executive shall no longer be covered by any prior employment
agreement or any Executive Employment Security Policy of the Company after the
Effective Date of this Agreement.
8. Full Settlement; Offsets
- -----------------------------
Except as provided in this Section 8, the Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
Executive shall not be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement. However, the amount of any payments and
benefits provided for in this Agreement shall be reduced by one hundred percent
(100%) of any benefits and earned income (within the meaning of Section
911(d)(2)(A) of the Code) which is earned by the Executive for services rendered
to persons or entities other than the Company or its affiliates during or with
respect to
11
<PAGE>
the Employment Period or, after a Change of Control, during the 36-month period
after the Date of Termination. Medical and welfare benefits shall be offset as
provided in Section 6(a)(ii).
Not less frequently than annually (by December 31 of each year), the Executive
shall account to the Company with respect to all benefits and earned income
earned by the Executive which are required hereunder to be offset against
payments or benefits received by the Executive from the Company. If the Company
has paid amounts in excess of those to which the Executive is entitled (after
giving effect to the offsets provided above), the Executive shall reimburse the
Company for such excess by December 31 of such year. The requirements imposed
under this paragraph shall terminate on December 31 of the calendar year in
which the Employment Period ends or, after a Change of Control, December 31 of
the calendar year which includes the third anniversary of the Date of
Termination.
9. Certain Additional Payments by the Company
- -----------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment or distribution by the Company to or for
the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations required to
be made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the certified
public accounting firm which serves as the Company's auditor immediately prior
to the Change of Control (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company or the Executive. In the
event that such Accounting Firm declines to act, the Company shall appoint
another nationally recognized accounting firm (which is acceptable to the
Executive) to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-
Up Payment, as determined pursuant to this Section 9, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any
12
<PAGE>
such Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than fifteen days after the Executive is informed in
writing of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall defend, indemnify and hold the Executive harmless,
on an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall defend, indemnify
and hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
13
<PAGE>
(d) If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 9(c), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information
- -----------------------------
The Executive shall hold in a fiduciary capacity for the benefit of the Company
all secret or confidential business information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In no event shall an asserted or alleged violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
11. Successors
- ---------------
(a) This Agreement is personal to the Executive and without the prior written
consent of the Company shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's legal
representatives.
(a) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.
12. Miscellaneous
- ------------------
(a) This Agreement shall be governed by and construed in accordance with the
laws of the State of California, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This
14
<PAGE>
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: If to the Company:
------------------- -----------------
Philip M. Neal Avery Dennison Corporation
518 Pacific Avenue North Orange Grove Boulevard
Manhattan Beach, CA 90266 Pasadena, California 91103
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such
Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
13. Arbitration; Attorneys Fees
- --------------------------------
(a) The parties agree that any disputes, controversies or claims which arise
out of or are related to this Agreement, Executive's employment or the
termination of his employment, including, but not limited to, any claim relating
to the purported validity, interpretation, enforceability or breach of this
Agreement, and/or any other claim or controversy arising out of the relationship
between the Executive and Company (or the nature of the relationship) or the
continuation or termination of that relationship, including, but not limited to,
claims that a termination was for Cause or for Good Reason, claims for breach of
covenant, breach of an implied covenant of good faith and fair dealing, wrongful
termination, breach of contract, or intentional infliction of emotional
distress, defamation, breach of right of privacy, interference with advantageous
or contractual relations, fraud, conspiracy or other tort or property claims of
any kind, which are not settled by agreement between the parties, shall be
settled by arbitration in accordance with the then-current Rules of Practice and
Procedure for Employment Arbitration ("Rules") of the Judicial Arbitration and
Mediation Services, Inc. ("JAMS").
15
<PAGE>
The arbitration shall be before a single arbitrator selected in accordance with
the JAMS Rules or otherwise by mutual agreement of the parties. The arbitration
shall take place in Los Angeles County, California, unless the parties agree to
hold the arbitration at another location. Depositions and other discovery shall
be allowed in accordance with the JAMS Rules. The arbitrator shall apply the
substantive law (and the law of remedies, if applicable) of the State of
California or federal law, or both, as applicable to the claim(s) asserted
(b) In consideration of the parties' agreement to submit to arbitration all
disputes with regard to this Agreement and/or with regard to any alleged
contract, or any other claim arising out of their conduct, the relationship
existing hereunder or the continuation or termination of that relationship, and
in further consideration of the anticipated expedition and the minimizing of
expense of this arbitration remedy, the arbitration provisions of this Agreement
shall provide the exclusive remedy, and each party expressly waives any right he
or it may have to seek redress in any other forum. The arbitrator, and not any
federal, state, or local court or agency, shall have exclusive authority to
resolve any dispute relating to the interpretation, applicability,
enforceability or formation of this Agreement, including but not limited to any
claim that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties.
Either party may bring an action in any court of competent jurisdiction to
compel arbitration under this Agreement and to enforce an arbitration award.
Except as otherwise provided in this Agreement, both the Company and the
Executive agree that neither of them shall initiate or prosecute any lawsuit or
administrative action in any way related to any claim covered by this Agreement.
(c) Any claim which either party has against the other party that could be
submitted for resolution pursuant to this Section must be presented in writing
by the claiming party to the other party within one year of the date the
claiming party knew or should have known of the facts giving rise to the claim,
except that claims arising out of or related to the termination of the
Executive's employment must be presented by him within one year of the Date of
Termination. Unless the party against whom any claim is asserted waives the time
limits set forth above, any claim not brought within the time periods specified
shall be waived and forever barred, even if there is a federal or state statute
of limitations which would have given more time to pursue the claim.
(d) The Company shall advance the costs and expenses of the arbitrator. In any
arbitration to enforce any of the provisions or rights under this Agreement, the
unsuccessful party in such arbitration, as determined by the arbitrator, shall
pay to the successful party or parties all costs, expenses and reasonable
attorneys' fees incurred therein by such party or parties (including without
limitation such costs, expenses and fees on any appeals), and if such successful
party or parties shall recover an award in any such arbitration proceeding, such
costs, expenses and attorneys' fees shall be included as part of such award.
Notwithstanding the foregoing provision, in no event shall the successful party
or parties be entitled to recover an amount from the unsuccessful party for
costs, expenses and attorneys' fees that exceeds the unsuccessful party's costs,
expenses and attorneys' fees in connection with the action or proceeding.
(e) Any decision and award or order of the arbitrator shall be final and
binding upon the parties hereto and judgment thereon may be entered in the
Superior Court of the State of California or any other court having
jurisdiction.
16
<PAGE>
(f) Each of the above terms and conditions shall have separate validity, and
the invalidity of any part thereof shall not affect the remaining parts.
(g) Any decision and award or order of the arbitrator shall be final and
binding between the parties as to all claims which were or could have been
raised in connection with the dispute to the full extent permitted by law. In
all other cases the parties agree that the decision of the arbitrator shall be a
condition precedent to the institution or maintenance of any legal, equitable,
administrative, or other formal proceeding by the employee in connection with
the dispute, and that the decision and opinion of the arbitrator may be
presented in any other forum on the merits of the dispute.
IN WITNESS WHEREOF, the Executive has executed this Agreement and, pursuant to
the authorization from the Compensation and Executive Personnel Committee of the
Board of Directors, the Company has caused this Agreement to be executed, all as
of the day and year first above written.
AVERY DENNISON CORPORATION EXECUTIVE
/s/ Robert G. van Schoonenberg /s/ Philip M. Neal
- -------------------------------------- --------------------------
Robert G. van Schoonenberg Philip M. Neal
Senior Vice President, General Counsel
and Secretary
17
<PAGE>
EXHIBIT 10.11.1
AMENDED AND RESTATED
AVERY DENNISON CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
GENERAL
-------
Avery Dennison Corporation (the "Company" and successor to Avery
International Corporation), a corporation organized under the laws of the State
of Delaware, by resolution of its Board of Directors dated November 17, 1983,
adopted the Avery International Corporation Supplemental Executive Retirement
Plan effective as of December 1, 1983, and which by resolution of the
Compensation and Executive Personnel Committee of the Board of Directors dated
April 23, 1998, is amended to be the Avery Dennison Corporation Supplemental
Executive Retirement Plan (the "Plan") effective as of April 23, 1998.
The purpose of the Plan is to provide its participants (the "Participants")
with (i) additional incentive to further the growth, development and financial
success of the Company, and (ii) an inducement to remain in the service of the
Company, by offering benefits to supplement (but not to be part of) other
benefits they may be entitled to receive at the time of their retirement.
Benefits under the Plan shall not be funded and shall be payable solely
from the general assets of the Company, in consideration of service to be
rendered to the Company by the Participants in the future.
Responsibility for the administration of the Plan shall rest exclusively
with the Compensation and Executive Personnel Committee Compensation Committee
(the "Committee") of the Board of Directors of the Company.
ELIGIBILITY
-----------
The participants in the Plan shall be those employees of the Company (or an
affiliate of the Company) who are so designated by the Committee.
BENEFITS
--------
The benefit payable to a Participant under the Plan will be determined by
the Committee at the time he is designated as a Participant. In general terms,
the benefit will be a designated percentage of his "Average Compensation"
(defined as base compensation plus annual bonus) over the last three years of
his employment.
For the purpose of determining a Participant's future service with the
Company, any period in which the Participant is disabled (unable to perform his
job because of medically determined mental or physical condition) shall be
treated as a period of service with the Company.
A Participant shall be eligible to commence receiving his benefits under
the Plan upon retiring at or after age 65, or upon such earlier date as the
Committee designates with respect to him.
1
<PAGE>
FORM OF BENEFIT
---------------
The form in which each Participant's benefit is paid under the Plan shall
be a 50%, 75% or 100% joint and survivor annuity, or a certain and continuous
payment for life with continuation of such payments until the end of a period
specified by the Participant (5, 10 or 15 years) if he dies within that period.
The actuarial value of the benefit paid shall be unaffected by the form of
payment selected.
PRE-RETIREMENT SURVIVOR ANNUITY
-------------------------------
If the Participant dies while employed by the Company (or affiliate) and is
survived by the spouse to whom he was married on the date of his death, the
Committee may designate a percentage of the Participant's average "Compensation"
over his last three years of his employment to be paid to such surviving spouse.
In general, the designated percentage shall be that which will produce a benefit
to the surviving spouse equal to the benefit that would have been paid had the
Participant retired on the day before his death having selected the 50 percent
joint and survivor form of annuity.
DESIGNATION OF BENEFICIARIES AND CONTINGENT ANNUITANTS
------------------------------------------------------
At any time prior to the first benefit payment hereunder a Participant
shall have the right to designate, revoke or redesignate beneficiaries and
contingent annuitants to receive benefits under the Plan in accordance with the
Participant's designated form of benefit. Designation, revocation and
redesignation of beneficiaries and contingent annuitants shall be made in
writing in accordance with procedures established by the Committee.
ADMINISTRATION
--------------
The "Administrator" (the Committee or its delegate), shall conduct the
general administration of the Plan and shall have the necessary power and
authority to interpret any provisions of the Plan and specifically to determine
a person's status as a Participant and the benefits which he shall receive. In
carrying out its responsibilities, the Administrator shall have the power and
authority to engage actuaries, attorneys, accountants or other consultants
necessary to provide advice and consultation if, in the determination of the
Committee, such consultation is required to interpret or implement any provision
of the Plan properly and equitably. While the Plan is intended to be a
permanent program, the Company shall have the right to terminate the Plan by
action of its Board of Directors.
OTHER PROVISIONS
----------------
The receipt of any person entitled to payment under the Plan (or payment to
such person at the last address on file with the Company) shall be a complete
discharge to the Company, its directors and employees, and the Administrator.
If the Administrator determines that a person
2
<PAGE>
entitled to a payment under the Plan is unable (by reason of physical or mental
condition) to give a valid receipt for such payment, payment shall instead be
made to such other person found by the Administrator to have assumed the care of
such person.
No Participant's benefit under the Plan shall be liable at any time for the
debts, contracts or engagements of any Participant, his beneficiaries,
contingent annuitants, or successors in interest, or be taken in execution by
levy, attachment or garnishment or by any other legal or equitable proceeding,
prior to payment hereunder, nor shall any such person have any right to
alienate, anticipate, commute, pledge, encumber, or assign any benefits or
payments hereunder in any manner whatsoever, except to designate a beneficiary
or contingent annuitant as provided in the Plan.
The Plan may be amended by the Company's Board of Directors or the
Committee.
3
<PAGE>
Exhibit 10.11.2
LETTER OF GRANT
as of
May 1, 1998
Mr. Philip M. Neal
President and Chief Operating Officer
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103
Dear Mr. Neal:
Avery Dennison Corporation ("Company"), which is the successor of Avery
International Corporation, has adopted the Avery Dennison Corporation
Supplemental Executive Retirement Plan ("Plan"), a copy of which is enclosed.
This letter is written to advise you that the Compensation and Executive
Personnel Committee of the Board of Directors of the Company has designated you
as a Participant under the Plan.
As an inducement for you to remain in the service of the Company, and to
provide you with additional incentive to further the growth, development and
financial success of the Company, the Company hereby agrees to provide you with
a Benefit which, subject to the terms of the Plan and those set forth below,
shall be the Actuarial Equivalent of an annual payment of a straight life
annuity with payments commencing as described below and each payment equal to
the excess of sixty-two and one-half percent (62.5%) of your Average
Compensation over the total of the offsets numbered (1), (2), (3) and (4) below.
The amount of the offsets described below will be calculated as of the date
of your Retirement or other termination of employment with the Company;
provided, however, that the amount of offset (4) shall not be calculated or take
effect before August 28, 2005, or such earlier date, if any, upon which you
commence receiving benefit payments under the Social Security Act. The offsets
are as follows:
(1) The annual payment under a straight life annuity which is the
Actuarial Equivalent of the benefit payable to or with respect to
you under The Retirement Plan for Employees of Avery Dennison
Corporation, as amended ("Retirement Plan"), the Benefit
Restoration Plan ("BRP") or any other defined benefit plan or
arrangement created by the Company which provides benefits in lieu
thereof or in addition thereto, including any payments under the
Retirement Plan which are due to transfers from the Stock Holding
and Retirement Enhancement Plan of Avery Dennison Corporation
("SHARE Plan") and any "Augmentation Retirement Benefit" under the
Avery Dennison Corporation Executive Deferred Compensation Plan
("EDCP");
(2) The annual payment under a straight life annuity which is the
Actuarial Equivalent of the total of your "Company Contributions
Account" and your "Prior Account" under the Avery Dennison
Employee Savings Plan ("Saving Plan") and the portion of your
Accounts which represent Company contributions plus interest under
the EDCP, the Avery Dennison Corporation Executive Variable
Deferred
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Compensation Plan ("EVDCP") or any other deferred compensation or
defined contribution plan or arrangement under which Company
contributions are made on your behalf;
(3) The annual payment under a straight life annuity which is the
Actuarial Equivalent of the total value distributed to you in cash
from your "Cash Account" or in shares of "Company Stock" from your
"Stock Account" under the SHARE Plan, other than amounts
transferred to the Retirement Plan which are offset under (1)
above; and
(4) Twelve (12) times your monthly Primary Social Security Benefit.
You may elect to receive your Benefit in any form allowed by the Plan and
the provisions set forth below at any time more than twelve (12) months before
August 28, 2005, when you will attain age 65. The time when Benefit payments
hereunder shall commence and the conditions of your entitlement to the Benefit
are described below:
Retirement. In the event of your Retirement at or after age 65, payment of
----------
your Benefit will commence on your Retirement Date.
Cause. In the event your employment with the Company is terminated for
-----
Cause before you attain age 65, no Benefit shall be payable hereunder or under
the Plan.
Voluntary Resignation. In the event your employment with the Company is
---------------------
terminated by voluntary resignation (other than for Good Reason) before you
attain age 65, no Benefit shall be payable hereunder or under the Plan. If you
terminate employment for Good Reason pursuant to your Employment Agreement with
the Company, as amended from time to time (the "Employment Agreement"), payment
of your Benefit shall commence upon the first to occur of (i) August 28, 2005 or
(ii) three years after your termination of employment. If payment of your
Benefit commences before you attain age 65, your Benefit will be actuarially
reduced for early commencement in the same manner as provided in the Retirement
Plan.
Disability. In the event your employment with the Company is terminated
----------
because of your Disability, payment of your Benefit will commence on August 28,
2005, provided that you (or, if you should die before that date, the spouse to
whom you were married on the date of your death) are/is then living. If only
that spouse is then living, the payments to her shall be the Actuarial
Equivalent of the payments which would have been made to her hereunder had you
selected the 50% joint and survivor form of annuity and survived until August
28, 2005.
Death. In the event your employment with the Company is terminated by your
-----
death, payment of your Benefit will be made only to the spouse to whom you were
married on the date of your death, and will commence on August 28, 2005,
provided that such spouse is then living. The payments to her shall be the
Actuarial Equivalent of the payments which would have been made to her hereunder
had you selected the 50% joint and survivor form of annuity and survived until
August 28, 2005. No Benefit shall be payable hereunder or under the Plan if you
die before age 65 while unmarried.
Other. In the event your employment with the Company is terminated for any
-----
reason other than death, Disability, Cause, voluntary resignation by you (other
than for Good Reason) before age 65, or Retirement at or after age 65, payment
of your Benefit will commence upon the first to occur of (i) August 28, 2005 or
(ii) three years after your termination of employment. If payment of your
Benefit
2
<PAGE>
commences before you attain age 65, your Benefit will be actuarially reduced for
early commencement in the same manner as provided in the Retirement Plan.
For purposes of determining your rights hereunder and under the Plan, the
terms Cause, Good Reason and Disability shall have the meanings set forth in the
Employment Agreement, and the terms Actuarial Equivalent, Average Compensation,
Primary Social Security Benefit, Retirement and Retirement Date shall have the
meanings set forth in Appendix A hereto.
Neither future amendments nor termination of the Plan will adversely affect
the Benefit to be provided hereunder or under the Plan without your prior
written consent. The rights provided hereunder and under the Plan may not be
sold, pledged, assigned or transferred in any manner other than by will or by
the laws of descent and distribution.
Please acknowledge your receipt and acceptance of this Letter of Grant, and
your agreement to be bound by all of the terms hereof and of the Plan, by
countersigning and dating the enclosed copy of this letter in the space provided
below and returning the same to me.
Very truly yours,
AVERY DENNISON CORPORATION
By: /s/ Charles D. Miller
---------------------------
Charles D. Miller
Enclosures
I hereby acknowledge having received,
read and understood this Letter of
Grant and the Plan, and agree to be
bound by the terms hereof and of the
Plan.
/s/ Philip M. Neal
- ------------------------------
Philip M. Neal
3
<PAGE>
APPENDIX A
As used in the Letter of Grant to which this Appendix is attached, and
herein, the following terms shall have the meanings specified:
1. "Actuarial Equivalent" shall mean the equivalent of a given amount (or
series of amounts) payable in another manner or by another means in accordance
with actuarial principles, methods and assumptions as approved for this purpose
by the Compensation Committee of the Board of Directors of the Company and which
shall include the following:
(a) Mortality - 1971 Group Annuity Mortality Table; and
(b) Interest - Eight and one-half percent (8 1/2%).
2. "Average Compensation" shall mean the average of your annual salary
plus annual bonus for your last thirty-six (36) months of employment with the
Company. For this purpose your annual salary and bonus shall include any such
compensation which is deferred by you under any Company deferred compensation
plan or arrangement.
3. "Primary Social Security Benefit" shall mean the monthly payments you
are entitled to receive commencing on your Retirement Date (or such earlier
date, if any upon which you commence receiving benefits under the Social
Security Act), determined under the federal Social Security Act as in effect on
the January 1 coincident with or next preceding the termination of your
employment with the Company (irrespective of subsequent amendments of the Act,
including retroactive amendments, and irrespective of whether or not you
actually apply for and receive all or any part of such amount for any month) by
assuming in the case of termination of your employment with the Company prior to
your Retirement Date that you will have no further employment and no further
earnings.
4. "Retirement" shall mean the termination of your employment with the
Company on your Retirement Date.
5. "Retirement Date" shall mean the first day of any month coincident with
or following your sixty-fifth birthday as you shall elect for Retirement.
4
<PAGE>
EXHIBIT 12
AVERY DENNISON CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
<S> <C> <C>
Earnings:
Income before taxes $336.7 $311.2
Add: Fixed charges* 52.5 49.2
Amortization of capitalized interest 1.5 1.4
Less: Capitalized interest (3.0) (3.2)
-------- --------
$387.7 $358.6
======== ========
*Fixed charges:
Interest expense $ 34.6 $ 31.7
Capitalized interest 3.0 3.2
Amortization of debt issuance costs .5 .5
Interest portion of leases 14.4 13.8
-------- --------
$ 52.5 $ 49.2
======== ========
Ratio of Earnings to Fixed Charges 7.4 7.3
======== ========
</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.
<PAGE>
EXHIBIT 13
ELEVEN-YEAR SUMMARY Avery Dennison Corporation
<TABLE>
<CAPTION>
Compound
Growth Rate 1998 1997
-------------------------- ------------------------ ------------------------
(In millions, except per share amounts) 5 Year 10 Year Dollars % Dollars %
- ------------------------------------------------------------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales 5.8% 4.2% $3,459.9 100.0 $3,345.7 100.0
Gross profit 6.9 3.9 1,144.5 33.1 1,082.7 32.4
Marketing, general and administrative 3.8 3.4 773.2 22.3 739.8 22.1
expense
Interest expense (4.3) (.3) 34.6 1.0 31.7 .9
Income before taxes 20.6 5.9 336.7 9.7 311.2 9.3
Taxes on income 18.3 4.5 113.4 3.3 106.4 3.2
Net income 21.5 6.7 223.3 6.5 204.8 6.1
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE INFORMATION
Net income per common share 24.7% 8.8% $ 2.20 $ 1.99
Net income per common share, assuming 24.5 n/a 2.15 1.93
dilution
Dividends per common share 14.1 14.2 .87 .72
Average common shares outstanding (2.6) (1.9) 101.5 103.1
Average common shares outstanding, (2.3) n/a 104.1 106.1
assuming dilution
Book value at fiscal year end 5.4 2.9 $ 8.33 $ 8.18
Market price at fiscal year end 25.1 15.1 45.06 43.75
Market price range 40.88 33.38
to to
60.75 44.13
- ----------------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Working capital $ 137.7 $ 163.6
Property, plant and equipment, net 1,035.6 985.3
Total assets 2,142.6 2,046.5
Long-term debt 465.9 404.1
Total debt 537.2 447.7
Shareholders' equity 833.3 837.2
Number of employees 16,100 16,200
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Depreciation expense $ 114.6 $ 105.5
Research and development expense 65.0 61.1
Effective tax rate 33.7% 34.2%
Long-term debt as a percent of total long-term 35.9 32.6
capital
Total debt as a percent of total capital 39.2 34.8
Return on average shareholders' equity 26.7 24.8
(percent)
Return on average total capital (percent) 19.0 18.1
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996 1995
------------------------ ----------------------------------
(In millions, except per share amounts) Dollars % Dollars %
- ------------------------------------------------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C>
FOR THE YEAR
Net sales $3,222.5 100.0 $3,113.9 100.0
Gross profit 1,018.3 31.6 957.3 30.7
Marketing, general and administrative 712.4 22.1 689.8 22.2
expense
Interest expense 37.4 1.2 44.3 1.4
Income before taxes 270.6 8.4 224.7 7.2
Taxes on income 94.7 2.9 81.0 2.6
Net income 175.9 5.5 143.7 4.6
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION
<S> <C> <C>
Net income per common share $ 1.68 $ 1.35
Net income per common share, assuming 1.63 1.32
dilution
Dividends per common share .62 .55
Average common shares outstanding 105.0 106.5
Average common shares outstanding, 107.6 108.5
assuming dilution
Book value at fiscal year end $ 8.03 $ 7.69
Market price at fiscal year end 35.88 25.07
Market price range 23.88 16.63
to to
35.88 25.07
- ---------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Working capital $ 110.6 $ 127.6
Property, plant and equipment, net 962.7 907.4
Total assets 2,036.7 1,963.6
Long-term debt 370.7 334.0
Total debt 466.9 449.4
Shareholders' equity 832.0 815.8
Number of employees 15,800 15,500
- ---------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Depreciation expense $ 100.2 $ 95.3
Research and development expense 54.6 52.7
Effective tax rate 35.0% 36.0%
Long-term debt as a percent of total long-term 30.8 29.0
capital
Total debt as a percent of total capital 35.9 35.5
Return on average shareholders' equity 21.4 18.6
(percent)
Return on average total capital (percent) 16.4 14.4
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
ELEVEN-YEAR SUMMARY Avery Dennison Corporation
<TABLE>
<CAPTION>
1994 1993 1992 1991
----------------- ---------------- ---------------- ---------------
(In millions, except per share amounts) Dollars % Dollars % Dollars % Dollars %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales $2,856.7 100.0 $2,608.7 100.0 $2,622.9 100.0 $2,545.1 100.0
Gross profit 907.8 31.8 818.1 31.4 838.2 32.0 796.2 31.3
Marketing, general and administrative 691.9 24.2 642.7 24.6 665.7 25.4 653.9 25.7
expense
Interest expense 43.0 1.5 43.2 1.7 42.3 1.6 37.5 1.5
Income before taxes 172.9 6.1 132.2 5.1 130.2 5.0 104.8 4.1
Taxes on income 63.5 2.2 48.9 1.9 50.1 1.9 41.8 1.6
Net income 109.4 3.8 84.4 3.2 80.1 3.1 63.0 2.5
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE INFORMATION
Net income per common share $ .98 $ .73 $ .66 $ .51
Net income per common share, assuming .97 .72 .66 n/a
dilution
Dividends per common share .50 .45 .41 .38
Average common shares outstanding 111.1 115.9 120.8 123.9
Average common shares outstanding, 112.3 116.9 121.8 n/a
assuming dilution
Book value at fiscal year end $ 6.81 $ 6.40 $ 6.82 $ 6.73
Market price at fiscal year end 17.75 14.69 14.38 12.69
Market price range 13.32 12.75 11.63 9.69
to to to to
17.88 15.57 14.44 12.75
- -----------------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Working capital $ 122.8 $ 141.6 $ 222.6 $ 226.0
Property, plant and equipment, net 831.6 758.5 779.9 814.2
Total assets 1,763.1 1,639.0 1,684.0 1,740.4
Long-term debt 347.3 311.0 334.8 329.5
Total debt 420.7 397.5 427.5 424.0
Shareholders' equity 729.0 719.1 802.6 825.0
Number of employees 15,400 15,750 16,550 17,095
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Depreciation expense $ 87.9 $ 84.1 $ 83.8 $ 83.1
Research and development expense 49.1 45.5 46.7 48.7
Effective tax rate 36.7% 37.0% 38.5% 39.9%
Long-term debt as a percent of total long- 32.3 30.2 29.4 28.5
term capital
Total debt as a percent of total capital 36.6 35.6 34.8 33.9
Return on average shareholders' equity 14.8 11.0 9.7 7.7
(percent)
Return on average total capital (percent) 12.1 9.3 8.3 6.7
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1990(1) 1989 1988
------------------- ------------------- -------------------
(In millions, except per share amounts) Dollars % Dollars % Dollars %
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales $2,590.2 100.0 $2,490.9 100.0 $2,291.4 100.0
Gross profit 808.3 31.2 806.7 32.4 780.2 34.0
Marketing, general and administrative 752.7 29.1 591.0 23.7 554.7 24.2
expense
Interest expense 40.0 1.5 35.1 1.4 35.5 1.5
Income before taxes 15.6 .6 180.6 7.3 190.0 8.3
Taxes on income 9.7 .4 66.4 2.7 73.0 3.2
Net income 5.9 .2 114.2 4.6 117.0 5.1
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1990 1989 1988
------------------- ------------- --------------
<S> <C> <C> <C>
PER SHARE INFORMATION
Net income per common share $ .05 $ .92 $ .95
Net income per common share, assuming n/a n/a n/a
dilution
Dividends per common share .32 .27 .23
Average common shares outstanding 123.9 124.2 123.4
Average common shares outstanding, n/a n/a n/a
assuming dilution
Book value at fiscal year end $ 6.83 $ 6.55 $ 6.25
Market price at fiscal year end 10.75 15.94 11.00
Market price range 7.82 10.50 8.57
to to to
16.50 15.94 13.00
- ------------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Working capital $ 298.8 $ 323.9 $ 314.3
Property, plant and equipment, net 821.7 714.1 667.3
Total assets 1,890.3 1,715.9 1,652.2
Long-term debt 376.0 317.8 298.8
Total debt 510.4 418.9 411.3
Shareholders' equity 846.3 811.3 769.6
Number of employees 18,816 19,215 19,114
- ------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Depreciation expense $ 80.8 $ 71.5 $ 63.8
Research and development expense 53.7 51.0 47.4
Effective tax rate 62.2% 36.8% 38.4%
Long-term debt as a percent of total 30.8 28.1 28.0
long-term capital
Total debt as a percent of total capital 37.6 34.1 34.8
Return on average shareholders' equity .7 14.7 16.0
(percent)
Return on average total capital (percent) 1.5 12.0 12.7
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In 1990, the Company incurred $85.2 million in pretax charges related to the
merger of Avery International Corporation and Dennison Manufacturing Company
and $13.8 million of merger-related costs. After adjusting for these
charges, 1990 net income was $71.7 million, or $.58 per common share.
Page 2
<PAGE>
Consolidated Balance Sheet Avery Dennison Corporation
<TABLE>
<CAPTION>
(Dollars in millions) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18.5 $ 3.3
Trade accounts receivable, less allowance for doubtful accounts 454.8 457.7
of $16.5 and $15.6 for 1998 and 1997, respectively
Inventories, net 230.6 230.1
Other receivables 24.0 28.3
Prepaid expenses 19.0 19.6
Deferred taxes 55.1 54.5
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 802.0 793.5
Property, plant and equipment, at cost:
Land 40.1 35.4
Buildings 439.9 389.3
Machinery and equipment 1,347.0 1,230.1
Construction-in-progress 105.6 135.7
- -----------------------------------------------------------------------------------------------------------------------------
1,932.6 1,790.5
Accumulated depreciation 897.0 805.2
- -----------------------------------------------------------------------------------------------------------------------------
1,035.6 985.3
Intangibles resulting from business acquisitions, net 145.1 133.7
Non-current deferred taxes 5.0 6.8
Other assets 154.9 127.2
- -----------------------------------------------------------------------------------------------------------------------------
$2,142.6 $2,046.5
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term and current portion of long-term debt $ 71.3 $ 43.6
Accounts payable 269.8 245.3
Accrued payroll and employee benefits 110.9 115.8
Other accrued liabilities 173.4 202.1
Income taxes payable 36.7 20.9
Deferred taxes 2.2 2.2
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 664.3 629.9
Long-term debt 465.9 404.1
Long-term retirement benefits and other accrued liabilities 115.5 125.1
Non-current deferred taxes 63.6 50.2
Shareholders' equity
Common stock, $1 par value, authorized - 400,000,000 shares at year end 1998 124.1 124.1
and 1997; issued - 124,126,624 shares at year end 1998 and 1997
Capital in excess of par value 587.5 592.5
Retained earnings 1,185.1 1,063.6
Cost of unallocated ESOP shares (18.3) (23.4)
Employee stock trusts, 15,036,525 shares and (677.6) (730.3)
16,693,347 shares at year end 1998 and 1997, respectively
Treasury stock at cost, 9,060,617 shares and (359.4) (166.8)
5,053,046 shares at year end 1998 and 1997, respectively
Accumulated other comprehensive income (8.1) (22.5)
- -----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 833.3 837.2
- -----------------------------------------------------------------------------------------------------------------------------
$2,142.6 $2,046.5
=============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
Page 3
<PAGE>
Consolidated Statement of Income Avery Dennison Corporation
<TABLE>
<CAPTION>
(In millions, except per share amounts) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $3,459.9 $3,345.7 $3,222.5
Cost of products sold 2,315.4 2,263.0 2,204.2
- ---------------------------------------------------------------------------------------------------------------------------------
Gross profit 1,144.5 1,082.7 1,018.3
Marketing, general and administrative expense 773.2 739.8 712.4
Net gain on divestitures and restructuring charges -- -- 2.1
Interest expense 34.6 31.7 37.4
- ---------------------------------------------------------------------------------------------------------------------------------
Income before taxes 336.7 311.2 270.6
Taxes on income 113.4 106.4 94.7
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 223.3 $ 204.8 $ 175.9
=================================================================================================================================
Per share amounts:
Net income per common share $ 2.20 $ 1.99 $ 1.68
Net income per common share,
assuming dilution 2.15 1.93 1.63
Dividends .87 .72 .62
Average shares outstanding:
Common shares 101.5 103.1 105.0
Common shares, assuming dilution 104.1 106.1 107.6
=================================================================================================================================
Common shares outstanding at year end 100.0 102.4 103.6
=================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
Page 4
<PAGE>
Consolidated Statement of Shareholders' Equity Avery Dennison Corporation
<TABLE>
<CAPTION>
Common Capital in Cost of
stock, $1 excess of Retained unallocated Employee stock
(Dollars in millions) par value par value earnings ESOP shares trusts
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended 1995 $124.1 $129.6 $ 837.8 (27.0) --
Comprehensive income:
Net income 175.9
Other comprehensive income:
Foreign currency translation adjustment
Minimum pension liability adjustment
Other comprehensive income
Total comprehensive income
Repurchase of 3.8 million shares for treasury
Stock issued under option plans, 9.0
net of $13.8 million of tax and dividends paid on
stock held in stock trusts
Dividends: $.62 per share (68.1)
ESOP transactions, net (2.4)
Employee stock benefit trust transaction, net 336.8 (644.3)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended 1996 124.1 475.4 945.6 (29.4) (644.3)
Comprehensive income:
Net income 204.8
Other comprehensive income:
Foreign currency translation adjustment
Minimum pension liability adjustment
Other comprehensive income
Total comprehensive income
Repurchase of 2.5 million shares for treasury
Stock issued under option plans, (17.3) 48.4
net of $29.1 million of tax and dividends paid on
stock held in stock trusts
Dividends: $.72 per share (86.8)
ESOP transactions, net 6.0
Employee stock benefit trust market value adjustment 134.4 (134.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended 1997 124.1 592.5 1,063.6 (23.4) (730.3)
Comprehensive income:
Net income 223.3
Other comprehensive income:
Foreign currency translation adjustment
Minimum pension liability adjustment
Other comprehensive income
Total comprehensive income
Repurchase of 4 million shares for treasury
Stock issued under option plans, (34.8) 82.5
net of $43.6 million of tax and dividends paid on
stock held in stock trusts
Dividends: $.87 per share (101.8)
ESOP transactions, net 5.1
Employee stock benefit trust market value adjustment 29.8 (29.8)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended 1998 $124.1 $587.5 $1,185.1 (18.3) $(677.6)
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
Consolidated Statement of Shareholders' Equity Avery Dennison Corporation
<TABLE>
<CAPTION>
Accumulated
other
Treasury comprehensive
(Dollars in millions) Stock income (loss) Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fiscal year ended 1995 $(279.9) $ 31.2 $ 815.8
Comprehensive income:
Net income 175.9
Other comprehensive income:
Foreign currency translation adjustment (5.5) (5.5)
Minimum pension liability adjustment 2.4 2.4
-----------------------
Other comprehensive income (3.1) (3.1)
---------
Total comprehensive income 172.8
Repurchase of 3.8 million shares for treasury (109.3) (109.3)
Stock issued under option plans, 11.2 20.2
net of $13.8 million of tax and dividends paid on
stock held in stock trusts
Dividends: $.62 per share (68.1)
ESOP transactions, net (2.4)
Employee stock benefit trust transaction, net 310.5 3.0
- ----------------------------------------------------------------------------------------------
Fiscal year ended 1996 (67.5) 28.1 832.0
Comprehensive income:
Net income 204.8
Other comprehensive income:
Foreign currency translation adjustment (49.7) (49.7)
Minimum pension liability adjustment (.9) (.9)
-----------------------
Other comprehensive income (50.6) (50.6)
---------
Total comprehensive income 154.2
Repurchase of 2.5 million shares for treasury (99.3) (99.3)
Stock issued under option plans, 31.1
net of $29.1 million of tax and dividends paid on
stock held in stock trusts
Dividends: $.72 per share (86.8)
ESOP transactions, net 6.0
Employee stock benefit trust market value adjustment --
- ----------------------------------------------------------------------------------------------
Fiscal year ended 1997 (166.8) (22.5) 837.2
Comprehensive income:
Net income 223.3
Other comprehensive income:
Foreign currency translation adjustment 13.3 13.3
Minimum pension liability adjustment 1.1 1.1
-----------------------
Other comprehensive income 14.4 14.4
---------
Total comprehensive income 237.7
Repurchase of 4 million shares for treasury (192.6) (192.6)
Stock issued under option plans, 47.7
net of $43.6 million of tax and dividends paid on
stock held in stock trusts
Dividends: $.87 per share (101.8)
ESOP transactions, net 5.1
Employee stock benefit trust market value adjustment --
- ----------------------------------------------------------------------------------------------
Fiscal year ended 1998 $(359.4) $(8.1) $ 833.3
===============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
Page 5
<PAGE>
Consolidated Statement of Cash Flows Avery Dennison Corporation
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 223.3 $ 204.8 $ 175.9
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 114.6 105.5 100.2
Amortization 12.6 11.3 13.2
Net gain on divestiture and restructuring charges (2.1)
Deferred taxes 13.8 18.4 .8
Changes in assets and liabilities, net of the effect of foreign
currency translation, business acquisitions and divestitures, and
restructuring charges:
Trade accounts receivable, net 18.6 (26.6) (.9)
Inventories, net 11.0 5.7 (18.1)
Other receivables 8.3 (4.8) 1.2
Prepaid expenses 1.0 (1.6) 3.7
Accounts payable and accrued liabilities (11.8) 44.6 45.7
Taxes on income 41.5 16.5 (12.4)
Long-term retirement benefits and other accrued liabilities (10.1) (5.4) (3.2)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 422.8 368.4 304.0
- ------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (159.7) (177.3) (187.6)
(Payments) for acquisitions and net proceeds from (30.9) 4.6 12.1
sale of assets, business divestitures and acquisitions
Other (26.9) (16.3) (2.1)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (217.5) (189.0) (177.6)
- ------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt 50.0 60.0 -
Decrease in long-term debt (3.9) (1.7) (14.3)
Net increase (decrease) in short-term debt 39.3 (73.0) 32.2
Dividends paid (101.8) (86.8) (68.1)
Purchase of treasury stock (192.6) (99.3) (109.3)
Proceeds from exercise of stock options 20.7 13.3 13.5
Other (2.3) 7.9 (3.6)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (190.6) (179.6) (149.6)
- ------------------------------------------------------------------------------------------------------------------
Effect of foreign currency translation on cash balances .5 (.3) -
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 15.2 (.5) (23.2)
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 3.3 3.8 27.0
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 18.5 $ 3.3 $ 3.8
==================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
Page 6
<PAGE>
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a worldwide manufacturer of pressure-sensitive adhesives and
materials, and consumer and converted products. The Company's major markets
are in office products, data processing, health care, retail, transportation,
industrial and durable goods, food and apparel. The Pressure-sensitive
Adhesives and Materials sector and the Consumer and Converted Products sector
each contribute approximately 50 percent of the Company's total sales. Sales
are generated primarily in the United States, continental Europe and the
United Kingdom.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all majority-
owned subsidiaries. All intercompany accounts, transactions and profits are
eliminated. Investments in certain affiliates (20 percent to 50 percent
ownership) are accounted for by the equity method of accounting.
FISCAL YEAR
The Company's 1998 fiscal year reflected a 53-week period ending January 2,
1999. The Company's 1997 and 1996 fiscal years reflected 52-week periods
ending December 27, 1997 and December 28, 1996, respectively. Normally each
fiscal year consists of 52 weeks, but every fifth or sixth fiscal year
consists of 53 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
for the reporting period and as of the financial statement date. These
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities, and the reported
amounts of revenues and expenses. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in banks and short-
term investments, with maturities of three months or less when purchased. The
carrying amounts of these assets approximate fair value due to the short
maturity of the instruments. Cash paid for interest and taxes was as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest, net of capitalized amounts $29.8 $31.5 $ 40.0
Income taxes, net of refunds 86.3 88.1 115.9
=====================================================================================================
</TABLE>
Page 7
<PAGE>
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined using both the first-in, first-out (FIFO) and last-in, first-out
(LIFO) methods. Inventories valued using the LIFO method comprised 37 percent
and 35 percent of inventories before LIFO adjustment at year end 1998 and
1997, respectively.
During 1998, 1997 and 1996, certain inventories were reduced resulting in the
liquidation of LIFO inventory carried at lower costs prevailing in prior years
as compared with current costs. The effect was to reduce 1998, 1997 and 1996
cost of products sold by $3.3 million, $4.2 million and $3.2 million,
respectively. Inventories at year end were as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 69.2 $ 74.4
Work-in-progress 66.6 70.9
Finished goods 121.4 114.7
LIFO adjustment (26.6) (29.9)
-----------------------------------------------------------------------------------------------------------
$230.6 $230.1
===========================================================================================================
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Depreciation is generally computed using the straight-line method over the
estimated useful lives of the assets. Maintenance and repair costs are
expensed as incurred; renewals and betterments are capitalized. Upon the sale
or retirement of properties, the accounts are relieved of the cost and the
related accumulated depreciation, with any resulting profit or loss included
in income.
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Intangibles resulting from business acquisitions consist primarily of the
excess of the acquisition cost over the fair value of net assets acquired and
are amortized over a 25-to-40 year period using the straight-line method. The
Company evaluates the carrying value of its goodwill on an ongoing basis and
recognizes an impairment when the estimated future undiscounted cash flows
from operations are less than the carrying value of the goodwill. Accumulated
amortization at year end 1998 and 1997 was $55.6 million and $49.4 million,
respectively.
FOREIGN CURRENCY TRANSLATION
All asset and liability accounts of international operations are translated
into U.S. dollars at current rates. Revenue, costs and expenses are translated
at the weighted-average currency rate which prevailed during the fiscal year.
Gains and losses resulting from foreign currency transactions, other than
those transactions described below, are included in income currently. Gains
and losses resulting from hedging the value of investments in certain
international operations and from translation of financial statements are
excluded from net income and are recorded directly to a component of other
comprehensive income. Translation gains and losses of subsidiaries operating
in hyperinflationary economies are included in net income currently.
Transaction and translation losses decreased net income in 1998, 1997 and
1996, by $2.9 million, $1.5 million and $1.6 million, respectively.
Page 8
<PAGE>
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The Company enters into foreign exchange forward, option and swap contracts,
and interest rate contracts to manage exposure to fluctuations in foreign
currency exchange and interest rates. The Company does not hold or purchase
any foreign currency or interest rate contracts for trading purposes.
Foreign exchange forward, option and swap contracts that hedge existing
assets, liabilities or firm commitments are measured at fair value and the
related gains and losses on these contracts are recognized in net income
currently. Foreign exchange forward and option contracts that hedge forecasted
transactions are measured at fair value and the related gains and losses on
these contracts are deferred and subsequently recognized in net income in the
period in which the underlying transaction is consummated. In the event that
an anticipated transaction is no longer likely to occur, the Company
recognizes the change in fair value of the instrument in net income currently.
Gains and losses resulting from foreign exchange forward, option and swap
contracts are recorded in the same category as the related item being hedged.
Cash flows from the use of financial instruments are reported in the same
category as the hedged item in the Consolidated Statement of Cash Flows. Gains
and losses on contracts used to hedge the value of investments in certain
foreign subsidiaries are included in a component of other comprehensive
income.
The net amounts paid or received on interest rate agreements are recognized as
adjustments to interest expense over the terms of the agreements. Contract
premiums paid, if any, are amortized to interest expense over the terms of the
underlying instruments.
REVENUE RECOGNITION
Sales, provisions for estimated sales returns, and the cost of products sold
are recorded at the time of shipment.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development expense for 1998, 1997 and 1996 was $65 million, $61.1 million and
$54.6 million, respectively.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method. As such, no compensation expense is recognized since the
Company's stock option grants are generally priced at fair market value on the
date of grant.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that do not contribute to current or future revenue
generation are expensed. Expenditures for newly acquired assets and those
which extend or improve the economic useful life of existing assets are
capitalized and amortized over the remaining asset life. The Company reviews,
on a quarterly basis, its estimates of costs of compliance with environmental
laws and the cleanup of various sites, including sites in which governmental
agencies have designated the Company as a potentially responsible party. When
it is probable that obligations have been incurred and where a minimum cost or
a reasonable estimate of the cost of compliance or remediation can be
determined, the applicable amount is accrued. For other potential liabilities,
the timing of accruals coincides with the related ongoing site assessments.
Potential insurance reimbursements are not recorded or offset against the
liabilities until received, and liabilities are not discounted.
Page 9
<PAGE>
Avery Dennison Corporation
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Net income per common share amounts were computed as follows:
<TABLE>
<CAPTION>
(In millions, except per share amounts) 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(A) Net income available to common shareholders $223.3 $204.8 $175.9
------------------------------------------------------------------------------------------------------------------------------
(B) Weighted average number of common shares 101.5 103.1 105.0
outstanding
Additional common shares issuable under employee stock
options using the treasury stock method 2.6 3.0 2.6
------------------------------------------------------------------------------------------------------------------------------
(C) Weighted average number of common shares 104.1 106.1 107.6
outstanding assuming the exercise of stock options
Net income per common share (A) / (B) $ 2.20 $ 1.99 $ 1.68
Net income per common share, assuming dilution (A) / (C) 2.15 1.93 1.63
==============================================================================================================================
</TABLE>
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", was adopted during the first quarter of 1998. The
standard established guidelines for the reporting and display of comprehensive
income and its components in financial statements. Comprehensive income
includes net income, foreign currency translation adjustments and adjustments
to the minimum pension liability. The Company has changed the format of its
Consolidated Statement of Shareholders' Equity to present comprehensive income
and its components.
The following table reflects the balances of each classification within
accumulated other comprehensive income (loss):
<TABLE>
<CAPTION>
Foreign currency Accumulated other
translation Minimum pension comprehensive income
(In millions) adjustment liability (loss)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fiscal year end 1995 $ 33.8 $(2.6) $ 31.2
1996 change (5.5) 2.4 (3.1)
----------------------------------------------------------------------------------------------------------------------------------
Fiscal year end 1996 28.3 (.2) 28.1
1997 change (49.7) (.9) (50.6)
----------------------------------------------------------------------------------------------------------------------------------
Fiscal year end 1997 (21.4) (1.1) (22.5)
1998 change 13.3 1.1 14.4
----------------------------------------------------------------------------------------------------------------------------------
Fiscal year end 1998 $ (8.1) $ - $ (8.1)
==================================================================================================================================
</TABLE>
Page 10
<PAGE>
Avery Dennison Corporation
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", was adopted in the fourth quarter of 1998 and supersedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise". The new
standard established guidelines for reporting information on operating
segments in interim and annual financial statements. The adoption of the
standard did not affect the Company's results of operations or financial
position. In addition, the standard did not materially change the Company's
segment disclosures (see Note 10).
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This Statement
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives will be recorded
each period in current earnings or other comprehensive income. The new rules
will be effective the first quarter of 2000. The Company is in the process of
determining the impact of this new standard and, based on current market
conditions, anticipates that it will not have a material impact on the
Company's financial results when effective.
FINANCIAL PRESENTATION
Certain prior year amounts have been reclassified to conform with the 1998
financial statement presentation.
Note 2. DIVESTITURE AND RESTRUCTURING
During the third quarter of 1996, business restructuring actions resulted in a
net pretax gain of $2.1 million. The Company sold its equity interest in a
label operation in Japan for $28.4 million, resulting in a net gain of $17.9
million. The Company also recorded charges for certain restructuring actions
which had an estimated cost of $15.8 million.
The 1996 restructuring actions included the reorganization of certain
manufacturing, distribution and administrative sites. These costs consisted of
severance and related costs for approximately 200 positions worldwide ($7.4
million) and the discontinuance of product lines and related asset disposals
($2.1 million). In addition, an asset impairment write-down of $6.3 million
was recognized for long-lived assets held in the Company's Consumer and
Converted Products sector.
The Company's 1996 restructuring program was completed as of the third quarter
of 1997.
Page 11
<PAGE>
Avery Dennison Corporation
Note 3. DEBT
Long-term debt at year end was as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Medium-term notes (5.9% to 8.0% at year end) $410.0 $360.0
Domestic variable-rate short-term borrowings to be refinanced 42.0 26.4
on a long-term basis (5.1% at year end)
Industrial Revenue Bonds (4.1% to 9.9% at year end) 10.8 15.6
Other long-term debt (4.2% to 9.5% at year end) 5.5 3.6
- -----------------------------------------------------------------------------------------------------------------
468.3 405.6
Less: Amount classified as current (2.4) (1.5)
- -----------------------------------------------------------------------------------------------------------------
$465.9 $404.1
=================================================================================================================
</TABLE>
The Company has a revolving credit agreement with four domestic banks to
provide up to $250 million in borrowings through July 1, 2003, with all
amounts borrowed under this agreement due on the same date. The Company may
annually extend the revolving period and due date under certain conditions
with approval of the banks. The financing available under this revolving
credit agreement will be used, as needed, to repay uncollateralized short-term
and currently maturing long-term debt, and to finance other corporate
requirements.
In addition to the above revolving credit agreement, the Company had short-
term lines of credit available aggregating $360.2 million at the end of 1998,
of which $68.9 million was utilized at variable interest rates ranging from 4
percent to 7 percent.
During the fourth quarter of 1996, the Company registered with the Securities
and Exchange Commission $150 million in principal amount of uncollateralized
medium-term notes. In 1998 and 1997, $50 million and $60 million in notes were
issued, respectively. Proceeds from the medium-term notes were used to
refinance short-term debt and for other general corporate purposes. The
Company's outstanding medium-term notes have maturities from 2000 through 2025
and have a weighted-average interest rate of 6.95 percent.
The amount of long-term debt outstanding at the end of 1998, which matures
during 1999 through 2003 is $2.4 million, $4.9 million, $3.2 million, $20.1
million and $119.7 million, respectively, with $318 million maturing
thereafter.
The fair value of the Company's debt is estimated based on the discounted
amount of future cash flows using the current rates offered to the Company for
debt of the same remaining maturities. At year end 1998 and 1997, the fair
value of the Company's total debt, including short-term borrowings, was $554.9
million and $447.9 million, respectively.
The terms of various loan agreements in effect at year end require that the
Company maintain specified ratios of consolidated debt and consolidated
interest expense to certain measures of income.
The Company's total interest costs in 1998, 1997 and 1996 were $37.6 million,
$34.9 million and $40.9 million, respectively, of which $3.0 million, $3.2
million and $3.5 million, respectively, were capitalized as part of the cost
of assets constructed for the Company's use.
Page 12
<PAGE>
Avery Dennison Corporation
Note 4. FINANCIAL INSTRUMENTS
The Company enters into foreign exchange forward, option and swap contracts to
reduce its risk from exchange rate fluctuations associated with receivables,
payables, loans and commitments denominated in foreign currencies that arise
primarily as a result of its operations outside the United States. At the end
of 1998 and 1997, the Company had foreign exchange forward contracts with a
notional value of $311.9 million and $205.1 million, respectively,
substantially all of which were denominated in European currencies. The
Company's foreign exchange option contracts, which were also primarily
denominated in European currencies, had notional amounts of $13.4 million and
$25.8 million at the end of 1998 and 1997, respectively. In general, the
maturities of the contracts coincide with the underlying exposure positions
they are intended to hedge. All foreign exchange forward and option contracts
outstanding have maturities within 12 months. The carrying value of the
foreign exchange forward contracts approximated the fair value, which, based
on quoted market prices of comparable instruments, was a net liability of
approximately $.9 million and a net asset of approximately $1.3 million at the
end of 1998 and 1997, respectively. The carrying value of the foreign exchange
option contracts, based on quoted market prices of comparable instruments, was
$.3 million and $.9 million at the end of the 1998 and 1997, respectively.
During 1998, the Company entered into a swap contract to hedge foreign
currency commitments of approximately $9 million over a five year period. The
carrying value of this contract approximated fair value, which was a liability
of approximately $.1 million at the end of 1998.
The counterparties to foreign exchange forward, option and swap contracts
consist of a large number of major international financial institutions. The
Company centrally monitors its positions and the financial strength of its
counterparties. Therefore, while the Company may be exposed to losses in the
event of nonperformance by these counterparties, it does not anticipate any
such losses.
At the end of 1998, the Company had letters of credit outstanding totaling
$14.4 million which guaranteed various trade activities. The aggregate
contract amount of all outstanding letters of credit approximates fair value.
As of year end 1998 and 1997, approximately 24 percent and 26 percent,
respectively, of trade accounts receivables were from nine domestic customers.
While the Company does not require its customers to provide collateral, the
financial position and operations of these customers are monitored on an
ongoing basis. Although the Company may be exposed to losses in the event of
nonpayment, it does not anticipate any such losses.
Page 13
<PAGE>
Avery Dennison Corporation
NOTE 5. COMMITMENTS
Minimum annual rental commitments on operating leases having initial or
remaining noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
(In millions)
--------------------------------------------------------------
Year
--------------------------------------------------------------
<S> <C>
1999 $ 32.6
2000 27.4
2001 20.8
2002 14.8
2003 11.2
Thereafter 15.0
--------------------------------------------------------------
Total minimum lease payments $121.8
==============================================================
</TABLE>
Operating leases relate primarily to office and warehouse space, EDP and
transportation equipment.
Rent expense for 1998, 1997 and 1996 was $41 million, $39.4 million and
$39 million, respectively.
Page 14
<PAGE>
Avery Dennison Corporation
NOTE 6. TAXES BASED ON INCOME
Taxes based on income were as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. Federal tax $ 56.5 $ 58.3 $55.9
State taxes 13.4 15.6 12.3
International taxes 30.1 13.6 28.1
------------------------------------------------------------------------------------------------------------------------
100.0 87.5 96.3
------------------------------------------------------------------------------------------------------------------------
Deferred:
U.S. taxes 11.1 10.8 (4.7)
International taxes 2.3 8.1 3.1
------------------------------------------------------------------------------------------------------------------------
13.4 18.9 (1.6)
------------------------------------------------------------------------------------------------------------------------
Taxes on income $113.4 $106.4 $94.7
========================================================================================================================
</TABLE>
The principal items accounting for the difference in taxes as computed at the
U.S. statutory rate and as recorded were as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed tax at 35% of income before taxes $117.8 $108.9 $94.7
Increase (decrease) in taxes resulting from:
State taxes, net of federal tax benefits 8.7 10.1 8.0
Other items, net (13.1) (12.6) (8.0)
--------------------------------------------------------------------------------------------------------------------------
Taxes on income $113.4 $106.4 $94.7
==========================================================================================================================
</TABLE>
Consolidated income before taxes for U.S. and international operations was as
follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $232.2 $222.7 $176.4
International 104.5 88.5 94.2
------------------------------------------------------------------------------------------------------------------------
$336.7 $311.2 $270.6
========================================================================================================================
</TABLE>
U.S. income taxes have not been provided on undistributed earnings of
international subsidiaries ($382.1 million at year end 1998) because such
earnings are considered to be reinvested indefinitely or because U.S. income
taxes on dividends would be substantially offset by foreign tax credits.
Operating loss carryforwards for international subsidiaries aggregating $41.6
million are available to reduce income taxes payable, of which $15.2 million
will expire from 1999 through 2005, while $26.4 million can be carried forward
indefinitely.
Page 15
<PAGE>
Avery Dennison Corporation
NOTE 6. TAXES BASED ON INCOME (CONTINUED)
Deferred income taxes reflect the temporary differences between the amounts at
which assets and liabilities are recorded for financial reporting purposes and
the amounts utilized for tax purposes. The primary components of the temporary
differences which give rise to the Company's deferred tax assets and
liabilities were as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued expenses not currently deductible $ 65.2 $ 67.6
Net operating losses and foreign tax credit carryforwards 22.8 20.9
Postretirement and postemployment benefits 12.1 11.7
Pension costs (8.7) (5.0)
Valuation allowance (6.5) (5.0)
Depreciation (90.6) (82.9)
Other items, net -- 1.6
-----------------------------------------------------------------------------------------------------------
Total net deferred tax (liabilities) assets $ (5.7) $ 8.9
===========================================================================================================
</TABLE>
Note 7. SHAREHOLDERS' EQUITY
COMMON STOCK AND COMMON STOCK REPURCHASE PROGRAM
The Company's Certificate of Incorporation authorizes five million shares of
$1 par value preferred stock, with respect to which the Board of Directors may
fix the series and terms of issuance, and 400 million shares of $1 par value
voting common stock.
In December 1997, the Company redeemed the outstanding preferred stock
purchase rights and issued new preferred stock purchase rights, declaring a
dividend of one such right on each outstanding share of common stock and since
such time the Company has issued such rights with each share of common stock
that has been subsequently issued. When exercisable, each new right will
entitle its holder to buy one one-hundredth of a share of Series A Junior
Participating Preferred Stock at a price of $150.00 per one one-hundredth of a
share until October 31, 2007. The rights will become exercisable if a person
acquires 20 percent or more of the Company's common stock or makes an offer,
the consummation of which will result in the person's owning 20 percent or
more of the Company's common stock. In the event the Company is acquired in a
merger, each right entitles the holder to purchase common stock of the
acquiring company having a market value of twice the exercise price of the
right. If a person or group acquires 20 percent or more of the Company's
common stock, each right entitles the holder to purchase the Company's common
stock with a market value equal to twice the exercise price of the right. The
rights may be redeemed by the Company at a price of one cent per right at any
time prior to a person's or group's acquiring 20 percent of the Company's
common stock. The 20 percent threshold may be reduced by the Company to as low
as 10 percent at any time prior to a person's acquiring a percent of Company
stock equal to the lowered threshold.
Page 16
<PAGE>
Avery Dennison Corporation
NOTE 7. SHAREHOLDERS' EQUITY (CONTINUED)
The Board of Directors has authorized the repurchase of an aggregate 35.4
million shares of the Company's outstanding common stock. The acquired shares
may be reissued under the Company's stock option and incentive plans. At year
end 1998, approximately 3.5 million shares were still available for repurchase
pursuant to this authorization.
STOCK OPTION AND INCENTIVE PLANS
In October 1996, the Company established the Avery Dennison Corporation
Employee Stock Benefit Trust (the "ESBT") to fund a portion of the Company's
obligations arising from various employee benefit plans. The Company sold 18
million shares of treasury stock to the ESBT in exchange for a promissory note
of $564.8 million that bears an interest rate of 8 percent per annum. The ESBT
has a 15-year life during which it will utilize the common stock to satisfy
certain Company obligations. The common stock in the ESBT is carried at market
value with changes in share price from prior reporting periods reflected as an
adjustment to capital in excess of par value.
The Company maintains various stock option and incentive plans which are fixed
employee stock-based compensation plans. Under the plans, incentive stock
options and stock options granted to directors may be granted at not less than
100 percent of the fair market value of the Company's common stock on the date
of the grant, whereas nonqualified options granted to executives may be issued
at prices no less than par value. Options granted are generally priced at fair
market value on the date of the grant and generally vest ratably over a four
year period. Unexercised options expire ten years from the date of grant. The
following table sets forth stock option information relative to these plans:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------- ------------------------------- ------------------------------
Weighted-average Number Weighted-average Number Weighted-average Number
(Options in thousands) exercise price of options exercise price of options exercise price of options
-------------------------------------------------------------- ------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year $23.19 9,147.7 $18.76 9,775.7 $15.03 10,224.6
Granted 45.65 1,098.5 42.29 1,339.0 34.67 1,623.0
Exercised 14.32 (2,204.7) 12.93 (1,706.9) 11.96 (1,778.9)
Forfeited or expired 28.28 (296.6) 22.39 (260.1) 18.23 (293.0)
----------------------------------------------------------------------------------------------------------------------------------
Outstanding at year end $28.70 7,744.9 $23.19 9,147.7 $18.76 9,775.7
Options exercisable at year end 3,714.0 4,518.7 4,670.4
==================================================================================================================================
</TABLE>
The following table summarizes information on fixed stock options outstanding
at January 2, 1999 (options in thousands):
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------------------------------- ---------------------------------------
Weighted-
average Weighted- Weighted-
Number remaining average Number average
Range of exercise prices outstanding contractual life exercise price exercisable exercise price
-------------------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9.59 - 14.00 1,137.9 3.2 years $12.86 1,137.9 $12.86
15.28 - 23.63 2,808.2 6.2 years 19.30 2,022.4 17.61
34.94 - 45.19 3,798.8 8.8 years 40.40 553.7 36.61
---------------------------------------------------------------------------------------------------------------------------------
$ 9.59 - 45.19 7,744.9 7.0 years $28.70 3,714.0 $18.99
=================================================================================================================================
</TABLE>
Page 17
<PAGE>
Avery Dennison Corporation
NOTE 7. SHAREHOLDERS' EQUITY (CONTINUED)
As permitted under current accounting standards, no compensation cost was
recognized in the Consolidated Statement of Income for the Company's stock
option and incentive plans. Had compensation cost for the Company's stock-
based compensation plans been recognized ratably over the options' vesting
periods, the Company's pro forma net income and net income per common share
would have been $213.4 million and $2.10, respectively, for 1998, $197.8
million and $1.92, respectively, for 1997 and $172.1 million and $1.64,
respectively, for 1996. Net income per share, assuming dilution, would have
been $2.05, $1.86 and $1.59 for 1998, 1997 and 1996, respectively.
The weighted-average fair value of options granted during 1998, 1997 and 1996
was $13.07, $12.70 and $9.51, respectively. Option grant date fair values were
determined using a Black-Scholes option pricing value. The underlying
assumptions used were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.37% 6.39% 6.40%
Expected stock price volatility 24.34 17.74 18.57
Expected dividend yield 2.18 1.74 2.09
Expected option term 10 years 10 years 10 years
=================================================================================================
</TABLE>
NOTE 8. CONTINGENCIES
The Company has been designated by the U.S. Environmental Protection Agency
(EPA) and/or other responsible state agencies as a potentially responsible
party (PRP) at 17 waste disposal or waste recycling sites which are the
subject of separate investigations or proceedings concerning alleged soil
and/or groundwater contamination and for which no settlement of the Company's
liability has been agreed upon. Litigation has been initiated by a
governmental authority with respect to two of these sites, but the Company
does not believe that any such proceedings will result in the imposition of
monetary sanctions. The Company is participating with other PRPs at all such
sites, and anticipates that its share of cleanup costs will be determined
pursuant to remedial agreements entered into in the normal course of
negotiations with the EPA or other governmental authorities.
The Company has accrued liabilities for all sites, including sites in which
governmental agencies have designated the Company as a PRP, where it is
probable that a loss will be incurred and the minimum cost or amount of loss
can be reasonably estimated. However, because of the uncertainties associated
with environmental assessment and remediation activities, future expense to
remediate the currently identified sites, and sites which could be identified
in the future for cleanup, could be higher than the liability currently
accrued. Based on current site assessments, management believes the potential
liability over the amounts currently accrued would not materially affect the
Company.
The Company and its subsidiaries are involved in various other lawsuits,
claims and inquiries, most of which are routine to the nature of the business.
In the opinion of management, the resolution of these matters will not
materially affect the Company.
Page 18
<PAGE>
Avery Dennison Corporation
NOTE 9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" in 1998. SFAS No. 132 revises employers'
disclosures for pensions and other postretirement benefit plans. It does not
change measurement or recognition of those plans. Prior year information has
been presented in accordance with the new standard.
DEFINED BENEFIT PLANS AND POSTRETIREMENT HEALTH BENEFITS
The Company sponsors a number of defined benefit plans covering substantially
all U.S. employees, employees in certain other countries and non-employee
directors. It is the Company's policy to make contributions to these plans
sufficient to meet the minimum funding requirements of applicable laws and
regulations, plus additional amounts, if any, as the Company's actuarial
consultants advise to be appropriate. Plan assets are invested in a
diversified portfolio that consists primarily of equity securities. Benefits
payable to employees are based primarily on years of service and employees'
pay during their employment with the Company. Certain benefits provided by the
Company's U.S. defined benefit plan were paid, in part, from an employee stock
ownership plan.
The Company provides postretirement health benefits to its retired employees
up to the age of 65 under a cost-sharing arrangement, and supplemental
Medicare benefits to certain U.S. retirees over the age of 65. The Company's
policy is to fund the cost of the postretirement benefits on a cash basis.
Page 19
<PAGE>
Avery Dennison Corporation
NOTE 9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the plans:
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Health Benefits
---------------------------------------------------------
(In millions) 1998 1997 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $439.7 $401.1 $ 30.0 $ 28.4
Service cost 10.1 8.4 1.0 1.1
Interest cost 29.9 29.1 2.0 2.0
Participant contribution 1.9 1.7 - -
Amendments 7.8 9.4 - -
Actuarial loss (gain) 3.7 25.4 (1.5) -
Benefits paid (25.6) (23.3) (1.6) (1.5)
Foreign currency translation 6.1 (12.1) - -
----------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $473.6 $439.7 $ 29.9 $ 30.0
======================================================================================================================
Change in plan assets:
Fair value of plan assets at beginning of year $521.8 $471.5 - -
Actual return on plan assets 95.6 71.5 - -
Employer contribution 3.3 6.8 1.6 1.5
Participant contribution 1.9 1.7 - -
Benefits paid (25.6) (23.3) (1.6) (1.5)
Foreign currency translation 8.5 (6.4) - -
--------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $605.5 $521.8 - -
======================================================================================================================
Funded status of the plans:
Plan assets in excess of (less than) benefit obligation $131.9 $ 82.1 $(29.9) $(30.0)
Unrecognized net actuarial gain (59.0) (10.4) (4.3) (3.0)
Unrecognized prior service cost (benefit) 4.2 (2.8) 1.0 1.1
Unrecognized net asset (18.5) (19.6) - -
----------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 58.6 $ 49.3 $(33.2) $(31.9)
======================================================================================================================
Amounts recognized in the Consolidated Balance Sheet
consist of:
Prepaid benefit cost $ 84.1 $ 68.7 - -
Accrued benefit liability (26.8) (21.9) (33.2) (31.9)
Intangible asset 1.3 1.4 - -
Accumulated other comprehensive income - 1.1 - -
----------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 58.6 $ 49.3 $(33.2) $(31.9)
======================================================================================================================
</TABLE>
Page 20
<PAGE>
Avery Dennison Corporation
NOTE 9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $24.1 million, $22.2 million and $3.7 million,
respectively, at year end 1998, and $182.7 million, $169.3 million and $149.7
million, respectively, at year end 1997.
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Health Benefits
1998 1997 1996 1998 1997 1996
------------------------------------------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions used:
Discount rate 6.7% 7.0% 7.4% 7.00% 7.25% 7.25%
Expected long-term rate of return on plan assets 9.2 9.3 9.7 - - -
Rate of increase in future compensation levels 4.1 4.4 5.0 - - -
================================================================================================================================
</TABLE>
Page 21
<PAGE>
Avery Dennison Corporation
NOTE 9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following table sets forth the components of net periodic benefit (income)
cost:
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Health Benefits
--------------------------------- ---------------------------
(In millions) 1998 1997 1996 1998 1997 1996
---------------------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit (income)
cost:
Service cost $ 10.1 $ 8.4 $ 9.1 $ 1.0 $ 1.1 $ .9
Interest cost 29.9 29.1 27.0 2.0 2.0 1.8
Expected return on plan assets (44.0) (39.4) (38.4) - - -
Recognized net actuarial loss (gain) .6 2.3 1.8 (.1) - (.1)
Amortization of prior service cost .9 .1 - - .1 .1
Amortization of transition obligation or asset (2.0) (2.0) (1.9) - - -
------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit (income) cost $ (4.5) $ (1.5) $ (2.4) $ 2.9 $ 3.2 $ 2.7
==============================================================================================================================
</TABLE>
For measurement purposes, a 7 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease to 6 percent by 2000 and remain at that level.
A one percentage point change in assumed health care cost trend rates would
have the following effects:
<TABLE>
<CAPTION>
(In millions) One percentage-point One percentage-point
increase decrease
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ .5 $ (.4)
Effect on postretirement benefit obligation 3.9 (3.5)
=============================================================================================================================
</TABLE>
As a result of changes in assumptions used during 1998 and 1997, an additional
liability of $1.3 million and $2.5 million, respectively, is reflected in the
Company's Consolidated Balance Sheet. These amounts are offset in 1998 and
1997 by the recording of an intangible pension asset of $1.3 million and $1.4
million, respectively, and a charge to equity of $1.1 million in 1997.
Consolidated pension (income) expense for 1998, 1997 and 1996 was $(2.9)
million, $.4 million and $1.5 million, respectively.
DEFINED CONTRIBUTION PLANS
The Company sponsors various defined contribution plans covering its U.S.
employees, including a 401(k) savings plan. The Company matches participant
contributions to the 401(k) savings plan based on a formula within the plan.
The Avery Dennison Corporation Employee Savings Plan (Savings Plan) has a
leveraged employee stock ownership plan (ESOP) feature which allows the plan
to borrow funds to purchase shares of the Company's common stock at market
prices. Savings Plan expense consists primarily of stock contributions from
the ESOP feature to participant accounts.
The Company also maintained another leveraged ESOP for employees not covered
by a collective bargaining agreement. This ESOP also borrowed funds to
purchase shares of the Company's common stock at market prices. On December 1,
1997, the Savings Plan ESOP merged with this ESOP. The combined ESOP funds the
Company's stock contributions to the Savings Plan.
Page 22
<PAGE>
Avery Dennison Corporation
NOTE 9. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
ESOP expense is accounted for under three different methodologies: the cost of
shares allocated method, the cash flow method and the fair value method. Total
ESOP expense for 1998, 1997 and 1996 was $.1 million, $3.5 million and $8.9
million, respectively. Company contributions to pay interest and principal on
ESOP borrowings for 1998, 1997 and 1996 were $.1 million, $3.2 million and
$8.8 million, respectively.
Interest costs incurred by the ESOPs for 1998, 1997 and 1996 were $1.8
million, $2.6 million and $2.7 million, respectively. Dividends on unallocated
ESOP shares used for debt service were $1.6 million in 1998 and 1997, and $1.7
million in 1996.
Consolidated expense for all defined contribution plans (including total ESOP
expense) for 1998, 1997 and 1996 was $.8 million, $4 million and $9.3 million,
respectively. Of the total shares held by the ESOP, 6.4 million shares were
allocated and 1.7 million shares were unallocated at year end 1998, and 6.8
million shares were allocated and 1.9 million shares were unallocated at year
end 1997.
Of the total shares held by the ESOP, shares accounted for under the fair
value method were comprised of 337,400 allocated shares at year end 1998, and
200,100 allocated shares and 137,300 unallocated shares at year end 1997.
Under the fair value method, unallocated shares were valued at $6 million at
year end 1997.
OTHER RETIREMENT PLANS
The Company has deferred compensation plans which permit eligible employees
and directors to defer a specific portion of their compensation. The deferred
compensation, together with certain Company contributions, earn specified and
variable rates of return. As of year end 1998 and 1997, the Company had
accrued $78.2 million and $72.3 million, respectively, for its obligations
under these plans. The Company's expense, which includes Company contributions
and interest expense, was $6.3 million, $8.1 million and $6 million for 1998,
1997 and 1996, respectively. A portion of the interest may be forfeited by
participants in the event employment is terminated before age 55 other than by
reason of death, disability or retirement.
To assist in the funding of these plans, the Company purchases corporate-owned
life insurance contracts. Proceeds from the insurance policies are payable to
the Company upon the death of the participant. The cash surrender value of
these policies, net of outstanding loans, included in "Other assets" was $46.6
million and $30.7 million at year end 1998 and 1997, respectively.
Page 23
<PAGE>
Avery Dennison Corporation
NOTE 10. SEGMENT INFORMATION
During the fourth quarter of 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
Company manages its business in two reportable operating segments: Pressure-
sensitive Adhesives and Materials and Consumer and Converted Products. The
segments were determined based upon the types of products produced and markets
served by each segment. The Pressure-sensitive Adhesives and Materials segment
manufactures pressure-sensitive adhesives and base materials that are sold
primarily to converters and label printers to be further processed. Products
in this segment include Fasson-brand papers, films and foils, specialty tape
and chemicals. The Consumer and Converted Products segment manufactures
products for use by the retail industry and original equipment manufacturers.
This segment includes Avery-brand labels and other consumer products, custom
labels, high performance specialty films and labels, automotive applications
and fasteners.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Intersector sales
are recorded at or near market prices and are eliminated in determining
consolidated sales. The Company evaluates performance based on income from
operations before interest expense and taxes. General corporate expenses are
also excluded from the computation of income from operations.
The Company does not disclose total assets by reportable operating segment
since the Company does not produce such information internally. Instead, the
Company reviews each operating segment's average invested capital to assess
performance and decide how to allocate resources to each segment.
Page 24
<PAGE>
Avery Dennison Corporation
NOTE 10. SEGMENT INFORMATION (CONTINUED)
Financial information by reportable operating segment is set forth below:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996/(1)/
--------------------------------------------------------------------------------------------------------------
Net sales:
<S> <C> <C> <C>
Pressure-sensitive Adhesives and Materials $1,874.1 $1,823.8 $1,783.8
Consumer and Converted Products 1,742.1 1,672.6 1,580.1
Intersector (156.3) (151.9) (145.5)
Divested operations - 1.2 4.1
--------------------------------------------------------------------------------------------------------------
Net sales $3,459.9 $3,345.7 $3,222.5
==============================================================================================================
Income (loss) from operations before interest and taxes:
Pressure-sensitive Adhesives and Materials $ 170.3 $ 172.1 $ 160.7
Consumer and Converted Products 227.0 188.5 158.5
Divested operations - (.6) (3.6)
Corporate administrative and research and (26.0) (17.1) (7.6)
development expenses
--------------------------------------------------------------------------------------------------------------
$ 371.3 $ 342.9 $ 308.0
Interest expense (34.6) (31.7) (37.4)
--------------------------------------------------------------------------------------------------------------
Income before taxes $ 336.7 $ 311.2 $ 270.6
==============================================================================================================
Capital expenditures:
Pressure-sensitive Adhesives and Materials $ 82.9 $ 105.7 $ 101.6
Consumer and Converted Products 70.0 66.8 76.1
Corporate and divested operations 6.8 4.8 9.9
--------------------------------------------------------------------------------------------------------------
Capital expenditures $ 159.7 $ 177.3 $ 187.6
==============================================================================================================
Depreciation expense:
Pressure-sensitive Adhesives and Materials $ 59.1 $ 55.0 $ 50.3
Consumer and Converted Products 48.2 43.8 40.0
Corporate and divested operations 7.3 6.7 9.9
--------------------------------------------------------------------------------------------------------------
Depreciation expense $ 114.6 $ 105.5 $ 100.2
==============================================================================================================
</TABLE>
/(1)/ Fiscal 1996 results include a pretax gain of $17.9 million from the
sale of its equity interest in a label operation in Japan which was
included in Corporate's administrative expense. Fiscal 1996 results
also include pretax restructuring charges of $15.8 million. The
restructuring charges were allocated as follows: $7.1 million to the
Pressure-sensitive Adhesives and Materials sector and $8.7 million to
the Consumer and Converted Products sector.
The 1996 restructuring charges, along with the gains on divestiture,
were reported in the "Net gain on divestitures and restructuring
charges" line of the Consolidated Statement of Income.
Page 25
<PAGE>
Avery Dennison Corporation
NOTE 10. SECTORS OF BUSINESS OPERATIONS (CONTINUED)
Financial information relating to the Company's operations by geographic area
is set forth below:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
-------------------------------------------------------------------------------------------------------------
Net sales:
<S> <C> <C> <C>
U.S. $2,206.4 $2,154.0 $2,039.6
International 1,288.4 1,227.3 1,212.6
Intersector (34.9) (36.8) (33.8)
Divested operations - 1.2 4.1
-------------------------------------------------------------------------------------------------------------
Net sales $3,459.9 $3,345.7 $3,222.5
=============================================================================================================
Property, plant and equipment, net:
U.S. $ 584.0 $ 572.3 $ 552.1
International 391.3 351.7 338.7
Corporate and divested operations 60.3 61.3 71.9
-------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net $1,035.6 $ 985.3 $ 962.7
=============================================================================================================
</TABLE>
Revenues are attributed to geographic areas based on the location to which the
product is shipped. The Company's international operations, conducted
primarily in continental Europe and the United Kingdom, are on the FIFO basis
of inventory cost accounting. U.S. operations use both FIFO and LIFO. Export
sales from the United States to unaffiliated customers are not a material
factor in the Company's business.
Page 26
<PAGE>
Avery Dennison Corporation
NOTE 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
(In millions, except per share data) Quarter Quarter Quarter/(2)/ Quarter/(1)/,/(3)/
--------------------------------------------------------------------------------------------------------------------------------
1998 /(1)/, /(3)/
<S> <C> <C> <C> <C>
Net sales $843.6 $871.5 $860.2 $884.6
Gross profit 280.5 291.3 280.9 291.8
Net income 54.2 57.4 55.8 55.9
Net income per common share .53 .56 .55 .56
Net income per common share, assuming dilution .52 .55 .54 .54
--------------------------------------------------------------------------------------------------------------------
1997 /(1)/
Net sales $828.9 $844.8 $835.6 $836.4
Gross profit 262.9 273.8 270.1 275.9
Net income 48.2 49.6 52.6 54.4
Net income per common share .47 .48 .51 .53
Net income per common share, assuming dilution .45 .47 .50 .52
--------------------------------------------------------------------------------------------------------------------
1996 /(1)/, /(2)/
Net sales $796.6 $797.7 $819.3 $808.9
Gross profit 246.7 248.4 260.5 262.7
Net income 40.0 41.6 46.6 47.7
Net income per common share .38 .39 .45 .46
Net income per common share, assuming dilution .37 .39 .44 .45
====================================================================================================================
</TABLE>
/(1)/ During the fourth quarter of 1998, 1997 and 1996, certain inventories
were reduced, resulting in the liquidation of LIFO inventory. The
effect was to reduce cost of products sold by $1.9 million, $3 million
and $1.7 million, respectively.
/(2)/ Net income for the third quarter of 1996 includes income of $1.4
million, or $.01 per common share, related to the net gain on
divestiture and restructuring charges.
/(3)/ The Company's 1998 fiscal year reflected a 53-week period compared to
52-week periods in 1997 and 1996. The extra week in 1998 was reflected
in the fourth quarter.
NOTE 12. SUBSEQUENT EVENTS
On January 12, 1999, the Company completed a transaction with Steinbeis
Holding GmbH to combine substantially all of the Company's office products
businesses in Europe with Zweckform Buro-Produkte GmbH (Zweckform), a German
office products supplier. Zweckform produces labels, films and specialty
papers for use with personal computers, desktop printers and copiers.
Zweckform had sales of approximately $120 million in 1997. The Company has a
substantial majority position in the venture.
On January 26, 1999, the Company announced plans for a major realignment of
the Company's cost structure, which will include a one-time restructuring
charge in the first quarter of 1999, designed to increase operating
efficiencies and improve profitability. The restructuring will result in a
one-time pretax charge of $60 million to $65 million, or $.40 to $.42 per
diluted share on an after-tax basis. The restructuring charge will include
severance costs, related asset write-offs, and other one-time expenses. The
Company will close eight facilities around the world and eliminate
approximately 1,500 positions. In addition, a portion of the restructuring
program will involve the consolidation of some of its office products
manufacturing facilities into a new facility in Northern Mexico, which will
involve the addition of some positions in the year 2000.
Page 27
<PAGE>
Avery Dennison Corporation
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Avery Dennison:
We have audited the accompanying consolidated balance sheet of Avery Dennison
Corporation and subsidiaries as of January 2, 1999 and December 27, 1997, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended January 2, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion the financial statements referred to above, which appear on
pages 34 through 48 of this Annual Report, present fairly, in all material
respects, the consolidated financial position of Avery Dennison Corporation
and subsidiaries as of January 2, 1999 and December 27, 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 2, 1999, in conformity with generally
accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Los Angeles, California
January 26, 1999
Page 28
<PAGE>
Avery Dennison Corporation
CORPORATE INFORMATION
COUNSEL
Latham & Watkins
Los Angeles, California
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Los Angeles, California
TRANSFER AGENT-REGISTRAR
First Chicago Trust Company of New York,
a division of EquiServe
P.O. Box 2500
Jersey City, NJ 07303-2500
(800) 756-8200
(201) 222-4955 (hearing impaired number)
[email protected] (e:\mail)
http://www.equiserve.com (Web site)
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 1:30 pm, Thursday, April
29, 1999, in the Conference Center of the Miller Corporate Center, 150 North
Orange Grove Boulevard, Pasadena, California.
FAX-ON-DEMAND
To obtain news releases on Avery Dennison earnings, dividends or other
activities, dial our 24-hour fax-on-demand service at (800) 947-1093, and
follow the voice prompts.
DIRECTSERVICE(TM) INVESTMENT AND STOCK PURCHASE PROGRAM
Shareholders of record may reinvest their cash dividends in additional shares
of Avery Dennison common stock at market price.
Investors may also invest optional cash payments of up to $12,500 per month in
Avery Dennison common stock at market price.
Avery Dennison investors not yet participating in the program, as well as
brokers and custodians who hold Avery Dennison common stock for clients, may
obtain a copy of the program by writing to The DirectSERVICE Investment
Program, c/o First Chicago Trust Company of New York (include a reference to
Avery Dennison in the correspondence), P.O. Box 2598, Jersey City, NJ 07303-
2598, or calling (800) 649-2291, or logging into their website at
"http://www.equiserve.com".
Page 29
<PAGE>
Avery Dennison Corporation
DIRECT DEPOSIT OF DIVIDENDS
Avery Dennison shareholders may deposit quarterly dividend checks directly
into their checking or savings accounts. For more information, call Avery
Dennison's transfer agent and registrar, First Chicago Trust Company of New
York, at (800) 870-2340.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, will be furnished to shareholders and
interested investors free of charge upon written request to the Secretary of
the Corporation.
CORPORATE HEADQUARTERS
Miller Corporate Center
150 North Orange Grove Boulevard
Pasadena, California 91103
(626) 304-2000
Mailing Address:
P.O. Box 7090
Pasadena, California 91109-7090
Fax: (626) 792-7312
INVESTOR RELATIONS CONTACT
Wayne H. Smith, Vice President and Treasurer
(626) 304-2000
[email protected]
WORLDWIDE WEB SITES
http://www.averydennison.com
http://www.avery.com (direct address for Avery-brand office and consumer
products)
http://www.fasson.com (direct address for Fasson-brand products)
PRODUCT INFORMATION
For information about Avery Dennison office products and services, call the
Consumer Service Center toll-free at (800) 252-8379.
Page 30
<PAGE>
Avery Dennison Corporation
STOCK AND DIVIDEND DATA
Common shares of Avery Dennison are listed on the New York and Pacific stock
exchanges.
Ticker symbol: AVY
<TABLE>
<CAPTION>
1998 1997
-------------------------- ----------------------------
High Low High Low
---------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Market Price
First Quarter 54 3/16 41 9/16 43 1/2 33 3/8
Second Quarter 55 5/16 49 11/16 39 5/8 35 1/8
Third Quarter 60 3/4 47 1/16 44 1/8 38 5/16
Fourth Quarter 49 5/8 40 7/8 43 3/4 38 1/4
====================================================================================================================
Prices shown represent closing prices on the NYSE.
1998 1997
----------------------------------------------------------------------------------- ----------------------------
Dividends Per Common Share
First Quarter .21 .17
Second Quarter .21 .17
Third Quarter .21 .17
Fourth Quarter .24 .21
--------------------------------------------------------------------------------------------------------------------
Total .87 .72
====================================================================================================================
Number of shareholders of record as of year end 1998: 14,209
</TABLE>
Page 31
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
NAME OF CURRENT SUBSIDIARY JURISDICTION IN WHICH ORGANIZED
<S> <C>
1 A-D Holdings Argentina S.A. Argentina
2 A.V. Chemie AG Switzerland
3 ADC Philippines, Inc. Philippines
4 AEAC, Inc. Delaware
5 Avery (China) Company Limited China
6 Avery Automotive Limited United Kingdom
7 Avery Corp. Delaware
8 Avery de Mexico S.A. De C.V. Mexico
9 Avery Dennison (Fiji) Limited Fiji
10 Avery Dennison (Hong Kong) Limited Hong Kong
11 Avery Dennison (India) Private Limited India
12 Avery Dennison (Ireland) Limited Ireland
13 Avery Dennison (Malaysia) Sdn. Bhd. Malaysia
14 Avery Dennison (Retail) Limited Australia
15 Avery Dennison (Thailand) Ltd. Thailand
16 Avery Dennison Argentina S.A. Argentina
17 Avery Dennison Australia Group Holdings Pty Limited Australia
18 Avery Dennison Australia Limited Australia
19 Avery Dennison Belgie N.V. Belgium
20 Avery Dennison C.A. Venezuela
21 Avery Dennison Canada Inc. Canada
22 Avery Dennison Chile S.A. Chile
23 Avery Dennison Colombia S.A. Colombia
24 Avery Dennison Converted Products de Mexico, S.A. de C.V. Mexico
25 Avery Dennison Coordination Center N.V. Belgium
26 Avery Dennison Corporation Delaware
27 Avery Dennison Danmark A/S Denmark
28 Avery Dennison Deutschland GmbH Germany
29 Avery Dennison do Brasil Ltda. Brazil
30 Avery Dennison Dover S.A. Argentina
31 Avery Dennison Etiket Ticaret Limited Sirketi Turkey
32 Avery Dennison Foreign Sales Corporation Barbados
33 Avery Dennison France S.A. France
34 Avery Dennison Health Management Corporation California
35 Avery Dennison Holding AG Switzerland
36 Avery Dennison Holding GmbH Germany
37 Avery Dennison Holdings Limited Australia
38 Avery Dennison Hong Kong B.V. Hong Kong
39 Avery Dennison Hungary Limited Hungary
40 Avery Dennison Iberica, S.A. Spain
41 Avery Dennison Italia S.p.a. Italy
42 Avery Dennison Korea Limited Korea
43 Avery Dennison Luxembourg S.A. Luxembourg
44 Avery Dennison Materials France S.a.r.l. France
45 Avery Dennison Materials GmbH Germany
46 Avery Dennison Materials Ireland Limited Ireland
47 Avery Dennison Materials Nederland B.V. Netherlands
48 Avery Dennison Materials Pty Limited Australia
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
NAME OF CURRENT SUBSIDIARY JURISDICTION IN WHICH ORGANIZED
<S> <C>
49 Avery Dennison Materials U.K. Limited United Kingdom
50 Avery Dennison Mexico S.A. de C.V. Mexico
51 Avery Dennison Norge A/S Norway
52 Avery Dennison Office Products (Pty.) Ltd. South Africa
53 Avery Dennison Office Products Company Nevada
54 Avery Dennison Office Products Italia S.r.l. Italy
55 Avery Dennison Office Products Pty Limited Australia
56 Avery Dennison Office Products U.K. Limited United Kingdom
57 Avery Dennison Osterreich Gmbh Austria
58 Avery Dennison Overseas Corporation Massachusetts
59 Avery Dennison Polska Sp. z o.o. Poland
60 Avery Dennison Printer Labels A/S Denmark
61 Avery Dennison Scandinavia A/S Denmark
62 Avery Dennison Schweiz AG Switzerland
63 Avery Dennison Security Printing Europe A/S Denmark
64 Avery Dennison Singapore (Pte) Ltd Singapore
65 Avery Dennison South Africa (Proprietary) Limited South Africa
66 Avery Dennison Suomi OY Finland
67 Avery Dennison Sverige AG Sweden
68 Avery Dennison Systemes d'Etiquetage France S.A.S. France
69 Avery Dennison U.K. Limited United Kingdom
70 Avery Dennison Zweckform Office Products Europe GmbH Germany
71 Avery Dennison, S.A. de C.V. Mexico
72 Avery Etiketsystemer A/S Denmark
73 Avery Etiketten B.V. Netherlands
74 Avery Etikettsystem Svenska AB Sweden
75 Avery Foreign Sales Corporation B.V. Netherlands
76 Avery Graphic Systems, Inc. Delaware
77 Avery Guidex Limited United Kingdom
78 Avery Holding B.V. Netherlands
79 Avery Holding Limited United Kingdom
80 Avery Holding S.A. France
81 Avery Label (Northern Ireland) Limited United Kingdom
82 Avery Maschinen GmbH Germany
83 Avery Pacific Corporation California
84 Avery Properties Pty. Limited Australia
85 Avery Research Center, Inc. California
86 Avery, Inc. California
87 Cardinal Insurance Limited Bermuda
88 Delhi International Sales Corporation Barbados
89 Dennison do Brasil Industria e Comercio Ltda. Brazil
90 Dennison International Company Massachusetts
91 Dennison International Holding B.V. Netherlands
92 Dennison Ireland Limited Ireland
93 Dennison Manufacturing (Trading) Ltd. United Kingdom
94 Dennison Manufacturing Company Nevada
95 Dennison Monarch Systems, Inc. Delaware
96 Dennison Office Products Limited Ireland
97 DMC Development Corporation Nevada
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME OF CURRENT SUBSIDIARY JURISDICTION IN WHICH ORGANIZED
<S> <C>
98 Etikettrykkeriet A/S Denmark
100 Fasson Canada Inc. Canada
101 Fasson Portugal Produtos Auto-Adesivos Lda. Portugal
102 LAC Retail Systems Limited United Kingdom
103 Monarch Industries, Inc. New Jersey
104 Plastimpres S.A. Argentina
105 PT Avery Dennison Indonesia Indonesia
106 Retail Products Limited Ireland
107 Security Printing Division, Inc. Delaware
108 Societe Civile Immobiliere Sarrail France
109 Spartan International, Inc. Michigan
110 Spartan Plastics Canada, Ltd Canada
112 Tiadeco Participacoes, Ltda. Brazil
113 Zweckform Austria GmbH Austria
114 Zweckform France S.a.r.l. France
115 Zweckform U.K. Ltd. United Kingdom
</TABLE>
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000008818
<NAME> AVERY DENNISON
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> DEC-28-1997
<PERIOD-END> JAN-02-1999
<CASH> 18,500
<SECURITIES> 0
<RECEIVABLES> 471,300
<ALLOWANCES> 16,500
<INVENTORY> 230,600
<CURRENT-ASSETS> 802,000
<PP&E> 1,932,600
<DEPRECIATION> 897,000
<TOTAL-ASSETS> 2,142,600
<CURRENT-LIABILITIES> 664,300
<BONDS> 465,900
0
0
<COMMON> 124,100
<OTHER-SE> 709,200
<TOTAL-LIABILITY-AND-EQUITY> 2,142,600
<SALES> 3,459,900
<TOTAL-REVENUES> 3,459,900
<CGS> 2,315,400
<TOTAL-COSTS> 2,315,400
<OTHER-EXPENSES> 773,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,600
<INCOME-PRETAX> 336,700
<INCOME-TAX> 113,400
<INCOME-CONTINUING> 223,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,300
<EPS-PRIMARY> 2.20<F1>
<EPS-DILUTED> 2.15
<FN>
<F1>Represents EPS-Basic
</FN>
</TABLE>
<PAGE>
Exhibit 99
----------
Exhibit 99
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Information provided by the Company may contain certain forward-looking
information, as defined by the Private Securities Litigation Reform Act of 1995
(the "Act"). This may relate to such matters as sales, unit volume, income,
margins, earnings per share, return on equity, return on total capital, economic
value added, capital expenditures, dividends, cash flow, debt to capital ratios,
growth rates, future economic performance and trends, short- and long-term plans
(including financing, operating and strategic plans) and objectives for future
operations as well as assumptions relating to any of the forward-looking
information. This Statement is being made pursuant to the Act and with the
intention of obtaining the benefits of the so-called "safe harbor" provisions of
the Act. The Company cautions that forward-looking statements are not
guarantees because there are inherent and obvious difficulties in predicting the
outcome of future events. Therefore, actual results may differ materially from
those expressed or implied.
The ability of the Company to attain management's goals and objectives are
materially dependent on numerous factors, including those set forth herein.
Operating results are importantly influenced by general economic conditions and
growth (or contraction) of the principal economies in which the Company
operates, including the United States, Canada, Europe, Latin America and the
Asia-Pacific region. All economies in which the Company operates are cyclical
and the rates of growth (or contraction) can vary substantially. More than one-
third of the Company's sales and one-quarter of the income from operations
(before interest and taxes) are in foreign currencies, which fluctuate in
relation to one another and to the United States dollar. Fluctuations in
currencies can cause transaction, translation and other losses to the Company.
The Company's international operations are strongly influenced by the political,
economic and regulatory environment (including tariffs) in the countries in
which the Company conducts its operations.
As a manufacturer, the Company's sales and profitability are also dependent upon
availability of raw materials and the ability to control or pass on costs of raw
materials and labor. Inflationary and other increases in the costs of raw
materials and labor have occurred in the past and are expected to recur, and the
Company's ability to reflect these costs in increased selling prices for its
products, increasing its productivity, and focusing on higher profit businesses,
has allowed the Company generally to maintain its margins. Past performance may
or may not be replicable in the future.
The Company's customers are widely diversified, but in certain portions of its
business, industry concentration has increased the importance and decreased the
number of significant customers. In particular, sales of the Company's consumer
products in the United States are increasingly concentrated in a few major
customers, principally discount office product superstores and distributors.
These developments, including increased credit risks, may increase pressures on
the Company's margins.
A significant portion of the revenues in each of its recent fiscal years has
been represented by sales of products introduced by the Company within five
years prior to the period in question. The Company's ability to develop and
successfully market new products and to develop, acquire and retain necessary
intellectual property rights is therefore essential to maintaining the Company's
growth, which ability cannot be assured.
Other factors include costs and other effects of interest rate increases, legal
and administrative cases and proceedings (whether civil, such as environment and
product related, or criminal), settlements and investigations, claims, and
changes in those items; developments or assertions by or against the Company
relating to intellectual property rights and intellectual property licenses;
adoption of new, or change in, accounting policies and practices and the
application of such policies and practices; changes in business mix, rates of
growth and profitability may be influenced by business reorganizations or
combinations; loss of a significant customer(s); impact of Year 2000 issues; the
euro conversion; general or specific economic conditions and the ability and
willingness of purchasers to substitute other products for the products that the
Company distributes; and pricing, purchasing, financing and promotional
decisions by intermediaries in the distribution channel, which could affect
orders, or end-user demand, for the Company's products.
The factors identified in this statement are believed to be important factors
(but not necessarily all of the important factors) that could cause actual
results to be materially different from those that may be expressed or implied
in any forward-looking statement made by, or on behalf, of the Company. Other
factors not discussed in this statement could also have material adverse effects
concerning forward-looking objectives or estimates. The Company assumes no
obligation to update the information included in this statement.
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