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 June 29, 2002
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)
(626) 304-2000
(Registrant's telephone number, including area code)
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 27,
2002: 109,844,002
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
INDEX TO FORM 10-Q
------------------
Page No.
--------
Part I. Financial Information (Unaudited):
- --------------------------------------------
Financial Statements:
Condensed Consolidated Balance Sheet
June 29, 2002 and December 29, 2001 3
Consolidated Statement of Income
Three and Six Months Ended June 29, 2002 and June 30, 2001 4
Condensed Consolidated Statement of Cash Flows
Six Months Ended June 29, 2002 and June 30, 2001 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Results of Operations and Financial Condition 14
Quantitative and Qualitative Disclosures About Market Risk 22
Part II. Other Information:
- ---------------------------
Exhibits and Reports on Form 8-K 23
Signatures 24
2
PART I. ITEM 1. FINANCIAL INFORMATION
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
June 29, 2002 December 29, 2001
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 25.9 $ 19.1
Trade accounts receivable, net 753.6 569.1
Inventories, net 355.6 267.4
Deferred taxes 55.7 61.1
Other current assets 69.3 65.8
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 1,260.1 982.5
Property, plant and equipment, at cost 2,193.4 2,057.5
Accumulated depreciation 1,042.6 982.9
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 1,150.8 1,074.6
Goodwill, net 464.7 293.2
Intangibles resulting from business acquisitions, net 130.9 120.0
Other assets 356.8 348.9
- ------------------------------------------------------------------------------------------------------------------------
$ 3,363.3 $ 2,819.2
========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term and current portion of long-term debt $ 441.7 $ 223.0
Accounts payable 409.5 316.4
Other current liabilities 490.7 411.9
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,341.9 951.3
Long-term debt 668.3 626.7
Non-current deferred taxes and other long-term liabilities 233.0 237.2
Other long-term obligation 80.2 74.6
Shareholders' equity:
Common stock - $1 par value; authorized - 400,000,000 shares; issued -
124,126,624 shares at June 29, 2002 and
December 29, 2001 124.1 124.1
Capital in excess of par value 777.9 707.2
Retained earnings 1,622.2 1,556.1
Cost of unallocated ESOP shares (13.7) (13.7)
Employee stock trusts, 11,349,478 shares at June 29, 2002 and
12,008,123 shares at December 29, 2001 (711.6) (674.5)
Treasury stock at cost, 14,282,622 shares at June 29, 2002 and
14,235,871 shares at December 29, 2001 (636.4) (633.4)
Accumulated other comprehensive loss (122.6) (136.4)
- ------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,039.9 929.4
- ------------------------------------------------------------------------------------------------------------------------
$ 3,363.3 $ 2,819.2
========================================================================================================================
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
-------------------------------------------------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
- ----------------------------------------------------------------------------------------------------------------------
Net sales $ 1,056.3 $ 960.8 $ 1,987.1 $ 1,924.0
Cost of products sold 709.8 649.0 1,331.7 1,293.2
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 346.5 311.8 655.4 630.8
Marketing, general and administrative expense 231.4 208.4 437.1 417.6
Interest expense 9.6 13.5 18.9 27.3
- ----------------------------------------------------------------------------------------------------------------------
Income before taxes 105.5 89.9 199.4 185.9
Taxes on income 31.7 30.1 60.8 62.3
- ----------------------------------------------------------------------------------------------------------------------
Income before accounting change 73.8 59.8 138.6 123.6
Cumulative effect of accounting change, net of tax - - - (.2)
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 73.8 $ 59.8 $ 138.6 $ 123.4
======================================================================================================================
Per share amounts:
Net income per common share:
Before accounting change $ .75 $ .61 $ 1.41 $ 1.26
Cumulative effect of accounting change - - - -
- ----------------------------------------------------------------------------------------------------------------------
Net income per common share $ .75 $ .61 $ 1.41 $ 1.26
======================================================================================================================
Net income per common share, assuming dilution:
Before accounting change $ .74 $ .61 $ 1.40 $ 1.25
Cumulative effect of accounting change - - - -
- ----------------------------------------------------------------------------------------------------------------------
Net income per common share, assuming dilution $ .74 $ .61 $ 1.40 $ 1.25
======================================================================================================================
Dividends $ .33 $ .30 $ .66 $ .60
======================================================================================================================
Average shares outstanding:
Common shares 98.3 97.8 98.2 97.7
Common shares, assuming dilution 99.4 98.7 99.2 98.6
======================================================================================================================
See Notes to Consolidated Financial Statements
4
AVERY DENNISON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
-----------------------------------
June 29, 2002 June 30, 2001
- --------------------------------------------------------------------------------------------------------
Operating Activities:
- --------------------
Net income $ 138.6 $ 123.4
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 62.8 62.2
Amortization 9.5 16.1
Deferred taxes 3.1 (1.3)
Changes in assets and liabilities (46.2) (97.6)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 167.8 102.8
- --------------------------------------------------------------------------------------------------------
Investing Activities:
- --------------------
Purchase of property, plant and equipment (38.4) (64.7)
Acquisitions, net of miscellaneous proceeds from sale of assets (218.1) (50.6)
Other (11.6) (37.9)
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (268.1) (153.2)
- --------------------------------------------------------------------------------------------------------
Financing Activities:
- --------------------
Additional borrowings 386.0 434.3
Payments of debt (223.4) (330.9)
Dividends paid (72.5) (66.1)
Purchase of treasury stock (3.3) (8.2)
Proceeds from exercise of stock options 20.5 13.7
Other (.5) 6.8
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 106.8 49.6
- --------------------------------------------------------------------------------------------------------
Effect of foreign currency translation on cash balances .3 (.3)
- --------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 6.8 (1.1)
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period 19.1 11.4
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 25.9 $ 10.3
========================================================================================================
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 2001 annual financial statements and notes. This Form 10-Q should
be read in conjunction with the Company's consolidated financial statements
and notes included in the Company's 2001 Annual Report on Form 10-K.
The second quarters of 2002 and 2001 consisted of thirteen-week periods
ending June 29, 2002 and June 30, 2001, respectively. The interim results
of operations are not necessarily indicative of future financial results.
2. Recent Acquisitions
On May 17, 2002, the Company acquired Jackstadt GmbH, a privately-held
manufacturer of pressure-sensitive adhesive materials based in Germany.
Jackstadt has a global customer base and had consolidated revenues of
approximately $400 million in 2001. The Jackstadt business is included in
the Company's Pressure-sensitive Adhesives and Materials segment. Jackstadt
complements the Company's operations in North America, Asia, Latin America
and Europe, and will enhance the Company's ability to grow in Eastern
Europe. Jackstadt is expected to enhance the Company's global presence and
enable it to offer a broader selection of products and services.
The purchase price at closing was approximately $300 million, which
includes $200 million in cash and assumed debt of $100 million. The Company
assumed liabilities of approximately $202 million, including the assumed
debt, and had incurred acquisition costs of approximately $14 million by
the end of the second quarter. The Company funded the transaction with cash
and short-term commercial paper. The excess of the cost-basis over the fair
value of net tangible assets acquired is currently estimated to be
approximately $157 million, which includes estimated identified intangible
assets of approximately $11 million, which are being amortized on a
straight-line basis over 5 years. The purchase price paid at closing was
based on financial statement values at June 30, 2001, and is subject to
adjustment based upon a formula in the purchase agreement and which is
subject to finalization of the closing financial statements. Jackstadt's
results of operations have been included in the Company's consolidated
financial statements as of the acquisition date.
The preliminary allocation of the purchase price as of June 29, 2002 has
been made and recorded in these financial statements. The Company has not
finalized this allocation and is currently obtaining third-party valuations
of assets and liabilities. In addition, the Company is currently reviewing
its plans with regard to facilities rationalization that may require
adjustments to estimated amounts recorded for closure of certain facilities
and carrying values of Jackstadt assets. Receipt of the final valuations
and ongoing assessments may impact the allocation of the purchase price,
and changes to the preliminary allocation are likely to occur.
6
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Recent Acquisitions (continued)
The following represents the unaudited pro forma results of operations for
the Company and Jackstadt as though the acquisition of Jackstadt had
occurred at the beginning of the periods shown. The pro forma results
include interest expense on additional debt that would have been needed to
finance the purchase, amortization of intangibles that would have been
acquired, and certain adjustments that would have been required to conform
to the Company's accounting policies. The pro forma results of operations
have been prepared based on the preliminary allocation of the purchase
price and may require adjustment in accordance with the terms of the
purchase agreement or as a result of the finalization of the purchase price
allocation. This pro forma information is for comparison purposes only, and
is not necessarily indicative of the results that would have occurred had
the acquisition been completed at the beginning of the periods presented,
nor is it necessarily indicative of future results.
(In millions, except per share amounts)
(Unaudited)
----------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------------------------------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
----------------------------------------------------------------------------------------------------------
Net sales $1,108.8 $1,060.2 $2,138.0 $2,127.3
----------------------------------------------------------------------------------------------------------
Net income $ 74.7 $ 60.3 $ 139.1 $ 124.6
----------------------------------------------------------------------------------------------------------
Net income per common share $ .76 $ .62 $ 1.42 $ 1.27
----------------------------------------------------------------------------------------------------------
Net income per common share,
assuming dilution $ .75 $ .61 $ 1.40 $ 1.26
----------------------------------------------------------------------------------------------------------
Other acquisitions during 2002 were not significant to the Company's
consolidated financial position or results of operations.
3. Goodwill and Intangibles Resulting from Business Acquisitions
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," which supersedes Accounting Principles Board (APB) Opinion
No. 16, "Business Combinations." This Statement requires that all business
combinations be accounted for by the purchase method and establishes
specific criteria for the recognition of intangible assets separately from
goodwill. The provisions of the Statement apply to business combinations
initiated after June 30, 2001. For business combinations accounted for
using the purchase method before July 1, 2001, the provisions of this
Statement were effective in the first quarter of 2002. As a result of this
Statement, the Company discloses goodwill separately from intangible assets
on the Condensed Consolidated Balance Sheet.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which supersedes APB Opinion No. 17, "Intangible Assets." This
Statement addresses the accounting and reporting of goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 provides
that (i) goodwill and indefinite-lived intangible assets will no longer be
amortized, (ii) impairment will be measured using various valuation
techniques based on discounted cash flows, (iii) goodwill will be tested
for impairment at least annually at the reporting unit level, (iv)
intangible assets deemed to have an indefinite life will be tested for
impairment at least annually and (v) intangible assets with finite lives
will be amortized over their useful lives. The Statement provides specific
guidance on testing goodwill and intangible assets for impairment, and
requires that reporting units be identified
7
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Goodwill and Intangibles Resulting from Business Acquisitions (continued)
for the purpose of assessing potential future impairments. All provisions
of this Statement were effective at the beginning of fiscal 2002. Utilizing
internal and external resources, the Company adopted SFAS No.142 in the
first quarter of 2002. The Company identified its reporting units and the
amounts of goodwill, intangible assets, other assets and liabilities
allocated to those reporting units.
SFAS No. 142 requires that goodwill be tested for impairment upon adoption
of the Statement, as well as annually thereafter. The Company completed its
goodwill impairment test during the first quarter of 2002 and had no
impairment losses. Intangible assets deemed to have an indefinite life are
tested for impairment by comparing the fair value of the asset to its
carrying amount. The Company does not have intangible assets with
indefinite lives. Based on the results of the impairment tests, the Company
did not record a transitional impairment loss upon adoption of SFAS No.
142.
The Company adopted SFAS No. 142 effective at the beginning of fiscal 2002
and as a result, ceased amortization of goodwill as of that date. Changes
in the net carrying amount of goodwill for the year ended June 29, 2002, by
reportable segment, are as follows:
Consumer and Pressure-sensitive
Converted Adhesives and
(In millions) Products Materials Total
------------------------------------------------------------------------------------------------------------
Balance as of December 29, 2001 $ 148.9 $ 144.3 $ 293.2
Goodwill acquired during the period 3.4 150.2 153.6
Impairment losses - - -
Translation adjustments and other 6.1 11.8 17.9
------------------------------------------------------------------------------------------------------------
Balance as of June 29, 2002 $ 158.4 $ 306.3 $ 464.7
------------------------------------------------------------------------------------------------------------
The following table sets forth the Company's acquired intangible assets at
June 29, 2002 and December 29, 2001, which will continue to be amortized:
June 29, 2002 December 29, 2001
----------------------------------- -------------------------------------
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
(In millions) Amount Amortization Amount Amount Amortization Amount
----------------------------------------------------------------------------------------------------------------
Amortizable intangible assets:
Tradenames and trademarks $ 35.4 $ 8.6 $ 26.8 $ 23.4 $ 6.8 $ 16.6
Patented technology 63.6 7.5 56.1 63.6 5.8 57.8
Customer relations 51.2 4.7 46.5 47.6 3.6 44.0
Other intangibles 2.5 1.0 1.5 2.3 .7 1.6
----------------------------------------------------------------------------------------------------------------
Total $ 152.7 $ 21.8 $ 130.9 $ 136.9 $ 16.9 $ 120.0
----------------------------------------------------------------------------------------------------------------
8
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Goodwill and Intangibles Resulting from Business Acquisitions (continued)
Amortization expense on intangible assets resulting from business
acquisitions was $2 million and $4 million for three and six months ended
June 29, 2002, respectively, and $1.8 million and $3.6 million for the
three and six months ended June 30, 2001. Amortization expense on goodwill
was $3.6 million and $7.1 million for the three and six months ended June
30, 2001. Based on current information, estimated amortization expense for
such acquired intangible assets for this fiscal year, and for each of the
next four succeeding fiscal years, is expected to be approximately $10
million, $10 million, $9 million, $9 million and $9 million, respectively.
As required by SFAS No. 142, the results for the prior year's quarters have
not been restated. Had the Company accounted for its goodwill under SFAS
No. 142 for all periods presented, the Company's net income and earnings
per share would have been as follows:
Three Months Ended Six Months Ended
------------------------------------------------------------------------
(In millions, except per share amounts) June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
----------------------------------------------------------------------------------------------------------------------
Reported net income $ 73.8 $ 59.8 $ 138.6 $ 123.4
Goodwill amortization, net of tax - 3.5 - 6.8
-----------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 73.8 $ 63.3 $ 138.6 $ 130.2
-----------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
As reported $ .75 $ .61 $ 1.41 $ 1.26
Goodwill amortization - .04 - .07
-----------------------------------------------------------------------------------------------------------------------
Adjusted basic earnings per share $ .75 $ .65 $ 1.41 $ 1.33
-----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
As reported $ .74 $ .61 $ 1.40 $ 1.25
Goodwill amortization - .03 - .07
-----------------------------------------------------------------------------------------------------------------------
Adjusted diluted earnings per share $ .74 $ .64 $ 1.40 $ 1.32
-----------------------------------------------------------------------------------------------------------------------
4. Net Income Per Share
Net income per common share amounts were computed as follows:
Three Months Ended Six Months Ended
-------------------------------------------------------------------
(In millions, except per share amounts) June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
-----------------------------------------------------------------------------------------------------------------------------
(A) Net income available to common shareholders $ 73.8 $ 59.8 $ 138.6 $ 123.4
-----------------------------------------------------------------------------------------------------------------------------
(B) Weighted average number of common shares
outstanding 98.3 97.8 98.2 97.7
Additional common shares issuable under employee
stock options using the treasury stock method 1.1 .9 1.0 .9
-----------------------------------------------------------------------------------------------------------------------------
(C) Weighted average number of common shares
outstanding assuming the exercise of stock options 99.4 98.7 99.2 98.6
=============================================================================================================================
Net income per common share (A) / (B) $ .75 $ .61 $ 1.41 $ 1.26
=============================================================================================================================
Net income per common share, assuming
dilution (A) / (C) $ .74 $ .61 $ 1.40 $ 1.25
=============================================================================================================================
9
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Comprehensive Income
Comprehensive income for the Company included net income, foreign currency
translation adjustments and the effective portion of cash flow hedges that
are currently presented as a component of shareholders' equity. The
Company's total comprehensive income for the three and six months ended
June 29, 2002 was $107.4 million and $152.4 million, respectively. For the
three and six months ended June 30, 2001, total comprehensive income was
$51.3 million and $103.2 million, respectively. As of June 29, 2002, the
foreign currency translation adjustment, minimum pension liability, net
loss on derivative instruments designated as cash flow hedges and total
accumulated other comprehensive loss balances were $(102.4) million,
$(14.3) million, $(5.9) million and $(122.6) million, respectively. As of
December 29, 2001, the foreign currency translation adjustment, minimum
pension liability, net gain on derivative instruments designated as cash
flow hedges and total accumulated other comprehensive loss balances were
$(123.1) million, $(14.3) million, $1 million and $(136.4) million
respectively.
The table below details the cash flow hedging instrument activity in other
comprehensive income (loss) for the first six months of 2002:
(In millions) June 29, 2002
------------------------------------------------------------------------
Beginning accumulated derivative gain $ 1.0
Net loss reclassified to earnings .1
Net change in the revaluation of hedging transactions (7.0)
------------------------------------------------------------------------
Ending accumulated derivative loss $ (5.9)
========================================================================
6. Foreign Currency
Translation of financial statements of subsidiaries operating in
hyperinflationary economies and transactions in foreign currencies resulted
in losses of $.9 million and $2.1 million, respectively, during the three
and six months ended June 29, 2002. For the three and six months ended June
30, 2001, the Company recorded gains of $.4 million and $.2 million,
respectively. Operations in hyperinflationary economies consist of the
Company's operations in Turkey for 2001 and 2002.
7. Financial Instruments
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended, in the first quarter of 2001 and
recorded a transition adjustment reducing net income by $.2 million (net of
tax). This Statement requires that all derivative instruments be recorded
on the balance sheet at their fair value.
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 firm commitments denominated in foreign
currencies that arise primarily as a result of its operations outside the
United States of America. The Company also enters into interest rate
contracts to manage its exposure to interest rate fluctuations.
During the three and six months ended June 29, 2002 changes in fair market
value related to fair value hedges and the ineffectiveness related to cash
flow hedges were not significant. Amounts the Company expects to reclassify
from other comprehensive income to earnings during the fiscal year ending
December 28, 2002 are not expected to be significant. A loss of
approximately $2.7 million related to a net investment hedge is included in
the foreign currency translation adjustment reported in accumulated other
comprehensive loss.
10
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Inventories
Inventories consisted of:
(In millions) June 29, 2002 December 29, 2001
--------------------------------------------------------------------------
Raw materials $ 103.5 $ 82.9
Work-in-progress 83.6 67.6
Finished goods 185.3 134.6
LIFO adjustment (16.8) (17.7)
--------------------------------------------------------------------------
$ 355.6 $ 267.4
==========================================================================
9. Research and Development
Research and development expense for the three and six months ended June
29, 2002 was $18 million and $35 million, respectively. For the three and
six months ended June 30, 2001, research and development expense was $17.9
million and $35.3 million, respectively.
10. 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 9 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. The Company is participating with
other PRPs at 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 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. Amounts currently accrued are not significant to the
consolidated financial position of the Company and, based upon current
information, management believes that it is unlikely the final resolution
of these matters will significantly impact the consolidated financial
position and operations of 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 is
not expected to materially affect the Company.
11
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Cost Reduction Program
The Company recorded a charge in the fourth quarter of 2001 relating to
cost reduction actions. The 2001 charge involves cost reduction programs
and the reorganization of manufacturing and administrative facilities in
both of the Company's operating segments. The cost reduction efforts
resulted in a pretax charge of $19.9 million, which consisted of employee
severance and related costs of $13.1 million for approximately 400
positions worldwide, and asset write-downs of $6.8 million. The positions
included approximately 170 employees in the Pressure-sensitive Adhesives
and Materials segment, 210 employees in the Consumer and Converted Products
segment and 20 Corporate employees. Severance and related costs represent
cash paid or to be paid to employees terminated under the program. Asset
write-downs represent non-cash charges required to reduce the carrying
value of assets to be disposed of to net realizable value as of the planned
date of disposal. At the end of the second quarter of 2002, $4.8 million
remained accrued for severance and related costs (included in "Other
current liabilities") and $0.7 million remained accrued for asset
write-downs (included in "Other current liabilities") in the Condensed
Consolidated Balance Sheet. At the end of the second quarter, of the 400
positions under these actions, approximately 320 employees had left the
Company. The Company expects to complete this cost reduction program in
2002.
12. Segment Information
Financial information by reportable operating segment is set forth below:
Three Months Ended Six Months Ended
---------------------------------------------------------------------
(In millions) June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
-----------------------------------------------------------------------------------------------------------------------
Net sales:
Pressure-sensitive Adhesives and Materials $ 640.2 $ 558.2 $ 1,190.6 $ 1,094.6
Consumer and Converted Products 460.0 448.1 880.1 900.7
Intersegment/(1)/ (43.9) (45.5) (83.6) (71.3)
-----------------------------------------------------------------------------------------------------------------------
Net sales $ 1,056.3 $ 960.8 $ 1,987.1 $ 1,924.0
=======================================================================================================================
Income (loss) from operations before
interest and taxes:
Pressure-sensitive Adhesives and Materials $ 60.9 $ 46.4 $ 111.9 $ 91.3
Consumer and Converted Products 66.0 63.1 126.0 133.7
Corporate administrative and research and
development expenses (11.8) (6.1) (19.6) (11.8)
Interest expense (9.6) (13.5) (18.9) (27.3)
-----------------------------------------------------------------------------------------------------------------------
Income before taxes and accounting change $ 105.5 $ 89.9 $ 199.4 $ 185.9
=======================================================================================================================
/(1)/ Intersegment sales primarily represent sales from the
Pressure-sensitive Adhesives and Materials segment to the Consumer and
Converted Products segment.
12
.
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. Recent Accounting Requirements
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." Under EITF Issue No. 94-3, a liability for an exit cost is
recognized at the date an entity commits to an exit plan. SFAS No. 146
eliminates the definition and requirements for recognition of exit costs in
EITF Issue 94-3 and requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred.
This Statement also establishes that fair value is the objective for
initial measurement of the liability. The provisions of this Statement will
be effective after December 31, 2002. The Company is currently in the
process of evaluating the impact of adopting SFAS No. 146.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting
Gains and Losses from Extinguishment of Debt," and an amendment of that
Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." This Statement amends FASB Statement No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of Statement No. 4
are effective beginning in 2003. All other provisions were effective May
16, 2002. The provisions adopted, effective May 16, 2002, did not have a
significant impact on the Company's financial results. The Company is in
the process of determining the impact of this standard on the Company's
financial results for those provisions effective in 2003.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement was effective
for the Company on December 30, 2001, and supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and amends Accounting Principles Board (APB)
Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." This Statement
requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less costs to sell. SFAS
No. 144 retains the fundamental provisions of SFAS 121 for (a) recognition
and measurement of the impairment of long-lived assets to be held and used
and (b) measurement of long-lived assets to be disposed of by sale. This
Statement also retains APB Opinion No. 30's requirement that companies
report discontinued operations separately from continuing operations. For
the quarter and six months ended June 29, 2002, the Company divested
operations whose results, including the gain/loss on asset sales, did not
have a significant impact on the income statement and were, therefore, not
reflected as discontinued operations in the Company's Consolidated
Statement of Income.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate
of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. All
provisions of this Statement will be effective at the beginning of fiscal
2003. The Company is in the process of determining the impact of this
standard on the Company's financial results when effective.
13
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations: For the Quarter
- --------------------------------------
On May 17, 2002, the Company acquired Jackstadt GmbH, a privately-held
manufacturer of pressure-sensitive adhesive materials based in Germany.
Jackstadt has a global customer base and had consolidated revenues of
approximately $400 million in 2001. The Jackstadt business is included in the
Company's Pressure-sensitive Adhesives and Materials segment. Jackstadt
complements the Company's operations in North America, Asia, Latin America and
Europe, and will enhance the Company's ability to grow in Eastern Europe.
Jackstadt is expected to enhance the Company's global presence and enable it to
offer a broader selection of products and services.
The purchase price at closing was approximately $300 million, which includes
$200 million in cash and assumed debt of $100 million. The Company assumed
liabilities of approximately $202 million, including the assumed debt, and had
incurred acquisition costs of approximately $14 million by the end of the second
quarter. The Company funded the transaction with cash and short-term commercial
paper. The excess of the cost-basis over the fair value of net tangible assets
acquired is currently estimated to be approximately $157 million, which includes
estimated identified intangible assets of approximately $11 million, which are
being amortized on a straight-line basis over 5 years. The purchase price paid
at closing was based on financial statement values at June 30, 2001, and is
subject to adjustment based upon a formula in the purchase agreement and which
is subject to finalization of the closing financial statements. Jackstadt's
results of operations have been included in the Company's consolidated financial
statements as of the acquisition date.
Quarterly sales were $1.06 billion, compared to second quarter 2001 sales of
$960.8 million. Excluding the impact of currency, sales increased 10.3 percent.
The acquisition of Jackstadt contributed an additional $45.7 million in sales to
the second quarter of 2002 as compared to the same period last year. The
reduction in sales related to divested operations represented $18 million for
the quarter.
Gross profit margin increased to 32.8 percent for the quarter compared to 32.5
percent for the second quarter of 2001. The increase was primarily due to cost
reduction programs and productivity improvement gains achieved through the Six
Sigma program. These improvements were partially offset by lower gross profit
margin on the Jackstadt business.
Marketing, general and administrative expense, as a percent of sales, was 21.9
percent compared to 21.7 percent for the second quarter of 2001. The increase
was primarily due to increases in marketing expenses and bonus accruals due to
higher sales and net income. Integration costs related to the Jackstadt
acquisition also contributed to the increase in marketing, general and
administrative expense. Productivity improvements and the change in accounting
for goodwill amortization partially offset the increases.
Interest expense decreased to $9.6 million for the quarter, compared to $13.5
million a year ago, primarily reflecting lower interest rates on short-term,
floating rate debt. The decrease in interest expense was partially offset by the
additional interest on the debt used to fund the Jackstadt acquisition.
Income before taxes, as a percent of sales, was 10 percent compared to 9.4
percent a year ago. The increase reflects the higher gross profit margin and the
decrease in interest expense. The elimination of goodwill amortization also had
a positive impact on the Company's pretax income. The effective tax rate
decreased to 30 percent for the quarter compared to 33.5 percent for the second
quarter of 2001 and 32.4 percent for the full year 2001, primarily due to the
change in accounting for goodwill, as well as both structural and operational
changes that reduced the effective tax rate on a global basis.
Net income totaled $73.8 million compared to $59.8 million in the second quarter
of 2001. Net income, as a percent of sales, was 7 percent for the second quarter
of 2002 and 6.2 percent for the same period last year.
14
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations: For the Quarter (continued)
- --------------------------------------------------
Net income per common share for the quarter was $.75 compared to $.61 in the
second quarter of 2001. Net income per common share, assuming dilution, was $.74
for the second quarter of 2002 and $.61 for the second quarter of 2001. The
results for the second quarter of 2002 include an approximate $(.02) per share,
assuming dilution, impact from the acquisition of Jackstadt and a benefit of
approximately $.03 per share, assuming dilution, related to the accounting
change eliminating goodwill amortization.
Results of Operations by Reportable Operating Segment
Pressure-sensitive Adhesives and Materials: Three Months Ended
----------------------------------------------
(In millions) June 29, 2002 June 30, 2001
- -----------------------------------------------------------------------------------------------------------
Net sales $ 640.2 $ 558.2
Income from operations before interest and taxes 60.9 46.4
- -----------------------------------------------------------------------------------------------------------
The Pressure-sensitive Adhesives and Materials segment reported increased sales
for the second quarter of 2002 compared to the same period last year. Sales
increased domestically primarily due to the strong volume growth in the roll
materials business, including the market share gain from business obtained from
the closure of a competitor's plant and a supply agreement with a company that
decided to outsource its manufacturing of certain roll label materials, as well
as strong volume growth in the specialty tapes business. The sales increase was
partially offset by the reduction in sales from divested operations, including
the specialty coatings business sold in the fourth quarter of 2001. Sales
increased internationally, primarily due to the acquisition of Jackstadt and
sales growth in most businesses in Asia, Europe and Latin America.
The segment reported an increase in income for the second quarter of 2002
compared to the same period last year. Income increased domestically and
internationally primarily due to strong volume growth and improved profitability
achieved through cost reductions and productivity gains, and the change in
accounting for goodwill amortization. The increase was partially offset by
integration costs related to the Jackstadt acquisition.
Consumer and Converted Products: Three Months Ended
----------------------------------------------
(In millions) June 29, 2002 June 30, 2001
- -----------------------------------------------------------------------------------------------------------
Net sales $ 460.0 $ 448.1
Income from operations before interest and taxes 66.0 63.1
- -----------------------------------------------------------------------------------------------------------
The Consumer and Converted Products segment reported an increase in sales for
the second quarter of 2002 compared to the same period last year. Sales in the
U.S operations increased primarily due to increased sales volume in the office
products business because of higher sales related to the back-to-school season
in the second quarter, as well as increased sales from the industrial and
automotive business. Sales from international operations increased primarily due
to the strong volume growth in Asia, especially in the ticketing business, and
sales growth in Europe. The increase was partially offset by the reduction in
sales from divested operations. The segment reported an increase in income for
the second quarter of 2002 compared to the same period last year. Income
increased domestically and internationally primarily due to improved sales,
improved productivity and the change in accounting for goodwill amortization.
15
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations: Six Months Year-To-Date
- ----------------------------------------------
Sales for the first six months of 2002 were $1.99 billion, compared to $1.92
billion in the corresponding period of 2001. Excluding the impact of currency,
sales increased 4.3 percent. The acquisitions of Jackstadt in May of 2002 and
Dunsirn Industries and CD Stomper in February of 2001 contributed an additional
$53.3 million in sales for the first six months of 2002 over the amounts
contributed by these businesses as compared to the same period last year. The
reduction in sales related to divested operations represented $37.9 million for
the first six months.
Gross profit margin for the first six months increased to 33 percent compared to
32.8 percent for the first six months of 2001. The increase was primarily due to
cost reduction programs and productivity improvement gains achieved through the
Six Sigma program. Lower gross profit margin on the Jackstadt business partially
offset the improvements.
Marketing, general and administrative expense, as a percent of sales, for the
first six months was 22 percent compared to 21.7 percent for the first six
months of 2001. The increase was primarily due to increases in marketing
expenses and bonus accruals due to higher sales and net income. Integration
costs related to the Jackstadt acquisition also contributed to the increase in
marketing, general and administrative expense. Productivity improvements and the
change in accounting for goodwill amortization partially offset the increases.
Interest expense decreased to $18.9 million for the first six months, compared
to $27.3 million for the first six months of 2001, primarily reflecting lower
interest rates on short-term, floating rate debt. The decrease in interest
expense was partially offset by the additional interest on the debt used to fund
the Jackstadt acquisition.
Income before taxes, as a percent of sales, was 10 percent compared to 9.7
percent a year ago. The increase reflects the higher gross profit margin and the
decrease in interest expense. The elimination of goodwill amortization also had
a positive impact on the Company's pretax income. The year-to-date effective tax
rate decreased to 30.5 percent for 2002 from 33.5 percent for the first six
months of 2001 and 32.4 percent for the full year 2001. The decrease is
primarily due to the change in accounting for goodwill, as well as both
structural and operational changes that reduced the effective tax rate on a
global basis.
Net income totaled $138.6 million compared to $123.4 million in the first six
months of 2001. Net income, as a percent of sales, was 7 percent for the first
six months of 2002 and 6.4 percent for the same period last year.
Net income per common share for the first six months was $1.41 compared to $1.26
for the same period last year. Net income per common share, assuming dilution,
was $1.40 for the first six months of 2002 and $1.25 for the first six months of
2001. The results for the first six months of 2002 include an approximate $(.02)
per share, assuming dilution, impact from the acquisition of Jackstadt and a
benefit of approximately $.07 per share, assuming dilution, related to the
accounting change eliminating goodwill amortization.
Results of Operations by Reportable Operating Segment
Pressure-sensitive Adhesives and Materials: Six Months Ended
-----------------------------------------
(In millions) June 29, 2002 June 30, 2001
- ------------------------------------------------------------------------------------------------------------------
Net sales $ 1,190.6 $ 1,094.6
Income from operations before interest and taxes 111.9 91.3
- ------------------------------------------------------------------------------------------------------------------
The Pressure-sensitive Adhesives and Materials segment reported increased sales
for the first six months of 2002 compared to the same period last year. Sales
increased domestically primarily due to the strong volume growth in
16
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations: Six Months Year-To-Date (continued)
- ----------------------------------------------------------
the roll materials business, including the market share gain from business
obtained from the closure of a competitor's plant and a supply agreement with a
company that decided to outsource its manufacturing of certain roll label
materials, as well as a full six months of sales from the Dunsirn acquisition,
which occurred in February of 2001. Sales also improved in the U.S. specialty
tapes business. The sales increase was partially offset by the reduction in
sales from divested operations, including the specialty coatings business sold
in the fourth quarter of 2001. Sales increased internationally, primarily due to
the acquisition of Jackstadt and strong volume growth in Asia and Europe. Sales
growth in Latin America was partially offset by the negative impact of changes
in foreign currency exchange rates.
The segment reported an increase in income for the first six months of 2002
compared to the same period last year. Income increased domestically and
internationally primarily due to sales growth, improved profitability in the
roll materials, graphics and specialty tapes businesses achieved through cost
reductions and productivity gains, and the change in accounting for goodwill
amortization.
Consumer and Converted Products: Six Months Ended
--------------------------------------
(In millions) June 29, 2002 June 30, 2001
- -------------------------------------------------------------------------------------------------------------
Net sales $ 880.1 $ 900.7
Income from operations before interest and taxes 126.0 133.7
- -------------------------------------------------------------------------------------------------------------
The Consumer and Converted Products segment reported a decrease in sales for the
first six months of 2002 compared to the same period last year. Sales in the U.S
operations declined primarily due to weak retail apparel sales in the first
quarter, which impacted the ticketing business, and the general economic
weakness in the first quarter, which impacted sales volumes across most of the
segment. The decrease in sales in the U.S. operations was partially offset by a
full six months of sales from the acquisition of CD Stomper, which occurred in
February of 2001. Excluding the reduction in sales from divested operations,
sales from international operations increased. The increase was primarily due to
the sales increase in Asia. The increase was partially offset by the negative
impact of changes in foreign currency exchange rates, weak retail apparel sales
in the first quarter which impacted the ticketing business and the general
weakness in business conditions experienced in international markets during the
first quarter. The segment reported a decrease in income primarily due to the
overall decline in sales from U.S. operations. This decrease was partially
offset by the change in accounting for goodwill amortization.
Financial Condition
- -------------------
Average working capital, excluding short-term debt, as a percent of sales,
decreased to 8.5 percent for the quarter from 8.7 percent a year ago. This
decrease is due primarily to the increase in sales. Excluding the Jackstadt
acquisition, average working capital, excluding short-term debt, would have been
7.2 percent. The average number of days sales outstanding in accounts receivable
increased to 65 days compared to 59 days a year ago, reflecting the increase in
accounts receivable at the end of the quarter from the Jackstadt acquisition and
longer payment terms associated with increased international sales.
Net cash flows provided by operating activities totaled $167.8 million for the
first six months of 2002 and $102.8 million for the first six months of 2001.
The increase in net cash flows provided by operating activities was primarily
due to the changes in working capital and the increase in net income. In
addition to cash flows from operations, the Company has adequate financing
arrangements, at competitive rates, to conduct its operations.
17
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financial Condition (continued)
- -------------------------------
Capital expenditures for the quarter were $20.9 million compared to $28.9
million a year ago. For the first six months of 2002, capital spending totaled
$38.4 million compared to $64.7 million a year ago. Capital expenditures for
2002 are expected to be approximately $160 million, as compared to $135.4
million in 2001. The Company's major capital projects this year are focused on
the international markets, including additional capital needs for the Jackstadt
business.
Other expenditures in investing activities declined compared to the prior year
primarily due to a reduction in spending for software.
During the first six months of 2002, total debt increased $260.3 million to
$1.11 billion from year end 2001. The increase in debt was due primarily to fund
the acquisition of Jackstadt, capital purchases and for other general purposes.
Total debt to total capital was 51.6 percent as of the end of the second quarter
of 2002 and 47.8 percent at year end 2001. The increase is due to additional
short-term borrowings to fund the Jackstadt acquisition. In the first quarter of
1999, the Company recorded an obligation associated with the transaction with
Steinbeis Holding GmbH, which combined substantially all of the Company's office
products businesses in Europe with Zweckform Buro-Produkte GmbH, a German office
products supplier. The obligation of $80.2 million is reported in the "Other
long-term obligation" line on the Condensed Consolidated Balance Sheet, and is
scheduled to be paid in 2004.
In the third quarter of 2001, the Company filed a shelf registration statement
with the Securities and Exchange Commission to permit the issuance of up to $600
million in debt and equity securities. Proceeds from the shelf offering may be
used for general corporate purposes, including repaying, redeeming or
repurchasing existing debt, and for working capital, capital expenditures and
acquisitions. No securities have been issued since the filing.
Shareholders' equity increased to $1.04 billion from $929.4 million at year end
2001. During the first six months of 2002, the Company purchased approximately
53,000 shares of common stock at a cost of $3.3 million. 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, increased by $37.1 million to
$711.6 million from year end 2001. Dividends paid for the first six months of
2002 totaled $72.5 million compared to $66.1 million a year ago.
Cost Reduction Program
- ----------------------
The Company recorded a charge in the fourth quarter of 2001 relating to cost
reduction actions. The 2001 charge involves cost reduction programs and the
reorganization of manufacturing and administrative facilities in both of the
Company's operating segments. The cost reduction efforts resulted in a pretax
charge of $19.9 million, which consisted of employee severance and related costs
of $13.1 million for approximately 400 positions worldwide, and asset
write-downs of $6.8 million. The positions included approximately 170 employees
in the Pressure-sensitive Adhesives and Materials segment, 210 employees in the
Consumer and Converted Products segment and 20 Corporate employees. Severance
and related costs represent cash paid or to be paid to employees terminated
under the program. Asset write-downs represent non-cash charges required to
reduce the carrying value of assets to be disposed of to net realizable value as
of the planned date of disposal. At the end of the second quarter of 2002, $4.8
million remained accrued for severance and related costs (included in "Other
current liabilities") and $0.7 million remained accrued for asset write-downs
(included in "Other current liabilities") in the Condensed Consolidated Balance
Sheet. At the end of the second quarter, of the 400 positions under these
actions, approximately 320 employees had left the Company. The Company expects
to complete this cost reduction program in 2002.
18
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Future Accounting Requirements
- ------------------------------
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." Under EITF
Issue No. 94-3, a liability for an exit cost is recognized at the date an entity
commits to an exit plan. SFAS No. 146 eliminates the definition and requirements
for recognition of exit costs in EITF Issue 94-3 and requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. This Statement also establishes that fair value is the
objective for initial measurement of the liability. The provisions of this
Statement will be effective after December 31, 2002. The Company is currently in
the process of evaluating the impact of adopting SFAS No. 146.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This
Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement, FASB Statement No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
Statement amends FASB Statement No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The provisions of this Statement related to the rescission of
Statement No. 4 are effective beginning in 2003. All other provisions were
effective May 16, 2002. The provisions adopted, effective May 16, 2002, did not
have a significant impact on the Company's financial results. The Company is in
the process of determining the impact of this standard on the Company's
financial results for those provisions effective in 2003.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement was effective for the Company on
December 30, 2001, and supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and amends
Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." This
Statement requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less costs to sell. SFAS No.
144 retains the fundamental provisions of SFAS 121 for (a) recognition and
measurement of the impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed of by sale. This Statement also
retains APB Opinion No. 30's requirement that companies report discontinued
operations separately from continuing operations. For the quarter and six months
ended June 29, 2002, the Company divested operations whose results, including
the gain/loss on asset sales, did not have a significant impact on the income
statement and were, therefore, not reflected as discontinued operations in the
Company's Consolidated Statement of Income.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This Statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. All provisions of this Statement will be effective at
the beginning of fiscal 2003. The Company is in the process of determining the
impact of this standard on the Company's financial results when effective.
19
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Outlook
- -------
The Company's results for the first six months of 2002 reflected stronger sales
growth in the second quarter following the challenging economic environment in
the U.S. and international markets during the first quarter. While order
patterns across many of the Company's businesses continue to be generally
strong, the Company is cautious about the outlook for the second half of 2002,
given the worldwide economic uncertainties.
The Jackstadt acquisition in May 2002 is the Company's largest acquisition in
over a decade. The Company believes the combination is a strategic fit in the
core pressure-sensitive materials and graphics businesses. Jackstadt is expected
to strengthen the Company's business in many developing markets and important
growth areas around the world, including Asia, Latin America and Eastern Europe.
Integration of the Jackstadt business has begun, and the majority of the
integration actions are expected to be completed over the next 24 months. The
Company believes the total cash cost of the integration will be in the range of
$60 million to $70 million, of which approximately $30 million to $40 million is
expected to be recorded as a charge to the income statement. The Company
anticipates finalizing its integration plans and recording the charge in the
third quarter of 2002.
Interest expense was $9.6 million for the second quarter and $18.9 million for
the first six months of 2002, reflecting lower interest rates on the Company's
short-term, floating rate debt. The Company expects interest expense to increase
to the range of $11 million to $12 million in the third quarter, after giving
effect to an anticipated refinancing of short-term debt to long-term debt.
The effective tax rate was 30 percent for the second quarter and 30.5 percent
for the first six months of 2002. Due to the change in accounting for goodwill
and both structural and operational changes, the Company believes, subject to
changes in the geographic mix of income, the effective tax rate for the
remainder of 2002 will be in the range of approximately 30 percent to 30.5
percent.
Any further devaluation of the Argentine peso would continue to negatively
impact revenues and earnings from the Company's operations in Argentina.
Political, regulatory, economic, currency and other business issues in Argentina
are likely to continue to negatively impact those operations for the remainder
of 2002 as compared to 2001. Operations in Argentina (primarily reported in the
Pressure-sensitive Adhesives and Materials segment) represented less than $25
million in sales in 2001 and are not significant to the Company's financial
results.
Other international operations, principally in Western Europe, constitute a
significant portion of the Company's business. The Company is exposed to foreign
currency exchange rate risk, and changes to foreign exchange rates in Western
Europe and elsewhere will impact the Company's financial results.
The adoption of SFAS No.142 benefited earnings per share, assuming dilution, by
approximately $.07 in the first six months of 2002. Under the new accounting
standard, the Company no longer amortizes goodwill. The Company expects the new
accounting rule to benefit earnings per share, assuming dilution, by
approximately $.13 for 2002, as compared to 2001. However, the Company
anticipates that increased amortization expense related to capitalized software
will partially offset the benefit from the accounting change for goodwill
amortization.
In this period of challenging worldwide economic conditions, the Company is
focused on cost management efforts and believes it is positioned for further
growth as economic conditions improve. The Company has reduced costs and expects
to continue to benefit from the implementation of productivity improvement
initiatives. In addition to driving down costs, the Company continues to pursue
long-term growth initiatives. These initiatives include acquisitions, entry into
new markets, development of new products and geographic expansion.
20
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND 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 and other sections of this Form 10-Q contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements, which are not statements of historical fact, may
contain estimates, assumptions, projections and/or expectations regarding future
events. Words such as "anticipate," "assume," "believe," "estimate," "expect,"
"plan," "project," "will," and other expressions, which refer to future events
and trends, identify forward-looking statements. 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 anticipated 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 29, 2001 and
include, but are not limited to, risks and uncertainties relating to investment
in development activities and new production facilities, timely development and
successful market acceptance of new products, price and availability of raw
materials, impact of competitive products and pricing, business mix shift,
credit risks, successful integration of new acquisitions, customer and supplier
and manufacturing concentrations, financial condition and inventory strategies
of customers, changes in customer order patterns, increased competition, loss of
significant contract(s) or customer(s), legal proceedings, fluctuations in
foreign exchange rates and other risks associated with foreign operations,
changes in economic or political conditions, acts of war, terrorism, natural
disasters, and other factors.
Any forward looking statement should also be considered in light of the factors
detailed in Exhibit 99 to the Company's Annual Report on Form 10-K for the year
ended December 29, 2001.
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, other than as may be required by law.
21
AVERY DENNISON CORPORATION AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
There are no material changes in the information provided in Item 7A of the
Company's Form 10-K for the fiscal year ended December 29, 2001.
22
PART II. OTHER INFORMATION
AVERY DENNISON CORPORATION
AND SUBSIDIARIES
ITEM 1.
- -------
There are no material changes in the information provided in Item 3 of the
Company's Form 10-K for the fiscal year ended December 29, 2001.
ITEMS 2, 3, 4 and 5.
- --------------------
Not Applicable
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
a. Exhibits: 3(ii) Bylaws, as amended July 25, 2002.
12 Computation of Ratio of Earnings to Fixed Charges
b. Reports on Form 8-K:
Registrant filed a current report on Form 8-K on August 6, 2002 with
respect to SEC Order No. 4-460 related to the Company's Chief Executive
Officer and Chief Financial Officer statements.
Registrant filed a current report on Form 8-K on June 3, 2002 with respect
to the Company's acquisition of Jackstadt GmbH.
23
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/ Daniel R. O'Bryant
-------------------------
Daniel R. O'Bryant
Senior Vice President, Finance, and
Chief Financial Officer
(Principal Financial Officer)
/s/ Michael A. Skovran
-------------------------
Michael A. Skovran
Vice President and Controller
(Chief Accounting Officer)
August 13, 2002
24
Exhibit 3(ii)
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 2711 Centerville Road,
Suite 400, 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, if any, 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, and at such other time 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. Business transacted at any special meeting of the
stockholders shall be limited to the purpose stated in the notice of meeting.
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 purpose or purposes for which the meeting is called, 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 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 or by electronic
transmission, 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. Whenever notice is
required to be given to any stockholder to whom (1) notice of 2 consecutive
annual meetings, and all notices of meetings or of the taking of action by
written consent without a meeting to such person during the period between such
2 consecutive annual meetings, or (2) all, and at least 2, payments (if sent by
first-class mail) of dividends or interests or securities during a 12 month
period, have been mailed addressed to such person at such person's address as
shown on the records of the corporation and have been returned undeliverable,
the giving of such notice shall not be required. If any such person shall
deliver to the corporation a written notice setting forth such person's then
current address, the requirement that notice be given to such person shall be
reinstated. If mailed, notice shall be deemed to have been given at the time
when delivered personally or deposited in the United States 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.
Exhibit 3(ii)
Page 2 of 23
Section 6. Quorum.
The presence in person or by proxy of the holders of a majority of the
voting power of the outstanding 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
voting power 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
percentage or voting by classes is required by the General Corporation Law of
the State of Delaware (the "General Corporation Law") or the certificate of
incorporation or the certificate of designations of preferences as to any
preferred stock, or the rules and regulations of any stock exchange applicable
to the corporation, or applicable law or pursuant to any rule or regulation
applicable to the corporation or its securities.
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
Exhibit 3(ii)
Page 3 of 23
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, gives
a 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
proxy. Without limiting the manner in which a proxy may be granted, a
stockholder may grant a proxy in the following manners: (i) by executing a
writing
Exhibit 3(ii)
Page 4 of 23
authorizing another person or persons to act for such stockholder as proxy or
(ii) by transmitting or authorizing the transmission of a telegram, cablegram,
or other means of electronic transmission to a person who will be the holder of
the proxy or to a proxy solicitation firm, proxy support service organization or
like agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided however that any such telegram, cablegram or
other means of electronic transmission must either set forth or be submitted
with information from which it can be determined that the telegram, cablegram or
other electronic transmission was authorized by the stockholder. A written proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or electronic
transmission or otherwise) by the stockholder or the stockholder's attorney in
fact. A 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 or electronic transmission 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) 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
three years from the date of such proxy, unless otherwise provided in the proxy.
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
Exhibit 3(ii)
Page 5 of 23
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 90th day nor earlier
than the close of business on the 120th 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 70 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 120th day prior to such
annual meeting and not later than the close of business on the later of the 90th
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 or
postponement of an annual meeting commence a new time period (or extend any 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") (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 (including the
text of any resolutions proposed for consideration and in the event that such
business includes an amendment to the Bylaws, the language of the proposed
amendment); 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, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, (iii) a representation that the stockholder is a holder of
record of stock of the corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to propose such business or
nomination, and (iv) a representation whether the stockholder or the beneficial
owner, if any, intends or is part of a group which intends (a) to deliver a
proxy statement and/or form of proxy to holders of at least the percentage of
the corporation's outstanding capital stock required to approve or adopt the
proposal or elect the nominee and/or (b) otherwise to solicit proxies from
stockholders in support of such proposal or nomination. The foregoing notice
requirements shall be deemed satisfied by a stockholder if the stockholder has
notified the corporation of his or her intention to present a proposal at an
annual meeting in compliance with Rule 14a-8 (or any successor thereof)
promulgated under the
Exhibit 3(ii)
Page 6 of 23
Exchange Act and such stockholder's proposal has been included in a proxy
statement that has been prepared by the corporation to solicit proxies for such
annual meeting. The corporation may require any proposed nominee to furnish such
other information as the corporation may reasonably require to determine the
eligibility of such proposed nominee to serve as a director of the corporation.
(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 100
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 120th day prior to such special
meeting and not later than the close of business on the later of the 90th 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 or postponement of a
special meeting commence a new time period (or extend any 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 be elected at an annual
or special meeting of stockholders 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
Exhibit 3(ii)
Page 7 of 23
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 (including whether
the stockholder or beneficial owner, if any, on whose behalf the nomination or
proposal is made solicited (or is part of a group which solicited) or did not so
solicit, as the case may be, proxies in support of such stockholder's nominee or
proposal in compliance with such stockholder's representation as required by
clause (A)(2)(c)(iv) of this Bylaw), to declare that such defective proposal or
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Bylaw, if the stockholder (or a qualified representative of the
stockholder) does not appear at the annual or special meeting of stockholders of
the corporation to present a nomination or business, such nomination shall be
disregarded and such proposed business shall not be transacted, notwithstanding
that proxies in respect of such vote may have been received by the corporation.
(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 pursuant to any
applicable provision of the certificate of incorporation.
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:
Exhibit 3(ii)
Page 8 of 23
(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 thirteen (13) 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.
Section 4. Vacancies and Newly Created Directorships.
Vacancies and newly created directorships 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 or she succeeds,
unless otherwise determined by the board of directors, and until a successor has
been elected and qualified.
Exhibit 3(ii)
Page 9 of 23
A vacancy or vacancies in the board of directors shall be deemed to exist
in the case of the death, retirement, resignation, disqualification or removal
of any director, or if the authorized number of directors be increased.
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 other 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.
Exhibit 3(ii)
Page 10 of 23
Notice of the time and place of special meetings shall be delivered
personally or by telephone or by electronic transmission 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 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, telegram
or other form of electronic transmission, it shall be delivered personally, or
by telephone or to the telegraph company or transmitted by other electronic
transmission 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 gives a 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 if
the time and place thereof are announced at the adjourned meeting, 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,
Exhibit 3(ii)
Page 11 of 23
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 to such action in compliance with applicable law.
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 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
COMMITTEES
Section 1. Committees of Directors.
The board of directors may, by resolution adopted by the board 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
Exhibit 3(ii)
Page 12 of 23
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) approving or adopting, or recommending to the stockholders, any action
or matter expressly required by the General Corporation Law to be submitted
to the stockholders for approval; or
(b) adopting, amending or repealing any bylaw of the corporation.
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 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.
Exhibit 3(ii)
Page 13 of 23
Section 3. Subordinate Officers, etc.
The board of directors may appoint, and may empower the chairman of the
board 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 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.
Section 7. President.
The president shall be the chief operating officer of the corporation and
shall exercise and perform such powers and duties with respect to the
administration of the business and affairs of the corporation as may from time
to time be assigned to him by the chairman of the board or by the board of
directors, or as may be prescribed by the bylaws.
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.
Exhibit 3(ii)
Page 14 of 23
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 chairman of the board 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.
Exhibit 3(ii)
Page 15 of 23
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. Indemnification and Insurance.
(A) Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit, or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans maintained
or sponsored by the corporation, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee of agent,
shall be indemnified and held harmless by the corporation to the fullest extent
authorized by the General Corporation Law as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
said law permitted the corporation to provide prior to such amendment), against
all expenses, liability and loss (including attorneys' fees, judgements, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph (C) of this Bylaw, the corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors. The right to indemnification conferred in
this Bylaw shall be a contract right and shall include the right to be paid by
the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition, such advances to be paid by the corporation
within 20 days after the receipt by the corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;
provided, however, that if the General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the corporation
of an undertaking by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Bylaw or otherwise.
(B) To obtain indemnification under this Bylaw, a claimant shall submit to
the corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and
reasonably necessary to determine whether and to what extent the claimant is
Exhibit 3(ii)
Page 16 of 23
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (B), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined), or (ii) by a committee of Disinterested Directors
designated by Disinterested Directors, even though less than a quorum, or (iii)
if a quorum of the Board of Directors consisting of Disinterested Directors is
not obtained or even if obtainable, such quorum of Disinterested Directors so
directs, by Independent Counsel in a written opinion to the Board of Directors,
a copy of which shall be delivered to the claimant, or (iv) if a quorum of
Disinterested Directors so directs, by the stockholders of the corporation. In
the event the determination of entitlement to indemnification is to be made by
Independent Counsel at the request of the claimant, the Independent Counsel
shall be selected by the Board of Directors unless there shall have occurred
within two years prior to the date of the commencement of the action, suit or
proceeding for which indemnification is claimed a "Change of Control" as defined
in the 1996 Stock Incentive Plan, in which case the Independent Counsel shall be
selected by the claimant unless the claimant shall request that such selection
be made by the Board of Directors. If it is so determined that the claimant is
entitled to indemnification, payment to the claimant shall be made within 10
days after such determination.
(C) If a claim under paragraph (A) of this Bylaw is not paid in full by the
corporation within 30 days after a written claim pursuant to paragraph (B) of
this Bylaw has been received by the corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim, including attorney's
fees. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law for the
corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, Independent Counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, Independent Counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
(D) If a determination shall have been made pursuant to paragraph (B) of
this Bylaw that the claimant is entitled to indemnification, the corporation
shall be bound by such determination in any judicial proceeding commenced
pursuant to paragraph (C) of this Bylaw.
Exhibit 3(ii)
Page 17 of 23
(E) The corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to paragraph (C) of this Bylaw that the procedures
and presumptions of this Bylaw are not valid, binding and enforceable and shall
stipulate in such proceeding that the corporation is bound by all the provisions
of this Bylaw.
(F) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Bylaw shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal or modification of this Bylaw shall in any way
diminish or adversely affect the rights of any director, officer, employee or
agent of the corporation hereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.
(G) The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law. To the extent that the corporation maintains
any policy or policies providing such insurance, each such director or officer,
and each such agent or employee to which rights to indemnification have been
granted as provided in paragraph (H) of this Bylaw, shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage thereunder for any such director, officer, employee or agent.
(H) The corporation may, to the extent authorized from time to time by the
Board of Directors or the Chief Executive Officer, grant rights to
indemnification, and rights to be paid by the corporation the expenses incurred
in defending any proceeding in advance of its final disposition, to any employee
or agent of the corporation to the fullest extent of the provisions of this
Bylaw with respect to the indemnification and advancement of expenses of
directors and officers of the corporation.
(I) If any provision or provisions of this Bylaw shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
legality and enforceability of the remaining provisions of this Bylaw
(including, without limitation, each portion of any paragraph of this Bylaw
containing any such provisions held to be invalid, illegal or unenforceable,
that is not itself held to be invalid, illegal or unenforceable) shall not in
any way be affected or impaired thereby; and (2) to the fullest extent possible,
the provisions of this Bylaw (including, without limitation, each such portion
of any paragraph of this Bylaw containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
(J) For purposes of this Bylaw:
(1) "Disinterested Director" means a
director of the corporation who is not and was not a party to the matter in
respect of which indemnification is sought by the claimant.
Exhibit 3(ii)
Page 18 of 23
(2) "Independent Counsel" means a law firm, a member of a law firm, or
an independent practitioner, that is experienced in matters of corporation law
and shall include any person who, under the applicable standards of professional
conduct then prevailing, would not have a conflict of interest in representing
either the corporation or the claimant in an action to determine the claimant's
rights under this Bylaw.
(K) Any notice, request or other communication required or permitted to be
given to the corporation under this Bylaw shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the corporation and shall be effective
only upon receipt by the Secretary.
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
Exhibit 3(ii)
Page 19 of 23
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.
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.
Exhibit 3(ii)
Page 20 of 23
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 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 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
Exhibit 3(ii)
Page 21 of 23
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 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.
Exhibit 3(ii)
Page 22 of 23
ARTICLE IX
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.
Amended July 25, 2002
Exhibit 3(ii)
Page 23 of 23
Exhibit 12
AVERY DENNISON CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Three Months Ended Six Months Ended
------------------------------------------------------------------
June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
- --------------------------------------------------------------------------------------------------------------------------
Earnings:
Income before taxes $ 105.5 $ 89.9 $ 199.4 $ 185.9
Add: Fixed charges* 15.8 19.0 31.1 38.5
Amortization of capitalized interest .5 .5 1.0 .9
Less: Capitalized interest (1.5) (1.4) (2.9) (3.0)
- --------------------------------------------------------------------------------------------------------------------------
$ 120.3 $ 108.0 $ 228.6 $ 222.3
==========================================================================================================================
*Fixed charges:
Interest expense $ 9.6 $ 13.5 $ 18.9 $ 27.3
Capitalized interest 1.5 1.4 2.9 3.0
Amortization of debt issuance costs .1 .1 .2 .2
Interest portion of leases 4.6 4.0 9.1 8.0
- --------------------------------------------------------------------------------------------------------------------------
$ 15.8 $ 19.0 $ 31.1 $ 38.5
==========================================================================================================================
Ratio of Earnings to Fixed Charges 7.6 5.7 7.4 5.8
==========================================================================================================================
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.