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 September 30, 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, 91103
PASADENA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (818) 304-2000
Indicate by a check [X] whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
----- -----
Number of shares of $1 par value common stock outstanding as of October 27,
1995: 53,186,912
AVERY DENNISON CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
------------------
Page No.
--------
Part I. Financial Information (Unaudited):
Financial Statements:
Condensed Consolidated Balance Sheet
September 30, 1995 and December 31, 1994 3
Consolidated Statement of Income
Three and Nine Months Ended September 30, 1995
and October 1, 1994 4
Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1995
and October 1, 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information:
Exhibits and Reports on Form 8-K 12
Signatures 13
2
PART I. FINANCIAL INFORMATION
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 3.9 $ 3.1
Trade accounts receivable, net 434.8 391.8
Inventories, net 235.8 206.4
Prepaid expenses 22.7 16.5
Deferred taxes and other current assets 66.2 59.1
-------- --------
Total current assets 763.4 676.9
Property, plant and equipment, at cost 1,636.8 1,532.3
Accumulated depreciation (749.0) (700.7)
-------- --------
887.8 831.6
Intangibles resulting from business acquisitions, net 124.9 127.6
Other assets 124.6 127.0
-------- --------
$1,900.7 $1,763.1
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short-term debt and current portion of long-term debt $ 70.4 $ 73.4
Accounts payable 160.0 181.5
Accrued liabilities 318.8 299.2
-------- --------
Total current liabilities 549.2 554.1
Long-term debt 437.7 347.3
Deferred taxes and other long-term liabilities 130.7 132.7
Shareholders' equity:
Common stock - $1 par value:
Authorized - 200,000,000 shares; Issued - 62,063,312 shares
at September 30, 1995 and December 31, 1994 62.1 62.1
Capital in excess of par value 191.0 193.0
Retained earnings 816.0 753.2
Cumulative foreign currency translation adjustment 28.3 16.7
Cost of unallocated ESOP shares (37.6) (37.6)
Minimum pension liability (5.0) (5.0)
Treasury stock at cost, 8,900,883 shares at September 30, 1995
and 8,513,642 shares at December 31, 1994 (271.7) (253.4)
-------- --------
Total shareholders' equity 783.1 729.0
-------- --------
$1,900.7 $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 Nine Months Ended
------------------------------ --------------------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
------------- ---------- ------------- ----------
Net Sales $783.5 $733.7 $2,337.2 $2,120.0
Cost of products sold 548.5 501.1 1,618.4 1,447.2
------ ------ -------- --------
Gross profit 235.0 232.6 718.8 672.8
Marketing, general and administrative expense 167.1 179.3 519.4 511.8
------ ------ -------- --------
Operating profit 67.9 53.3 199.4 161.0
Interest expense 12.0 9.7 33.7 33.1
------ ------ -------- --------
Income before taxes 55.9 43.6 165.7 127.9
Income taxes 20.1 15.8 59.7 47.0
------ ------ -------- --------
Net income $ 35.8 $ 27.8 $ 106.0 $ 80.9
====== ====== ======== ========
Weighted average number of common shares
outstanding 53.2 55.4 53.3 55.9
====== ====== ======== ========
PER COMMON SHARE AMOUNTS:
Net income $ 0.67 $ 0.50 $ 1.99 $ 1.45
====== ====== ======== ========
Dividends $ 0.27 $ 0.24 $ 0.81 $ 0.72
====== ====== ======== ========
See Notes to Consolidated Financial Statements
4
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended
-------------------------------------
September 30, 1995 October 1, 1994
------------------ ---------------
OPERATING ACTIVITIES:
- ---------------------
Net income $ 106.0 $ 80.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 69.5 64.3
Amortization 9.3 10.6
Deferred taxes .1 (1.5)
Net change in assets and liabilities net of the effect of
foreign currency translation and divested operations (75.6) (12.7)
------- -------
Net cash provided by operating activities 109.3 141.6
------- -------
INVESTING ACTIVITIES:
- ---------------------
Purchase of property, plant and equipment (120.8) (100.6)
Proceeds from sale of assets and business divestitures 1.2 11.8
Other (10.8) (8.6)
------- -------
Net cash used in investing activities (130.4) (97.4)
------- -------
FINANCING ACTIVITIES:
- ---------------------
Net decrease in short-term debt (4.2) (26.6)
Net increase in long-term debt 90.3 52.6
Dividends paid (43.1) (40.2)
Purchase of treasury stock (23.6) (43.6)
Other 2.4 11.0
------- -------
Net cash provided by (used in) financing activities 21.8 (46.8)
------- -------
Effect of foreign currency translation on cash balances .1 .2
------- -------
Increase (decrease) in cash and cash equivalents .8 (2.4)
------- -------
Cash and cash equivalents, beginning of period 3.1 5.8
------- -------
Cash and cash equivalents, end of period $ 3.9 $ 3.4
======= =======
See Notes to Consolidated Financial Statements
5
AVERY DENNISON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements include normal
recurring adjustments necessary for a fair presentation of the Company's
interim results. Certain prior year amounts have been reclassified to
conform to the current period's presentation. The condensed financial
statements and notes in this Form 10-Q are presented as permitted by
Regulation S-X, and as such, they do not contain certain information
included in the Company's 1994 annual financial statements and notes.
The third quarters of 1995 and 1994 consisted of thirteen-week periods
ending September 30, 1995 and October 1, 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 nine months ended September 30, 1995 resulted in losses of $.4 million
and $1.1 million, respectively. For the three and nine months ended October
1, 1994, transactions in foreign currencies and translation of financial
statements of subsidiaries operating in hyperinflationary economies
resulted in a gain of $.4 million and a loss of $.4 million, respectively.
3. INVENTORIES
Inventories consisted of (in millions):
September 30, 1995 December 31, 1994
------------------ -----------------
Raw materials $ 91.8 $ 81.6
Work in progress 66.5 55.9
Finished goods 115.9 105.2
LIFO adjustment (38.4) (36.3)
------ ------
$235.8 $206.4
====== ======
6
AVERY DENNISON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Accumulated amortization of intangible assets at September 30, 1995 and
December 31, 1994 was $39.0 million and $35.3 million, respectively.
5. RESEARCH AND DEVELOPMENT
Research and development expense for the three and nine months ended
September 30, 1995 was $12.9 million and $38.6 million respectively. For
the three and nine months ended October 1, 1994, research and development
expense was $12.1 million and $35.9 million, respectively.
6. SUBSEQUENT EVENT
On November 7, 1995, the Company signed a definitive agreement to sell a
portion of its North American label converting operations for approximately
$95 million to CCL Industries Inc., a major North American consumer goods
packaging company.
These businesses account for approximately 2 percent of the Company's total
sales. The portion of the Converted Products sector being sold had sales of
$48.6 million during the nine months ended September 30, 1995. Net proceeds
from the sale will be used for general corporate purposes, including
funding capital spending, an accelerated profit improvement program, debt
repayment and share repurchase.
Subject to customary conditions, including expiration or early termination
of the Hart-Scott-Rodino waiting period, closing is anticipated before
year-end.
7
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 $783.5 million, a 7 percent increase over third
quarter 1994 sales of $733.7 million. Excluding the impact of business
divestitures and changes in foreign currency exchange rates, sales increased 5
percent.
The gross profit margin for the quarter was 30 percent compared to 31.7 percent
for the third quarter of 1994. The decrease was primarily due to a shift in
product mix and plant and major equipment start-up costs.
Marketing, general and administrative expense, as a percent of sales, was 21.3
percent compared to 24.4 percent a year ago. The improvement was the result of
benefits derived from the Company's 1994 cost reduction programs, a shift in
product mix and increased sales.
Interest expense, as a percent of sales, increased to 1.5 percent compared to
1.3 percent for the third quarter of 1994 as a result of higher debt levels.
Income before taxes, as a percent of sales, increased to 7.1 percent for the
quarter compared to 5.9 percent a year ago. The improvement was due primarily
to lower marketing, general and administrative expenses, as a percent of sales.
The effective tax rate for the quarter was 36 percent compared to 36.2 percent
for the third quarter of 1994.
Net income increased 29 percent to $35.8 million compared to $27.8 million for
the same period last year. Earnings per share for the quarter increased to $.67
per share compared to $.50 per share a year ago, a 34 percent increase.
Result of Operations by Business Sector
The pressure-sensitive adhesives and materials sector reported strong sales and
solid profitability improvements for the third quarter of 1995 compared to the
same period last year. The U.S. operations reported strong sales growth that
included pricing actions. While operating margins remained strong, investments
in plant and major equipment start-up costs negatively impacted the
profitability of the U.S. businesses. The European businesses reported a
significant sales increase for the quarter due to pricing actions, volume growth
and changes in foreign currency rates. Profitability also increased
significantly for these businesses primarily due to a shift in product mix and
the favorable impact from cost reduction programs implemented in 1994.
8
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The office products sector reported increased sales and significant
profitability growth for the third quarter compared to the same period last
year. Increased sales for U.S. operations were fueled by strong sales growth
for Avery-brand labels and indexes, but were partially offset by the elimination
of lower margin business. Profitability increased significantly as a result of
successful new products, an improved product mix and benefits from the 1994 cost
reduction programs, including the consolidations of distribution warehouses and
sales forces in the U.S. The European office products operations reported
increased sales primarily due to sales growth at the European office labels
businesses and changes in foreign currency rates. Profitability increased due
to new products, an improved product mix and the favorable impact from cost
reduction programs implemented in 1994.
The converted products sector reported increased sales and comparable
profitability. The U.S. converting businesses reported a decline in sales and
profitability for the quarter. On November 7, 1995, the Company signed a
definitive agreement to sell a portion of its North American label converting
businesses to CCL Industries Inc., a major North American consumer goods
packaging company. These businesses account for approximately 10 percent of the
sector's sales and 2 percent of the Company's total sales. The international
converting businesses reported a significant increase in sales and profitability
for the quarter. Sales were boosted by successful new products and changes in
foreign currency rates. Profitability increased significantly from prior year
primarily as a result of new products and an improved product mix.
RESULTS OF OPERATIONS: NINE MONTHS YEAR-TO-DATE
- -----------------------------------------------
Sales for the first nine months increased 10 percent to $2.34 billion compared
to $2.12 billion for the corresponding period of 1994. Excluding the impact of
business divestitures and changes in foreign currency exchange rates, sales
increased 8 percent.
The gross profit margins for the first nine months of 1995 and 1994 were 30.8
percent and 31.7 percent, respectively. The decrease was primarily due to a
shift in product mix, plant and major equipment start-up costs, and $2.4 million
in expense related to LIFO inventories compared to a benefit of $.6 million for
the first nine months of 1994.
Marketing, general and administrative expense, as a percent of sales, declined
to 22.2 percent compared to 24.1 percent. The decrease was primarily
attributable to benefits from the Company's 1994 cost reduction programs, a
shift in product mix and increased sales.
Interest expense, as a percent of sales, was 1.4 percent for the year compared
to 1.6 percent for the nine month period in 1994. Interest expense increased in
1995 as a result of higher debt levels but was more than offset by the impact of
increased sales.
9
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income before taxes, as a percent of sales, was 7.1 percent compared to 6
percent for the same period last year. The improvement was primarily due to
lower operating and interest expenses as a percent of sales. The year-to-date
effective tax rates for the first nine months of 1995 and 1994 were 36 percent
and 36.7 percent, respectively. The decrease reflects the recognition of
benefits from tax loss carryforwards in Europe.
Net income increased 31 percent to $106 million for the first nine months of
1995 compared to $80.9 million for the same period last year. Earnings per
share increased 37 percent to $1.99 compared to $1.45 for the corresponding
period of prior year.
Results of Operations by Business Sector
The pressure-sensitive adhesives and materials sector reported increased sales
and profitability for the first nine months of 1995 compared to the same period
last year. The U.S. operations reported a significant increase in sales due to
pricing actions and unit volume growth. Plant and major equipment start-up
costs for capacity expansion negatively impacted profitability at the U.S.
businesses. 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 primarily due to sales growth, lower operating expenses as a
percent of sales and a more favorable product mix.
The office products sector reported solid sales and significant profitability
growth for the first nine months of 1995 compared to the prior year. The U.S.
operations reported solid sales growth and significant profitability
improvements. Significant sales growth for Avery-brand labels and indexes were
partially offset by the elimination of lower margin business. Profitability
increased significantly for the U.S. operations due to successful new products,
an improved product mix and benefits from the 1994 cost reduction programs,
including the consolidations of distribution warehouses and sales forces in the
U.S. The European operations reported significant sales growth primarily from
increased sales at the European office labels businesses, improved economic
conditions and changes in foreign currency rates. A more favorable product mix
coupled with cost reduction actions taken in previous years led to significant
profitability increases over the same period last year.
The converted products sector reported increased sales and profitability for the
first nine months of 1995 compared to 1994. The U.S. converting businesses
reported increased sales and decreased profitability for the period. New
products, an improved European economy and changes in foreign currency rates
boosted sales for the international converting businesses, while an improved
product mix and lower operating expenses on increased sales resulted in
significantly higher profitability.
FINANCIAL CONDITION
- -------------------
Total debt increased $87.4 million to $508.1 million from year end 1994
primarily as a result of increased working capital requirements needed to fund
the Company's sales growth. Total debt to total capital was 39.4 percent at end
of the third quarter of 1995 and 36.6 percent at year end 1994.
10
AVERY DENNISON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Average working capital, excluding short-term debt, as a percentage of sales,
increased to 10.7 percent from 10 percent a year ago. Average inventory turnover
for the quarter ended September 30, 1995 was 9.3 compared to 9.5 in the
corresponding period of the prior year; the average number of days sales
outstanding in accounts receivable was 56 days for both periods.
Capital spending for the quarter was $45.7 million compared to $48 million a
year ago. Year to date capital spending totaled $120.8 million in 1995 and
$100.6 million in 1994. Total capital spending for 1995 is expected to be
approximately $180 million.
Net cash flows provided by operating activities for the first nine months of
1995 and 1994 totaled $109.3 million and $141.6 million, respectively. The
decrease was primarily due to increased working capital requirements which were
partially offset by the increase in net income. In addition to cash flows from
operations, the Company has more than adequate financing arrangements to
conducts its operations.
Shareholders' equity increased to $783.1 million from $729 million at year end
1994. 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.
11
PART II. OTHER INFORMATION
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a. Exhibit 10.31: Executive Variable Deferred Retirement Plan ("EVDRP") is
incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 filed on November 3, 1995 (File No. 33-63979).
Exhibit 11: Computation of Net Income Per Share Amounts.
Exhibit 27: Article 5, Financial Data Schedule
b. Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended September 30, 1995.
12
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)
Date: November 13, 1995 /s/ R. Gregory Jenkins
--------------------------------
R. Gregory Jenkins
Senior Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer)
Date: November 13, 1995 /s/ Thomas E. Miller
--------------------------------
Thomas E. Miller
Vice President and Controller
(Chief Accounting Officer)
13
EXHIBIT 11
AVERY DENNISON CORPORATION
COMPUTATION OF NET INCOME PER SHARE AMOUNTS
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
------------- ----------- -------------- -----------
(A) Weighted average number of common shares
outstanding 53,150,947 55,404,227 53,281,518 55,870,123
Additional common shares issuable under
employee stock options using the treasury
stock method 1,080,458 822,273 1,115,947 865,871
----------- ----------- ------------ -----------
(B) Weighted average number of common shares
outstanding assuming the exercise of stock
options 54,231,405 56,226,500 54,397,465 56,735,994
=========== =========== ============ ===========
(C) Net income applicable to common stock $35,760,000 $27,838,000 $105,960,000 $80,929,000
=========== =========== ============ ===========
Net income per share as reported (C / A) $.67 $.50 $1.99 $1.45
==== ==== ===== =====
Net income per share giving effect to the
exercise of outstanding stock options (C / B) $.66 $.50 $1.95 $1.43
==== ==== ===== =====
5
9-MOS
DEC-30-1995
JUL-02-1995
SEP-30-1995
3,900
0
434,800
0
235,800
763,400
1,636,800
(749,000)
1,900,700
549,200
437,700
62,100
0
0
721,000
1,900,700
2,337,200
2,337,200
1,618,400
1,618,400
519,400
0
33,700
165,700
59,700
106,000
0
0
0
106,000
1.99
0
Amounts shown are for the nine months ended Sept. 30, 1995.
Accounts receivable are shown net of any allowances.
