UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 1, 1995
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER 1-7685
AVERY DENNISON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1492269
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
150 NORTH ORANGE GROVE BOULEVARD, PASADENA, CALIFORNIA 91103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (818) 304-2000
Indicate by a check [x] whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes x No _____
-------
Number of shares of $1 par value common stock outstanding as of July 28,
1995: 53,147,599
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
INDEX TO FORM 10-Q
------------------
Page No.
--------
Part I. Financial Information (Unaudited):
Financial Statements:
Condensed Consolidated Balance Sheet
July 1, 1995 and December 31, 1994 3
Consolidated Statement of Income
Three and Six Months Ended July 1, 1995 and July 2, 1994 4
Condensed Consolidated Statement of Cash Flows
Six Months Ended July 1, 1995 and July 2, 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information:
Exhibits and Reports on Form 8-K 11
Signatures 12
2
PART I. FINANCIAL INFORMATION
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
July 1, 1995 December 31, 1994
--------------- -----------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 2.7 $ 3.1
Trade accounts receivable, net 437.1 391.8
Inventories, net 263.0 206.4
Prepaid expenses 13.7 16.5
Deferred taxes and other current assets 64.6 59.1
--------------- -----------------
Total current assets 781.1 676.9
Property, plant and equipment, at cost 1,636.9 1,532.3
Accumulated depreciation (754.1) (700.7)
--------------- -----------------
882.8 831.6
Intangibles resulting from business acquisitions, net 128.4 127.6
Other assets 128.7 127.0
--------------- -----------------
$1,921.0 $1,763.1
=============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short-term debt and current portion of long-term debt $ 54.9 $ 73.4
Accounts payable 176.1 181.5
Accrued liabilities 318.5 299.2
--------------- -----------------
Total current liabilities 549.5 554.1
Long-term debt 451.2 347.3
Deferred taxes and other long-term liabilities 137.7 132.7
Shareholders' equity:
Common stock - $1 par value:
Authorized - 200,000,000 shares; Issued - 62,063,312
shares at July 1, 1995 and December 31, 1994 62.1 62.1
Capital in excess of par value 191.0 193.0
Retained earnings 794.6 753.2
Cumulative foreign currency translation adjustment 49.2 16.7
Cost of unallocated ESOP shares (37.6) (37.6)
Minimum pension liability (5.0) (5.0)
Treasury stock at cost, 8,922,099 shares at July 1,
1995 and 8,513,642 shares at December 31, 1994 (271.7) (253.4)
--------------- -----------------
Total shareholders' equity 782.6 729.0
--------------- -----------------
$1,921.0 $1,763.1
=============== =================
See Notes to Consolidated Financial Statements
3
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
--------------------------- ----------------------------
July 1, 1995 July 2, 1994 July 1, 1995 July 2, 1994
------------ ------------- ------------ ------------
Net Sales $780.5 $718.6 $1,553.7 $1,386.3
Cost of products sold 541.5 490.9 1,069.9 946.1
------------ ------------- ------------ ------------
Gross profit 239.0 227.7 483.8 440.2
Marketing, general and
administrative expense 172.3 171.5 352.3 332.5
------------ ------------- ------------ ------------
Operating profit 66.7 56.2 131.5 107.7
Interest expense 11.7 11.9 21.7 23.4
------------ ------------- ------------ ------------
Income before taxes 55.0 44.3 109.8 84.3
Income taxes 19.3 16.4 39.6 31.2
------------ ------------- ------------ ------------
Net income $ 35.7 $ 27.9 $ 70.2 $ 53.1
============ ============= ============ ============
Weighted average number of
common shares outstanding 53.2 56.0 53.3 56.1
============ ============= ============ ============
PER COMMON SHARE AMOUNTS:
Net income $ .67 $ .50 $ 1.32 $ .95
============ ============= ============ ============
Dividends $ .27 $ .24 $ .54 $ .48
============ ============= ============ ============
See Notes to Consolidated Financial Statements
4
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
----------------------------
July 1, 1995 July 2, 1994
------------ ------------
OPERATING ACTIVITIES:
- --------------------
Net income $ 70.2 $ 53.1
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 45.5 42.5
Amortization 6.5 6.4
Deferred taxes 5.7 5.8
Net change in assets and liabilities net of the effect of
foreign currency translation and business divestitures (75.7) (50.3)
------------ ------------
Net cash provided by operating activities 52.2 57.5
------------ ------------
INVESTING ACTIVITIES:
- --------------------
Purchase of property, plant and equipment (75.1) (52.6)
Proceeds from sale of assets and business divestitures .2 11.8
Other (9.6) (3.5)
------------ ------------
Net cash used in investing activities (84.5) (44.3)
------------ ------------
FINANCING ACTIVITIES:
- --------------------
Net decrease in short-term debt (20.9) (10.0)
Net increase in long-term debt 103.4 36.4
Dividends paid (28.8) (27.0)
Purchase of treasury stock (23.0) (20.6)
Other 1.1 3.2
------------ ------------
Net cash provided by (used in) financing activities 31.8 (18.0)
------------ ------------
Effect of foreign currency translation on cash balances .1 (.1)
------------ ------------
Decrease in cash and cash equivalents (.4) (4.9)
------------ ------------
Cash and cash equivalents, beginning of period 3.1 5.8
------------ ------------
Cash and cash equivalents, end of period $ 2.7 $ .9
============ ============
See Notes to Consolidated Financial Statements
5
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements include normal
recurring adjustments necessary for a fair presentation of the Company's interim
results. Certain prior year amounts have been reclassified to conform with
current year presentation. The condensed financial statements and notes in this
Form 10-Q are presented as permitted by Regulation S-X, and as such, they do not
contain certain information included in the Company's 1994 annual financial
statements and notes.
The second quarters of 1995 and 1994 consisted of thirteen-week periods ending
July 1, 1995 and July 2, 1994, respectively. The interim results of operations
are not necessarily indicative of future financial results.
2. FOREIGN CURRENCY TRANSLATION
Transactions in foreign currencies and translation of financial statements of
subsidiaries operating in hyperinflationary economies during the three and six
months ended July 1, 1995 and July 2, 1994 resulted in losses of $.3 million and
$.7 million, respectively, during 1995, and losses of $.7 million and $2.1
million, respectively, during 1994.
3. INVENTORIES
Inventories consisted of (in millions):
July 1, 1995 December 31, 1994
------------ -----------------
Raw materials $ 98.3 $ 81.6
Work in progress 70.6 55.9
Finished goods 132.3 105.2
LIFO adjustment (38.2) (36.3)
------------ -----------------
$263.0 $206.4
============ =================
4. INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Accumulated amortization of intangible assets at July 1, 1995 and December 31,
1994 was $38.7 and $35.3 million, respectively.
5. RESEARCH AND DEVELOPMENT
Research and development expense for the three and six months ended July 1, 1995
and July 2, 1994 was $13.4 million and $25.7 million, respectively, during 1995
and $12.3 million and $23.8 million, respectively during 1994.
6
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: FOR THE QUARTER
- ---------------------------------------
Quarterly sales increased to $780.5 million, a 9 percent increase over second
quarter 1994 sales of $718.6 million. Excluding the impact of changes in
foreign currency rates and divestitures, sales increased 6 percent.
The gross profit margin for the quarter was 30.6 percent compared to 31.7
percent for the second quarter of 1994. The decrease was primarily due to plant
and major equipment start-up costs and a shift in the product mix.
Marketing, general and administrative expense, as a percent of sales, was 22.1
percent compared to 23.9 percent for the second quarter of 1994. The
improvement was the result of increased sales and cost reduction actions taken
in previous years.
Interest expense, as a percent of sales, was 1.5 percent for the second quarter
of 1995 compared to 1.7 percent for the second quarter of 1994, despite higher
debt levels in 1995. The decrease was due primarily to increased sales and
lower interest expense in Brazil as a result of lower inflation and debt levels.
Income before taxes, as a percent of sales, increased to 7 percent for the
quarter as compared to 6.2 percent for the second quarter of 1994 due to lower
marketing, general and administrative and interest expenses as a percent of
sales. The effective tax rate for the quarter was 35.1 percent compared to 37
percent a year ago. The decrease was due primarily to the recognition of
benefits from tax loss carryforwards in Europe.
Net income increased 28 percent to $35.7 million compared to $27.9 million in
the second quarter of 1994. Earnings per share for the quarter reached $.67
compared to $.50 in the same period last year, a 34 percent increase.
Results of Operations by Business Sector
The pressure-sensitive adhesives and materials sector reported significantly
improved sales and comparable profitability for the second quarter of 1995
compared to the same period last year. The U.S. operations reported a solid
sales increase which included pricing actions. Costs incurred for the start-up
of plant and major equipment had a negative impact on profitability for the U.S.
businesses. The European operations reported a significant sales increase for
the quarter as a result of pricing actions, sales volume growth and changes in
foreign currency rates. This sales growth coupled with productivity
improvements and effective cost reduction programs resulted in significant
profitability increases for the European operations.
7
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The office products sector reported modest sales and significant profitability
growth for the second quarter compared to the same period last year. Sales for
the U.S. businesses were comparable to prior year as increased sales for Avery-
brand labels and indexes were offset by the elimination of lower margin
business. Profitability for the U.S. operations increased significantly as a
result of lower operating expenses. The European office products businesses
reported increased sales primarily as a result of improved economic conditions
and changes in foreign currency rates. Lower operating expenses on increased
sales and a more favorable product mix led to significant profitability
increases over the same period last year.
The converted products sector reported significant sales and profitability
improvements. The U.S. converting businesses reported a slight sales increase
and a slight decline in profitability for the quarter. The international
converting businesses reported a significant improvement in sales and
profitability. Sales increased primarily as a result of an improved European
economy and changes in foreign currency rates. Profitability for the
international converting businesses benefitted significantly from lower
operating expenses on increased sales.
RESULTS OF OPERATIONS: SIX MONTHS YEAR-TO-DATE
- -----------------------------------------------
Sales for the first six months of 1995 were up 12 percent to $1.55 billion
compared to the corresponding period of 1994. Excluding the impact of changes
in foreign currency translation and divestitures, sales increased 9 percent.
The gross profit margin for the first six months was 31.1 percent compared to
31.8 percent for the first six months of 1994. The decrease was primarily due
to a shift in product mix, plant and major equipment start-up costs, plus $2.5
million in expense related to LIFO inventories compared to a benefit of $.6
million for the first six months of 1994.
Marketing, general and administrative expense, as a percent of sales, declined
to 22.7 percent for the first six months of 1995 compared to 24 percent for the
first six months of 1994. The decrease was primarily attributable to cost
reduction efforts throughout the Company on increased sales.
Interest expense, as a percent of sales, was 1.4 percent for the year compared
to 1.7 percent during the corresponding period of the prior year, despite higher
debt levels in 1995. The decrease was primarily due to increased sales and a
decline in interest expense for our Brazilian operations as a result of lower
inflation and debt levels.
Income before taxes, as a percent of sales, was 7.1 percent for the first six
months of 1995 compared to 6.1 percent for 1994. The increase was primarily due
to lower operating and interest expenses as a percent of sales. The year-to-
date effective tax rate was 36.1 percent for 1995 and 37 percent for 1994. The
decrease reflects recognition of benefits from tax loss carryforwards in Europe.
8
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net income was $70.2 million for the first six months of 1995 compared to $53.1
million for the first six months of 1994. Earnings per share increased 39
percent to $1.32 for the first six months of 1995 compared to $.95 for the same
period last year.
Results of Operations by Business Sector
The pressure-sensitive adhesives and materials sector reported significant sales
and solid profitability improvement for the first six months of 1995 compared to
the same period last year. The U.S. operations reported a significant sales
increase primarily due to pricing actions and unit volume growth. Profitability
was comparable to prior year as the benefit from sales growth was offset by
plant and major equipment start-up costs. Sales for the European operations
increased significantly primarily as a result of pricing actions, volume growth
from improved economic conditions and changes in foreign currency rates.
Profitability also increased significantly as a result of sales growth and
higher operating margins resulting from effective cost reduction programs.
The office products sector reported solid sales and significant profitability
growth for the six months ended July 1, 1995 compared to the prior year. The
U.S. operations reported solid sales and significant profitability improvements.
Significant sales growth for Avery-brand labels and indexes was partially offset
by the elimination of lower margin business. Profitability increased
significantly for the U.S. operations as a result of higher sales and lower
operating expenses as a percent of sales. The European operations reported
significant sales growth primarily due to improved economic conditions and
changes in foreign currency rates. Significant profitability increases were
primarily due to lower operating expenses on increased sales and a more
favorable product mix.
The converted products sector reported significant sales and profitability
improvements for the first six months of 1995 compared to 1994. The U.S.
converting businesses reported increased sales and profitability. An improved
European economy and changes in foreign currency rates boosted sales for the
international converting businesses while lower operating expenses on increased
sales resulted in significantly higher profitability.
FINANCIAL CONDITION
- -------------------
Total debt increased $85.4 million to $506.1 million from year end 1994 as a
result of increased working capital requirements needed to fund the Company's
sales growth. Total debt to total capital was 39.3 percent as of the end of the
second quarter of 1995 and 36.6 percent at year end 1994.
During the second quarter of 1995, the Company registered with the Securities
and Exchange Commission $100 million in principal amount of medium-term notes.
As of July 27, 1995, all of the notes had been issued. The medium-term notes
have an average interest rate of 7.26 percent and will mature from 2005 to 2025.
Average working capital, excluding short-term debt, as a percentage of sales,
decreased to 10.8 percent for the quarter from 11.1 percent a year ago as the
increase in sales more than offset the increase in working capital. Average
inventory turnover for the quarter ended July 1, 1995 was 8.2 compared to 9.1 in
the corresponding period of the prior year; the average number of days sales
outstanding in accounts receivable was 57 days for both periods.
9
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Capital spending for the quarter was $38.4 million compared to $33.4 million a
year ago. For the six months, capital spending totaled $75.1 million compared
to $52.6 million a year ago. Total capital spending for 1995 is expected to be
approximately $200 million.
Net cash flows provided by operating activities totaled $52.2 for the first six
months of 1995 and $57.5 million for the first half of 1994. In addition to
cash flows from operations, the Company has more than adequate financing
arrangements to conduct its operations.
Shareholders' equity increased to $782.6 million from $729 million at year end
1994. During the second quarter of 1995, the Company purchased 210,000 shares
of common stock at a cost of $8.5 million. The cost of treasury stock held, net
of shares reissued under the Company's stock and incentive plans, increased to
$271.7 million from $253.4 million at year end 1994.
10
PART II. OTHER INFORMATION
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
a. Exhibits: 11 Computation of Net Income Per Share Amounts
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule, Article 5
b. Reports on Form 8-K: Registrant filed Current Report on Form 8-K dated May
12, 1995, with respect to its execution on the same date of certain
agreements in connection with Medium-Term Notes (Registration No. 33-59129).
11
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AVERY DENNISON CORPORATION
--------------------------
(Registrant)
/s/ R. Gregory Jenkins
---------------------------------------
R. Gregory Jenkins
Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
/s/ Thomas E. Miller
---------------------------------------
Thomas E. Miller
Vice President and Controller
(Chief Accounting Officer)
August 10, 1995
12
AVERY DENNISON CORPORATION
COMPUTATION OF NET INCOME PER SHARE AMOUNTS
Three Months Ended Six Months Ended
---------------------------- ----------------------------
July 1, 1995 July 2, 1994 July 1, 1995 July 2, 1994
------------ ------------ ------------ ------------
(A) Weighted average number of common shares
outstanding 53,220,848 56,019,780 53,336,086 56,101,564
Additional common shares issuable under employee
stock options using the treasury stock method 1,033,351 488,179 1,058,056 515,643
------------ ------------ ------------ ------------
(B) Weighted average number of common shares
outstanding assuming the exercise of stock options 54,254,199 56,507,959 54,394,142 56,617,207
============ ============ ============ ============
(C) Net income applicable to common stock $35,688,000 $27,932,000 $70,200,000 $53,091,000
============ ============ ============ ============
Net income per share as reported (C / A) $ .67 $ .50 $1.32 $ .95
======= ======= ======== ========
Net income per share giving effect to the exercise of
outstanding stock options (C / B) $ .66 $ .49 $1.29 $ .94
======= ======= ======== ========
Exhibit 11
AVERY DENNISON CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Three Months Ended Six Months Ended
------------------------------ --------------------------------
July 1, 1995 July 2, 1994 July 1, 1995 July 2, 1994
------------ ------------ ------------ ------------
Earnings:
Income before taxes $55.0 $44.3 $109.8 $ 84.3
Add: Fixed Charges* 16.6 16.4 31.1 32.5
Amortization of capitalized
interest .3 .2 .6 .5
Less: Capitalized interest (.9) (.6) (1.7) (1.3)
------------ ------------ ------------ ------------
$71.0 $60.3 $139.8 $116.0
============ ============ ============ ============
*Fixed charges:
Interest expense $11.7 11.9 $ 21.7 23.4
Capitalized interest .9 .6 1.7 1.3
Amortization of debt issuance .3 .1 .4 .2
Interest portion of leases 3.7 3.8 7.3 7.6
------------ ------------ ------------ ------------
$16.6 $16.4 $ 31.1 $ 32.5
============ ============ ============ ============
Ratio of Earnings to Fixed Charges 4.3 3.7 4.5 3.6
============ ============ ============ ============
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, "earnings" consist of income before taxes plus
fixed charges (excluding capitalized interest), and "fixed charges" consist of
interest expense, capitalized interest, amortization of debt issuance costs and
the portion of rent expense (estimated to be 35%) on operating leases deemed
representative of interest.
Exhibit 12
5
1,000
3-MOS
DEC-30-1995
APR-02-1995
JUL-01-1995
2,700
0
437,100
0
263,000
781,100
1,636,900
(754,100)
1,921,000
549,500
451,200
62,100
0
0
720,500
1,921,000
1,553,700
1,553,700
1,069,900
1,069,900
352,300
0
21,700
109,800
39,600
70,200
0
0
0
70,200
1.32
0
Amounts shown are for the six months ended July 1, 1995.
Accounts receivable are shown net of any allowances.
