e10vk
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
Commission file number 1-7685
AVERY DENNISON CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State of incorporation) |
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95-1492269
(I.R.S. Employer Identification No.) |
150 North Orange Grove Boulevard
Pasadena, California |
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91103 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code:
(626) 304-2000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class |
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Name of Each Exchange on Which Registered |
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Common stock, $1 par value
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New York Stock Exchange |
Preferred Share Purchase Rights
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
Not applicable.
Indicate by a check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o.
Indicate by a check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act.
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
act). Yes o No þ
The aggregate market value of voting stock held by
non-affiliates as of July 1, 2005, was approximately
$5,278,179,030.
Number of shares of common stock, $1 par value, outstanding
as of February 27, 2006: 109,763,770.
The following documents are incorporated by reference into the
Parts of this report below indicated:
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Document |
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Incorporated by reference into: | |
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Portions of Annual Report to Shareholders for fiscal year ended
December 31, 2005 (the 2005 Annual Report)
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Parts I, II |
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Portions of Definitive Proxy Statement for Annual Meeting of
Stockholders to be held April 27, 2006 (the 2006
Proxy Statement)
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Parts III, IV |
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AVERY DENNISON CORPORATION
FISCAL YEAR 2005
FORM 10-K ANNUAL
REPORT
TABLE OF CONTENTS
PART I
Avery Dennison Corporation (Avery Dennison, the
Company, Registrant, Issuer,
which may be referred to as we or us)
was incorporated in 1977 in the state of Delaware as Avery
International Corporation, the successor corporation to a
California corporation of the same name, which was incorporated
in 1946. In 1990, the Company merged one of its subsidiaries
into Dennison Manufacturing Company (Dennison), as a
result of which Dennison became a wholly-owned subsidiary of the
Company, and in connection with which Companys name was
changed to Avery Dennison Corporation. Our homepage on the
internet is www.averydennison.com and you can learn more about
us by visiting our Web site. Our Web site address provided in
this annual report on
Form 10-K is not
intended to function as a hyperlink and the information on our
Web site is not and should not be considered part of this report
and is not incorporated by reference in this document.
Our businesses include the production of pressure-sensitive
materials, office products and a variety of tickets, tags,
labels and other converted products. Some pressure-sensitive
materials are converted into labels and other
products through embossing, printing, stamping and die-cutting,
and some are sold in unconverted form as base materials, tapes
and reflective sheeting. We also manufacture and sell a variety
of office products and other converted products and other items
not involving pressure-sensitive components, such as binders,
organizing systems, markers, fasteners, business forms, as well
as tickets, tags, and imprinting equipment for retail and
apparel manufacturers.
A pressure-sensitive, or self-adhesive, material is one that
adheres to a surface by press-on contact. It generally consists
of four elements: a face material, which may be paper, metal
foil, plastic film or fabric; an adhesive, which may be
permanent or removable; a release coating; and a backing
material to protect the adhesive against premature contact with
other surfaces, and which can also serve as the carrier for
supporting and dispensing individual labels. When the products
are to be used, the release coating and protective backing are
removed, exposing the adhesive, and the label or other face
material is pressed or rolled into place.
Self-adhesive materials may initially cost more than materials
using heat or moisture activated adhesives, but the use of
self-adhesive materials often provides cost savings because of
their easy and instant application, without the need for
adhesive activation. They also provide consistent and versatile
adhesion, with minimal adhesive deterioration and are available
in a large selection of materials in nearly any size, shape and
color.
Our reporting segments are:
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Pressure-sensitive Materials |
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Office and Consumer Products |
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Retail Information Services |
In addition to our reporting segments, we have other specialty
converting businesses comprised of several businesses that
produce specialty tapes and highly engineered labels including
radio frequency identification (RFID) inlays and
labels and other converted products.
The Pressure-sensitive Materials segment contributes
approximately 57 percent of our total sales, while the
Office and Consumer Products segment and the Retail Information
Services segment contribute approximately 21 percent and
12 percent, respectively, of our total sales. Approximately
80 percent of our sales are generated in the United States
and Europe.
International operations constitute a significant portion of our
business and represent approximately 55 percent of our
sales. We continue to expand our operations, focusing
particularly on Asia, Latin America and Eastern Europe. As of
December 31, 2005, we operated approximately 140
manufacturing and distribution facilities located in over 40
countries, and employed approximately 22,600 persons worldwide.
We are subject to certain risks referred to in Item 1A,
Risk Factors and Item 3, Legal
Proceedings below, including those normally attending
international and domestic operations, such as changes in
economic
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or political conditions, currency fluctuations, exchange control
regulations and the effect of international relations and
domestic affairs of foreign countries on the conduct of
business, legal proceedings, and the availability and pricing of
raw materials.
Except as set forth below, no single customer represented 10% or
more of our net sales or trade receivables at year end 2005 and
2004. However, our ten largest customers at year end 2005
represented approximately 20% of trade accounts receivable and
consisted of six customers of our Office and Consumer Products
segment, three customers of our Pressure-sensitive Materials
segment and one customer of both these segments. The financial
position and operations of these customers are monitored on an
ongoing basis. (see Critical Accounting Policies and
Estimates of Item 7, Managements
Discussion and Analysis of Results of Operations and Financial
Condition). United States export sales are not a
significant part of our business. Backlogs are not considered
material in the industries in which we compete.
Corporate Governance and Information Related to SEC
Filings
Our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q, Current
Reports on
Form 8-K and
amendments to those reports filed with, or furnished to, the
Securities and Exchange Commission (SEC) pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available free of charge by way of a third-party
hyperlink service through our Web site, www.averydennison.com
(in the Investors section), as soon as reasonably
practical after electronic filing with or furnishing of such
material to the SEC. We make available at the Web site our
(i) Corporate Governance Guidelines, (ii) Code of
Ethics and Business Conduct, which applies to our directors and
employees, (iii) Code of Ethics for the Chief Executive
Officer and Senior Financial Officers, (iv) the charters of
the Audit, Compensation and Executive Personnel, and Nominating
and Governance Committees of our Board of Directors, and
(v) Audit Committee Complaint Handling Procedures. These
materials are also available free of charge in print to
stockholders who request them by writing to: Secretary, Avery
Dennison Corporation, 150 North Orange Grove Boulevard,
Pasadena, California 91103.
The Board designated Richard M. Ferry as presiding director
during 2005. He presided at executive sessions of the Board
until December 1, 2005, when Kent Kresa was elected
non-executive Chairman. Mr. Kresa now presides at executive
sessions of the Board. During 2005, the Board held six executive
sessions with non-management directors only during regularly
scheduled Board meetings, as well as one additional executive
session with independent directors only. Stockholders and other
interested parties may write to Mr. Kresa concerning
matters other than accounting and auditing c/o Secretary,
Avery Dennison Corporation, 150 North Orange Grove Boulevard,
Pasadena, California 91103. Stockholders may also write to John
T. Cardis, Chairman of the Audit Committee, regarding accounting
and auditing matters c/o Secretary at the same address.
Pressure-sensitive Materials Segment
The Pressure-sensitive Materials segment manufactures and sells
Fasson-, JAC-, and Avery Dennison-brand pressure-sensitive
materials, Avery-brand graphics and graphic films, Avery
Dennison-brand reflective products, and performance polymers.
The business of this segment is generally not seasonal, except
for certain outdoor graphics and highway safety products and
operations in Western Europe. Pressure-sensitive materials
consist primarily of papers, plastic films, metal foils and
fabrics, which are coated with Company-developed and purchased
adhesives, and then laminated with specially coated backing
papers and films. They are sold in roll or sheet form with
either solid or patterned adhesive coatings, and are available
in a wide range of face materials, sizes, thicknesses and
adhesive properties. These materials are sold to label printers
and converters for labeling, decorating, fastening, electronic
data processing and special applications on a worldwide basis.
Graphic products consist of a variety of films and other
products sold to the architectural, commercial sign, digital
printing, and other related markets. We also sell durable cast
and reflective films to the construction, automotive, fleet
transportation, scrim-reinforced vinyl material for banner sign
applications, and reflective films and highway safety products
for traffic and safety applications. Our graphic and reflective
businesses are organized on a worldwide basis to serve the
expanding commercial graphic arts market,
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including wide-format digital printing applications. We also
manufacture and sell proprietary films that are used for
outdoor, weather-resistant applications.
Performance polymer products include a range of solvent- and
emulsion-based acrylic polymer adhesives, protective coatings
and other polymer additives for internal use, as well as for
sale to other companies.
In this segment, our larger competitors are Raflatac, a
subsidiary of UPM-Kymmene; Morgan Adhesives
(MACtac), a division of the Bemis Company; and 3M
Company (for graphic and reflective products). Entry of
competitors into the field of pressure-sensitive adhesives and
materials may be limited by capital requirements and a need for
technical knowledge. We believe that our relative size and scale
of operations, our ability to serve our customers with a broad
line of quality products and service programs, our distribution
and brand strength, and the development and commercialization of
new products are among the more significant factors in
developing and maintaining our competitive position.
Office and Consumer Products Segment
The Office and Consumer Products segment manufactures and sells
a wide range of Avery-brand office and printable media products.
The business of this segment is seasonal, with higher volume
related to the
back-to-school season.
This segments products are generally sold through office
products superstores, mass market distributors, wholesalers and
dealers. We manufacture and sell a wide range of Avery-brand
products for office, school and home uses: printable media, such
as copier, ink-jet and laser printer labels, related computer
software, ink-jet and laser printer card and index products; and
organization, filing and presentation products, such as binders,
dividers and sheet protectors. We also offer a wide range of
other stationery products, including writing instruments,
markers, adhesives and specialty products under brand names such
as Avery, Marks-A-Lot and HI-LITER. The extent of product
offerings varies by geographic market.
In this segment, our larger competitors are Acco Brands
Corporation, Esselte Corporation and manufacturers of private
brands. We believe that our brand strength, a large installed
base of software that facilitates the use of many of our
products, our ability to serve our customers with a broad line
of quality products, and the development and commercialization
of new products are among the more significant factors in
developing and maintaining our competitive position.
Retail Information Services Segment
The Retail Information Services segment designs, manufactures
and sells a wide variety of price marking and brand
identification products for retailers, apparel manufacturers,
distributors and industrial customers on a worldwide basis. This
business is seasonal, with higher volume in advance of the
back-to-school and
holiday shipping periods.
Our brand identification products include woven and printed
labels, graphic tags and barcode tags. Our information
management products include price tickets, carton labels, RFID
tags and printing applications for supply chain and security
management. Our solution enabling products include barcode
printers, molded plastic fastening and application devices and
security management products.
In this segment, our largest competitor is Paxar Corporation. We
believe that our ability to serve our customers with product
innovation, a comprehensive brand identification and information
management product line, our global distribution network,
service, quality, and geographic reach are the key advantages in
developing and maintaining our competitive position.
Other specialty converting businesses
Other specialty converting businesses include our specialty
tapes, industrial and automotive products, RFID and security
printing businesses. These businesses manufacture and sell
specialty tapes, highly engineered films, RFID inlays,
pressure-sensitive postage stamps and other converted products.
These
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businesses are generally not seasonal, except for certain
automotive products due to typical summer plant shutdowns by
automotive manufacturers.
The specialty tapes business manufactures and sells single- and
double-coated tapes and adhesive transfer tapes for use in
non-mechanical fastening, bonding and sealing systems in various
industries, which are sold to industrial and medical original
equipment manufacturers, converters, and disposable diaper
producers worldwide. These products are sold in roll form and
are available in a wide range of face materials, sizes,
thicknesses and adhesive properties.
Our industrial and automotive products businesses primarily
consist of custom pressure-sensitive and heat-seal labels for
the automotive and durable goods industries. These products are
sold primarily to original equipment manufacturers.
Our RFID business, manufactures RFID inlays and labels and makes
use of our existing distribution by marketing to our label
converter customers.
Our security printing business manufactures and sells
self-adhesive battery labels to a battery manufacturer, and
self-adhesive stamps to the U.S. Postal Service.
In addition, we sell specialty print-receptive films to the
industrial label market, metallic dispersion products to the
packaging industry and proprietary woodgrain and other patterns
of film laminates for housing exteriors and interior and
exterior automotive applications.
We compete with a number of diverse businesses. Our largest
competitor for this group of businesses is 3M Company in the
specialty tapes business. Entry of competitors into these
specialty converting businesses may be limited by capital and
technical requirements. We believe that our ability to serve our
customers with quality, cost effective products and the
development and commercialization of new products are among the
more significant factors in developing and maintaining our
competitive position.
Research and Development
Many of our current products are the result of our research and
development efforts. Our expenses for research, design and
testing of new products and applications by our operating units
and the Avery Research Center (the Research Center)
located in Pasadena, California were $85.4 million in 2005,
$81.8 million in 2004 and $74.3 million in 2003. A
significant number of our research and development activities
are conducted at the Research Center, which supports each of our
operating segments.
Our operating units research efforts are directed
primarily toward developing new products and operating
techniques and improving product performance, often in close
association with customers. The Research Center supports our
operating units patent and product development work, and
focuses on improving adhesives, materials and coating processes,
as well as related product applications and ventures. These
efforts often focus on projects relating to printing and coating
technologies and adhesive, release and ink chemistries.
The loss of individual patents or licenses would not be material
to us taken as a whole, nor to our operating segments
individually. Our principal trademarks are Avery, Fasson, Avery
Dennison and the Companys symbol. These trademarks are
significant in the markets in which our products compete.
Three-Year Summary of Segment Information
Certain financial information on our reporting segments and
other specialty converting businesses for the three years ended
December 31, 2005, which appear in Note 12
Segment Information, in the Notes to Consolidated
Financial Statements beginning on page 61 of our 2005
Annual Report to Shareholders, are incorporated herein by
reference.
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Other Matters
We use various raw materials, primarily paper, plastic films and
resins, and specialty chemicals, which we purchase from a
variety of commercial and industrial sources and which are
subject to price fluctuations. Although from time to time
shortages could occur, these raw materials currently are
generally available.
We produce a majority of our self-adhesive materials using
water-based emulsion and hot-melt adhesive technologies.
Emissions from these operations contain small amounts of
volatile organic compounds, which can be regulated by agencies
of federal, state, local and foreign governments. We continue to
evaluate the use of alternative materials and technologies to
minimize these emissions.
A portion of our manufacturing process for self-adhesive
materials utilizes certain organic solvents which, unless
controlled, would be emitted into the atmosphere. Emissions of
these substances are regulated by agencies of federal, state,
local and foreign governments. In connection with the
acquisition of certain manufacturing equipment, we invest in
solvent capture and control units to assist in regulating these
emissions.
We have developed adhesives and adhesive processing systems.
Emulsion adhesives, hot-melt adhesives or solventless silicone
systems have been installed in our facilities in Peachtree City,
Georgia; Fort Wayne and Greenfield, Indiana; and
Quakertown, Pennsylvania; as well as in other plants in the
United States, Argentina, Australia, Belgium, Brazil, Canada,
China, Colombia, France, Germany, India, Korea, Luxembourg,
Malaysia, Mexico, the Netherlands, South Africa, Thailand and
United Kingdom.
Based on current information, we do not believe that the costs
of complying with applicable laws regulating the discharge of
materials into the environment, or otherwise relating to the
protection of the environment, will have a material effect upon
our capital expenditures, consolidated financial position or
results of operations.
For information regarding our potential responsibility for
cleanup costs at certain hazardous waste sites, see Legal
Proceedings (see Part I, Item 3) and
Managements Discussion and Analysis of Results of
Operations and Financial Condition (see Part II,
Item 7).
Our ability to attain our goals and objectives is materially
dependent on numerous factors and risks, including but not
limited to, the following:
Potential adverse developments in legal proceedings and
investigations regarding competitive activities and other legal,
compliance and regulatory matters, including those involving
product liability, product and trade compliance, Foreign Corrupt
Practices Act issues and other matters, could impact us
materially.
Our financial results could be materially adversely impacted by
an unfavorable outcome to pending or future litigation and
investigations, including, without limitation, any relating to
the U.S. Department of Justices Antitrust Division
(DOJ) criminal investigation, as well as the
European Commission (EC), Canadian Department of
Justice, and Australian Competition and Consumer Commission
investigations, into industry competitive practices and any
related proceedings or lawsuits pertaining to these
investigations or to the subject matter thereof (including
purported class actions in the United States seeking treble
damages for alleged unlawful competitive practices, and
purported class actions related to alleged disclosure and
fiduciary duty violations pertaining to alleged unlawful
competitive practices, which were filed after the announcement
of the DOJ investigation, as well as a likely fine by the EC in
respect of certain employee misconduct in Europe). See
Item 3, Legal Proceedings. There can be no
assurance that any investigation or litigation outcome will be
favorable.
The demand for our products is impacted by economic
conditions of the principal countries in which we operate. A
decline in the economies in these countries could have an
adverse effect on our sales and profitability.
We have operations in over 40 countries and our domestic and
international operations are strongly influenced by matters
beyond our control, including changes in the political, social,
economic, tax and
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regulatory environments (including tariffs) in the countries in
which we operate, as well as the impact of economic conditions
on underlying demand for our products. In addition,
approximately 55 percent of our sales are in foreign
currencies, which fluctuate in relation to one another and to
the United States dollar. Fluctuations in currencies can cause
transaction, translation and other losses to us, which can
negatively impact our sales and profitability.
We operate in some highly competitive markets. If we do not
compete effectively, we could lose market share and experience
falling prices, adversely affecting our financial results.
We are at risk that our competitors will expand in our key
markets and implement new technologies making them more
competitive. There is also the possibility that competitors will
be able to offer additional products, services, lower prices, or
other incentives that we cannot or will not offer or that will
make our products less profitable. There can be no assurance
that we will be able to compete successfully against current and
future competitors.
As a manufacturer, our sales and profitability are also
dependent upon the cost and availability of raw materials and
energy, which are subject to price fluctuations, and the ability
to control or pass on costs of raw materials and labor.
Inflationary and other increases in the costs of raw materials,
labor and energy have occurred in the past and are expected to
recur, and our performance depends in part on our ability to
pass on to customers changes in costs in our selling prices for
products and through improvements in productivity. Also, it is
important that we are able to obtain timely delivery of
materials, equipment, and packaging from suppliers. A disruption
to our supply chain could adversely affect our sales and
profitability.
Our future results may be affected if we generate less
productivity improvement than projected.
We are undergoing efforts to reduce costs in many of our
operations, including closure of facilities, headcount
reductions, organizational simplification, process
standardization, and using a variety of tools such as Lean Sigma
and Kaizen events, to accomplish this productivity, which is not
assured. Lower levels of productivity could result in lower
production, sales, and profitability. Cost reduction actions, in
turn, could expose us to additional production risk.
Slower growth in key markets could adversely affect our
profitability.
Our business could be negatively impacted by a decline in key
end use markets or applications for our products. Our overall
performance will be influenced by these markets.
Our customers are widely diversified, but in certain portions
of our business, industry concentration has increased the
importance and decreased the number of significant customers.
In particular, sales of our office and consumer products in the
United States are concentrated in a few major customers,
principally office product superstores, mass market distributors
and wholesalers. The business risk associated with this
concentration, including increased credit risks for these and
other customers, and the possibility of related bad debt
write-offs, could negatively affect our margins and profits.
Our ability to develop and successfully market new products
and applications is important in maintaining growth.
The timely introduction of new products and improvements in
current products helps determine our success. Research and
development for each of our operating segments is complex and
uncertain and requires innovation and anticipation of market
trends. We could focus on products that ultimately are not
accepted by customers.
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Infringing intellectual property rights of third parties or
inadequately acquiring or protecting our intellectual property
and patents could harm our ability to grow.
Because our products involve complex technology and chemistry,
we are sometimes involved in litigation involving patents and
other intellectual property. Parties have filed, and in the
future may file, claims against us alleging that we have
infringed their intellectual property rights. We could be held
to be liable to pay damages or obtain licenses. There can be no
assurance that licenses will be available, and the cost to
defend these infringement claims and to develop new technology
could be significant.
We also could have our intellectual property infringed. We
attempt to protect and restrict access to our intellectual
property and proprietary information, but it may be possible for
a third party to obtain our information and develop similar
technologies. In addition, many of the countries in which we
operate have limited or no protection for intellectual property
rights. The costs involved to protect our intellectual property
rights could adversely impact our profitability.
The amount of income taxes we pay is subject to ongoing
audits by federal, state and foreign tax authorities.
Our estimate of the potential outcome of uncertain tax issues is
subject to our assessment of relevant risks, facts, and
circumstances existing at that time. Our future results may
include favorable or unfavorable adjustments to our estimated
tax liabilities in the period the assessments are made or
resolved, which may impact our effective tax rate and our
financial results.
The level of returns on pension and postretirement plan
assets and the actuarial assumptions used for valuation purposes
could affect our earnings in future periods.
Assumptions used in determining projected benefit obligations
and the fair value of plan assets for our pension plan and other
postretirement benefit plans are evaluated by us in consultation
with outside actuaries who we rely on as experts. In the event
that we determine that changes are warranted in the assumptions
used, such as the discount rate, expected long term rate of
return, or health care costs, our future pension and projected
postretirement benefit expenses could increase or decrease. Due
to changing market conditions or changes in the participant
population, the actuarial assumptions that we use may differ
from actual results, which could have a significant impact on
our pension and postretirement liability and related cost.
We have acquired and may continue to acquire other companies.
These acquisitions come with significant risks and
uncertainties, including integration, technology and
personnel.
In order to grow our product lines and to expand into new
markets, we have made acquisitions and may do so in the future.
Many risks, uncertainties, and costs are associated with the
acquisitions. The integration of systems, objectives, personnel,
product lines, markets, customers, suppliers, and cost savings
can be difficult to achieve and the results are uncertain. There
can be no assurance that acquisitions will be successful and
contribute to our profitability.
In order for us to remain competitive it is important to
recruit and retain highly-skilled employees.
There is significant competition to recruit and retain skilled
employees. Due to rapid expansion in certain markets and the
ongoing productivity efforts and recent employee reductions, it
may be difficult for us to retain and recruit sufficient numbers
of highly-skilled employees.
We need to comply with many environmental, health, and safety
laws.
Due to the nature of our business, we are subject to
environmental, health, and safety laws and regulations,
including those related to the disposal of hazardous waste from
our manufacturing processes. We have accrued liabilities for
environmental clean-up
sites, including sites for which governmental agencies have
designated us as a potentially responsible party, where it is
probable that a loss will be incurred and the 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 currently
identified sites and other sites, which could be identified in
the future for cleanup, could be higher than the liability
currently accrued.
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In order to mitigate risk, it is important that we obtain
various types of insurance.
We have various types of insurance including health, life, and
property. Since the 9/11 terrorist attacks, insurance premiums
have risen considerably and recent natural disasters will likely
result in an additional increase in insurance premiums. As the
cost of insurance continues to increase, our financial results
could be adversely affected.
Significant disruption to our information technology
infrastructure could adversely impact our operations, sales,
customer relations, and financial results.
We rely on a large and complex information technology
infrastructure to link our worldwide divisions. Like other
information technology systems, ours is susceptible to damage or
interruptions caused by natural disasters, power failures,
viruses and security breaches. We upgrade and install new
systems, which if installed or programmed incorrectly, could
cause significant disruptions. If a disruption occurs, we could
incur losses and costs for remediation and interruption of
operations.
Our share price has been volatile.
Our stock price is influenced by changes in the overall stock
market and demand for equity securities in general. Other
factors, including market expectations for our performance, the
level of perceived growth of our industries, and announcements
concerning industry investigations, have also impacted our share
price. There can be no assurance that our stock will be less
volatile in the future.
If our credit ratings are downgraded, we may have difficulty
obtaining acceptable short- and long-term financing from capital
markets.
Credit ratings are a significant factor in our ability to raise
short-term and long-term financing. The credit ratings assigned
to us also impact the interest rates on our commercial paper and
other borrowings. Standard and Poors (S&P)
has assigned us a credit rating of A-2 for short-term and A- for
long-term financing. S&P has given us a negative outlook.
Moodys Investors Service (Moodys) has
assigned us a credit rating of P2 for short-term and A3 for
long-term financing. Moodys has given us a stable outlook.
If our credit ratings were to be downgraded, our financial
flexibility would decrease and the cost to borrow would
increase. We have no assurance that the current credit ratings
will be maintained.
Our reputation, sales, and earnings could be affected
adversely if the quality of our products and services does not
meet customer expectations.
There are occasions when we ship products with quality issues
resulting from defective materials, manufacturing, packaging or
design. Many of these issues are discovered before shipping but
this causes delays in shipping, delays in the manufacturing
process, and occasionally cancelled orders. When the issues are
discovered after shipment, this causes additional shipping
costs, possible discounts, possible refunds, and potential loss
of future sales. Both pre-shipping and post-shipping quality
issues can result in financial consequences along with a
negative impact on our reputation.
Some of our products are sold by third parties.
Our products are not only sold by us, but by third party
distributors and retailers as well. Some of our distributors
also market products that compete with our products. Changes in
the financial or business condition or purchasing decisions of
these third parties could affect our sales and profitability.
We outsource some of our manufacturing. If there are
significant changes in the quality control or financial or
business condition of these outsourced manufacturers, our
business could be negatively impacted.
We manufacture most of our products, but occasionally
third-party manufacturers are needed for specialty jobs or
capacity overflow. Outsourced manufacturers reduce our ability
to control product failure, late deliveries, customer
dissatisfaction and compliance with customer requirements for
labor standards. Because of possible quality problems and
customer dissatisfaction, outsourced manufacturers could have an
adverse effect on our business and financial results.
8
The risks described above are not exclusive. Additional risks
not presently known to us or that we currently consider to be
less significant may also have an adverse effect on us. If any
of the above risks actually occur, our business, results of
operations, cash flows or financial condition could suffer,
which might cause the value of our securities to decline.
|
|
Item 1B. |
UNRESOLVED STAFF COMMENTS |
None.
As of December 31, 2005, we operated over thirty principal
manufacturing facilities in excess of 100,000 square feet.
The following sets forth the locations of such principal
facilities and the operating segments for which they are
presently used:
Pressure-sensitive Materials Segment
|
|
|
|
Domestic |
Peachtree City, Georgia; Fort Wayne, Greenfield and Lowell,
Indiana; Fairport Harbor, Hamilton, Mentor and Painesville,
Ohio; Quakertown, Pennsylvania; and Neenah, Wisconsin |
|
|
Foreign |
Melbourne, Australia; Vinhedo, Brazil; Ajax, Canada; Kunshan,
China; Champ-sur-Drac,
France; Gotha and Schwelm, Germany; Rodange, Luxembourg; Rayong,
Thailand; Hazerswoude, the Netherlands; and Cramlington, United
Kingdom |
Office and Consumer Products Segment
|
|
|
|
Domestic |
Chicopee, Massachusetts; and Meridian, Mississippi |
|
|
Foreign |
Oberlaindern, Germany; and Juarez and Tijuana, Mexico |
Retail Information Services Segment
|
|
|
|
Domestic |
Greensboro, North Carolina |
|
|
Foreign |
Hong Kong and Nansha, China |
Other specialty converting businesses
|
|
|
|
Domestic |
Schererville, Indiana; Painesville, Ohio; and Clinton, South
Carolina |
|
|
Foreign |
Turnhout, Belgium |
In addition to our principal manufacturing facilities described
above, our other principal facilities include our corporate
headquarters facility and research center in Pasadena,
California, and offices located in Brea and Westlake Village,
California; Framingham, Massachusetts; Concord, Ohio; Hong Kong
and Kunshan, China; Wuppertal, Germany; Leiden, the Netherlands;
and Zug, Switzerland.
All of our principal properties identified above are owned
except certain facilities in Brea and Westlake Village,
California; Greensboro, North Carolina; Hamilton, Ohio; Hong
Kong, China; Oberlaindern, Germany; Juarez, Mexico; and Zug,
Switzerland, which are leased.
All buildings owned or leased are considered suitable and
generally adequate for our present needs. We expand production
capacity and provide facilities as needed to meet increased
demand. Owned buildings and plant equipment are insured against
major losses from fire and other usual business risks, subject
to deductibles. We are not aware of any material defects in
title to, or significant encumbrances on, our properties except
for certain mortgage liens.
9
|
|
Item 3. |
LEGAL PROCEEDINGS |
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 fourteen 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 Companys
liability has been agreed. The Company is participating with
other PRPs at all such sites, and anticipates that its share of
cleanup costs will be determined pursuant to remedial agreements
entered into in the normal course of negotiations with the EPA
or other governmental authorities.
The Company has accrued liabilities for all sites, including
sites in which governmental agencies have designated the Company
as a PRP, where it is probable that a loss will be incurred and
the 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 any 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 it is unlikely that the final resolution of these
matters will significantly impact the Companys
consolidated financial position, results of operations or cash
flows.
On April 14, 2003, the Company announced that it had been
advised that the U.S. Department of Justice was challenging
the proposed merger of UPM-Kymmene (UPM) and the
Morgan Adhesives (MACtac) division of Bemis Co.,
Inc. (Bemis) on the basis of its belief that in
certain aspects of the label stock industry the
competitors have sought to coordinate rather than compete.
The Company also announced that it had been notified that the
U.S. Department of Justice had initiated a criminal
investigation into competitive practices in the label stock
industry.
On April 15, 2003, the U.S. Department of Justice
filed a complaint in the U.S. District Court for the
Northern District of Illinois seeking to enjoin the proposed
merger (DOJ Merger Complaint). The DOJ Merger
Complaint, which set forth the U.S. Department of
Justices theory of its case, included references not only
to the parties to the merger, but also to an unnamed
Leading Producer of North American label stock,
which is the Company. The DOJ Merger Complaint asserted that
UPM and the Leading Producer have already attempted to
limit competition between themselves, as reflected in written
and oral communications to each other through high level
executives regarding explicit anticompetitive understandings,
although the extent to which these efforts have succeeded is not
entirely clear to the United States at the present time.
In connection with the U.S. Department of Justices
investigation into the proposed merger, the Company produced
documents and provided testimony by Messrs. Neal,
Scarborough and Simcic (then CEO, President and Group Vice
President Roll Materials Worldwide, respectively).
On July 25, 2003, the United States District Court for the
Northern District of Illinois entered an order enjoining the
proposed merger. UPM and Bemis thereafter agreed to terminate
the merger agreement. The courts decision incorporated a
stipulation by the U.S. Department of Justice that the
paper label industry is competitive.
On April 24, 2003, Sentry Business Products, Inc. filed a
purported class action in the United States District Court for
the Northern District of Illinois against the Company, UPM,
Bemis and certain of their subsidiaries seeking treble damages
and other relief for alleged unlawful competitive practices,
essentially repeating the underlying allegations of the DOJ
Merger Complaint. Ten similar complaints were filed in various
federal district courts. In November 2003, the cases were
transferred to the United States District Court for the Middle
District of Pennsylvania and consolidated for pretrial purposes.
Plaintiffs filed a consolidated complaint on February 16,
2004, which the Company answered on March 31, 2004. On
April 14, 2004, the court separated the proceedings as to
class certification and merits discovery, and limited the
initial phase of discovery to the issue of the appropriateness
of class certification. On January 4, 2006, plaintiffs
filed an amended complaint. The Company intends to defend these
matters vigorously.
On May 6, 2003, Sekuk Global Enterprises filed a purported
stockholder class action in the United States District Court for
the Central District of California against the Company and
Messrs. Neal, OBryant and Skovran (then CEO, CFO and
Controller, respectively) seeking damages and other relief for
alleged
10
disclosure violations pertaining to alleged unlawful competitive
practices. Subsequently, another similar action was filed in the
same court. On September 24, 2003, the court appointed a
lead plaintiff, approved lead and liaison counsel and ordered
the two actions consolidated as the In Re Avery Dennison
Corporation Securities Litigation. Pursuant to court order
and the parties stipulation, plaintiff filed a
consolidated complaint in mid-February 2004. The court approved
a briefing schedule for defendants motion to dismiss the
consolidated complaint, with a contemplated hearing date in June
2004. In January 2004, the parties stipulated to stay the
consolidated action, including the proposed briefing schedule,
pending the outcome of the government investigation of alleged
anticompetitive conduct by the Company. The court has approved
the parties stipulation to stay the consolidated actions.
There has been no discovery and no trial date has been set. The
Company intends to defend these matters vigorously.
On May 21, 2003, The Harman Press filed in the Superior
Court for the County of Los Angeles, California, a purported
class action on behalf of indirect purchasers of label stock
against the Company, UPM and UPMs subsidiary Raflatac
(Raflatac), seeking treble damages and other relief
for alleged unlawful competitive practices, essentially
repeating the underlying allegations of the DOJ Merger
Complaint. Three similar complaints were filed in various
California courts. In November 2003, on petition from the
parties, the California Judicial Council ordered the cases be
coordinated for pretrial purposes. The cases were assigned to a
coordination trial judge in the Superior Court for
San Francisco County on March 30, 2004. A further
similar complaint was filed in the Superior Court for Maricopa
County, Arizona on November 6, 2003. Plaintiffs voluntarily
dismissed the Arizona complaint without prejudice on
October 4, 2004. On January 21, 2005, American
International Distribution Corporation filed a purported class
action on behalf of indirect purchasers in the Superior Court
for Chittenden County, Vermont. Similar actions were filed by
Webtego on February 16, 2005, in the Court of Common Pleas
for Cuyahoga County, Ohio; by D.R. Ward Construction Co. on
February 17, 2005, in the Superior Court for Maricopa
County, Arizona; by Richard Wrobel, on February 16, 2005,
in the District Court of Johnson County, Kansas; and by Chad and
Terry Muzzey, on February 16, 2005 in the District Court of
Scotts Bluff County, Nebraska. On February 17, 2005, Judy
Benson filed a purported multi-state class action on behalf of
indirect purchasers in the Circuit Court for Cocke County,
Tennessee. On October 7, 2005, Webtego voluntarily
dismissed its complaint. The Company intends to defend the
remaining matters vigorously.
On August 15, 2003, the U.S. Department of Justice
issued a subpoena to the Company in connection with its criminal
investigation into competitive practices in the label stock
industry. The Company is cooperating with the investigation.
On June 8, 2004, Pamco Tape & Label filed in the
Superior Court for the County of San Francisco, California,
a purported class action on behalf of direct purchasers in
California of self-adhesive label stock, against the Company,
Bemis, UPM and Raflatac, seeking actual damages and other relief
for alleged unlawful competitive practices, essentially
repeating the underlying allegations of the DOJ Merger
Complaint. Pamco voluntarily dismissed its complaint without
prejudice on May 18, 2005.
On May 25, 2004, officials from the European Commission
(EC), assisted by officials from national
competition authorities, launched unannounced inspections of and
obtained documents from the Companys pressure-sensitive
materials facilities in the Netherlands and Germany. The
investigation apparently seeks evidence of unlawful
anticompetitive activities affecting the European paper and
forestry products sector, including the label stock market. The
Company is cooperating with the investigation.
Based on published press reports, certain other European
producers of paper and forestry products received similar visits
from European authorities. One such producer, UPM, stated that
it had decided to disclose to competition authorities any
conduct that has not comported with applicable competition
laws, and that it had received conditional immunity in the
European Union (EU) and Canada with respect to
certain conduct it has previously disclosed to them, contingent
on full cooperation. In February 2006, UPM announced that the
U.S. Department of Justice had agreed not to prosecute UPM
in connection with the label stock investigation, and, further,
that UPM had received conditional immunity in jurisdictions in
addition to the EU and Canada.
11
In the course of its internal examination of matters pertinent
to the ECs investigation of anticompetitive activities
affecting the European paper and forestry products sector, the
Company discovered instances of improper conduct by certain
employees in its European operations. This conduct violated the
Companys policies and in some cases constituted an
infringement of EC competition law. As a result, the Company
expects that the EC will fine the Company when its investigation
is completed. The EC has wide discretion in fixing the amount of
a fine, up to a maximum fine of 10% of a companys annual
revenue. Because the Company is unable to estimate either the
timing or the amount or range of any fine, the Company has made
no provision for a fine in its financial statements. However,
the Company believes that the fine could well be material in
amount. There can be no assurance that additional adverse
consequences to the Company will not result from the conduct
discovered by the Company or other matters under EC or other
laws. The Company is cooperating with authorities, continuing
its internal examination, and taking remedial actions.
On July 9, 2004, the Competition Law Division of the
Department of Justice of Canada notified the Company that it was
seeking information from the Company in connection with a label
stock investigation. The Company is cooperating with the
investigation.
On May 18, 2005, Ronald E. Dancer filed a purported class
action in the United States District Court for the Central
District of California against the Company, Mr. Neal, Karyn
Rodriguez (VP and Treasurer) and James Bochinski (then VP,
Compensation and Benefits), for alleged breaches of fiduciary
duty under the Employee Retirement Income Security Act to the
Companys Employee Savings Plan and Plan participants. The
plaintiff alleges, among other things, that permitting
investment in and retention of Company Common Stock under the
Plan was imprudent because of alleged anticompetitive activities
by the Company, and that failure to disclose such activities to
the Plan and participants was unlawful. Plaintiff seeks an order
compelling defendants to compensate the Plan for any losses and
other relief. The parties stipulated to transfer the case to the
judge in the consolidated case, In Re Avery Dennison
Corporation Securities Litigation referenced above, and
the court has approved the parties stipulation to stay the
matter pending the outcome of the government investigation of
alleged anticompetitive conduct by the Company. The Company
intends to defend this matter vigorously.
On August 18, 2005, the Australian Competition and Consumer
Commission notified two of the Companys subsidiaries,
Avery Dennison Material Pty Limited and Avery Dennison Australia
Pty Ltd, that it was seeking information in connection with a
label stock investigation. The Company is cooperating with the
investigation.
The Board of Directors has created an ad hoc committee comprised
of independent directors to oversee the foregoing matters.
The Company is unable to predict the effect of these matters at
this time, although the effect could well be adverse and
material.
The Company has contacted relevant authorities in the U.S. and
reported on the results of an internal investigation of
potential violations of the U.S. Foreign Corrupt Practices
Act. The transactions at issue were carried out by a small
number of employees of the Companys reflectives business
in China, and involved, among other things, impermissible
payments or attempted impermissible payments. The payments or
attempted payments and the contracts associated with them appear
to have been relatively minor in amount and of limited duration.
Corrective and disciplinary actions have been taken. Sales of
the Companys reflectives business in China in 2005 were
approximately $7 million. Based on findings to date, no
changes to the Companys previously filed financial
statements are warranted as a result of these matters. However,
the Company expects that fines or other penalties could be
incurred. While the Company is unable to predict the financial
or operating impact of any such fines or penalties, it believes
that its behavior in detecting, investigating, responding to and
voluntarily disclosing these matters to authorities should be
viewed favorably.
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. Based upon current information,
management believes that the resolution of these other matters
will not materially affect the Companys financial position.
12
|
|
Item 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF AVERY
DENNISON(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Served as |
|
|
|
|
|
|
Executive Officer |
|
Former Positions and Offices |
Name |
|
Age | |
|
Since |
|
with Avery Dennison |
|
|
| |
|
|
|
|
Dean A.
Scarborough(2)
|
|
|
50 |
|
|
August 1997 |
|
2000-2005 |
|
President and Chief Operating Officer |
|
President and Chief Executive Officer (also Director of Avery
Dennison) |
|
|
|
|
|
|
|
|
|
|
|
Robert G. van Schoonenberg
|
|
|
59 |
|
|
December 1981 |
|
1997-2000 |
|
S.V.P., General Counsel |
|
Executive Vice President, General |
|
|
|
|
|
|
|
|
|
and Secretary |
|
Counsel and Secretary |
|
|
|
|
|
|
|
|
|
|
|
Daniel R. OBryant
|
|
|
48 |
|
|
January 2001 |
|
2000-2001 |
|
V.P. and General Manager, Fasson |
|
Executive Vice President, Finance |
|
|
|
|
|
|
|
|
|
Roll N.A. |
|
and Chief Financial Officer |
|
|
|
|
|
|
|
2001-2005 |
|
S.V.P., Finance and Chief |
|
|
|
|
|
|
|
|
|
|
|
Financial Officer |
|
Diane B. Dixon
|
|
|
54 |
|
|
December 1985 |
|
1997-2000 |
|
V.P., Worldwide Communications and |
|
Senior Vice President, Worldwide |
|
|
|
|
|
|
|
|
|
Advertising |
|
Communications and Advertising |
|
|
|
|
|
|
|
|
|
|
|
Robert M. Malchione
|
|
|
48 |
|
|
August 2000 |
|
2000-2001 |
|
S.V.P., Corporate Strategy |
|
Senior Vice President, Corporate Strategy and Technology |
|
|
|
|
|
|
|
|
|
|
|
Karyn E. Rodriguez
|
|
|
46 |
|
|
June 2001 |
|
1999-2001 |
|
Assistant Treasurer, Corporate Finance |
|
Vice President and Treasurer |
|
|
|
|
|
|
|
|
|
and Investments |
|
Michael A. Skovran
|
|
|
47 |
|
|
January 2002 |
|
1998-2001 |
|
V.P., Finance, Worldwide Office |
|
Vice President and Controller |
|
|
|
|
|
|
|
|
|
Products |
|
Timothy S. Clyde Group Vice President, Office
Products Worldwide
|
|
|
43 |
|
|
February 2001 |
|
2000-2001 |
|
V.P. and General Manager, Office Products N.A. |
|
Simon D. Coulson
|
|
|
42 |
|
|
June 2004 |
|
2000-2001 |
|
V.P., VIP Converted Products |
|
Group Vice President, Retail |
|
|
|
|
|
|
|
2001-2004 |
|
V.P., Retail Information Services |
|
Information Services Worldwide |
|
|
|
|
|
|
|
|
|
|
|
Sandra Beach
Lin(3)
|
|
|
47 |
|
|
April 2005 |
|
2000-2001 |
|
President, Bendix Commercial Vehicle |
|
Group Vice President, Specialty |
|
|
|
|
|
|
|
|
|
Systems, Div. of Honeywell |
|
Materials and Converting |
|
|
|
|
|
|
|
|
|
International |
|
Worldwide |
|
|
|
|
|
|
|
2002-2005 |
|
President, Alcoa Closure Systems International, Div.
of Alcoa, Inc. |
|
Christian A. Simcic
|
|
|
49 |
|
|
May 2000 |
|
1997-2000 |
|
V.P. and Managing Director, |
|
Group Vice President, Roll |
|
|
|
|
|
|
|
|
|
Asia Pacific |
|
Materials Worldwide |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
All officers are elected to serve a one-year term and until
their successors are elected and qualify. |
|
(2) |
Mr. Scarborough was elected President and Chief Executive
Officer effective May 1, 2005. |
|
(3) |
Business experience during past 5 years prior to service
with the Company. |
13
PART II
|
|
Item 5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
(a)(b) The information called for by this item appears on
page 68 of our 2005 Annual Report to Shareholders and on
page 12 of the 2006 Proxy Statement, and is incorporated
herein by reference.
(c) Purchases of Equity Securities by Issuer
During the period from 1990 through 1999, our Board of Directors
authorized the repurchase of an aggregate 40.4 million
shares of our outstanding common stock (the
Program). The last Board of Directors
authorization of 5 million shares occurred in October 1999,
and has no expiration. The acquired shares may be reissued under
our stock option and incentive plans or used for other corporate
purposes.
The following table sets forth the monthly repurchases of our
common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining | |
|
|
|
|
|
|
shares available | |
|
|
|
|
|
|
for repurchases | |
(Shares in thousands, except per share amounts) |
|
Total shares | |
|
Average price | |
|
under the | |
Fourth Quarter |
|
repurchased | |
|
per share | |
|
program | |
|
|
| |
|
| |
|
| |
October 2, 2005 October 29, 2005
|
|
|
|
|
|
|
|
|
|
|
3,150.5 |
|
October 30, 2005 November 26,
2005(1)
|
|
|
698.5 |
|
|
$ |
58.65 |
|
|
|
2,452.0 |
|
November 27, 2005 December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
2,452.0 |
|
|
|
|
|
|
|
|
|
|
|
Quarterly Total
|
|
|
698.5 |
|
|
$ |
58.65 |
|
|
|
2,452.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
In connection with the L&E acquisition in 2002, we issued
743,108 shares of Company stock to the seller at
$63.08 per share. We also entered into an agreement with
L&E whereby in the event the value of our common shares fell
below the price of the shares that were issued to L&E
(adjusted for dividends received), during the period from
January 1, 2005 through December 31, 2007, L&E had
the option to exercise a
true-up right. The
true-up obligation was
reduced by any shares sold by L&E to third parties. During
2005, L&E sold 44,603 shares to third parties. On
October 20, 2005, L&E notified us that it was
exercising its true-up
right under the agreement for the remaining 698,505 shares.
We repurchased the remaining shares under the agreement for
approximately $41 million in the fourth quarter of 2005. |
|
|
Item 6. |
SELECTED FINANCIAL DATA |
Selected financial data for each of the Companys last five
fiscal years appears on page 18 of our 2005 Annual Report
to Shareholders and is incorporated herein by reference.
14
|
|
Item 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION |
OVERVIEW AND OUTLOOK
Overview
Our sales from continuing operations increased 3% in 2005
compared to 12% growth in 2004, reflecting the factors
summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
Estimated change in sales due to: |
|
| |
|
| |
|
| |
Core unit volume*
|
|
|
(1 |
)% |
|
|
8 |
% |
|
|
4 |
% |
Pricing & product mix
|
|
|
2 |
|
|
|
(1 |
) |
|
|
(2 |
) |
Foreign currency translation
|
|
|
2 |
|
|
|
5 |
|
|
|
7 |
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
% |
|
|
12 |
% |
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
* |
Core unit volume is a measure of sales performance that excludes
the estimated impact of acquisitions, divestitures, changes in
product mix and pricing, and currency translation. We use this
measure to evaluate underlying demand for our products and
services, and to assess sales trends over time. |
The decrease in core unit volume in 2005 reflects the following
factors:
|
|
|
|
|
Loss of market share in our North American roll materials
business following our implementation of selling price increases
to offset higher raw material costs |
|
|
|
The impact of an extra week in the 2004 fiscal year |
|
|
|
Accelerated purchases by Office and Consumer Products customers
in advance of our 2005 selling price increases, which
contributed to higher growth in 2004 |
In addition to the factors noted above for 2004, core unit
volume also benefited in that year from additional sales in the
Retail Information Services segment as a result of customer
preparation for increased exports from China following the
elimination of apparel manufacturing quotas in January 2005.
The improvement in pricing and product mix in 2005 was primarily
due to the impact of selling price increases implemented to
offset higher raw material costs.
In 2005, we initiated company-wide cost reduction efforts which
are expected to improve our global operating efficiencies. These
actions include reductions in headcount, which impact most
businesses and geographic regions and expected divestitures of
low-margin businesses and product lines. In connection with
these actions, we recorded cash and non-cash charges related to
severance and other employee-related costs, as well as asset
impairments. The charges are detailed in Cost Reduction
Actions below.
As a result of our expected sale of a business in 2006 that
manufactures raised reflective pavement markers and the
divestiture of our package label converting business in Europe
in October 2003 (discussed below in Acquisitions and
Divestitures), the discussions which follow generally
reflect summary results from our continuing operations unless
otherwise noted. However, the net income and net income per
share discussions include the impact of discontinued
operations.
15
Net income decreased $53.3 million or 19% in 2005 compared
to 2004.
Negative factors affecting the change in net income included:
|
|
|
|
|
Restructuring and asset impairment charges in 2005, which
exceeded charges taken in 2004 |
|
|
|
Incremental spending on growth initiatives, including the
development of our radio frequency identification
(RFID) business |
|
|
|
Higher pension and medical costs |
|
|
|
Write-off of inventories, primarily related to a product launch |
Positive factors affecting the change in net income included:
|
|
|
|
|
Higher sales |
|
|
|
Cost savings from productivity improvement initiatives,
including actions taken in 2005 and the closure of two European
plants during the first six months of 2004 |
|
|
|
Benefit of a lower effective tax rate |
Summary Results by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales | |
|
Operating Income(1) | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
Pressure-sensitive Materials
|
|
$ |
3,114.5 |
|
|
$ |
2,984.6 |
|
|
$ |
259.6 |
|
|
$ |
221.4 |
|
Office and Consumer Products
|
|
|
1,136.1 |
|
|
|
1,172.5 |
|
|
|
168.0 |
|
|
|
186.4 |
|
Retail Information Services
|
|
|
674.8 |
|
|
|
636.1 |
|
|
|
42.7 |
|
|
|
47.8 |
|
Other specialty converting businesses
|
|
|
548.1 |
|
|
|
523.8 |
|
|
|
9.5 |
|
|
|
35.5 |
|
Corporate expense
|
|
|
|
|
|
|
|
|
|
|
(55.1 |
) |
|
|
(57.1 |
) |
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(57.9 |
) |
|
|
(58.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from continuing operations
|
|
$ |
5,473.5 |
|
|
$ |
5,317.0 |
|
|
$ |
366.8 |
|
|
$ |
375.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Operating income refers to income before taxes; segment
operating income refers to income before interest and taxes |
|
|
|
Pressure-sensitive Materials (57% of net sales) |
Our Pressure-sensitive Materials segment reported a 4% increase
in sales in 2005 compared to 2004. Approximately 60% of the
incremental sales was due to the positive impact of changes in
pricing and product mix, reflecting increased selling prices
implemented to offset higher raw material costs. This benefit
was partially offset by a decrease in core unit volume due in
part to the impact of the extra week in 2004. A decline in core
unit volume in North America, which reflected market share loss
(related to price increases), was partially offset by growth
from international sales. Foreign currency translation also
contributed to sales growth for this segment.
Operating income for this segment increased $38 million or
17% in 2005, reflecting cost savings from productivity
improvement initiatives, including the closure of two European
plants during the first six months of 2004. Operating income for
this segment included charges related to restructuring costs and
asset impairment in both 2005 and 2004. The impact of higher raw
material costs was offset by selling price increases.
16
Office and Consumer Products (21% of net
sales)
Our Office and Consumer Products segment reported a 3% decrease
in sales in 2005 compared to 2004. The decrease in sales was
primarily due to the impact of accelerated purchases in 2004 by
customers in advance of our 2005 selling price increases, and
the impact of an extra week in 2004. The decrease in core unit
volume was partially offset by a positive impact of changes in
pricing and product mix and the favorable impact of foreign
currency translation.
Operating income for this segment decreased $18 million or
10%, reflecting lower sales volume and the write-off of
inventories and equipment, primarily due to a product launch.
Operating income for this segment included a charge related to
restructuring costs and asset impairment charges in 2005. These
decreases were partially offset by cost savings from
productivity improvement initiatives. The 2005 selling price
increases offset the cumulative effect of raw material inflation
since the beginning of 2004.
Retail Information Services (12% of net sales)
The Retail Information Services segment reported a 6% increase
in sales in 2005 compared to 2004. Approximately 40% of the
increase was due to core unit volume growth, reflecting
continued growth of the business in Asia and Latin America. The
benefit to core unit volume was partially offset by additional
sales in 2004 as a result of customer preparation for increased
exports from China following the elimination of apparel
manufacturing quotas in January 2005. The balance of the growth
reflected incremental sales from acquisitions and the favorable
impact of foreign currency translation.
Operating income for this segment decreased $5 million or
11% due to charges for restructuring and asset impairments in
2005 and higher spending associated with growth initiatives.
Partially offsetting these factors was the benefit of
productivity improvement actions, including the ongoing
migration of production from Hong Kong to lower cost facilities
in mainland China.
Other specialty converting businesses (10% of net
sales)
Other specialty converting businesses reported a 5% increase in
sales in 2005 compared to 2004 due to core unit volume growth,
as well as the favorable impact of foreign currency translation.
Operating income for these businesses decreased $26 million
or 73% reflecting costs related to the development of the RFID
business and charges related to restructuring costs and asset
impairments in 2005. In 2005, due to the commercialization of
our RFID business, we have included RFID in this group of
businesses. Financial results of this group have been restated
for years presented herein to reflect this change.
Sales Growth by Region
Excluding the impact of acquisitions, divestitures, and foreign
currency translation, we estimate sales growth (decline) in
major regions of operation as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
U.S.
|
|
|
(3 |
)% |
|
|
5% |
|
|
|
1% |
|
Europe
|
|
|
3 |
% |
|
|
5% |
|
|
|
4% |
|
Asia
|
|
|
13 |
% |
|
|
26% |
|
|
|
15% |
|
Latin America
|
|
|
4 |
% |
|
|
19% |
|
|
|
15% |
|
In the U.S., the decrease in 2005 was partially due to market
share loss and a slow market in Pressure-sensitive Materials, as
well as accelerated purchases in 2004 by Office and Consumer
Products customers in advance of our 2005 selling price
increases. These negative factors were partially offset by
selling price increases. Weaker demand in the U.S. also
reflected a practice among end users of our products to move
manufacturing outside the U.S. This shift is offset by
growth in emerging markets, where manufacturing has moved.
17
In Asia, the pace of growth in 2005 moderated throughout the
region, including China. The comparison to 2004 was also
affected by additional sales in the Retail Information Services
segment in 2004 as a result of customer preparation for
increased exports from China following the elimination of
apparel manufacturing quotas in January 2005.
In Latin America, the roll materials business was affected by
market share loss as a result of selling price increases,
although there was a benefit from higher selling prices.
In addition to the factors above, the impact of the extra week
in 2004 also affected comparisons of growth between 2005 and
2004 for all regions.
Cost Reduction Actions and Other Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions, pretax) |
|
| |
|
| |
|
| |
Restructuring costs
|
|
$ |
37.5 |
|
|
$ |
23.6 |
|
|
$ |
22.0 |
|
Asset impairment & lease cancellation charges
|
|
|
28.1 |
|
|
|
11.6 |
|
|
|
8.2 |
|
Losses from product line divestitures
|
|
|
|
|
|
|
|
|
|
|
4.1 |
|
Other
|
|
|
(2.0 |
) |
|
|
|
|
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
$ |
63.6 |
|
|
$ |
35.2 |
|
|
$ |
30.5 |
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2005, we announced cost reduction
actions related to restructuring and anticipated product line
divestitures (discussed in Acquisitions and
Divestitures below). We recorded charges related to
severance and related costs and non-cash charges for asset
impairments, included in the table above. These actions impact
most businesses and geographic regions and are expected to be
completed by the end of 2006. The restructuring actions,
including anticipated charges in early 2006, are expected to
result in annualized pretax savings of $80 million to
$90 million when completed. We expect to reinvest some of
the savings into future growth opportunities. In addition to the
fourth quarter charges, other charges were recorded earlier in
2005 including the closure of our Gainesville, Georgia label
converting plant, which was completed during the third quarter
of 2005.
Also included in Other Expense in 2005 was an
accrual for legal expenses related to a patent lawsuit, offset
by gains on the sale of assets.
The restructuring charges associated with severance and asset
impairments recorded during 2004 were related to the completion
of the integration of the 2002 acquisition of Jackstädt
into our other existing businesses. We closed a manufacturing
facility in France during the first quarter of 2004 and a
manufacturing facility in Italy during the second quarter of
2004.
In 2003, the restructuring charges related to the integration of
Jackstädt and other productivity improvement initiatives.
See also Note 10 Components of Other Income and
Expense, to the Consolidated Financial Statements for
further detail.
Effective Rate of Taxes on Income
The effective tax rate was 20.4% for the full year 2005 compared
to 25.1% for the full year 2004. Our 2005 tax rate included
benefits from:
|
|
|
|
|
Changes in the geographic mix of income |
|
|
|
Continued improvements in our global tax structure |
|
|
|
Several favorable tax audit settlements |
These benefits were partially offset by incremental expense
associated with the repatriation of accumulated foreign earnings
under the American Jobs Creation Act of 2004.
18
The effective tax rate for 2004 included the benefits from
changes in the geographic mix of income, continued improvements
in our global tax structure and several favorable global tax
audit settlements.
Free Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net cash provided by operating activities
|
|
$ |
441.6 |
|
|
$ |
516.9 |
|
|
$ |
348.3 |
|
Purchase of property, plant and equipment
|
|
|
(162.5 |
) |
|
|
(178.9 |
) |
|
|
(203.6 |
) |
Purchase of software and other deferred charges
|
|
|
(25.8 |
) |
|
|
(21.8 |
) |
|
|
(22.8 |
) |
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$ |
253.3 |
|
|
$ |
316.2 |
|
|
$ |
121.9 |
|
|
|
|
|
|
|
|
|
|
|
Free cash flow for 2005 decreased $63 million, due
primarily to lower net income. The changes in assets and
liabilities were partially offset by lower cash spending on
capital in 2005. See Analysis of Results of
Operations and Liquidity below for more
information. Free cash flow refers to cash flow from operating
activities less spending on property, plant and equipment, and
software. We use free cash flow as a measurement tool to assess
the cash flow available for other corporate purposes, such as
dividends, debt service and repurchase of common stock.
Acquisitions and Divestitures
In December 2005, we announced our plan to sell a business
consisting of raised reflective pavement markers, with sales of
approximately $23 million in 2005. Based on the estimated
value of this business, we concluded that associated goodwill
and intangible assets from our acquisition of this business were
impaired, resulting in a pretax charge of approximately
$74 million. The results of this business have been
accounted for as discontinued operations for the years presented
herein. This business was previously included in the
Pressure-sensitive Materials segment.
In December 2005, we also announced the expected divestiture of
two low-margin product lines. One of these divestitures, which
impacts the Office and Consumer Products segment, was completed
in February 2006. This product line had estimated sales of
$60 million in 2005, and minimal impact on income. The
expected divestiture of the second product line would reduce
annual sales by approximately $10 million, with minimal
impact to income from operations. As part of these expected
divestitures, we recorded charges of approximately
$6 million for severance and other employee-related costs,
and asset impairments of approximately $9 million, which
are included in the Other Expense line of our
Consolidated Statement of Income.
During the third quarter of 2004, we acquired Rinke Etiketten
(Rinke), a privately held company in Germany. The
incremental impact of this acquisition on our net sales was
approximately $9 million during 2004, with an additional
impact of approximately $18 million in 2005. This business
is reported in our Retail Information Services segment.
In October 2003, we completed the sale of our package label
converting business in Europe, which consisted of two package
label converting facilities in Denmark and a package label
converting facility in France, which combined, represented
approximately $30 million in sales in the first nine months
of 2003. The results from this business have been accounted for
as discontinued operations for 2003.
Investigations
In April 2003, we were notified by the U.S. Department of
Justices Antitrust Division (DOJ) that it had
initiated a criminal investigation into competitive practices in
the label stock industry, and on August 15, 2003, the DOJ
issued a subpoena to us in connection with the investigation. In
May 2004, the European Commission (EC) initiated
inspections and obtained documents from our pressure-sensitive
materials facilities in the Netherlands and Germany, seeking
evidence of unlawful anticompetitive activities. In July 2004,
we were notified by the Competition Law Division of the
Department of Justice of Canada that it was seeking information
in connection with a label stock investigation. In August 2005,
we were notified by the Australian Competition and Consumer
Commission that it was seeking information in connection with a
label
19
stock investigation. We are cooperating with these
investigations. We are a named defendant in purported class
actions in the U.S. seeking treble damages and other relief
for alleged unlawful competitive practices, which were filed
after the announcement of the DOJ investigation. We are also a
named defendant in purported class actions in the
U.S. seeking damages and other relief for alleged
disclosure and fiduciary duty violations pertaining to alleged
unlawful competitive practices. We have discovered instances of
improper conduct by certain employees in our European operations
that constituted an infringement of EC competition law.
Accordingly, we expect that the EC will impose a fine on us when
its investigation is completed. We have discovered instances of
conduct by certain employees in China that potentially violate
the U.S. Foreign Corrupt Practices Act, and we have
reported that conduct to authorities in the
U.S. Accordingly, we expect that fines or other penalties
may be incurred. We are unable to predict the effect of these
matters at this time, although the effect could well be adverse
and material. These matters are reported in Note 8
Contingencies, to the Consolidated Financial
Statements.
Outlook
In 2006, we anticipate unit volume growth in the range of 2% to
3%. This outlook is based on expected underlying growth of
approximately 4% to 5%, partially offset by the impact of
product line divestitures and withdrawal from some low-margin
private label business. We expect the positive impact from price
and mix to be offset by a negative effect of foreign currency
translation. These expectations are subject to changes in
economic and market conditions. Price increases in early 2006
are expected to offset raw material inflation incurred at the
end of 2005 and early 2006.
We expect our restructuring and business realignment efforts
will reduce costs by $80 million to $90 million when
completed. We estimate that 60% to 70% of these savings will be
achieved in 2006. However, we expect to reinvest some of the
savings into growth opportunities across the company. In
addition, we anticipate transitional costs related to our
productivity improvement actions to be approximately
$15 million to $20 million, which will be incurred in
2006. Transitional costs include accelerated depreciation on
assets expected to be retired by the end of 2006, costs of
moving equipment and other related costs.
To comply with the provisions of the reissued Statement of
Financial Accounting Standards (SFAS)
No. 123(R), Share-Based Payment, we will begin
recognizing expense for stock options in 2006. We expect this
pretax expense to be approximately $17 million in 2006
based on unvested stock options outstanding at year end 2005,
which will have an estimated $.12 per share impact on
earnings after tax.
We expect an increase in pretax expenses related to our pension
plans of approximately $7 million, due to changes in
actuarial assumptions for our U.S. and international plans.
We expect continued improvement in marketing, general and
administrative expenses as a percent of sales. Additionally, in
2006, we will be classifying shipping and handling costs as an
element of cost of goods sold for all businesses, to align our
businesses around a standard methodology. In 2005, several of
our businesses included these costs in marketing, general and
administrative expenses, totaling approximately
$145 million. Refer to the Shipping and Handling Costs
section in Note 1 Summary of Significant Accounting
Policies to the Consolidated Financial Statements for
further information.
The pretax loss from our RFID business in 2006 is expected to be
approximately $2 million to $7 million lower than in
2005 due to an increase in revenue and reduced spending.
We estimate that pretax interest expense will be between
$55 million to $60 million for 2006, assuming expected
interest rate increases will be offset by expected reductions in
debt.
We anticipate an annual effective tax rate in the range of 20%
to 23% for 2006, subject to changes in the geographic mix of
income, with potentially wide variances from quarter to quarter.
We expect free cash flow after capital spending and purchases of
software to be approximately $300 million to
$350 million for 2006.
We expect capital expenditures for 2006 to be approximately
$175 million to $200 million, funded through operating
cash flow. Major projects in 2006 include new investments for
expansion in China and
20
India, serving both our materials and retail information
services businesses, as well as spending for a new films coater
in the U.S.
ANALYSIS OF RESULTS OF OPERATIONS
Income from Continuing Operations Before Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
5,473.5 |
|
|
$ |
5,317.0 |
|
|
$ |
4,736.8 |
|
Cost of products sold
|
|
|
3,852.4 |
|
|
|
3,742.0 |
|
|
|
3,282.9 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,621.1 |
|
|
|
1,575.0 |
|
|
|
1,453.9 |
|
Marketing, general and administrative expense
|
|
|
1,132.8 |
|
|
|
1,105.8 |
|
|
|
1,026.3 |
|
Interest expense
|
|
|
57.9 |
|
|
|
58.7 |
|
|
|
58.6 |
|
Other expense, net
|
|
|
63.6 |
|
|
|
35.2 |
|
|
|
30.5 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes
|
|
$ |
366.8 |
|
|
$ |
375.3 |
|
|
$ |
338.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% | |
|
% | |
|
% | |
As a Percent of Sales: |
|
| |
|
| |
|
| |
Gross profit (margin)
|
|
|
29.6 |
|
|
|
29.6 |
|
|
|
30.7 |
|
Marketing, general and administrative expense
|
|
|
20.7 |
|
|
|
20.8 |
|
|
|
21.7 |
|
Income from continuing operations before taxes
|
|
|
6.7 |
|
|
|
7.1 |
|
|
|
7.1 |
|
|
|
|
|
|
|
|
|
|
|
Sales
Sales increased 3% in 2005 compared to an increase of 12% in
2004. A decrease in core unit volume in 2005 partially reflected
the loss of market share in our North American roll materials
business following our implementation of selling price increases
to offset higher raw material costs. The 2005 volume decline
also reflected the impact of an extra week in the 2004 fiscal
year and accelerated purchases by Office and Consumer Products
customers in advance of our 2005 selling price increases, both
of which contributed to higher growth in 2004. Combined, the
accelerated purchases and extra week in 2004 represented an
estimated $60 million to $70 million of the change in
sales between the two years.
We realized selling price increases in 2005 of an estimated
$100 million related to higher raw material costs. However,
we experienced some related share loss in our North American
roll materials business, as previously described.
In 2004, core unit volume also benefited from higher sales in
the Retail Information Services segment as a result of customer
preparation for increased exports from China following the
January 2005 elimination of apparel manufacturing quotas. These
benefits were partially offset by the impact of share loss with
one major customer in the Office and Consumer Products segment
in late 2003 (estimated to be $30 million).
Foreign currency translation had a favorable impact on the
change in sales of approximately $77 million in 2005 and
approximately $207 million in 2004.
Incremental sales from acquisitions, net of product line
divestitures, contributed approximately $19 million in
2005. In 2004, product line divestitures more than offset
incremental sales from acquisitions; the net impact reduced
sales by approximately $33 million.
Gross Profit
Gross profit margin in both 2005 and 2004 benefited from our
ongoing productivity improvement initiatives, including the
completion of the integration of the Jackstädt business in
mid-2004, and cost reduction actions in 2005. Unfavorable
segment mix (faster growth in segments with lower gross profit
margin as a percent of sales) and raw material inflation
partially offset these benefits in both years.
21
In 2005, gross profit margin was also negatively impacted by:
|
|
|
|
|
Write-off of inventories (approximately $12 million),
approximately half related to a product launch |
|
|
|
Costs related to our RFID business (approximately
$9 million) |
In 2004, gross profit margin was also negatively impacted by
declining selling prices during the first half of the year
(estimated to be $38 million).
Marketing, General and Administrative Expenses
Marketing, general and administrative expense as a percent of
sales in 2005 and 2004 reflected the benefit of productivity
improvement initiatives and cost reduction actions.
Offsetting the benefit of these productivity improvements,
marketing, general and administrative expenses increased in 2005
due to:
|
|
|
|
|
Higher pension and medical expenses (approximately
$14 million) |
|
|
|
Impact of foreign currency translation (approximately
$11 million) |
|
|
|
Additional spending on the development of our RFID business
(approximately $8 million), as well as other long-term
growth initiatives |
|
|
|
Additional spending associated with acquisitions (approximately
$6 million) |
In 2004, marketing, general and administrative expenses
increased due to the same factors which impacted 2005, as well
as higher insurance costs.
Interest Expense
Interest expense decreased slightly in 2005 and was unchanged in
2004. The decrease in 2005 was due to a reduction in total debt
outstanding, partially offset by an increase in interest rates.
Other Expense (Restructuring and Cost Reduction
Actions)
In 2005, other expense consisted of charges for cost reduction
actions and restructuring associated with several expected
product line divestitures, as well as other items:
|
|
|
|
|
Severance and other employee-related costs (approximately
$38 million) |
|
|
|
Asset impairment and lease cancellation costs (approximately
$28 million) |
|
|
|
Gain on the sales of assets, partially offset by costs for a
legal accrual (net gain of approximately $2 million) |
In 2004, other expense consisted of charges for productivity
improvement actions, primarily related to the completion of the
Jackstädt integration actions:
|
|
|
|
|
Severance and employee-related costs (approximately
$24 million) |
|
|
|
Impairment of assets (approximately $12 million) |
In 2003, other expense consisted of charges for restructuring
related to the integration of Jackstädt, productivity
improvement initiatives and net losses associated with several
product line divestitures, as well as other items:
|
|
|
|
|
Severance and employee-related costs (approximately
$22 million) |
|
|
|
Impairment and planned disposition of property, plant and
equipment, and lease cancellation costs (approximately
$8 million) |
|
|
|
Net losses associated with several product line divestitures and
other associated costs (approximately $4 million) |
22
|
|
|
|
|
Gain from settlement of a lawsuit, partially offset by net
losses from disposition of fixed assets and costs associated
with a plant closure (net gain of approximately $4 million) |
Refer to Note 10 Components of Other Income and
Expense, to the Consolidated Financial Statements for more
information.
Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions, except per share) |
|
| |
|
| |
|
| |
Income from continuing operations before taxes
|
|
$ |
366.8 |
|
|
$ |
375.3 |
|
|
$ |
338.5 |
|
Taxes on income
|
|
|
75.0 |
|
|
|
94.3 |
|
|
|
93.4 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
291.8 |
|
|
|
281.0 |
|
|
|
245.1 |
|
Income (loss) from discontinued operations, net of tax
|
|
|
(65.4 |
) |
|
|
(1.3 |
) |
|
|
22.8 |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
226.4 |
|
|
$ |
279.7 |
|
|
$ |
267.9 |
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
$ |
2.26 |
|
|
$ |
2.80 |
|
|
$ |
2.70 |
|
Net income per common share, assuming dilution
|
|
$ |
2.25 |
|
|
$ |
2.78 |
|
|
$ |
2.68 |
|
|
|
|
|
|
|
|
|
|
|
Taxes on Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Effective tax rate
|
|
|
20.4% |
|
|
|
25.1% |
|
|
|
27.6% |
|
Our 2005 tax rate included the benefit of changes in the
geographic mix of income and continued improvements in our
global tax structure, and a $9 million benefit from several
favorable global tax audit settlements. These benefits were
partially offset by the incremental expense of
$13.5 million associated with the repatriation of
accumulated foreign earnings under the American Jobs Creation
Act of 2004.
Our 2004 effective tax rate included the benefit from changes in
the geographic mix of income, continued improvements in our
global tax structure and several favorable global tax audit
settlements, which reduced tax expense by approximately
$8 million.
Income (Loss) from Discontinued Operations
Income (loss) from discontinued operations includes our raised
reflective pavement markers business in 2005, 2004 and 2003, as
well as our package label converting business in Europe in 2003.
Based on the estimated value of the raised reflective pavement
markers business that we are expecting to sell in 2006, we
concluded that associated goodwill and intangible assets from
our acquisition of this business were impaired. The resulting
pretax impairment charge was approximately $74 million in
2005.
Income from discontinued operations included net sales of
approximately $23 million in 2005 and approximately
$24 million in 2004. Net income from discontinued
operations in 2003 included a gain on sale of business of
$19.7 million, net of tax of $5.8 million. Income from
all discontinued operations included net sales of approximately
$70 million in 2003.
Refer to the Discontinued Operations section of Note 1
Summary of Significant Accounting Policies, to the
Consolidated Financial Statements for more information.
23
Change in Net Income and Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net income as a percent of sales
|
|
|
4.1 |
% |
|
|
5.3 |
% |
|
|
5.7 |
% |
Percent change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(19.1 |
)% |
|
|
4.4 |
% |
|
|
4.2 |
% |
|
Net income per common share
|
|
|
(19.3 |
) |
|
|
3.7 |
|
|
|
3.4 |
|
|
Net income per common share, assuming dilution
|
|
|
(19.1 |
) |
|
|
3.7 |
|
|
|
3.5 |
|
RESULTS OF OPERATIONS BY SEGMENT
Pressure-sensitive Materials Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net sales including intersegment sales
|
|
$ |
3,277.2 |
|
|
$ |
3,153.5 |
|
|
$ |
2,721.9 |
|
Less intersegment sales
|
|
|
(162.7 |
) |
|
|
(168.9 |
) |
|
|
(175.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
3,114.5 |
|
|
$ |
2,984.6 |
|
|
$ |
2,546.8 |
|
Operating
income(1)
|
|
|
259.6 |
|
|
|
221.4 |
|
|
|
180.2 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
cost reduction, restructuring, asset impairment & lease
cancellation charges, net of gain on sale of assets
|
|
$ |
23.0 |
|
|
$ |
34.4 |
|
|
$ |
13.6 |
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Sales in our Pressure-sensitive Materials segment increased 4%
in 2005 compared to 17% in 2004. A decline in core unit volume
in 2005 reflected the loss of market share in North America
following our implementation of selling price increases,
partially offset by growth internationally. The benefit to core
unit volume growth in 2004 resulting from an extra week in the
fiscal year partially contributed to slower growth in 2005.
Sales growth in 2005 was also affected by slow market conditions
in North America.
Sales growth in 2005 reflected the positive impact of pricing
and product mix, resulting from increased selling prices
implemented to offset higher raw material costs.
Increased sales in our roll materials business (approximately
$112 million) reflected increased selling prices, partially
offset by a decline in core unit volume. Our North American roll
materials business experienced a decline in sales of
approximately 3%, due to share loss related to higher selling
prices. Our roll materials business in Europe experienced sales
growth of approximately 7% in local currency resulting from
volume growth in the region, with stronger growth in the
emerging markets of Eastern Europe. Market expansion contributed
to sales growth for the roll materials business in Asia,
although the pace of growth moderated in this region compared to
the prior year. In Latin America, loss of market share from
selling price increases and loss of sales with a large customer
affected growth, partially offset by selling price increases.
Sales for the graphics and reflective business were comparable
to 2004.
In 2004, increased sales in our roll materials business
(approximately $365 million) reflected core unit volume
growth, including the extra week in the fiscal year. In North
America, strong growth in new film products and selling price
increases contributed to sales growth of approximately 9%. In
Europe, strong growth in the emerging markets of Eastern Europe
and the benefit of selling price increases contributed to sales
growth of approximately 9% in local currency. Strong market
growth and share gain contributed to sales growth in local
currency in Asia and Latin America.
Sales growth in 2004 in our graphics and reflective business
(approximately $63 million) reflected market growth, new
applications and customers, and geographic expansion.
Included in these increases was the favorable impact of foreign
currency translation of approximately $58 million in 2005
and approximately $146 million in 2004.
24
Increased operating income in both years reflected higher sales
and cost savings from productivity improvement initiatives,
including two plant closures related to the Jackstädt
integration in the first half of 2004. Also reflected in
operating income were charges related to restructuring, asset
impairments and lease cancellations in 2005 and 2004.
In 2004, this segment experienced rising raw material costs
throughout the year. While selling price increases partially
offset these increased costs, the net impact reduced operating
income for the year. In contrast, in 2005 the impact of higher
raw material costs was offset through selling price increases.
Office and Consumer Products Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net sales including intersegment sales
|
|
$ |
1,138.1 |
|
|
$ |
1,174.7 |
|
|
$ |
1,170.4 |
|
Less intersegment sales
|
|
|
(2.0 |
) |
|
|
(2.2 |
) |
|
|
(2.3 |
) |
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
1,136.1 |
|
|
$ |
1,172.5 |
|
|
$ |
1,168.1 |
|
Operating
income(1)
|
|
|
168.0 |
|
|
|
186.4 |
|
|
|
188.5 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
cost reduction, restructuring, asset impairment & lease
cancellation charges
|
|
$ |
21.8 |
|
|
$ |
.5 |
|
|
$ |
12.5 |
|
|
|
|
|
|
|
|
|
|
|
Sales in our Office and Consumer Products segment decreased 3%
in 2005, while sales increased by less than 1% in 2004. In 2004,
higher than usual volume in the fourth quarter was due in part
to customers accelerated purchases in advance of selling
price increases effective January 1, 2005, as well as the
benefit from an extra week in the 2004 fiscal year. The shift in
volume in late 2004 contributed to a decline in core unit volume
in 2005, as customers depleted related inventories.
In 2005, the positive impact of selling price increases
partially offset the decrease in core unit volume. Selling
prices were increased to offset higher raw material costs.
In 2004, increased volume resulting from accelerated purchases
and the extra week was offset by share loss with one major
customer in late 2003 (estimated $30 million impact in
2004), loss of sales from a discontinued product line
(approximately $14 million), reduced prices, and the
continued erosion in market share of our Avery-brand products,
in favor of private label brands.
Foreign currency translation had a favorable impact on the
change in sales of approximately $8 million in 2005 and
approximately $35 million in 2004.
Operating income reflected charges related to restructuring,
asset impairment and net losses associated with product line
divestitures in 2005 and 2003. While 2004 operating income was
negatively affected by lower selling prices and rising raw
material costs, the 2005 selling price increases offset the
cumulative effect of raw material inflation over the two-year
period. The changes in operating income reflected the benefit
from continued cost reduction efforts, as well as the write-off
of inventories (approximately $9 million) and equipment,
primarily related to a product launch.
25
Retail Information Services Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net sales including intersegment sales
|
|
$ |
682.6 |
|
|
$ |
644.9 |
|
|
$ |
560.2 |
|
Less intersegment sales
|
|
|
(7.8 |
) |
|
|
(8.8 |
) |
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
674.8 |
|
|
$ |
636.1 |
|
|
$ |
552.7 |
|
Operating
income(1)
|
|
|
42.7 |
|
|
|
47.8 |
|
|
|
24.2 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
cost reduction, restructuring, asset impairment & lease
cancellation charges
|
|
$ |
7.5 |
|
|
$ |
.3 |
|
|
$ |
7.0 |
|
|
|
|
|
|
|
|
|
|
|
Sales in our Retail Information Services segment increased 6% in
2005 compared to 15% in 2004. The increase in both years was a
result of core unit volume growth and incremental sales from
acquisitions. Volume growth reflected continued growth of the
business in Asia and Latin America and new product
introductions. Sales in 2004 also reflected relatively weak
results in 2003 (related to slow industry conditions), the
impact of the extra week in the 2004 fiscal year and higher
sales as a result of customer preparation for increased exports
from China following the January 2005 elimination of apparel
manufacturing quotas.
The impact of acquisitions, net of product line divestitures,
was approximately $21 million in 2005. In 2004, incremental
sales from acquisitions were offset by the loss of sales from
product line divestitures.
Foreign currency translation contributed to the increase in
sales by approximately $7 million in 2005 and approximately
$12 million in 2004.
Operating income reflected charges related to restructuring,
asset impairment and lease cancellation in 2005 and 2003. In
2005, operating income benefited from productivity improvement
actions, including the ongoing migration of production from Hong
Kong to lower cost facilities in mainland China, partially
offset by higher costs associated with growth initiatives. The
increase in 2004 also reflected sales growth and the successful
integration of the 2002 acquisitions.
Other specialty converting businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net sales including intersegment sales
|
|
$ |
562.7 |
|
|
$ |
540.6 |
|
|
$ |
483.7 |
|
Less intersegment sales
|
|
|
(14.6 |
) |
|
|
(16.8 |
) |
|
|
(14.5 |
) |
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
548.1 |
|
|
$ |
523.8 |
|
|
$ |
469.2 |
|
Operating
income(1)
|
|
|
9.5 |
|
|
|
35.5 |
|
|
|
43.7 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
cost reduction, restructuring, asset impairment & lease
cancellation charges
|
|
$ |
6.2 |
|
|
|
|
|
|
$ |
2.5 |
|
|
|
|
|
|
|
|
|
|
|
Sales in our other specialty converting businesses increased 5%
in 2005 compared to 12% in 2004. The benefit to core unit volume
growth in 2004 resulting from an extra week in the fiscal year
partially contributed to slower growth in 2005. Growth in 2004
was partially offset by the loss of sales from divested product
lines (approximately $15 million).
Foreign currency translation had a favorable impact on the
change in sales of approximately $4 million in 2005 and
approximately $14 million in 2004.
26
The decreases in operating income in both 2005 and 2004
primarily reflect incremental costs related to the development
of the RFID business. Operating income also reflects charges
related to restructuring and asset impairment in 2005 and 2003.
FINANCIAL CONDITION
Liquidity
Cash Flow Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
(In millions) |
|
|
Net income
|
|
$ |
226.4 |
|
|
$ |
279.7 |
|
|
$ |
267.9 |
|
Depreciation and amortization
|
|
|
201.5 |
|
|
|
188.2 |
|
|
|
181.5 |
|
Income taxes (deferred and accrued)
|
|
|
(44.5 |
) |
|
|
31.2 |
|
|
|
(18.4 |
) |
Asset impairment and net (gain) loss on sale of assets
|
|
|
108.1 |
|
|
|
12.4 |
|
|
|
(12.0 |
) |
Trade accounts receivable
|
|
|
(43.9 |
) |
|
|
(1.4 |
) |
|
|
(44.2 |
) |
Inventories
|
|
|
(11.7 |
) |
|
|
(1.2 |
) |
|
|
(37.9 |
) |
Accounts payable and accrued liabilities
|
|
|
30.4 |
|
|
|
26.9 |
|
|
|
51.7 |
|
Long-term retirement benefits and other liabilities
|
|
|
(12.9 |
) |
|
|
(27.6 |
) |
|
|
(33.9 |
) |
Other, net
|
|
|
(11.8 |
) |
|
|
8.7 |
|
|
|
(6.4 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$ |
441.6 |
|
|
$ |
516.9 |
|
|
$ |
348.3 |
|
|
|
|
|
|
|
|
|
|
|
For cash flow purposes, changes in assets and liabilities
exclude the impact of foreign currency translation and the
impact of acquisitions and divestitures and certain non-cash
transactions (discussed in the Analysis of Selected
Balance Sheet Accounts section below).
Cash flow provided by operating activities for 2005 was
negatively impacted by changes in working capital, as shown
below:
|
|
|
|
|
Accounts receivable reflected higher sales and the timing of
collections, partially offset by a decrease in the average days
sales outstanding |
|
|
|
Income taxes reflected the timing of payments made, as well as
the current year tax accrual |
|
|
|
Long-term retirement benefits and other liabilities reflected
contributions of approximately $46 million to our pension
and postretirement health benefit plans during 2005, partially
offset by benefit payments |
|
|
|
Inventory reflected higher raw material purchases to support
growth and business expansion |
|
|
|
|
|
Accounts payable and accrued liabilities reflected the timing of
payments and accruals, as well as the accrual for restructuring
charges in 2005 |
27
Cash flow provided by operating activities was negatively
impacted by changes in working capital, as shown below:
|
|
|
|
|
Long-term retirement benefits and other liabilities reflected
contributions of approximately $36 million to our pension
and postretirement health benefit plans during 2004 |
|
|
|
|
|
Income taxes reflected the timing of refunds received, as well
as the current year tax accrual |
|
|
|
Accounts payable and accrued liabilities reflected the timing of
payments and increased activity to support higher sales in the
Pressure-sensitive Materials and Retail Information Services
segments |
Cash Flow Used in Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Purchase of property, plant and equipment
|
|
$ |
(162.5 |
) |
|
$ |
(178.9 |
) |
|
$ |
(203.6 |
) |
Purchase of software and other deferred charges
|
|
|
(25.8 |
) |
|
|
(21.8 |
) |
|
|
(22.8 |
) |
Proceeds from sale of businesses
|
|
|
|
|
|
|
|
|
|
|
58.8 |
|
Other, net
|
|
|
20.7 |
|
|
|
(16.2 |
) |
|
|
(.2 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
$ |
(167.6 |
) |
|
$ |
(216.9 |
) |
|
$ |
(167.8 |
) |
|
|
|
|
|
|
|
|
|
|
Our major capital projects in 2005 included investments for
growth in Asia and Latin America, equipment and other
investments for our RFID business, and productivity and growth
projects in our North American roll materials operations,
including development work related to the addition of capacity
to meet growing demand for beverage labels.
|
|
|
Proceeds from Sale of Businesses |
Proceeds from sale of business were related to the sale of our
package label converting business in Europe during 2003.
Cash Flow Used in Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Net change of borrowings and payments of debt
|
|
$ |
(80.5 |
) |
|
$ |
(119.1 |
) |
|
$ |
(41.0 |
) |
Dividends paid
|
|
|
(168.7 |
) |
|
|
(164.6 |
) |
|
|
(160.2 |
) |
Purchase of treasury stock
|
|
|
(40.9 |
) |
|
|
(.7 |
) |
|
|
(.3 |
) |
Proceeds from exercise of stock options
|
|
|
11.1 |
|
|
|
19.1 |
|
|
|
5.5 |
|
Other
|
|
|
18.5 |
|
|
|
18.2 |
|
|
|
18.1 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
$ |
(260.5 |
) |
|
$ |
(247.1 |
) |
|
$ |
(177.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings and Repayment of Debt |
At year end 2005, our borrowings outstanding under foreign
short-term lines of credit were $108.3 million with a
weighted-average interest rate of 6.6% compared to
$70.8 million at year end 2004.
28
The $60 million one-year callable commercial notes issued
in January 2004 were paid at maturity in 2005. In June 2005, we
issued $75 million of one-year callable commercial notes at
a variable rate of 3.5%, and then called and paid the notes in
November 2005.
We had medium-term notes of $160 million and
$233 million outstanding at year end 2005 and 2004,
respectively. Decreases are a result of payments on maturity.
Medium-term notes have maturities from 2007 through 2025 and
accrue interest at fixed rates ranging from 5.9% to 7.5%.
In August 2004, we issued $150 million in floating rate
senior notes due in 2007 under our 2001 shelf registration
statement filed with the Securities and Exchange Commission
(SEC). These notes are callable at par.
In February 2004, we paid the obligation related to the 1999
transaction with Steinbeis Holding GmbH (Steinbeis)
for approximately $106 million. This obligation was a
result of the combination of our office products business in
Europe with Zweckform Büro-Produkte GmbH.
Shareholders Equity
Our shareholders equity was $1.51 billion at year end
2005, compared to $1.55 billion at year end 2004. Our
annual dividend per share increased to $1.53 in 2005 from $1.49
in 2004.
In the fourth quarter of 2005, we repurchased
698,505 shares for $41 million under an agreement
related to the L&E Packaging (L&E)
acquisition and recorded such amount to treasury stock. (See the
Other section of Contractual Obligations, Commitments and
Off-Balance Sheet Arrangements below for further details.)
As of year end 2005, a cumulative 37.9 million shares of
our common stock had been repurchased since 1991, and
2.5 million shares remain available for repurchase under
the Board of Directors authorization.
Analysis of Selected Balance Sheet Accounts
Long-lived Assets
Goodwill decreased $38 million during 2005 due to foreign
currency translation (approximately $36 million), purchase
price allocation adjustments associated with the acquisition of
Rinke and the settlement of claims associated with the
acquisition of RVL Packaging, Inc., partially offset by goodwill
related to an acquisition in 2005 (approximately
$1 million).
Net other intangibles resulting from business acquisitions
decreased $17 million during 2005 due to amortization
expense recorded during 2005 (approximately $12 million)
and the impact of foreign currency translation (approximately
$8 million), partially offset by purchase price allocation
adjustments associated with the acquisition of Rinke
(approximately $3 million).
Other assets decreased approximately $78 million during
2005 due primarily to the impairment of goodwill and other
intangibles in a business held for sale. Refer to the
Discontinued Operations section of Note 1 to
the Consolidated Financial Statements.
Other Shareholders Equity Accounts
Our employee stock benefit trusts decreased $67 million,
due to a decrease in the market value of shares held in the
trust of $48 million during 2005, as well as issuance of
shares under our stock and incentive plans for 2005 of
approximately $19 million.
Effect of Foreign Currency
International operations generate approximately 55% of our net
sales. Our future results are subject to changes in political
and economic conditions and the impact of fluctuations in
foreign currency exchange and interest rates. To reduce our
income statement exposure to transactions in foreign currencies,
we enter into foreign exchange forward, option and swap
contracts, where available and appropriate.
29
Impact of Foreign Currency Translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Change in net sales
|
|
$ |
77 |
|
|
$ |
207 |
|
|
$ |
235 |
|
Change in net income
|
|
|
2 |
|
|
|
8 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
While there was a benefit from foreign currency translation in
2005, this decreased significantly in 2005 compared to prior
years, due to strengthening of the U.S. dollar. The benefit
in 2005 reflected the strength of the Euro, Brazilian real,
Canadian dollar and Korean won, against the U.S. dollar.
The impact of foreign currency fluctuations on net income is
smaller than the impact on net sales, because our products are
generally sourced in the currencies in which they are sold. As a
result, the impact of foreign exchange rates on sales is matched
with a partially offsetting impact on reported expenses, thereby
reducing the impact of foreign currency fluctuations on net
income.
Translation gains and losses for operations in hyperinflationary
economies were included in our net income. Operations are
treated as being in a hyperinflationary economy for accounting
purposes, based on the cumulative inflation rate over the past
three years. Operations in hyperinflationary economies consist
of our operations in Turkey and the Dominican Republic. These
operations were not significant to our consolidated financial
position or results of operations.
Analysis of Selected Financial Ratios
We utilize certain financial ratios to assess our financial
condition and operating performance, as discussed in detail
below.
Working Capital Ratio
Working capital (current assets minus current liabilities), as a
percent of net sales, decreased in 2005 primarily due to an
increase in short-term debt. Working capital from continuing
operations, as a percent of net sales, is shown below. We use
this non-GAAP measure as a tool to assess our working capital
requirements, because it excludes the impact of fluctuations due
to our financing activities. The timing of financing activities
is not necessarily related to our current operations and would
tend to distort the working capital ratio from period to period.
Our objective is to minimize our investment in working capital
from operations by reducing this ratio, to maximize cash flow
and return on investment.
Working capital from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
(In millions) |
|
| |
|
| |
(A) Working capital (current assets minus current liabilities)
|
|
$ |
31.0 |
|
|
$ |
151.8 |
|
Reconciling item:
|
|
|
|
|
|
|
|
|
Short-term and current portion of long-term debt
|
|
|
364.7 |
|
|
|
204.5 |
|
|
|
|
|
|
|
|
(B) Working capital from continuing operations
|
|
$ |
395.7 |
|
|
$ |
356.3 |
|
|
|
|
|
|
|
|
(C) Net sales
|
|
$ |
5,473.5 |
|
|
$ |
5,317.0 |
|
|
|
|
|
|
|
|
Working capital, as a percent of net sales (A)÷(C)
|
|
|
.6 |
% |
|
|
2.9 |
% |
|
|
|
|
|
|
|
Working capital from continuing operations as a percent of
net sales (B)÷(C)
|
|
|
7.2 |
% |
|
|
6.7 |
% |
|
|
|
|
|
|
|
In 2005, the increase in working capital from continuing
operations, as a percent of sales, was primarily due to changes
in accounts payable, income taxes payable, cash and cash
equivalents and refundable income taxes, partially offset by the
change in other accrued liabilities and trade accounts
receivable. These changes included the impact of currency.
30
Accounts Receivable Ratio
The average number of days sales outstanding was 58 days in
2005 compared to 60 days in 2004, calculated using a
four-quarter average accounts receivable balance. This decrease
reflects improved collections efforts across the businesses.
Inventory Ratio
Average inventory turnover was 8.5 in both 2005 and 2004,
calculated using a four-quarter average inventory balance. For
purposes of comparability, the ratio was calculated using a
52-week year for 2004.
Debt Ratios
|
|
|
|
|
|
|
|
|
|
|
Year End |
|
|
|
|
|
|
|
Requirement |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
Total debt to total capital
|
|
|
|
41.8% |
|
43.9% |
Debt covenant ratios:
|
|
|
|
|
|
|
Total debt to earnings before other expense, interest, taxes,
depreciation and amortization
|
|
Not to exceed
3.5:1.0 |
|
1.6:1.0 |
|
1.8:1.0 |
Earnings before other expense, interest and taxes to interest
|
|
At least
3.5:1.0 |
|
8.4:1.0 |
|
8.0:1.0 |
The decrease in total debt to total capital was due to a
decrease in total debt outstanding.
Our various loan agreements in effect at year end require that
we maintain specified ratios of consolidated debt and
consolidated interest expense in relation to certain measures of
income. We were in compliance with these covenants as shown in
the table above.
The fair value of our debt is estimated based on the discounted
amount of the related cash flows using the current rates offered
to us for debt of the same remaining maturities. At year end
2005 and 2004, the fair value of our total debt, including
short-term borrowings, was $1.1 billion and
$1.32 billion, respectively.
Shareholders Equity Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Return on average shareholders equity
|
|
|
14.6 |
% |
|
|
19.9 |
% |
|
|
22.3 |
% |
Return on average total capital
|
|
|
10.1 |
|
|
|
12.1 |
|
|
|
12.4 |
|
|
|
|
|
|
|
|
|
|
|
Decreases in these returns in 2005 compared to 2004 were
primarily due to lower net income. These ratios are computed
using actual net income and a five-quarter average denominator
for equity and total debt accounts.
Capital Resources
Capital resources include cash flows from operations and debt
financing. We maintain adequate financing arrangements at
competitive rates. These financing arrangements consist of our
commercial paper programs in the U.S. and Europe, committed and
uncommitted bank lines of credit in the countries where we
operate, callable commercial notes and long-term debt, including
medium-term notes.
Capital from Debt
Our total debt decreased approximately $124 million in 2005
to $1.09 billion compared to $1.21 billion at year end
2004, reflecting payments of debt and the effect of foreign
currency translation.
31
In July 2004, we entered into a revolving credit agreement with
ten domestic and foreign banks for a total commitment of
$525 million, expiring July 16, 2009. We use the
financing available under this agreement as a commercial paper
back-up facility and to
finance other corporate requirements. There was no debt
outstanding under this agreement as of year end 2005.
In addition, we have a
364-day revolving
credit facility with a foreign bank to provide up to Euro
30 million ($35.6 million) in borrowings through
July 19, 2006. We may extend the revolving period and due
date with the approval of the bank, on an annual basis. Our
intention is to renegotiate an extension of this facility in
2006. Financing under this agreement is used to finance cash
requirements of our European operations. As of year end 2005,
$15.4 million was outstanding under this agreement.
We had standby letters of credit outstanding of
$81.2 million and $81 million at the end of 2005 and
2004, respectively.
Our uncommitted lines of credit were approximately
$409 million at year end 2005. Our uncommitted lines of
credit do not have a commitment expiration date, and may be
cancelled by the banks or us at any time.
In the fourth quarter of 2004, we filed a shelf registration
statement with the SEC to permit the issuance of up to
$500 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. As
of December 31, 2005, no securities had been issued under
the 2004 registration statement.
Credit ratings are a significant factor in our ability to raise
short-term and long-term financing. When determining a credit
rating, the rating agencies place significant weight on our
competitive position, business outlook, consistency of cash
flows, debt level and liquidity, geographic dispersion and
management team.
The credit ratings assigned to us also impact the interest rates
on our commercial paper and other borrowings.
Our credit ratings as of year end 2005:
|
|
|
|
|
|
|
|
|
Short-term |
|
Long-term |
|
Outlook |
|
|
|
|
|
|
|
Standard & Poors Rating Service
|
|
A-2 |
|
A- |
|
Negative |
Moodys Investors Service
|
|
P2 |
|
A3 |
|
Stable |
Contractual Obligations, Commitments and Off-Balance Sheet
Arrangements
Contractual Obligations at Year End 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
| |
|
|
Total | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Short-term lines of credit
|
|
$ |
363.6 |
|
|
$ |
363.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases
|
|
|
724.1 |
|
|
|
1.1 |
|
|
$ |
211.9 |
|
|
$ |
51.5 |
|
|
$ |
1.5 |
|
|
$ |
1.2 |
|
|
$ |
456.9 |
|
Interest on long-term
debt(1)
|
|
|
438.6 |
|
|
|
38.6 |
|
|
|
35.4 |
|
|
|
27.3 |
|
|
|
24.6 |
|
|
|
24.6 |
|
|
|
288.1 |
|
Operating leases
|
|
|
205.1 |
|
|
|
49.3 |
|
|
|
39.2 |
|
|
|
28.5 |
|
|
|
20.3 |
|
|
|
16.6 |
|
|
|
51.2 |
|
Pension and postretirement benefit contributions
|
|
|
13.3 |
|
|
|
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
1,744.7 |
|
|
$ |
465.9 |
|
|
$ |
286.5 |
|
|
$ |
107.3 |
|
|
$ |
46.4 |
|
|
$ |
42.4 |
|
|
$ |
796.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Interest on floating rate debt was estimated using the index
rate in effect as of December 31, 2005. |
We enter into operating leases primarily for office and
warehouse space and equipment for electronic data processing and
transportation. The terms of our leases do not impose
significant restrictions or unusual obligations, except for the
facility in Mentor, Ohio as noted below. The table above
includes minimum annual rental commitments on operating leases
having initial or remaining noncancellable lease terms of one
year or more.
32
We did not include purchase obligations or open purchase orders
at year end 2005 in the table of contractual obligations above,
because it is impracticable for us to either obtain such
information or provide a reasonable estimate due to the
decentralized nature of our purchasing systems.
In January 2006, we contributed $25 million to our domestic
pension plan, which is more than the amount required by
U.S. governmental agencies for 2006.
In April 2003, we were notified by the DOJ that it had initiated
a criminal investigation into competitive practices in the label
stock industry, and on August 15, 2003, the DOJ issued a
subpoena to us in connection with the investigation. In May
2004, the EC initiated inspections and obtained documents from
our pressure-sensitive materials facilities in the Netherlands
and Germany, seeking evidence of unlawful anticompetitive
activities. In July 2004, we were notified by the Competition
Law Division of the Department of Justice of Canada that it was
seeking information in connection with a label stock
investigation. In August 2005, we were notified by the
Australian Competition and Consumer Commission that it was
seeking information in connection with a label stock
investigation. We are cooperating with these investigations. We
are a named defendant in purported class actions in the
U.S. seeking treble damages and other relief for alleged
unlawful competitive practices, which were filed after the
announcement of the DOJ investigation. We are also a named
defendant in purported class actions in the U.S. seeking
damages and other relief for alleged disclosure and fiduciary
duty violations pertaining to alleged unlawful competitive
practices. We have discovered instances of improper conduct by
certain employees in our European operations that constituted an
infringement of EC competition law. We accordingly expect that
the EC will impose a fine on us when its investigation is
completed. We are unable to predict the effect of these matters
at this time, although the effect could well be adverse and
material. These matters are reported in Note 8
Contingencies, to the Consolidated Financial
Statements.
We have been designated by the U.S. Environmental
Protection Agency (EPA) and/or other responsible
state agencies as a potentially responsible party
(PRP) at fourteen 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 our liability has
been agreed upon. We are participating with other PRPs at such
sites, and anticipate that our share of cleanup costs will be
determined pursuant to remedial agreements to be entered into in
the normal course of negotiations with the EPA or other
governmental authorities.
We have accrued liabilities for such sites, including sites in
which governmental agencies have designated us as a PRP, where
it is probable that a loss will be incurred and the 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 any 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 our consolidated financial position, and based
upon current information, we believe that it is unlikely that
the final resolution of these matters will significantly impact
our consolidated financial position, results of operations or
cash flows.
We have contacted relevant authorities in the U.S. and reported
the results of an internal investigation of potential violations
of the U.S. Foreign Corrupt Practices Act. The transactions
at issue were carried out by a small number of employees of our
reflectives business in China, and involved, among other things,
impermissible payments or attempted impermissible payments. The
payments or attempted payments and the contracts associated with
them appear to have been relatively minor in amount and of
limited duration. Corrective and disciplinary actions have been
taken. Sales of our reflectives business in China in 2005 were
approximately $7 million. Based on findings to date, no
changes to our previously filed financial statements are
33
warranted as a result of these matters. However, we expect that
fines or other penalties may be incurred. While we are unable to
predict the financial or operating impact of any such fines or
penalties, we believe that our behavior in detecting,
investigating, responding to and voluntarily disclosing these
matters to authorities should be viewed favorably.
We and our subsidiaries are involved in various other lawsuits,
claims and inquiries, most of which are routine to the nature of
the business. Based upon current information, we believe that
the resolution of these other matters will not materially affect
us.
We provide for an estimate of costs that may be incurred under
our basic limited warranty at the time product revenue is
recognized. These costs primarily include materials and labor
associated with the service or sale of products. Factors that
affect our warranty liability include the number of units
installed or sold, historical and anticipated rate of warranty
claims on those units, cost per claim to satisfy our warranty
obligation and availability of insurance coverage. As these
factors are impacted by actual experience and future
expectations, we assess the adequacy of the recorded warranty
liability and adjust the amounts as necessary.
On September 9, 2005, we completed the lease financing for
a commercial facility to be located in Mentor, Ohio. This
facility will be the new headquarters for our roll materials
worldwide division, and will consist generally of land,
buildings, equipment and office furnishings and equipment (the
Facility). We will lease the Facility under an
operating lease arrangement, which contains a residual value
guarantee of $33.4 million. We do not expect the residual
value of the Facility to be less than the amount guaranteed.
We participate in receivable financing programs, both
domestically and internationally, with several financial
institutions whereby we may request advances from these
financial institutions. At December 31, 2005, we guaranteed
approximately $19 million of these advances.
We guaranteed up to approximately $21 million of certain of
our foreign subsidiaries obligations to their suppliers as
of December 31, 2005.
In connection with the L&E acquisition in 2002, we issued
743,108 shares at $63.08 per share. We also entered
into an agreement with L&E whereby in the event the value of
our common shares fell below the price of the shares that were
issued to L&E (adjusted for dividends received), during the
period from January 1, 2005 through December 31, 2007,
L&E had the option to exercise a
true-up right. Upon
exercise of this
true-up right, we had
the option to (1) pay the difference in value to L&E,
in the form of (a) cash or (b) common shares, or
(2) repurchase the shares at the issued share price,
adjusted for dividends paid. The
true-up obligation was
reduced by any shares sold by L&E to third parties. During
2005, L&E sold 44,603 shares to third parties. On
October 20, 2005, L&E notified us that it was
exercising its true-up
right under the agreement for the remaining 698,505 shares.
We repurchased the remaining shares under the agreement for
$41 million in the fourth quarter of 2005.
RELATED PARTY TRANSACTIONS
From time to time, we enter into transactions in the normal
course of business with related parties. We believe that such
transactions are at arms-length and for terms that would
have been obtained from unaffiliated third parties. One of our
directors, Peter W. Mullin is the chairman, chief executive
officer and a director of MC Insurance Services, Inc.
(MC), Mullin Insurance Services, Inc.
(MINC), and PWM Insurance Services, Inc.
(PWM), executive compensation and benefit
consultants and insurance agents. Mr. Mullin is also the
majority stockholder of MC, MINC and PWM (collectively referred
to as the Mullin Companies). We paid premiums to
insurance carriers for life insurance placed by the Mullin
Companies in connection with several of our employee benefit
plans. The Mullin Companies have advised us that they earned
commissions from such insurance carriers for the placement and
renewal of this insurance. The majority of these commissions
were allocated to and used by MC Insurance Agency Services, LLC
(an affiliate of MC) to administer benefit plans and provide
benefit statements to participants under several of our employee
benefit plans. The Mullin Companies own a minority interest in M
Financial Holdings, Inc. (MFH). Substantially all of
the life insurance policies, which we placed through the Mullin
Companies in
34
2005 and prior years, are issued by insurance carriers that
participate in reinsurance agreements entered into between these
insurance carriers and M Life Insurance Company (M
Life), a wholly-owned subsidiary of MFH. Reinsurance
returns earned by M Life are determined annually by the
insurance carriers and can be negative or positive, depending
upon the results of M Lifes aggregate reinsurance pool,
which consists of the insured lives reinsured by M Life. The
Mullin Companies have advised us that they participated in net
reinsurance gains of M Life. None of these transactions were
significant to our financial position or results of operations.
Summary of Related Party Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Mullin Companies commissions on our insurance premiums
|
|
$ |
.9 |
|
|
$ |
1.1 |
|
|
$ |
1.1 |
|
Mr. Mullins direct & indirect interest in these
commissions
|
|
|
.7 |
|
|
|
.8 |
|
|
|
.7 |
|
|
|
|
|
|
|
|
|
|
|
Mullin Companies reinsurance gains (without risk of forfeiture)
ascribed by M Life to our life insurance policies
|
|
|
.2 |
|
|
|
.2 |
|
|
|
|
|
Mr. Mullins direct & indirect interest in
reinsurance gains (without risk of forfeiture)
|
|
|
.1 |
|
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mullin Companies reinsurance gains (subject to risk of
forfeiture) ascribed by M Life to our life insurance policies
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
Mr. Mullins direct & indirect interest in
reinsurance gains (subject to risk of forfeiture)
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
for the reporting period and as of the financial statement date.
These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent liabilities
and the reported amounts of revenue and expense. Actual results
could differ from those estimates.
Critical accounting policies are those that are important to the
portrayal of our financial condition and results, and which
require us to make difficult, subjective and/or complex
judgments. Critical accounting policies cover accounting matters
that are inherently uncertain because the future resolution of
such matters is unknown. We believe that critical accounting
policies include accounting for revenue recognition, sales
returns and allowances, accounts receivable allowances,
inventory reserves, long-lived asset impairments, pensions and
postretirement benefits, income taxes, restructuring and
severance costs and litigation.
Revenue Recognition
Sales are recognized when persuasive evidence of an arrangement
exists, product delivery has occurred, pricing is fixed or
determinable, and collection is reasonably assured. Sales,
provisions for estimated sales returns, and the cost of products
sold are recorded at the time title transfers to customers.
Actual product returns are charged against estimated sales
return allowances.
Sales rebates and discounts are common practice in the
industries in which we operate. Volume, promotional, price, cash
and other discounts and customer incentives are accounted for as
a reduction to gross sales. Rebates and discounts are recorded
based upon estimates at the time products are sold. These
estimates are based upon historical experience for similar
programs and products. We review such rebates and discounts on
an ongoing basis and accruals for rebates and discounts are
adjusted, if necessary, as additional information becomes
available.
Sales Returns and Allowances
Sales returns and allowances represent credits we grant to our
customers (both affiliated and non-affiliated) for the return of
unsatisfactory product or a negotiated allowance in lieu of
return. We accrue for
35
returns and allowances based upon the gross price of the
products sold and historical experience for such products. We
record these allowances based on the following factors:
(i) customer specific allowances; and (ii) an
estimated amount, based on our historical experience, for issues
not yet identified.
Accounts Receivable Allowances
We are required to make judgments as to the collectibility of
accounts receivable based on established aging policy,
historical experience and future expectations. The allowances
for doubtful accounts represent allowances for customer trade
accounts receivable that are estimated to be partially or
entirely uncollectible. These allowances are used to reduce
gross trade receivables to their net realizable value. We record
these allowances based on estimates related to the following
factors: (i) customer specific allowances;
(ii) amounts based upon an aging schedule; and
(iii) an estimated amount, based on our historical
experience, for issues not yet identified. No single customer
represented 10% or more of our net sales or trade receivables at
year end 2005 and 2004. However, our ten largest customers at
year end 2005 represented approximately 20% of trade accounts
receivable and consisted of six customers of our Office and
Consumer Products segment, three customers of our
Pressure-sensitive Materials segment and one customer of both
these segments. The financial position and operations of these
customers are monitored on an ongoing basis.
Inventory Reserves
Inventories are stated at the lower of cost or market value and
are categorized as raw materials,
work-in-progress or
finished goods. Inventory reserves are recorded for damaged,
obsolete, excess and slow-moving inventory. We use estimates to
record these reserves. Slow-moving inventory is reviewed by
category and may be partially or fully reserved for depending on
the type of product and the length of time the product has been
included in inventory.
Long-lived Asset Impairments
We record impairment charges when the carrying amounts of
long-lived assets are determined not to be recoverable.
Impairment is measured by assessing the usefulness of an asset
or by comparing the carrying value of an asset to its fair
value. Fair value is typically determined using quoted market
prices, if available, or an estimate of undiscounted future cash
flows expected to result from the use of the asset and its
eventual disposition. The amount of impairment loss is
calculated as the excess of the carrying value over the fair
value. Changes in market conditions and management strategy have
historically caused us to reassess the carrying amount of our
long-lived assets.
Pensions and Postretirement Benefits
Assumptions used in determining projected benefit obligations
and the fair value of plan assets for our pension plan and other
postretirement benefits plans are evaluated by management in
consultation with outside actuaries who are relied upon as
experts. In the event we determine that changes are warranted in
the assumptions used, such as the discount rate, expected long
term rate of return, or health care costs, future pension and
postretirement benefit expenses could increase or decrease. Due
to changing market conditions or changes in the participant
population, the actuarial assumptions we use may differ from
actual results, which could have a significant impact on our
pension and postretirement liability and related cost.
Discount Rate
We, in consultation with our actuaries, annually review and
determine the discount rates to be used in connection with our
postretirement obligations. The assumed discount rate for each
pension plan reflects market rates for high quality corporate
bonds currently available. In the U.S., our discount rate was
determined by evaluating several yield curves consisting of
large populations of high quality corporate bonds. The projected
pension benefit payment streams were then matched with the bond
portfolios to determine a rate that reflected the liability
duration unique to our plans.
36
Long-term Return on Assets
We determine the long-term rate of return assumption for plan
assets by reviewing the historical and expected returns of both
the equity and fixed income markets, taking into consideration
that assets with higher volatility typically generate a greater
return over the long run. Additionally, current market
conditions, such as interest rates, are evaluated and peer data
is reviewed to check for reasonability and appropriateness.
Healthcare Cost Trend Rate
Our practice is to fund the cost of the postretirement benefits
on a cash basis. For measurement purposes, an 8% annual rate of
increase in the per capita cost of covered health care benefits
was assumed for 2006. This rate is expected to decrease to
approximately 5% by 2009.
Income Taxes
Deferred tax liabilities or assets reflect temporary differences
between the amounts of assets and liabilities for financial and
tax reporting purposes. Such amounts are adjusted, as
appropriate, to reflect changes in tax rates expected to be in
effect when the temporary differences reverse. A valuation
allowance is recorded to reduce our deferred tax assets to the
amount that is more likely than not to be realized.
When establishing a valuation allowance, we consider future
sources of income such as forecasted earnings, the mix of
earnings in the jurisdictions in which we operate, and prudent
and feasible tax planning. In the event we determine that we
would not be able to realize our deferred tax assets in the
future, the valuation adjustment to the deferred tax assets is
charged to earnings in the period in which we make such a
determination. Likewise, if later it is determined that it is
more likely than not that the deferred tax assets would be
realized, we would reverse the previously provided valuation
allowance.
We calculate current and deferred tax provisions based on
estimates and assumptions that could differ from the actual
results reflected in income tax returns filed during the
following year. Adjustments based on filed returns are recorded
when identified in the subsequent year.
The amount of income taxes we pay is subject to ongoing audits
by federal, state and foreign tax authorities. Our estimate of
the potential outcome of any uncertain tax issue is subject to
managements assessment of relevant risks, facts, and
circumstances existing at that time. We believe that we have
adequately provided for reasonably foreseeable outcomes related
to these matters. However, our future results may include
favorable or unfavorable adjustments to our estimated tax
liabilities in the period the assessments are made or resolved,
which may impact our effective tax rate on a quarterly basis.
Restructuring and Severance Costs
We account for restructuring costs including severance and other
costs associated with exit or disposal activities following the
guidance provided in SFAS No. 112, Accounting
for Postemployment Benefits, and SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. In the U.S., we have a severance pay plan
(Pay Plan), which provides eligible employees with
severance payments in the event of an involuntary termination
due to qualifying cost reduction actions. We calculate severance
pay using the severance benefits formula under the Pay Plan.
Accordingly, we record provisions for such amounts and other
related exit costs when they are probable and estimable as set
forth under SFAS No. 112. In the absence of a Pay
Plan, liability for severance and other employee-related costs
are recognized when the liability is incurred and follow the
guidance of SFAS No. 146.
Litigation
We are currently involved in various lawsuits, claims and
inquiries, most of which are routine to the nature of the
business, and in accordance with SFAS No. 5,
Accounting for Contingencies, we accrue estimates of
the probable and estimable losses for the resolution of these
claims. The ultimate resolution of these claims could affect our
future results of operations for any particular quarterly or
annual period should
37
our exposure be materially different from our earlier estimates
or should liabilities be incurred that were not previously
accrued.
RECENT ACCOUNTING REQUIREMENTS
During 2005, we adopted several accounting and financial
disclosure requirements by the Financial Accounting Standards
Board (FASB), Emerging Issues Task Force
(EITF) and Financial Interpretations by the FASB,
none of which has had a significant impact on our financial
results of operations and financial position. (Refer to
Note 1 Summary of Significant Accounting
Policies, to the Consolidated Financial Statements for
more information).
In January 2006, we adopted the recognition provisions of
SFAS 123(R), Share-Based Payment, following the
guidance under modified prospective application and expect that
the associated expense will be approximately $17 million in
2006 based on unvested stock options outstanding at year end
2005. Such expense will have an estimated $.12 per share
impact on earnings after tax.
RISK FACTORS (SAFE HARBOR STATEMENT)
The matters discussed in this Managements Discussion and
Analysis of Financial Condition and Results of Operations and
other sections of this Annual Report 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, which may or may not occur. Words such
as aim, anticipate, assume,
believe, continue, could,
estimate, expect, guidance,
intend, may, objective,
plan, potential, project,
seek, shall, should,
target, will, would, or
variations thereof 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 expected
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 Part 1, Item 1A, Risk Factors
above, 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, fluctuations in cost and
availability of raw materials, ability of the Company to achieve
and sustain targeted cost reductions, impact of competitive
products and pricing, business mix shift, credit risks, ability
to obtain adequate financing arrangements, fluctuations in
pension, insurance and employee benefit costs, successful
integration of acquisitions, successful implementation of new
manufacturing technologies and installation of manufacturing
equipment, customer and supplier concentrations, financial
condition and inventory strategies of customers, changes in
customer order patterns, loss of significant contract(s) or
customer(s), legal proceedings, including the DOJ criminal
investigation, as well as the European Commission
(EC), Canadian Department of Justice, and Australian
Competition and Consumer Commission investigations, into
industry competitive practices and any related proceedings or
lawsuits pertaining to these investigations or to the subject
matter thereof (including purported class actions seeking treble
damages for alleged unlawful competitive practices, and
purported class actions related to alleged disclosure and
fiduciary duty violations pertaining to alleged unlawful
competitive practices, which were filed after the announcement
of the DOJ investigation, as well as a likely fine by the EC in
respect of certain employee misconduct in Europe), impact of
potential violations of the U.S. Foreign Corrupt Practices
Act based on issues in China, changes in governmental
regulations, fluctuations in interest rates, fluctuations in
foreign currency exchange rates and other risks associated with
foreign operations, changes in economic or political conditions,
acts of war, terrorism, natural disasters, impact of
epidemiological events on the economy, the Companys
customers and suppliers, and other factors.
38
The Company believes that the most significant risk factors that
could affect its ability to achieve its stated financial
expectations in the near-term include:
|
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(1) |
potential adverse developments in legal proceedings and/or
investigations regarding competitive activities, including
possible fines, penalties, judgments or settlements; |
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(2) |
the impact of economic conditions on underlying demand for the
Companys products; |
|
|
(3) |
the impact of competitors actions, including expansion in key
markets, product offerings and pricing; |
|
|
(4) |
the degree to which higher raw material costs can be passed on
to customers through selling price increases (and previously
implemented selling price increases can be sustained), without a
significant loss of volume; and |
|
|
(5) |
the ability of the Company to achieve and sustain targeted cost
reductions. |
Any forward-looking statements should also be considered in
light of the factors detailed in Part 1, Item 1A,
Risk Factors, above.
The Companys forward-looking statements represent 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.
|
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Item 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Risk Management
We are exposed to the impact of changes in interest rates and
foreign currency exchange rates.
Our policy is not to purchase or hold foreign currency, interest
rate or commodity contracts for trading purposes.
Our objective in managing the exposure to foreign currency
changes is to reduce the risk to our earnings and cash flow
associated with foreign exchange rate changes. As a result, we
enter into foreign exchange forward, option and swap contracts
to reduce risks associated with the value of our existing
foreign currency assets, liabilities, firm commitments and
anticipated foreign revenues and costs, when available and
appropriate. The gains and losses on these contracts are
intended to offset changes in the related exposures. We do not
hedge our foreign currency exposure in a manner that would
entirely eliminate the effects of changes in foreign exchange
rates on our consolidated net income.
Our objective in managing our exposure to interest rate changes
is to reduce the impact of interest rate changes on earnings and
cash flows. To achieve our objectives, we may periodically use
interest rate contracts to manage net exposure to interest rate
changes related to our borrowings. In connection with the
issuance of the $250 million
10-year senior notes in
2003, we settled a forward starting interest rate swap at a loss
of approximately $32.5 million. The loss is currently being
amortized to interest expense over 10 years, which
corresponds to the term of the related debt.
Additionally, we enter into certain natural gas futures
contracts to reduce the risks associated with anticipated
domestic natural gas used in manufacturing and operations. These
amounts are not material to our financial statements.
In the normal course of operations, we also face other risks
that are either nonfinancial or nonquantifiable. Such risks
principally include changes in economic or political conditions,
other risks associated with foreign operations, commodity price
risk and litigation risk, which are not represented in the
analyses that follow.
39
Foreign Exchange Value-At-Risk
We use a Value-At-Risk (VAR) model to determine the
estimated maximum potential one-day loss in earnings associated
with both our foreign exchange positions and contracts. This
approach assumes that market rates or prices for foreign
exchange positions and contracts are normally distributed. The
VAR model estimates were made assuming normal market conditions.
Firm commitments, accounts receivable and accounts payable
denominated in foreign currencies, which certain of these
instruments are intended to hedge, were included in the model.
Forecasted transactions, which certain of these instruments are
intended to hedge, were excluded from the model. The VAR was
estimated using a variance-covariance methodology based on
historical volatility for each currency. The volatility and
correlation used in the calculation were based on two-year
historical data obtained from one of our domestic banks. A 95%
confidence level was used for a one-day time horizon.
The VAR model is a risk analysis tool and does not purport to
represent actual losses in fair value that could be incurred by
us, nor does it consider the potential effect of favorable
changes in market factors.
The estimated maximum potential one-day loss in earnings for our
foreign exchange positions and contracts was approximately
$4.5 million at year end 2005.
Interest Rate Sensitivity
An assumed 28 basis point move in interest rates (10% of
our weighted-average interest rate on floating rate debt)
affecting our variable-rate borrowings would have had an
immaterial effect on our 2005 earnings.
|
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Item 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information called for by this item is contained in the
Companys 2005 Annual Report to Shareholders on
pages 36 through 65 (including the Consolidated Financial
Statements and the Notes thereto appearing on pages 36
through 63, Statement of Management Responsibility for Financial
Statements and Managements Report on Internal Control Over
Financial Reporting on page 64, and the Report of
Independent Registered Public Accounting Firm on page 65)
and is incorporated herein by reference.
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Item 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
None.
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Item 9A. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures. As of the end of the
period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of
its management, including the Chief Executive Officer and the
Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and
procedures (as defined in
Rule 13a-15(e) or
15d-15(e) of the
Exchange Act). Based upon that evaluation, the Companys
Chief Executive Officer and Chief Financial Officer have
concluded that the Companys disclosure controls and
procedures are effective to provide reasonable assurance that
information is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms, and that such information is accumulated and communicated
to the Companys management, including the Chief Executive
Officer and the Chief Financial Officer as appropriate, to allow
timely decisions regarding required disclosure.
Managements Report on Internal Control Over Financial
Reporting. Management is responsible for establishing and
maintaining adequate internal control over financial reporting
(as defined in
Rule 13a-15(f) or
15d-15(f) of the
Exchange Act). Under the supervision and with the participation
of the Companys management, including the Chief Executive
Officer and the Chief Financial Officer, the Company conducted
an evaluation of the effectiveness of its internal control over
financial reporting based upon the framework in
40
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, the Companys
management concluded that its internal control over financial
reporting was effective as of December 31, 2005. (See
Managements Report on Internal Control Over Financial
Reporting on page 64 in the Companys 2005 Annual
Report to Shareholders.)
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2005, has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their Report of Independent
Registered Public Accounting Firm on page 65 in the
Companys 2005 Annual Report to Shareholders, and is
incorporated herein by reference.
Changes in Internal Control over Financial Reporting.
There has been no change in the Companys internal control
over financial reporting during the Companys most recent
fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Companys internal control
over financial reporting.
|
|
Item 9B. |
OTHER INFORMATION |
None.
41
PART III
|
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Item 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
The information concerning directors called for by this item is
incorporated by reference from
pages 2-4 and 7 of
the 2006 Proxy Statement, filed with the SEC pursuant to
Regulation 14A within 120 days of the end of the
fiscal year covered by this report. Information concerning
executive officers called for by this item appears in
Part I of this report. The information concerning late
filings under Section 16(a) of the Securities Exchange Act
of 1934, as amended, is incorporated by reference from
page 15 of the 2006 Proxy Statement.
We have adopted a Code of Ethics (the Code). The
Code applies to our Chief Executive Officer, Chief Financial
Officer and Controller. Our Code is available on the
Companys Web site, www.averydennison.com, in the
Investors section. We will satisfy disclosure
requirements under Item 5.05 of
Form 8-K regarding
any amendment to, or waiver from, any provision of the Code that
applies to these officers disclosing the nature of such
amendment or waiver on our Web site or in a current report on
Form 8-K. Our Code
of Ethics and Business Conduct, which applies to our directors
and employees, is also available on our Web site in the
Investors section. The Companys Web site
address provided above is not intended to function as a
hyperlink, and the contents of the Web site are not a part of
this Form 10-K,
nor are they incorporated by reference herein.
|
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Item 11. |
EXECUTIVE COMPENSATION |
|
|
Item 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
|
|
Item 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
|
|
Item 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information called for by Items 11, 12, 13 and 14
is incorporated by reference from pages 5 through 24 of the
2006 Proxy Statement, filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days
of the end of the fiscal year covered by this report.
42
PART IV
|
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Item 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) Financial Statements, Financial Statement Schedule and
Exhibits
|
|
|
(1) (2) Financial statements and financial statement
schedule filed as part of this report are listed in the
accompanying Index to Financial Statements and Financial
Statement Schedule. |
|
|
(3) Exhibits filed as a part of this report are listed in
the Exhibit Index, which follows the financial statements
and schedules referred to above. Each management contract or
compensatory plan or arrangement required to be filed as an
exhibit to this
Form 10-K pursuant
to Item 15(c) is identified in the Exhibit Index. |
(b) Those Exhibits and the Index thereto, required to be
filed by Item 601 of
Regulation S-K,
are attached hereto.
(c) Those financial statement schedules required by
Regulation S-X,
which are excluded from the Companys 2005 Annual Report by
Rule 14a-3(b)(1)
and which are required to be filed as a financial statement
schedule to this report, are indicated in the accompanying Index
to Financial Statements and Financial Statement Schedule.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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Avery Dennison Corporation
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By |
/s/ Daniel R. OBryant |
|
|
|
|
|
Daniel R. OBryant |
|
Executive Vice President, Finance and |
|
Chief Financial Officer |
Dated: March 13, 2006
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and as of the
dates indicated.
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Signature |
|
Title |
|
Date |
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|
|
|
/s/ Dean A. Scarborough
Dean A. Scarborough |
|
President and Chief Executive Officer, Director |
|
March 13, 2006 |
|
/s/ Daniel R. OBryant
Daniel R. OBryant |
|
Executive Vice President, Finance and Chief Financial Officer
(Principal Financial Officer) |
|
March 13, 2006 |
|
/s/ Michael A. Skovran
Michael A. Skovran |
|
Vice President and Controller (Principal Accounting Officer) |
|
March 13, 2006 |
|
/s/ Peter K. Barker
Peter K. Barker |
|
Director |
|
March 13, 2006 |
|
/s/ Rolf Börjesson
Rolf Börjesson |
|
Director |
|
March 13, 2006 |
|
/s/ John T. Cardis
John T. Cardis |
|
Director |
|
March 13, 2006 |
|
/s/ Richard M. Ferry
Richard M. Ferry |
|
Director |
|
March 13, 2006 |
|
/s/ Kent Kresa
Kent Kresa |
|
Chairman,
Director |
|
March 13, 2006 |
|
/s/ Peter W. Mullin
Peter W. Mullin |
|
Director |
|
March 13, 2006 |
|
/s/ David E. I. Pyott
David E. I. Pyott |
|
Director |
|
March 13, 2006 |
44
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Signature |
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Title |
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Date |
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/s/ Patrick T. Siewert
Patrick T. Siewert |
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Director |
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March 13, 2006 |
|
/s/ Julia A. Stewart
Julia A. Stewart |
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Director |
|
March 13, 2006 |
45
AVERY DENNISON CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
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Reference (page) | |
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| |
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Annual | |
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Form 10-K | |
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Report to | |
Data incorporated by reference from the attached portions of the 2005 Annual |
|
Annual Report | |
|
Shareholders | |
Report to Shareholders of Avery Dennison Corporation: |
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| |
Consolidated Balance Sheet at December 31, 2005 and
January 1, 2005
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36 |
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Consolidated Statement of Income for 2005, 2004 and 2003
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37 |
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Consolidated Statement of Shareholders Equity for 2005,
2004 and 2003
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38 |
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Consolidated Statement of Cash Flows for 2005, 2004 and 2003
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39 |
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Notes to Consolidated Financial Statements
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40-63 |
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Statement of Management Responsibility for Financial Statements
and Managements Report on Internal Control Over Financial
Reporting
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64 |
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Report of Independent Registered Public Accounting Firm
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65 |
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The consolidated financial statements include the accounts of
majority-owned subsidiaries. Investments in certain affiliates
(20 percent to 50 percent) are accounted for by the
equity method of accounting. Investments representing less than
20 percent are accounted for using the cost method of
accounting.
With the exception of the Consolidated Financial Statements,
Statement of Management Responsibility for Financial Statements
and Managements Report on Internal Control Over Financial
Reporting and the Report of Independent Registered Public
Accounting Firm thereon listed in the above index, and certain
information referred to in Items 1, 5 and 6, which
information is included in the Companys 2005 Annual Report
to Shareholders and is incorporated herein by reference, the
Companys 2005 Annual Report to Shareholders is not to be
deemed filed as part of this report.
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Annual | |
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Form 10-K | |
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Report to | |
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Annual Report | |
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Shareholders | |
Data submitted herewith: |
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| |
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
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S-2 |
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Schedule II Valuation and Qualifying Accounts
and Reserves
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S-3 |
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Consent of Independent Registered Public Accounting Firm
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S-4 |
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All other schedules are omitted since the required information
is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information
required is included in the consolidated financial statements
and notes thereto.
S-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Avery Dennison Corporation:
Our audits of the consolidated financial statements, of
managements assessment of the effectiveness of internal
control over financial reporting and of the effectiveness of
internal control over financial reporting referred to in our
report dated March 13, 2006 appearing in the 2005 Annual
Report to Shareholders of Avery Dennison Corporation (which
report, consolidated financial statements and assessment are
incorporated by reference in this Annual Report on
Form 10-K) also
included an audit of the financial statement schedule listed in
Item 15(a)(2) of this
Form 10-K. In our
opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers
LLP
PricewaterhouseCoopers LLP
Los Angeles, California
March 13, 2006
S-2
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
(In millions)
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Additions | |
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Balance at | |
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Charged to | |
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Balance | |
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Beginning | |
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Costs and | |
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From | |
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Deductions | |
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at End | |
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of Year | |
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Expenses | |
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Acquisitions | |
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From Reserves | |
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of Year | |
2005 |
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| |
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| |
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| |
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| |
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| |
|
Allowance for doubtful accounts
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$ |
35.2 |
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$ |
19.0 |
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|
$ |
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$ |
(14.0 |
) |
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$ |
40.2 |
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Allowance for sales returns
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26.3 |
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10.3 |
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(15.2 |
) |
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21.4 |
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Inventory reserve
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50.0 |
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30.6 |
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(26.5 |
) |
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54.1 |
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Valuation allowance for deferred tax assets
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49.9 |
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12.2 |
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(35.6 |
) |
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26.5 |
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2004
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Allowance for doubtful accounts
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$ |
29.5 |
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|
$ |
16.2 |
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|
$ |
.6 |
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|
$ |
(11.1 |
) |
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$ |
35.2 |
|
|
Allowance for sales returns
|
|
|
23.4 |
|
|
|
14.1 |
|
|
|
|
|
|
|
(11.2 |
) |
|
|
26.3 |
|
|
Inventory reserve
|
|
|
49.5 |
|
|
|
20.7 |
|
|
|
1.6 |
|
|
|
(21.8 |
) |
|
|
50.0 |
|
|
Valuation allowance for deferred tax assets
|
|
|
27.4 |
|
|
|
29.3 |
|
|
|
|
|
|
|
(6.8 |
) |
|
|
49.9 |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
24.5 |
|
|
$ |
10.1 |
|
|
$ |
.6 |
|
|
$ |
(5.7 |
) |
|
$ |
29.5 |
|
|
Allowance for sales returns
|
|
|
20.8 |
|
|
|
14.5 |
|
|
|
|
|
|
|
(11.9 |
) |
|
|
23.4 |
|
|
Inventory reserve
|
|
|
40.6 |
|
|
|
24.1 |
|
|
|
3.4 |
|
|
|
(18.6 |
) |
|
|
49.5 |
|
|
Valuation allowance for deferred tax assets
|
|
|
17.6 |
|
|
|
14.2 |
|
|
|
|
|
|
|
(4.4 |
) |
|
|
27.4 |
|
S-3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the
Registration Statements on
Form S-3 (File
Nos. 333-38905,
333-64558,
333-103204 and
333-120239) and
Form S-8 (File
Nos. 33-1132,
33-3645,
33-41238,
33-45376,
33-54411,
33-58921,
33-63979,
333-38707,
333-38709,
333-107370,
333-107371,
333-107372 and
333-109814) of Avery
Dennison Corporation of our report dated March 13, 2006
relating to the financial statements, managements
assessment of the effectiveness of internal control over
financial reporting and the effectiveness of internal control
over financial reporting, which appears in the 2005 Annual
Report to Shareholders, which is incorporated by reference in
this Annual Report on
Form 10-K for the
year ended December 31, 2005. We also consent to the
incorporation by reference of our report dated March 13,
2006 relating to the financial statement schedule, which appears
in this Form 10-K.
/s/ PricewaterhouseCoopers
LLP
PricewaterhouseCoopers LLP
Los Angeles, California
March 13, 2006
S-4
AVERY DENNISON CORPORATION
EXHIBIT INDEX
For the Year Ended December 31, 2005
INCORPORATED BY REFERENCE:
|
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Originally | |
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Exhibit | |
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Filed as | |
|
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No. | |
|
Item |
|
Exhibit No. | |
|
Document(1) |
| |
|
|
|
| |
|
|
|
(3 |
.1) |
|
Restated Certificate of Incorporation, filed August 2, 2002
with the Office of Delaware Secretary of State |
|
|
3 |
(i) |
|
Third Quarterly report for 2002 on Form 10-Q, filed
November 12, 2002 |
|
|
(3 |
.2) |
|
By-laws, as amended |
|
|
3 |
.2.1 |
|
Current Report on Form 8-K, filed December 7, 2005 |
|
|
(4 |
.1) |
|
Rights Agreement dated as of October 23, 1997 |
|
|
|
|
|
Current Report on Form 8-K, filed October 23, 1997 |
|
|
(4 |
.2) |
|
Indenture, dated as of March 15, 1991, between Registrant
and Security Pacific National Bank, as Trustee (the
Indenture) |
|
|
|
|
|
Registration Statement on Form S-3 (File
No. 33-39491), filed March 19, 1991 |
|
|
(4 |
.2.1) |
|
Officers Certificate establishing a series of Securities
entitled Medium-Term Notes under the Indenture |
|
|
4 |
.3 |
|
Current Report on Form 8-K, filed March 25, 1991 |
|
|
(4 |
.2.2) |
|
First Supplemental Indenture, dated as of March 16, 1993,
between Registrant and BankAmerica National Trust Company, as
successor Trustee (the Supplemental Indenture) |
|
|
4 |
.4 |
|
Registration Statement on Form S-3 (File
No. 33-59642), filed March 17, 1993 |
|
|
(4 |
.2.3) |
|
Officers Certificate establishing a series of Securities
entitled Medium-Term Notes under the Indenture, as
amended by the Supplemental Indenture |
|
|
4 |
.5 |
|
Current Report on Form 8-K, filed April 7, 1993 |
|
|
(4 |
.2.4) |
|
Officers Certificate establishing a series of Securities
entitled Medium-Term Notes, Series B under the
Indenture, as amended by the Supplemental Indenture |
|
|
4 |
.6 |
|
Current Report on Form 8-K, filed March 29, 1994 |
|
|
(4 |
.2.5) |
|
Officers Certificate establishing a series of Securities
entitled Medium-Term Notes, Series C under the
Indenture, as amended by the Supplemental Indenture |
|
|
4 |
.7 |
|
Current Report on Form 8-K, filed May 12, 1995 |
|
|
(4 |
.2.6) |
|
Officers Certificate establishing a series of Securities
entitled Medium-Term Notes, Series D under the
Indenture, as amended by the Supplemental Indenture |
|
|
4 |
.8 |
|
Current Report on Form 8-K, filed December 16, 1996 |
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally | |
|
|
Exhibit | |
|
|
|
Filed as | |
|
|
No. | |
|
Item |
|
Exhibit No. | |
|
Document(1) |
| |
|
|
|
| |
|
|
|
(4 |
.3) |
|
Indenture dated July 3, 2001 between Registrant and
J.P.Morgan Trust Company, National Association (successor to
Chase Manhattan Bank and Trust Company, National Association),
as trustee (2001 Indenture) |
|
|
4 |
.1 |
|
Registration Statement on Form S-3 (File
No. 333-64558), filed July 3, 2001 |
|
|
(4 |
.3.1) |
|
Officers Certificate establishing two series of Securities
entitled 4.875% Notes due 2013 and
6.000% Notes due 2033, respectively, each under
the 2001 Indenture |
|
|
4 |
.2 |
|
Current Report on Form 8-K, filed January 16, 2003 |
|
|
(4 |
.3.2) |
|
4.875% Notes Due 2013 |
|
|
4 |
.3 |
|
Current Report on Form 8-K, filed January 16, 2003 |
|
|
(4 |
.3.3) |
|
6.000% Notes Due 2033 |
|
|
4 |
.4 |
|
Current Report on Form 8-K, filed January 16, 2003 |
|
|
(4 |
.3.4) |
|
First Supplemental Indenture dated July August 9, 2004,
between Registrant and J.P.Morgan Trust Company, National
Association (successor to Chase Manhattan Bank and Trust
Company, National Association), as trustee Supplemental
Indenture) |
|
|
4 |
.3 |
|
Current Report on Form 8-K, filed August 9, 2004 |
|
|
(4 |
.3.5) |
|
Officers Certificate establishing Form of Notes due 2007
under the Supplemental Indenture |
|
|
4 |
.2 |
|
Current Report on Form 8-K, filed August 9, 2004 |
|
|
(4 |
.3.6) |
|
LIBOR plus 0.23% Notes Due 2007 |
|
|
4 |
.4 |
|
Current Report on Form 8-K, filed August 9, 2004 |
|
|
(4 |
.4) |
|
Indenture, dated November 4, 2004, between Registrant and
J.P. Morgan Trust Company, National Association (2004
Indenture) |
|
|
4 |
.3 |
|
Registration Statement on Form S-3 (File
No. 333-120239), filed November 5, 2004 |
|
|
(10 |
.1) |
|
Revolving Credit Agreement, dated July 16, 2004 |
|
|
10 |
.1 |
|
First Quarterly report for 2004 on Form 10-Q, filed
May 6, 2004 |
|
|
(10 |
.3) |
|
*Deferred Compensation Plan for Directors |
|
|
10 |
.3 |
|
1981 Annual Report on Form 10-K, filed February 29,
1982 |
|
|
(10 |
.4) |
|
*Non-Employee Director Compensation Summary |
|
|
10 |
.4 |
|
Current Reports on Form 8-K, filed May 4, 2005 and
December 7, 2005 |
|
|
(10 |
.5) |
|
*Executive Medical and Dental Plan (description) |
|
|
10 |
.5 |
|
1981 Annual Report on Form 10-K, filed February 29,
1982 |
|
|
(10 |
.6) |
|
*Executive Financial Counseling Service (description) |
|
|
10 |
.6 |
|
1981 Annual Report on Form 10-K, filed February 29,
1982 |
|
|
(10 |
.8) |
|
*Employment Agreement with D.A. Scarborough |
|
|
10 |
.8.5 |
|
First Quarterly report for 2005 on Form 10-Q, filed
May 12, 2005 |
|
|
(10 |
.8.2) |
|
*Employment Agreement with R.G. van Schoonenberg |
|
|
10 |
.8.3 |
|
1996 Annual Report on Form 10-K, filed March 28, 1997 |
ii
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally | |
|
|
Exhibit | |
|
|
|
Filed as | |
|
|
No. | |
|
Item |
|
Exhibit No. | |
|
Document(1) |
| |
|
|
|
| |
|
|
|
(10 |
.8.3) |
|
*Form of Employment Agreement |
|
|
10 |
.8.4 |
|
First Quarterly report for 2004 on Form 10-Q, filed
May 6, 2004 |
|
|
(10 |
.8.4) |
|
*Retention Agreement with D.R. OBryant |
|
|
10 |
.8.6 |
|
First Quarterly report for 2005 on Form 10-Q, filed
May 12, 2005 |
|
|
(10 |
.9) |
|
*Executive Group Life Insurance Plan |
|
|
10 |
.9 |
|
1982 Annual Report on Form 10-K, filed February 25,
1983 |
|
|
(10 |
.10) |
|
*Form of Indemnity Agreement between Registrant and certain
directors and officers |
|
|
10 |
.10 |
|
1986 Annual Report on Form 10-K, filed on February 27,
1987 |
|
|
(10 |
.10.1) |
|
*Form of Indemnity Agreement between Registrant and certain
directors and officers |
|
|
10 |
.10.1 |
|
1993 Annual Report on Form 10-K, filed March 18, 1994 |
|
|
(10 |
.11) |
|
*Supplemental Executive Retirement Plan, amended and restated
(SERP) |
|
|
10 |
.11.1 |
|
First Quarterly report for 2004 on Form 10-Q, filed
May 6, 2004 |
|
|
(10 |
.11.2) |
|
*Letter of Grant to D.A. Scarborough under SERP |
|
|
10 |
.11.6 |
|
Current Report on Form 8-K, filed May 4, 2005 |
|
|
(10 |
.11.3) |
|
*Letter of Grant to R.G. van Schoonenberg under SERP |
|
|
99 |
.1 |
|
Current Report on Form 8-K, filed February 2, 2005 |
|
|
(10 |
.11.4) |
|
*Letter of Grant to D.R. OBryant under SERP |
|
|
99 |
.2 |
|
Current Report on Form 8-K, filed February 2, 2005 |
|
|
(10 |
.12) |
|
*Complete Restatement and Amendment of Executive Deferred
Compensation Plan |
|
|
10 |
.12 |
|
1994 Annual Report on Form 10-K, filed March 30, 1995 |
|
|
(10 |
.13) |
|
*Retirement Plan for Directors, amended and restated |
|
|
10 |
.13.1 |
|
2002 Annual Report on Form 10-K, filed March 28, 2003 |
|
|
(10 |
.15) |
|
*Director Equity Plan, amended and restated (Director
Plan) |
|
|
10 |
.15.4 |
|
2002 Annual Report on Form 10-K, filed March 28, 2003 |
|
|
(10 |
.15.1) |
|
*Form of Non-Employee Director Stock Option Agreement under
Director Plan |
|
|
10 |
.15.1 |
|
2003 Annual Report on Form 10-K, filed March 11, 2004 |
|
|
(10 |
.16) |
|
*Complete Restatement and Amendment of Executive Variable
Deferred Compensation Plan (EVDCP) |
|
|
10 |
.16 |
|
1994 Annual Report on Form 10-K, filed March 30, 1995 |
|
|
(10 |
.16.1) |
|
*Amendment No. 1 to EVDCP |
|
|
10 |
.16.1 |
|
1999 Annual Report on Form 10-K, filed March 30, 2000 |
|
|
(10 |
.17) |
|
*Complete Restatement and Amendment of Directors Deferred
Compensation Plan |
|
|
10 |
.17 |
|
1994 Annual Report on Form 10-K, filed March 30, 1995 |
|
|
(10 |
.18) |
|
*Complete Restatement and Amendment of Directors Variable
Deferred Compensation Plan (DVDCP) |
|
|
10 |
.18 |
|
1994 Annual Report on Form 10-K, filed March 30, 1995 |
|
|
(10 |
.18.1) |
|
*Amendment No. 1 to DVDCP |
|
|
10 |
.18.1 |
|
1999 Annual Report on Form 10-K, filed March 30, 2000 |
iii
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally | |
|
|
Exhibit | |
|
|
|
Filed as | |
|
|
No. | |
|
Item |
|
Exhibit No. | |
|
Document(1) |
| |
|
|
|
| |
|
|
|
(10 |
.18.2) |
|
*2005 Directors Variable Deferred Compensation Plan
(2005 DVDCP) |
|
|
10 |
.18.2 |
|
2004 Annual Report on Form 10-K, filed March 17, 2005 |
|
|
(10 |
.19.1) |
|
*Amendment No. 1 to Stock Option Plan |
|
|
10 |
.19.7 |
|
Second Quarterly report for 2005 on Form 10-Q, filed
August 11, 2005 |
|
|
(10 |
.19.2) |
|
*Forms of NQSO Agreement under Stock Option Plan |
|
|
10 |
.19.1 |
|
Current Report on Form 8-K, filed December 7, 2005 |
|
|
(10 |
.19.3) |
|
*Form of Restricted Stock Agreement under Stock Option Plan |
|
|
10 |
.19.8 |
|
First Quarterly report for 2005 on Form 10-Q, filed
May 12, 2005 |
|
|
(10 |
.19.4) |
|
*Forms of Restricted Stock Unit Agreement under Stock Option Plan |
|
|
10 |
.19.2 |
|
Current Report on Form 8-K, filed December 7, 2005 |
|
|
(10 |
.21) |
|
*Stock Incentive Plan, amended and restated (Stock
Incentive Plan) |
|
|
10 |
.21.2 |
|
2002 Annual Report on Form 10-K, filed March 28, 2003 |
|
|
(10 |
.21.1) |
|
*Forms of NQSO Agreement under the Stock Incentive Plan |
|
|
10 |
.21.3 |
|
2002 Annual Report on Form 10-K, filed March 28, 2003 |
|
|
(10 |
.27) |
|
*Executive Long-Term Incentive Plan, amended and restated
(LTIP) |
|
|
10 |
.27.1 |
|
2003 Annual Report on Form 10-K, filed March 11, 2004 |
|
|
(10 |
.28) |
|
*Complete Restatement and Amendment of Executive Deferred
Retirement Plan (EDRP) |
|
|
10 |
.28 |
|
1994 Annual Report on Form 10-K, filed March 30, 1995 |
|
|
(10 |
.28.1) |
|
*Amendment No. 1 to EDRP |
|
|
10 |
.28.1 |
|
1999 Annual Report on Form 10-K, filed March 30, 2000 |
|
|
(10 |
.28.2) |
|
*Amendment No. 2 to EDRP |
|
|
10 |
.28.2 |
|
2001 Annual Report on Form 10-K, filed March 4, 2002 |
|
|
(10 |
.29) |
|
*Executive Leadership Compensation Plan, (ELCP) |
|
|
10 |
.29.1 |
|
2004 Annual Report on Form 10-K, filed March 17, 2005 |
|
|
(10 |
.30) |
|
*Senior Executive Leadership Compensation Plan, amended and
restated (SELCP) |
|
|
10 |
.30.2 |
|
2003 Annual Report on Form 10-K, filed March 11, 2004 |
|
|
(10 |
.31) |
|
*Executive Variable Deferred Retirement Plan, amended and
restated (EVDRP) |
|
|
10 |
.31.5 |
|
2003 Annual Report on Form 10-K, filed March 11, 2004 |
|
|
(10 |
.31.1) |
|
*2004 EVDRP |
|
|
4 |
.1 |
|
Registration Statement on Form S-8 (File
No. 333-109814), filed October 20, 2003 |
|
|
(10 |
.31.2) |
|
*2005 EVDRP |
|
|
10 |
.31.2 |
|
2004 Annual Report on Form 10-K, filed March 17, 2005 |
|
|
(10 |
.32) |
|
*Benefits Restoration Plan, amended and restated
(BRP) |
|
|
10 |
.32.1 |
|
Current Report on Form 8-K, filed December 22, 2005 |
|
|
(10 |
.33) |
|
*Restated Trust Agreement for Employee Stock Benefit Trust |
|
|
10 |
.33.1 |
|
1997 Annual Report on Form 10-K, filed March 26, 1998 |
|
|
(10 |
.33.1) |
|
*Common Stock Purchase Agreement |
|
|
10 |
.2 |
|
Current Report on Form 8-K, filed October 25, 1996 |
|
|
(10 |
.33.2) |
|
*Restated Promissory Note |
|
|
10 |
.33.3 |
|
1997 Annual Report on Form 10-K, filed March 26, 1998 |
iv
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally | |
|
|
Exhibit | |
|
|
|
Filed as | |
|
|
No. | |
|
Item |
|
Exhibit No. | |
|
Document(1) |
| |
|
|
|
| |
|
|
|
(10 |
.34) |
|
*Amended and Restated Capital Accumulation Plan (CAP) |
|
|
10 |
.34 |
|
1999 Annual Report on Form 10-K, filed March 30, 2000 |
|
|
(10 |
.34.1) |
|
*Trust under CAP |
|
|
4 |
.2 |
|
Registration Statement on Form S-8 (File
No. 333-38707), filed October 24, 1997 |
|
|
(10 |
.34.2) |
|
*Amendment No. 1 to CAP |
|
|
10 |
.34.2 |
|
1999 Annual Report on Form 10-K, filed March 30, 2000 |
|
|
(10 |
.34.3) |
|
*Amendment No. 2 to CAP |
|
|
10 |
.34.3 |
|
2001 Annual Report on Form 10-K, filed March 4, 2002 |
|
|
(99 |
.1) |
|
Cautionary Statement for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of
1995 |
|
|
99 |
.1 |
|
2004 Annual Report on Form 10-K, filed March 17, 2005 |
|
|
(99 |
.2) |
|
*Stock Ownership Policy |
|
|
99 |
.2 |
|
2003 Annual Report on Form 10-K, filed March 11, 2004 |
|
|
(1) |
Unless otherwise noted, the File Number for all documents is
File No. 1-7685. |
|
|
|
|
* |
Management contract or compensatory plan or arrangement required
to be filed as an Exhibit to this
Form 10-K pursuant
to Item 15(c). |
v
SUBMITTED HEREWITH:
|
|
|
|
|
Exhibit No. |
|
Item |
|
|
|
|
10 |
.4 |
|
*Non-Employee Director Compensation Summary |
|
12 |
|
|
Computation of Ratio of Earnings to Fixed Changes |
|
13 |
|
|
Portions of Annual Report to Shareholders for fiscal year ended
December 31, 2005 |
|
21 |
|
|
List of Subsidiaries |
|
23 |
|
|
Consent of Independent Registered Public Accounting Firm (see
page S-4) |
|
24 |
|
|
Power of Attorney |
|
31 |
.1 |
|
D. A. Scarborough Certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
31 |
.2 |
|
D. R. OBryant Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |
|
32 |
.1 |
|
D. A. Scarborough Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
|
32 |
.2 |
|
D. R. OBryant Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
|
|
* |
Management contract or compensatory plan or arrangement required
to be filed as an Exhibit to this
Form 10-K pursuant
to Item 15(c). |
STATEMENT AND AGREEMENT REGARDING
LONG-TERM DEBT OF REGISTRANT
Except as indicated above, Registrant has no instrument with
respect to long-term debt under which securities authorized
thereunder equal or exceed 10% of the total assets of Registrant
and its subsidiaries on a consolidated basis. Registrant agrees
to furnish a copy of its long-term debt instruments to the
Commission upon request.
vi
exv10w4
Exhibit 10.4
Avery Dennison Corporation
Non-Employee
Director Compensation Summary(1)
|
|
|
|
|
Board members |
|
|
|
|
Annual retainer for non-executive Chairman |
|
$ |
220,000 |
|
Annual retainer for other Directors |
|
$ |
55,000 |
|
Meeting fees |
|
$ |
1,500 |
|
Annual stock
payment (shares of the Companys stock) |
|
|
500 |
|
Committee Chairman retainer |
|
|
|
|
Audit Committee |
|
$ |
10,000 |
|
Compensation and Executive Personnel Committee |
|
$ |
10,000 |
|
Other Committees |
|
$ |
5,000 |
|
Committee meeting fees |
|
|
|
|
Chairman |
|
$ |
2,000 |
|
Members |
|
$ |
1,500 |
|
|
|
|
(1) |
|
Effective December 1, 2005 |
exv12
Exhibit 12
AVERY DENNISON CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
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2005 |
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|
2004(2) |
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|
2003(2) |
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Earnings: |
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|
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|
|
|
|
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Income from continuing operations before taxes |
|
$ |
366.8 |
|
|
$ |
375.3 |
|
|
$ |
338.5 |
|
Add: Fixed charges from continuing
operations(1) |
|
|
88.8 |
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|
84.8 |
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|
|
86.6 |
|
Amortization of capitalized interest |
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|
2.6 |
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2.4 |
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2.3 |
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Less: Capitalized interest |
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(4.9 |
) |
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(3.1 |
) |
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(6.0 |
) |
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$ |
453.3 |
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$ |
459.4 |
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$ |
421.4 |
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Fixed charges from continuing operations(1): |
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Interest expense |
|
$ |
57.9 |
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$ |
58.7 |
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$ |
58.6 |
|
Capitalized interest |
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|
4.9 |
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3.1 |
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|
6.0 |
|
Interest portion of leases |
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|
26.0 |
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23.0 |
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22.0 |
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$ |
88.8 |
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|
$ |
84.8 |
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|
$ |
86.6 |
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Ratio of Earnings to Fixed Charges |
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|
5.1 |
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5.4 |
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4.9 |
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(1) |
|
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 and
amortization of capitalized interest, less capitalized interest from continuing operations.
Fixed charges consist of interest expense, capitalized interest and the portion of rent
expense (estimated to be 35%) on operating leases deemed representative of interest. |
(2) |
|
Certain prior year amounts have been reclassified to conform with the 2005 presentation. |
exv13
Exhibit 13
Our Business At a Glance
Pressure-sensitive Materials
Pressure-sensitive Materials consists of Fasson-brand roll materials, graphics and reflective
materials, performance polymers and engineered films. Roll materials are used in brand identity,
barcode labeling systems, product identification and other applications by label converters and
consumer products package designers and manufacturers. Graphics and reflective materials are used
in wide-format digital printing, sign-making, traditional screen printing and offset printing to
serve the graphic arts, vehicle marking, transportation and highway-safety industries. Performance
polymers are an extensive line of water-based and solvent-based pressure-sensitive adhesives used
in film and paper labels, graphic films, specialty automotive and industrial tapes, and protective
films for windows and consumer goods. Locations: North America, Europe, Latin America, Asia Pacific
and South Africa.
Office and Consumer Products
Office and Consumer Products manufactures a wide range of products for office, home and school
including Avery-brand self-adhesive labels, content and template software, binders, sheet
protectors, dividers and index makers, writing instruments, cell phone labels, T-shirt transfers,
security badge systems and do-it-yourself business cards. Locations: North America, Europe, Latin
America and Asia Pacific.
Retail Information Services
Retail Information Services designs, manufactures and sells a variety of price marking and brand
identification products for retailers, apparel manufacturers, distributors and industrial customers
worldwide. These include woven and printed labels, heat transfers, graphic tags, patches,
integrated tags, price tickets, custom hard and soft goods packaging, RFID carton and item tags,
barcode printers, software solutions, molded plastic fastening and application devices, as well as
service bureau printing applications for supply chain and security management. Locations: North
America, Europe, Latin America, Asia Pacific and South Africa.
Other Specialty Converting Businesses
This group consists of several different businesses. The Specialty Tapes business produces
technically advanced pressure-sensitive tapes that are used by industrial fabricators, original
equipment manufacturers, medical device manufacturers and in disposable diaper products. The
Industrial and Automotive Products business manufactures high-quality converted materials such as
decorative automotive interior films and long-life paint replacement films. The Security Printing
business manufactures self-adhesive postage stamps and battery labels. The Radio Frequency
Identification (RFID) business produces RFID inlays for label converters who supply
pressure-sensitive labels to diverse end-user markets. Locations: North America, Europe, Latin
America and Asia Pacific.
Avery Dennison Corporation
FIVE-YEAR SUMMARY
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5-Year |
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Compound |
|
2005(1) |
|
2004(2) |
|
2003(3) |
|
2002(4) |
|
2001(5) |
(Dollars in millions, except per share amounts) |
|
Growth Rate |
|
Dollars |
|
% |
|
Dollars |
|
% |
|
Dollars |
|
% |
|
Dollars |
|
% |
|
Dollars |
|
% |
|
For the Year(6) |
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Net sales |
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|
7.6 |
% |
|
$ |
5,473.5 |
|
|
|
100.0 |
|
|
$ |
5,317.0 |
|
|
|
100.0 |
|
|
$ |
4,736.8 |
|
|
|
100.0 |
|
|
$ |
4,127.5 |
|
|
|
100.0 |
|
|
$ |
3,720.0 |
|
|
|
100.0 |
|
Gross profit |
|
|
4.5 |
|
|
|
1,621.1 |
|
|
|
29.6 |
|
|
|
1,575.0 |
|
|
|
29.6 |
|
|
|
1,453.9 |
|
|
|
30.7 |
|
|
|
1,328.4 |
|
|
|
32.2 |
|
|
|
1,211.6 |
|
|
|
32.6 |
|
Marketing, general and administrative expense |
|
|
6.4 |
|
|
|
1,132.8 |
|
|
|
20.7 |
|
|
|
1,105.8 |
|
|
|
20.8 |
|
|
|
1,026.3 |
|
|
|
21.7 |
|
|
|
894.8 |
|
|
|
21.7 |
|
|
|
811.8 |
|
|
|
21.8 |
|
Interest expense |
|
|
.4 |
|
|
|
57.9 |
|
|
|
1.1 |
|
|
|
58.7 |
|
|
|
1.1 |
|
|
|
58.6 |
|
|
|
1.2 |
|
|
|
44.7 |
|
|
|
1.1 |
|
|
|
51.0 |
|
|
|
1.4 |
|
Income from continuing operations
before taxes |
|
|
(2.2 |
) |
|
|
366.8 |
|
|
|
6.7 |
|
|
|
375.3 |
|
|
|
7.1 |
|
|
|
338.5 |
|
|
|
7.1 |
|
|
|
361.1 |
|
|
|
8.7 |
|
|
|
349.1 |
|
|
|
9.4 |
|
Taxes on income |
|
|
(11.2 |
) |
|
|
75.0 |
|
|
|
1.4 |
|
|
|
94.3 |
|
|
|
1.8 |
|
|
|
93.4 |
|
|
|
2.0 |
|
|
|
106.9 |
|
|
|
2.6 |
|
|
|
111.9 |
|
|
|
3.0 |
|
Income from continuing operations |
|
|
1.3 |
|
|
|
291.8 |
|
|
|
5.3 |
|
|
|
281.0 |
|
|
|
5.3 |
|
|
|
245.1 |
|
|
|
5.2 |
|
|
|
254.2 |
|
|
|
6.2 |
|
|
|
237.0 |
|
|
|
6.4 |
|
Income (loss) from discontinued operations,
net of tax |
|
|
N/A |
|
|
|
(65.4 |
) |
|
|
N/A |
|
|
|
(1.3 |
) |
|
|
N/A |
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|
22.8 |
|
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|
N/A |
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|
3.0 |
|
|
|
N/A |
|
|
|
6.2 |
|
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|
N/A |
|
Net income |
|
|
(4.4 |
) |
|
|
226.4 |
|
|
|
4.1 |
|
|
|
279.7 |
|
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|
5.3 |
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|
267.9 |
|
|
|
5.7 |
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|
257.2 |
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6.2 |
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|
243.2 |
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6.5 |
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2005 |
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2004 |
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2003 |
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2002 |
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2001 |
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Per Share Information |
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|
Income per common share from
continuing operations |
|
|
.8 |
% |
|
$ |
2.91 |
|
|
|
|
|
|
$ |
2.81 |
|
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|
|
|
$ |
2.47 |
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|
$ |
2.58 |
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$ |
2.42 |
|
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|
Income per common share from
continuing operations, assuming dilution |
|
|
1.1 |
|
|
|
2.90 |
|
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|
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|
2.79 |
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|
2.45 |
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|
2.56 |
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|
2.40 |
|
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|
Net income per common share |
|
|
(4.7 |
) |
|
|
2.26 |
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|
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|
|
2.80 |
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|
|
2.70 |
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|
2.61 |
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|
2.49 |
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|
Net income per common share, assuming
dilution |
|
|
(4.6 |
) |
|
|
2.25 |
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|
2.78 |
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2.68 |
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|
2.59 |
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|
2.47 |
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Dividends per common share |
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|
6.6 |
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|
1.53 |
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|
1.49 |
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|
1.45 |
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|
1.35 |
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|
1.23 |
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|
Average common shares outstanding |
|
|
.4 |
|
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|
100.1 |
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|
|
99.9 |
|
|
|
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|
99.4 |
|
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|
|
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|
|
98.5 |
|
|
|
|
|
|
|
97.8 |
|
|
|
|
|
Average common shares outstanding,
assuming dilution |
|
|
.1 |
|
|
|
100.5 |
|
|
|
|
|
|
|
100.5 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
|
|
99.4 |
|
|
|
|
|
|
|
98.6 |
|
|
|
|
|
Book value at fiscal year end |
|
|
12.3 |
|
|
$ |
15.16 |
|
|
|
|
|
|
$ |
15.47 |
|
|
|
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|
|
$ |
13.24 |
|
|
|
|
|
|
$ |
10.64 |
|
|
|
|
|
|
$ |
9.49 |
|
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|
|
Market price at fiscal year end |
|
|
.1 |
|
|
|
55.27 |
|
|
|
|
|
|
|
59.97 |
|
|
|
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|
54.71 |
|
|
|
|
|
|
|
59.05 |
|
|
|
|
|
|
|
56.20 |
|
|
|
|
|
Market price range |
|
|
|
|
|
50.30 to |
|
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|
|
54.90 to |
|
|
|
|
|
47.75 to |
|
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|
|
52.86 to |
|
|
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|
|
44.39 to |
|
|
|
|
|
|
|
|
|
|
|
62.53 |
|
|
|
|
|
|
|
65.78 |
|
|
|
|
|
|
|
63.51 |
|
|
|
|
|
|
|
69.49 |
|
|
|
|
|
|
|
60.24 |
|
|
|
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|
|
At Year End(6) |
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|
|
Working capital (7) |
|
|
|
|
|
$ |
31.0 |
|
|
|
|
|
|
$ |
151.8 |
|
|
|
|
|
|
$ |
(56.8 |
) |
|
|
|
|
|
$ |
(92.4 |
) |
|
|
|
|
|
$ |
21.2 |
|
|
|
|
|
Property, plant and equipment, net (7) |
|
|
|
|
|
|
1,295.7 |
|
|
|
|
|
|
|
1,374.4 |
|
|
|
|
|
|
|
1,287.1 |
|
|
|
|
|
|
|
1,178.1 |
|
|
|
|
|
|
|
1,047.6 |
|
|
|
|
|
Total assets |
|
|
|
|
|
|
4,203.9 |
|
|
|
|
|
|
|
4,399.3 |
|
|
|
|
|
|
|
4,118.1 |
|
|
|
|
|
|
|
3,656.3 |
|
|
|
|
|
|
|
2,915.0 |
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
723.0 |
|
|
|
|
|
|
|
1,007.2 |
|
|
|
|
|
|
|
887.7 |
|
|
|
|
|
|
|
837.2 |
|
|
|
|
|
|
|
626.6 |
|
|
|
|
|
Total debt |
|
|
|
|
|
|
1,087.7 |
|
|
|
|
|
|
|
1,211.7 |
|
|
|
|
|
|
|
1,180.3 |
|
|
|
|
|
|
|
1,144.2 |
|
|
|
|
|
|
|
849.3 |
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
1,511.9 |
|
|
|
|
|
|
|
1,548.7 |
|
|
|
|
|
|
|
1,318.7 |
|
|
|
|
|
|
|
1,056.4 |
|
|
|
|
|
|
|
929.4 |
|
|
|
|
|
Number of employees |
|
|
|
|
|
|
22,600 |
|
|
|
|
|
|
|
21,400 |
|
|
|
|
|
|
|
20,300 |
|
|
|
|
|
|
|
20,500 |
|
|
|
|
|
|
|
17,300 |
|
|
|
|
|
|
Other Information(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense (7) |
|
|
|
|
|
$ |
154.2 |
|
|
|
|
|
|
$ |
145.8 |
|
|
|
|
|
|
$ |
141.9 |
|
|
|
|
|
|
$ |
122.5 |
|
|
|
|
|
|
$ |
119.9 |
|
|
|
|
|
Research and development expense (7) |
|
|
|
|
|
|
85.4 |
|
|
|
|
|
|
|
81.8 |
|
|
|
|
|
|
|
74.3 |
|
|
|
|
|
|
|
74.0 |
|
|
|
|
|
|
|
69.0 |
|
|
|
|
|
Effective tax rate (7) |
|
|
|
|
|
|
20.4 |
% |
|
|
|
|
|
|
25.1 |
% |
|
|
|
|
|
|
27.6 |
% |
|
|
|
|
|
|
29.6 |
% |
|
|
|
|
|
|
32.1 |
% |
|
|
|
|
Total debt as a percent of total capital |
|
|
|
|
|
|
41.8 |
|
|
|
|
|
|
|
43.9 |
|
|
|
|
|
|
|
47.2 |
|
|
|
|
|
|
|
52.0 |
|
|
|
|
|
|
|
47.8 |
|
|
|
|
|
Return on average shareholders equity (percent) |
|
|
|
|
|
|
14.6 |
|
|
|
|
|
|
|
19.9 |
|
|
|
|
|
|
|
22.3 |
|
|
|
|
|
|
|
25.7 |
|
|
|
|
|
|
|
27.4 |
|
|
|
|
|
Return on average total capital (percent) |
|
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
12.1 |
|
|
|
|
|
|
|
12.4 |
|
|
|
|
|
|
|
13.9 |
|
|
|
|
|
|
|
15.0 |
|
|
|
|
|
|
|
|
|
(1) |
|
Results for 2005 include a net pretax charge of $63.6 for restructuring costs, asset impairment and lease cancellation charges and legal accrual related to a patent lawsuit,
partially offset by gain on sale of assets. Additionally, results for 2005 include impairment charges for goodwill and intangible assets of $74.4 associated with the expected
divestiture of a business. |
|
(2) |
|
Results for 2004 include a pretax charge of $35.2 for restructuring costs, asset impairment and lease cancellation charges. Results for 2004 reflect a 53-week period. |
|
(3) |
|
Results for 2003 include a net pretax charge of $30.5 for restructuring costs, asset impairment and lease cancellation charges and net losses associated with several
product line divestitures, partially offset by a gain from the settlement of a lawsuit. Additionally, results for 2003 included a pretax gain on sale of discontinued operations of $25.5. |
|
(4) |
|
Results for 2002 include a pretax charge for asset impairment and lease cancellation charges of $21.4, as well as a pretax charge of $10.7 related to severance. |
|
(5) |
|
Results for 2001 include a pretax gain of $20.2 on the sale of the Companys specialty coatings business and a pretax cost reduction charge of $19.9. |
|
(6) |
|
Certain amounts for prior years were reclassified to conform with the current year presentation. |
|
(7) |
|
Amounts related to continuing operations. |
Page 1
Avery Dennison Corporation
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
2005 |
|
2004 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
98.5 |
|
|
$ |
84.8 |
|
Trade accounts receivable, less allowances of $61.6 and $61.5 at year end 2005 and 2004, respectively |
|
|
863.2 |
|
|
|
883.9 |
|
Inventories, net |
|
|
439.7 |
|
|
|
431.9 |
|
Deferred taxes |
|
|
34.5 |
|
|
|
31.7 |
|
Other current assets |
|
|
122.4 |
|
|
|
110.1 |
|
|
Total current assets |
|
|
1,558.3 |
|
|
|
1,542.4 |
|
Property, plant and equipment, net |
|
|
1,295.7 |
|
|
|
1,374.4 |
|
Goodwill |
|
|
673.1 |
|
|
|
710.6 |
|
Other intangibles resulting from business acquisitions, net |
|
|
98.7 |
|
|
|
115.8 |
|
Other assets |
|
|
578.1 |
|
|
|
656.1 |
|
|
|
|
$ |
4,203.9 |
|
|
$ |
4,399.3 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Short-term and current portion of long-term debt |
|
$ |
364.7 |
|
|
$ |
204.5 |
|
Accounts payable |
|
|
577.9 |
|
|
|
616.7 |
|
Accrued payroll and employee benefits |
|
|
161.7 |
|
|
|
165.2 |
|
Accrued trade rebates |
|
|
145.9 |
|
|
|
158.6 |
|
Other accrued liabilities |
|
|
215.9 |
|
|
|
163.2 |
|
Income taxes payable |
|
|
59.5 |
|
|
|
79.1 |
|
|
Total current liabilities |
|
|
1,525.6 |
|
|
|
1,387.3 |
|
Long-term debt |
|
|
723.0 |
|
|
|
1,007.2 |
|
Long-term retirement benefits and other liabilities |
|
|
356.8 |
|
|
|
373.0 |
|
Non-current deferred taxes |
|
|
86.6 |
|
|
|
83.1 |
|
Commitments and contingencies (see Notes 7 and 8) |
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common
stock, $1 par value, authorized 400,000,000 shares at year end 2005 and 2004;
issued 124,126,624 shares at year end 2005 and 2004; outstanding 99,727,160 shares
and 100,113,127 shares at year end 2005 and 2004, respectively |
|
|
124.1 |
|
|
|
124.1 |
|
Capital in excess of par value |
|
|
729.5 |
|
|
|
766.1 |
|
Retained earnings |
|
|
1,945.3 |
|
|
|
1,887.6 |
|
Cost of unallocated ESOP shares |
|
|
(7.7 |
) |
|
|
(9.7 |
) |
Employee stock benefit trusts, 10,006,610 shares and 10,343,648 shares at year end 2005 and 2004,
respectively |
|
|
(552.0 |
) |
|
|
(619.1 |
) |
Treasury stock at cost, 14,362,854 shares and 13,669,849 shares at year end 2005 and 2004,
respectively |
|
|
(638.2 |
) |
|
|
(597.6 |
) |
Accumulated other comprehensive loss |
|
|
(89.1 |
) |
|
|
(2.7 |
) |
|
Total shareholders equity |
|
|
1,511.9 |
|
|
|
1,548.7 |
|
|
|
|
$ |
4,203.9 |
|
|
$ |
4,399.3 |
|
|
See Notes to Consolidated Financial Statements
Page 2
Avery Dennison Corporation
CONSOLIDATED STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share amounts) |
|
2005 |
|
2004(1) |
|
2003 |
|
Net sales |
|
$ |
5,473.5 |
|
|
$ |
5,317.0 |
|
|
$ |
4,736.8 |
|
Cost of products sold |
|
|
3,852.4 |
|
|
|
3,742.0 |
|
|
|
3,282.9 |
|
|
Gross profit |
|
|
1,621.1 |
|
|
|
1,575.0 |
|
|
|
1,453.9 |
|
Marketing, general and administrative expense |
|
|
1,132.8 |
|
|
|
1,105.8 |
|
|
|
1,026.3 |
|
Interest expense |
|
|
57.9 |
|
|
|
58.7 |
|
|
|
58.6 |
|
Other expense, net |
|
|
63.6 |
|
|
|
35.2 |
|
|
|
30.5 |
|
|
Income from continuing operations before taxes |
|
|
366.8 |
|
|
|
375.3 |
|
|
|
338.5 |
|
Taxes on income |
|
|
75.0 |
|
|
|
94.3 |
|
|
|
93.4 |
|
|
Income from continuing operations |
|
|
291.8 |
|
|
|
281.0 |
|
|
|
245.1 |
|
Income (loss) from discontinued operations, net of tax
(including gain on disposal of $19.7, net of tax of $5.8 in 2003) |
|
|
(65.4 |
) |
|
|
(1.3 |
) |
|
|
22.8 |
|
|
Net income |
|
$ |
226.4 |
|
|
$ |
279.7 |
|
|
$ |
267.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
2.91 |
|
|
$ |
2.81 |
|
|
$ |
2.47 |
|
Discontinued operations |
|
|
(.65 |
) |
|
|
(.01 |
) |
|
|
.23 |
|
|
Net income per common share |
|
$ |
2.26 |
|
|
$ |
2.80 |
|
|
$ |
2.70 |
|
|
Net income (loss) per common share, assuming dilution: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
2.90 |
|
|
$ |
2.79 |
|
|
$ |
2.45 |
|
Discontinued operations |
|
|
(.65 |
) |
|
|
(.01 |
) |
|
|
.23 |
|
|
Net income per common share, assuming dilution |
|
$ |
2.25 |
|
|
$ |
2.78 |
|
|
$ |
2.68 |
|
|
Dividends |
|
$ |
1.53 |
|
|
$ |
1.49 |
|
|
$ |
1.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Common shares |
|
|
100.1 |
|
|
|
99.9 |
|
|
|
99.4 |
|
Common shares, assuming dilution |
|
|
100.5 |
|
|
|
100.5 |
|
|
|
100.0 |
|
|
Common shares outstanding at year end |
|
|
99.7 |
|
|
|
100.1 |
|
|
|
99.6 |
|
|
|
|
|
(1) |
|
Results for fiscal year 2004 reflect a 53-week period. |
See Notes to Consolidated Financial Statements
Page 3
Avery Dennison Corporation
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of |
|
Employee |
|
|
|
|
|
Accumulated |
|
|
|
|
Common |
|
Capital in |
|
|
|
|
|
unallocated |
|
stock |
|
|
|
|
|
other |
|
|
|
|
stock, $1 |
|
excess |
|
Retained |
|
ESOP |
|
benefit |
|
Treasury |
|
comprehensive |
|
|
(Dollars in millions, except per share amounts) |
|
par value |
|
of par value |
|
earnings |
|
shares |
|
trusts |
|
stock |
|
income (loss) |
|
Total |
|
Fiscal year ended 2002 |
|
$ |
124.1 |
|
|
$ |
740.2 |
|
|
$ |
1,664.8 |
|
|
$ |
(12.2 |
) |
|
$ |
(658.7 |
) |
|
$ |
(596.9 |
) |
|
$ |
(204.9 |
) |
|
$ |
1,056.4 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
267.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267.9 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150.7 |
|
|
|
150.7 |
|
Minimum pension liability adjustment, net of tax of $12.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27.8 |
) |
|
|
(27.8 |
) |
Effective portion of gains or losses on cash flow
hedges, net of tax of $(1.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127.3 |
|
|
|
127.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
395.2 |
|
Repurchase of 875 shares for treasury, net of shares issued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.1 |
) |
|
|
|
|
|
|
(.1 |
) |
Stock issued under option plans, including $19.5 of tax and
dividends paid on stock held in stock trusts |
|
|
|
|
|
|
11.9 |
|
|
|
|
|
|
|
|
|
|
|
13.5 |
|
|
|
|
|
|
|
|
|
|
|
25.4 |
|
Dividends: $1.45 per share |
|
|
|
|
|
|
|
|
|
|
(160.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(160.2 |
) |
ESOP transactions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.6 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
2.0 |
|
Employee stock benefit trusts market value adjustment |
|
|
|
|
|
|
(48.4 |
) |
|
|
|
|
|
|
|
|
|
|
48.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended 2003 |
|
|
124.1 |
|
|
|
703.7 |
|
|
|
1,772.5 |
|
|
|
(11.6 |
) |
|
|
(595.4 |
) |
|
|
(597.0 |
) |
|
|
(77.6 |
) |
|
|
1,318.7 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
279.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279.7 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87.9 |
|
|
|
87.9 |
|
Minimum pension liability adjustment, net of tax of $14.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.9 |
) |
|
|
(14.9 |
) |
Effective portion of gains or losses on cash flow
hedges, net of tax of $2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74.9 |
|
|
|
74.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
354.6 |
|
Repurchase of 9,641 shares for treasury, net of shares issued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.6 |
) |
|
|
|
|
|
|
(.6 |
) |
Stock issued under option plans, including $19.2 of tax and
dividends paid on stock held in stock trusts |
|
|
|
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
34.3 |
|
|
|
|
|
|
|
|
|
|
|
38.7 |
|
Dividends: $1.49 per share |
|
|
|
|
|
|
|
|
|
|
(164.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(164.6 |
) |
ESOP transactions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
Employee stock benefit trusts market value adjustment |
|
|
|
|
|
|
58.0 |
|
|
|
|
|
|
|
|
|
|
|
(58.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended 2004 |
|
|
124.1 |
|
|
|
766.1 |
|
|
|
1,887.6 |
|
|
|
(9.7 |
) |
|
|
(619.1 |
) |
|
|
(597.6 |
) |
|
|
(2.7 |
) |
|
|
1,548.7 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
226.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226.4 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90.6 |
) |
|
|
(90.6 |
) |
Minimum pension liability adjustment, net of tax of $2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.9 |
) |
|
|
(.9 |
) |
Effective portion of gains or losses on cash flow
hedges, net of tax of $(3.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.1 |
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86.4 |
) |
|
|
(86.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140.0 |
|
Repurchase of 693,005 shares for treasury, net of shares
issued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40.6 |
) |
|
|
|
|
|
|
(40.6 |
) |
Stock issued under option plans, including $18.8 of tax and
dividends paid on stock held in stock trusts |
|
|
|
|
|
|
11.3 |
|
|
|
|
|
|
|
|
|
|
|
19.2 |
|
|
|
|
|
|
|
|
|
|
|
30.5 |
|
Dividends: $1.53 per share |
|
|
|
|
|
|
|
|
|
|
(168.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168.7 |
) |
ESOP transactions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0 |
|
Employee stock benefit trusts market value adjustment |
|
|
|
|
|
|
(47.9 |
) |
|
|
|
|
|
|
|
|
|
|
47.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended 2005 |
|
$ |
124.1 |
|
|
$ |
729.5 |
|
|
$ |
1,945.3 |
|
|
$ |
(7.7 |
) |
|
$ |
(552.0 |
) |
|
$ |
(638.2 |
) |
|
$ |
(89.1 |
) |
|
$ |
1,511.9 |
|
|
See Notes to Consolidated Financial Statements
Page 4
Avery Dennison Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004(1) |
|
2003(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
226.4 |
|
|
$ |
279.7 |
|
|
$ |
267.9 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
155.7 |
|
|
|
147.2 |
|
|
|
146.1 |
|
Amortization |
|
|
45.8 |
|
|
|
41.0 |
|
|
|
35.4 |
|
Deferred taxes |
|
|
(12.6 |
) |
|
|
93.1 |
|
|
|
(3.8 |
) |
Asset impairment and net (gain) loss on sale of assets of $7, $2.5 and $(19.6) in 2005,
2004 and 2003, respectively |
|
|
108.1 |
|
|
|
12.4 |
|
|
|
(12.0 |
) |
Other non-cash items, net |
|
|
(7.5 |
) |
|
|
(.5 |
) |
|
|
(2.4 |
) |
Changes in assets and liabilities, net of the effect of business acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
(43.9 |
) |
|
|
(1.4 |
) |
|
|
(44.2 |
) |
Inventories |
|
|
(11.7 |
) |
|
|
(1.2 |
) |
|
|
(37.9 |
) |
Other current assets |
|
|
(4.3 |
) |
|
|
9.2 |
|
|
|
(4.0 |
) |
Accounts payable and accrued liabilities |
|
|
30.4 |
|
|
|
26.9 |
|
|
|
51.7 |
|
Taxes on income |
|
|
(31.9 |
) |
|
|
(61.9 |
) |
|
|
(14.6 |
) |
Long-term retirement benefits and other liabilities |
|
|
(12.9 |
) |
|
|
(27.6 |
) |
|
|
(33.9 |
) |
|
Net cash provided by operating activities |
|
|
441.6 |
|
|
|
516.9 |
|
|
|
348.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(162.5 |
) |
|
|
(178.9 |
) |
|
|
(203.6 |
) |
Purchase of software and other deferred charges |
|
|
(25.8 |
) |
|
|
(21.8 |
) |
|
|
(22.8 |
) |
Payments for acquisitions |
|
|
(2.8 |
) |
|
|
(15.0 |
) |
|
|
(6.9 |
) |
Proceeds from sale of assets |
|
|
21.8 |
|
|
|
8.2 |
|
|
|
15.4 |
|
Proceeds from sale of business |
|
|
|
|
|
|
|
|
|
|
58.8 |
|
Other |
|
|
1.7 |
|
|
|
(9.4 |
) |
|
|
(8.7 |
) |
|
Net cash used in investing activities |
|
|
(167.6 |
) |
|
|
(216.9 |
) |
|
|
(167.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in borrowings (maturities of 90 days or less) |
|
|
58.2 |
|
|
|
(39.9 |
) |
|
|
114.4 |
|
Additional borrowings (maturities longer than 90 days) |
|
|
76.2 |
|
|
|
302.8 |
|
|
|
567.9 |
|
Payments of debt (maturities longer than 90 days) |
|
|
(214.9 |
) |
|
|
(382.0 |
) |
|
|
(723.3 |
) |
Dividends paid |
|
|
(168.7 |
) |
|
|
(164.6 |
) |
|
|
(160.2 |
) |
Purchase of treasury stock |
|
|
(40.9 |
) |
|
|
(.7 |
) |
|
|
(.3 |
) |
Proceeds from exercise of stock options, net |
|
|
11.1 |
|
|
|
19.1 |
|
|
|
5.5 |
|
Other |
|
|
18.5 |
|
|
|
18.2 |
|
|
|
18.1 |
|
|
Net cash used in financing activities |
|
|
(260.5 |
) |
|
|
(247.1 |
) |
|
|
(177.9 |
) |
|
Effect of foreign currency translation on cash balances |
|
|
.2 |
|
|
|
2.4 |
|
|
|
4.1 |
|
|
Increase in cash and cash equivalents |
|
|
13.7 |
|
|
|
55.3 |
|
|
|
6.7 |
|
Cash and cash equivalents, beginning of year |
|
|
84.8 |
|
|
|
29.5 |
|
|
|
22.8 |
|
|
Cash and cash equivalents, end of year |
|
$ |
98.5 |
|
|
$ |
84.8 |
|
|
$ |
29.5 |
|
|
|
|
|
(1) |
|
Results for fiscal year 2004 reflect a 53-week period. |
|
(2) |
|
Revised presentation, see the Financial Presentation section of Note 1. |
See Notes to Consolidated Financial Statements
Page 5
Avery Dennison Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Avery Dennison Corporation (the Company) is a worldwide manufacturer of pressure-sensitive
materials, office products and a variety of tickets, tags and other converted products. The
Companys end markets include consumer products and other retail items (including apparel),
logistics and shipping, industrial and durable goods, office products, transportation, and
medical/health care.
Segment Reporting
During the fourth quarter of 2004, the Company reorganized its reporting segments to provide
enhanced transparency of its operational results. The Companys segments are:
|
|
|
Pressure-sensitive Materials manufactures and sells pressure-sensitive roll label
materials, films for graphic and reflective applications, performance polymers (largely
adhesives used to manufacture pressure-sensitive materials), and extruded films |
|
|
|
|
Office and Consumer Products manufactures and sells a variety of office and consumer
products, including labels, binders, dividers, sheet protectors, and writing instruments |
|
|
|
|
Retail Information Services designs, manufactures and sells a wide variety of price
marking and brand identification products, including tickets, tags and labels, and related
supplies and equipment |
In addition to the reportable segments, the Company has other specialty converting businesses
comprised of several businesses that produce specialty tapes and highly engineered labels,
including radio-frequency identification labels (RFID) and other converted products.
The Pressure-sensitive Materials segment contributes approximately 57% of the Companys total
sales, while the Office and Consumer Products segment and the Retail Information Services segment
contribute approximately 21% and 12%, respectively, of the Companys total sales. Approximately
80% of sales are generated in the United States and Europe. See also Note 12 Segment
Information, for further details.
Principles of Consolidation
The consolidated financial statements include the accounts of majority-owned subsidiaries.
Intercompany accounts, transactions and profits are eliminated. Investments in certain affiliates
(20% to 50% ownership) are accounted for by the equity method of accounting. Investments
representing less than 20% ownership are accounted for by the cost method of accounting.
Financial Presentation
The Company has revised its 2003 statement of cash flows to combine cash flows from discontinued
operations with those from continuing operations within each major category of the statement. The
amounts of the operating, investing and financing portions of cash flows attributable to our
discontinued operations were previously reported on a net basis; net cash flows from discontinued
operations were zero in the years presented herein.
Certain prior year amounts have been reclassified to conform with the 2005 financial statement
presentation.
Discontinued Operations
In December 2005, the Company announced its plan to sell a business consisting of raised reflective
pavement markers. Based on the estimated value for this business, management concluded that
associated goodwill and intangible assets from the acquisition of this business were impaired,
resulting in a pretax charge of $74.4 million in December 2005. The results of this business have
been accounted for as discontinued operations for the years presented herein. This business was
previously included in the Pressure-sensitive Materials segment.
In October 2003, the Company completed the sale of its package label converting business in Europe,
which consisted of two package label converting facilities in Denmark, as well as a package label
converting facility in France, to CCL Industries, Inc. Accordingly, the results for this business
were accounted for as discontinued operations in the consolidated financial statements for 2003.
The cash proceeds from the sale were $58.8 million, from which the Company recognized a gain of
$19.7 million in the fourth quarter of 2003, net of taxes of $5.8 million. Goodwill of $11.7
million was included in the calculation of the gain on sale.
Page 6
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarized, combined statement of income for discontinued operations: |
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
2003 |
|
Net sales |
|
$ |
22.8 |
|
|
$ |
23.9 |
|
|
$ |
69.9 |
|
|
Income (loss) before taxes |
|
$ |
(76.9 |
) |
|
$ |
(1.9 |
) |
|
$ |
4.3 |
|
Taxes on income |
|
|
(11.5 |
) |
|
|
(.6 |
) |
|
|
1.2 |
|
|
Income (loss) from operations, net of tax |
|
|
(65.4 |
) |
|
|
(1.3 |
) |
|
|
3.1 |
|
Gain on sale of discontinued operations |
|
|
|
|
|
|
|
|
|
|
25.5 |
|
Tax on gain from sale |
|
|
|
|
|
|
|
|
|
|
5.8 |
|
|
Income (loss) from discontinued operations, net of
tax |
|
$ |
(65.4 |
) |
|
$ |
(1.3 |
) |
|
$ |
22.8 |
|
|
|
|
|
|
|
|
|
|
|
Summarized, combined balance sheet for discontinued operations: |
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
Current assets |
|
$ |
3.9 |
|
|
$ |
5.5 |
|
|
Property, plant and equipment, net |
|
|
5.1 |
|
|
|
6.6 |
|
Goodwill |
|
|
|
|
|
|
46.4 |
|
Other intangibles resulting from business
acquisitions |
|
|
|
|
|
|
30.0 |
|
Other assets |
|
|
2.9 |
|
|
|
.5 |
|
|
Noncurrent assets held for sale (included in
Other assets on the Consolidated Balance Sheet) |
|
|
8.0 |
|
|
|
83.5 |
|
|
Current liabilities |
|
|
2.2 |
|
|
|
2.2 |
|
|
Noncurrent liabilities |
|
|
.5 |
|
|
|
7.9 |
|
|
Amortization expense on other intangible assets resulting from business acquisitions for
discontinued operations was $2 million in 2005, 2004 and 2003.
Fiscal Year
The Companys 2005 fiscal year reflected a 52-week period ending December 31, 2005. The 2004
fiscal year reflected a 53-week period ending January 1, 2005. Fiscal year 2003 reflected a 52-week
period ending December 27, 2003. Normally, each fiscal year consists of 52 weeks, but every fifth
or sixth fiscal year consists of 53 weeks.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions for the
reporting period and as of the financial statement date. These estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the
reported amounts of revenue and expense. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits in banks, and short-term investments with
maturities of three months or less when purchased. The carrying amounts of these assets
approximate fair value due to the short maturity of the instruments. Cash paid for interest and
taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
Interest, net of capitalized
amounts |
|
$ |
55.9 |
|
|
$ |
59.5 |
|
|
$ |
47.3 |
|
Income taxes, net of refunds |
|
|
113.1 |
|
|
|
68.9 |
|
|
|
124.0 |
|
|
|
|
|
|
In both 2005 and 2004, non-cash activities included accruals for capital expenditures of
approximately $27 million due to the timing of payments. Also in 2005, fixed assets acquired
through capital lease totaled approximately $9 million.
Accounts Receivable
The Company records trade accounts receivable at the invoiced amount. The allowance for doubtful
accounts represents allowances for trade accounts receivable that are estimated to be partially or
entirely uncollectible. The customer complaint reserve represents estimated sales returns and
allowances. These allowances are used to reduce gross trade receivables to their net realizable
values. In 2005 and 2004, the Company recorded expenses of $28.2 million and $29.3 million,
respectively, related to the allowances for trade accounts receivable. The Company records these
allowances based on estimates related to the following factors:
|
|
Customer specific allowances |
|
|
|
Amounts based upon an aging schedule |
|
|
|
An estimated amount, based on the Companys historical experience |
Page 7
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
No single customer represented 10% or more of the Companys net sales or trade receivables at year
end 2005 and 2004. However, the ten largest customers at year end 2005 represented approximately
20% of trade accounts receivable and consisted of six customers of the Companys Office and
Consumer Products segment, three customers of the Pressure-sensitive Materials segment and one
customer of both these segments. The Company does not require its customers to provide collateral,
but the financial position and operations of these customers are monitored on an ongoing basis.
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined using methods that
approximate both the first-in, first-out (FIFO) and last-in, first-out (LIFO) methods.
Inventories valued using the LIFO method comprised 31% and 32% of inventories before LIFO
adjustment at year end 2005 and 2004, respectively. Inventories at year end were as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
Raw materials |
|
$ |
132.8 |
|
|
$ |
139.5 |
|
Work-in-progress |
|
|
101.6 |
|
|
|
94.6 |
|
Finished goods |
|
|
220.9 |
|
|
|
212.7 |
|
|
Inventories at lower of FIFO cost or market (approximates
replacement cost) |
|
|
455.3 |
|
|
|
446.8 |
|
Less LIFO adjustment |
|
|
(15.6 |
) |
|
|
(14.9 |
) |
|
|
|
$ |
439.7 |
|
|
$ |
431.9 |
|
|
Property, Plant and Equipment
Major classes of property, plant and equipment are stated at cost and were as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
Land |
|
$ |
56.0 |
|
|
$ |
61.7 |
|
Buildings and improvements |
|
|
623.2 |
|
|
|
631.5 |
|
Machinery and equipment |
|
|
1,885.4 |
|
|
|
1,866.7 |
|
Construction-in-progress |
|
|
113.5 |
|
|
|
138.7 |
|
|
|
|
|
2,678.1 |
|
|
|
2,698.6 |
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
(1,382.4 |
) |
|
|
(1,324.2 |
) |
|
|
|
$ |
1,295.7 |
|
|
$ |
1,374.4 |
|
|
Depreciation is generally computed using the straight-line method over the estimated useful lives
of the assets ranging from five to fifty years for buildings and improvements and two to fifteen
years for machinery and equipment. Leasehold improvements are depreciated over the shorter of the
useful life of the asset or the term of the associated leases. Maintenance and repair costs are
expensed as incurred; renewals and betterments are capitalized. Upon the sale or retirement of
assets, the accounts are relieved of the cost and the related accumulated depreciation, with any
resulting gain or loss included in net income.
Software
The Company capitalizes software costs in accordance with American Institute of Certified Public
Accountants Statement of Position 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use, and are included in Other assets in the Consolidated Balance
Sheet. Capitalized software is amortized on a straight-line basis over the estimated useful life
of the software, ranging from two to ten years. Capitalized software costs were as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
Cost |
|
$ |
236.7 |
|
|
$ |
219.4 |
|
Accumulated amortization |
|
|
(126.4 |
) |
|
|
(103.3 |
) |
|
|
|
$ |
110.3 |
|
|
$ |
116.1 |
|
|
Impairment of Long-lived Assets
Impairment charges are recorded when the carrying amounts of long-lived assets are determined not
to be recoverable. Impairment is measured by assessing the usefulness of an asset or by comparing
the carrying value of an asset to its fair value. Fair value is typically determined using quoted
market prices, if available, or an estimate of future cash flows expected to result from the use of
the asset and its eventual disposition. Historically, changes in market conditions and management
strategy have caused the Company to reassess the carrying amount of its long-lived assets. Refer to
the Discontinued Operations section of this note, as well as Note 10 Components of Other Income
and Expense, for details of impairment charges recorded in 2005, 2004 and 2003.
Page 8
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill and Other Intangibles Resulting from Business Acquisitions
The Company accounts for business combinations in accordance with Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations. Business combinations are accounted for by
the purchase method, and the excess of the acquisition cost over the fair value of net tangible
assets and identified intangible assets acquired is considered goodwill. As a result, the Company
discloses goodwill separately from other intangible assets and, as of the beginning of fiscal 2002,
has recorded no amortization of goodwill. Other acquisition intangibles are identified using the
criteria included in this Statement, including trademarks and trade names, patented and other
acquired technology, customer relationships and other intangibles.
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, at the beginning of
fiscal 2002. The Companys reporting units for the purposes of performing the impairment tests for
goodwill and other intangible assets consist of office and consumer products; retail information
services; roll materials; graphics and reflectives; and industrial and automotive products. For
the purposes of performing the required impairment tests, a present value (discounted cash flow)
method was used to determine the fair value of the reporting units with goodwill. The Company
performed its annual impairment test in the fourth quarter of 2005, with an assessment that no
impairment had occurred. Other 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 other intangible assets with an indefinite life.
The Companys reporting units are composed of either a discrete business or an aggregation of
businesses with similar economic characteristics. Certain factors, including the decision to divest
any individual business within a reporting unit may result in the need to perform an impairment
test in between annual impairment tests. In the event that an individual business within a
reporting group is divested, goodwill is allocated to that business based on its relative fair
value to its reporting unit, which could result in a gain or loss. If a divested business below a
reporting unit has not been integrated with other businesses within a reporting unit, the net book
value of the goodwill associated with the business to be divested would be included in the carrying
amount of the business when determining the gain or loss on disposal.
See also Note 3 Goodwill and Other Intangibles Resulting from Business Acquisitions.
Foreign Currency Translation
Asset and liability accounts of international operations are translated into U.S. dollars at
current rates. Revenues and expenses are translated at the weighted-average currency rate for the
fiscal year. Translation gains and losses of subsidiaries operating in hyperinflationary economies
are included in net income in the period incurred. Operations in hyperinflationary economies
consist of the Companys operations in Turkey and the Dominican Republic. Gains and losses
resulting from foreign currency transactions are included in income in the period incurred.
Transaction and translation losses of hyperinflationary operations decreased net income by $2.2
million in 2005, $5.3 million in 2004 and $.9 million in 2003. Gains and losses resulting from
hedging the value of investments in certain international operations and from translation of
balance sheet accounts are recorded directly as a component of other comprehensive income.
Financial Instruments
For purposes of this section of Note 1 and Note 5, Financial Instruments, the terms cash flow
hedge, derivative instrument, fair value, fair value hedge, financial instrument, firm
commitment, ineffective, and highly effective are used as these terms are defined in SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended.
The Company enters into certain 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 certain foreign currencies that arise primarily as a result of its
operations outside the U.S. The Company may enter into certain interest rate contracts to help
manage its exposure to interest rate fluctuations. The Company also enters into certain natural
gas futures contracts to hedge price fluctuations for a portion of its anticipated domestic
purchases. The maximum length of time in which the Company hedges its exposure to the variability
in future cash flows for forecasted transactions is generally 12 months, but may be longer under
certain circumstances.
On the date the Company enters into a derivative contract, it determines whether the derivative
will be designated as a hedge. Those derivatives not designated as hedges are recorded on the
balance sheet at fair value, with changes in the fair value recognized currently in earnings.
Those derivatives designated as hedges are classified as either (1) a hedge of the fair value of a
recognized asset or liability or an unrecognized firm commitment (a fair value hedge); or (2) a
hedge of a forecasted transaction or the variability of cash flows that are to be received or paid
in connection with a recognized asset or liability (a cash flow hedge). The Company generally
does not purchase or hold any foreign currency, interest rate or commodity contracts for trading
purposes.
The Company assesses, both at the inception of the hedge and on an ongoing basis, whether hedges
are highly effective. If it is determined that a hedge is not highly effective, the Company
prospectively discontinues hedge accounting. For cash flow hedges, the effective portion of the
related gains and losses is recorded as a component of other comprehensive income, and the
ineffective portion is reported currently in earnings. Amounts in accumulated other comprehensive
income (loss) are reclassified into earnings in the same period during which the
Page 9
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
hedged forecasted transaction is consummated. In the event the anticipated transaction is no
longer likely to occur, the Company recognizes the change in fair value of the instrument in
earnings currently. Changes in fair value hedges are recognized currently in earnings. Changes in
the fair value of underlying hedged items (such as recognized assets or liabilities) are also
recognized currently in earnings and offset the changes in the fair value of the derivative.
For classification in the Statement of Cash Flows, hedge transactions are classified in the same
category as the item hedged, primarily in operating activities.
Revenue Recognition
Sales are recognized when persuasive evidence of an arrangement exists, product delivery has
occurred, pricing is fixed or determinable, and collection is reasonably assured. Sales,
provisions for estimated sales returns, and the cost of products sold are recorded at the time
title transfers to customers. Actual product returns are charged against estimated sales return
allowances. Volume, promotional, price, cash and other discounts and customer incentives are
accounted for as a reduction to gross sales.
Shipping and Handling Costs
Shipping and handling costs consist primarily of transportation charges incurred to move finished
goods to customers. These costs are included in Cost of products sold for the Pressure-sensitive
Materials segment and specialty tapes business (included with other specialty converting
businesses). These costs are included in Marketing, general and administrative expense for the
Office and Consumer Products segment, Retail Information Services segment and industrial and
automotive products business (included with other specialty converting businesses). Shipping costs
included in Marketing, general and administrative expense were $52.9 million in 2005, $52.4
million in 2004 and $50.4 million in 2003. Handling costs included in Marketing, general and
administrative expense were $71.6 million in 2005, $73.2 million in 2004 and $68.5 million in
2003.
Advertising Costs
Advertising costs included in Marketing, general and administrative expense were $14.1 million in
2005, $11.1 million in 2004 and $8.2 million in 2003. The Companys policy is to expense
advertising costs as incurred.
Research and Development
Research and development costs are related to research, design and testing of new products and
applications and are expensed as incurred. Research and development expense was $85.4 million in
2005, $81.8 million in 2004 and $74.3 million in 2003.
Pensions and Postretirement Benefits
Assumptions used in determining projected benefit obligations and the fair value of plan assets for
the Companys pension plan and other postretirement benefits plans are evaluated by management in
consultation with outside actuaries who are relied upon as experts. In the event that the Company
determines that changes are warranted in the assumptions used, such as the discount rate, expected
long term rate of return, or health care costs, future pension and postretirement benefit expenses
could increase or decrease. Due to changing market conditions or changes in the participant
population, the actuarial assumptions that the Company uses may differ from actual results, which
could have a significant impact on the Companys pension and postretirement liability and related
cost. Refer to Note 6 Pensions and Other Postretirement Benefits, for further detail on such
assumptions.
Product Warranty
The Company provides for an estimate of costs that may be incurred under its basic limited warranty
at the time product revenue is recognized. These costs primarily include materials and labor
associated with the service or sale of the product. Factors that affect the Companys warranty
liability include the number of units installed or sold, historical and anticipated rate of
warranty claims on those units, cost per claim to satisfy the Companys warranty obligation and
availability of insurance coverage. As these factors are impacted by actual experience and future
expectations, the Company assesses the adequacy of its recorded warranty liability and adjusts the
amounts as necessary.
Product warranty liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
2003 |
|
Balance at beginning of year |
|
$ |
1.9 |
|
|
$ |
2.2 |
|
|
$ |
1.3 |
|
Accruals for warranties
issued |
|
|
1.9 |
|
|
|
1.9 |
|
|
|
2.8 |
|
Payments |
|
|
(1.3 |
) |
|
|
(2.2 |
) |
|
|
(1.9 |
) |
|
Balance at end of year |
|
$ |
2.5 |
|
|
$ |
1.9 |
|
|
$ |
2.2 |
|
|
Stock-Based Compensation
The Companys policy is to price stock option grants at fair market value on the date of grant.
Under the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, the Company uses
the intrinsic value method of accounting for stock-based compensation in
Page 10
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. Under the intrinsic value method, compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date or other measurement date over the amount an
employee must pay to acquire the stock.
In accordance with the disclosure provisions of SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosures, the following table reflects pro forma net income and
earnings per share had the Company elected to adopt the fair value approach of SFAS No. 123:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share amounts) |
|
2005 |
|
2004 |
|
2003 |
|
Net income, as reported |
|
$ |
226.4 |
|
|
$ |
279.7 |
|
|
$ |
267.9 |
|
Compensation expense, net of tax |
|
|
(15.7 |
) |
|
|
(18.7 |
) |
|
|
(19.4 |
) |
|
Pro forma net income |
|
$ |
210.7 |
|
|
$ |
261.0 |
|
|
$ |
248.5 |
|
|
Earnings per share, as reported |
|
$ |
2.26 |
|
|
$ |
2.80 |
|
|
$ |
2.70 |
|
Earnings per share, assuming dilution, as
reported |
|
|
2.25 |
|
|
|
2.78 |
|
|
|
2.68 |
|
|
Pro forma earnings per share |
|
$ |
2.10 |
|
|
$ |
2.61 |
|
|
$ |
2.50 |
|
Pro forma earnings per share, assuming dilution |
|
|
2.09 |
|
|
|
2.60 |
|
|
|
2.49 |
|
|
Environmental Expenditures
Environmental expenditures are generally expensed. However, environmental expenditures for newly
acquired assets and those which extend or improve the economic useful life of existing assets are
capitalized and amortized over the remaining asset life. The Company reviews, on a quarterly
basis, its estimates of costs of compliance with environmental laws related to remediation and
cleanup of various sites, including sites in which governmental agencies have designated the
Company as a potentially responsible party. When it is probable that obligations have been
incurred and where a minimum cost or a reasonable estimate of the cost of compliance or remediation
can be determined, the applicable amount is accrued. For other potential liabilities, the timing
of accruals coincides with the related ongoing site assessments. Potential insurance
reimbursements are not offset against potential liabilities, and such liabilities are not
discounted.
Restructuring and Severance Costs
The Company accounts for restructuring costs including severance and other costs associated with
exit or disposal activities following the guidance provided in SFAS No. 112, Accounting for
Postemployment Benefits, and SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. In the U.S., the Company has a severance pay plan (Pay Plan), which provides
eligible employees with severance payments in the event of an involuntary termination due to
qualifying cost reduction actions. Severance pay is calculated by using a severance benefits
formula under the Pay Plan. Accordingly, the provisions for such amounts and other related exit
costs are recorded when they are probable and estimable as set forth under SFAS No. 112. In the
absence of a Pay Plan, liability for severance and other employee-related costs are recognized when
the liability is incurred and follow the guidance of SFAS No. 146. See also Note 10 Components of
Other Income and Expense.
Investment Tax Credits
Investment tax credits are accounted for in the period earned in accordance with the flow-through
method.
Taxes on Income
Deferred tax liabilities or assets reflect temporary differences between the amount of assets and
liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate,
to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A
valuation allowance is recorded to reduce the Companys deferred tax assets to the amount that is
more likely than not to be realized.
When establishing a valuation allowance, the Company considers future sources of income such as
forecasted earnings, the mix of earnings in the jurisdictions in which the Company operates, and
prudent and feasible tax planning. In the event the Company determines that it would not be able to
realize the deferred tax assets in the future, the valuation adjustment to the deferred tax assets
is charged to earnings in the period in which the Company makes such a determination. Likewise, if
later it is determined that it is more likely than not that the deferred tax assets would be
realized, the Company would reverse the previously provided valuation allowance.
The Company calculates its current and deferred tax provision based on estimates and assumptions
that could differ from the actual results reflected in income tax returns generally filed during
the following year. Adjustments based on filed returns are recorded when identified in the
subsequent year.
The amount of income taxes the Company pays is subject to ongoing audits by federal, state and
foreign tax authorities. The Companys estimate of the potential outcome of any uncertain tax issue
is subject to managements assessment of relevant risks, facts, and circumstances existing at that
time. The Company believes that it has adequately provided for reasonably foreseeable outcomes
related to
Page 11
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
these matters. However, the Companys future results may include favorable or unfavorable
adjustments to its estimated tax liabilities in the period the assessments are made or resolved,
which may impact the Companys effective tax rate on a quarterly basis.
See also Note 11 Taxes Based on Income.
Net Income Per Share
Net income per common share amounts were computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share amounts) |
|
2005 |
|
2004 |
|
2003 |
|
(A) Income from continuing operations |
|
$ |
291.8 |
|
|
$ |
281.0 |
|
|
$ |
245.1 |
|
(B) Income (loss) from discontinued operations |
|
|
(65.4 |
) |
|
|
(1.3 |
) |
|
|
22.8 |
|
|
(C) Net income available to common shareholders |
|
$ |
226.4 |
|
|
$ |
279.7 |
|
|
$ |
267.9 |
|
|
(D) Weighted-average number of common shares outstanding |
|
|
100.1 |
|
|
|
99.9 |
|
|
|
99.4 |
|
Dilutive shares (Additional common shares issuable under employee stock
options
using the treasury stock method, contingently issuable shares under an acquisition
agreement in 2004 and 2003 and nonvested shares under employee agreements) |
|
|
.4 |
|
|
|
.6 |
|
|
|
.6 |
|
|
(E) Weighted-average number of common shares outstanding, assuming dilution |
|
|
100.5 |
|
|
|
100.5 |
|
|
|
100.0 |
|
|
Income from continuing operations per common share (A) ¸ (D) |
|
$ |
2.91 |
|
|
$ |
2.81 |
|
|
$ |
2.47 |
|
Income (loss) from discontinued operations per common share (B) ¸ (D) |
|
|
(.65 |
) |
|
|
(.01 |
) |
|
|
.23 |
|
|
Net income per common share (C) ¸ (D) |
|
$ |
2.26 |
|
|
$ |
2.80 |
|
|
$ |
2.70 |
|
|
Income from continuing operations per common share, assuming dilution (A) ¸
(E) |
|
$ |
2.90 |
|
|
$ |
2.79 |
|
|
$ |
2.45 |
|
Income
(loss) from discontinued operations per common share,
assuming
dilution (B) ¸ (E) |
|
|
(.65 |
) |
|
|
(.01 |
) |
|
|
.23 |
|
|
Net income per common share, assuming dilution (C) ¸ (E) |
|
$ |
2.25 |
|
|
$ |
2.78 |
|
|
$ |
2.68 |
|
|
Certain employee stock options were not included in the computation of net income per common share,
assuming dilution, because these options would not have had a dilutive effect. The number of stock
options excluded from the computation were 4.6 million in 2005, 1.4 million in 2004 and 3.8 million
in 2003.
Comprehensive Income
Comprehensive income includes net income, foreign currency translation adjustments, adjustments to
the minimum pension liability, net of tax, and the gains or losses on the effective portion of cash
flow and firm commitment hedges, net of tax, that are currently presented as a component of
shareholders equity. The Companys total comprehensive income was $140 million and $354.6 million
for 2005 and 2004, respectively.
The components of accumulated other comprehensive loss at year end were as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
Foreign currency translation adjustment |
|
$ |
36.6 |
|
|
$ |
127.2 |
|
Minimum pension liability |
|
|
(111.8 |
) |
|
|
(110.9 |
) |
Net loss on derivative instruments
designated as cash flow and firm
commitment
hedges |
|
|
(13.9 |
) |
|
|
(19.0 |
) |
|
Total accumulated other comprehensive loss |
|
$ |
(89.1 |
) |
|
$ |
(2.7 |
) |
|
Cash flow and firm commitment hedging instrument activity in other comprehensive income (loss), net
of tax, was as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
Beginning accumulated derivative loss |
|
$ |
(19.0 |
) |
|
$ |
(20.9 |
) |
Net loss reclassified to earnings |
|
|
2.6 |
|
|
|
6.1 |
|
Net change in the revaluation of hedging transactions |
|
|
2.5 |
|
|
|
(4.2 |
) |
|
Ending accumulated derivative loss |
|
$ |
(13.9 |
) |
|
$ |
(19.0 |
) |
|
In connection with the issuance of the $250 million 10-year senior notes in January 2003 (see Note
4 Debt, for further detail), the Company settled a forward starting interest rate swap at a loss
of approximately $32.5 million. This unrecognized loss is being amortized to interest expense over
10 years, which corresponds to the term of the related debt. The related interest expense
recognized during 2005 and 2004 was approximately $2.7 million and $2.5 million, respectively.
Page 12
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Requirements
SFAS 123(R) Related
In November 2005, the Financial Accounting Standards Board (FASB) issued Staff Position (FSP)
No. FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based
Payment Awards. This guidance allows an alternative transition method
of tax treatment for initial adoption of SFAS 123(R). Election of this treatment may be made
within one year of the later of its initial adoption of SFAS 123(R) or the effective date of this
FSP.
In October 2005, the FASB issued FSP No. FAS 123(R)-2, Practical Accommodation to the Application
of Grant Date as Defined in FASB Statement No. 123(R), to address recent inquiries from
constituents to provide guidance on the application of grant date as defined in SFAS 123 (revised
2004), Share-Based Payment. Under this guidance, grant date occurs when a mutual understanding
of the key terms and conditions of an award is presumed to exist at the date the award is approved
if (1) the award is a unilateral grant; and (2) the key terms and conditions of the award are
expected to be communicated to the recipient within a relatively short time period from the date of
approval. The guidance in this FSP shall be applied upon initial adoption of SFAS 123(R).
In August 2005, the FASB issued FSP No. FAS 123(R)-1, Classification and Measurement of
Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB
Statement No. 123(R). This FSP modifies the requirements of SFAS No. 123 (revised 2004),
Share-Based Payment, to include freestanding financial instruments originally subject to
Statement 123(R) even if the holder is no longer an employee. The guidance in this FSP shall be
applied upon initial adoption of Statement 123(R).
In April 2005, the Securities and Exchange Commission delayed the effective date of the reissued
SFAS No. 123(R), Share-Based Payment, to the beginning of the first annual reporting period
beginning after June 15, 2005. This Statement is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation, and supercedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. This Statement establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services and requires that the cost resulting
from all share-based payment transactions be recognized in the financial statements. The Company
adopted the recognition provisions of this Statement in January 2006 and followed the guidance
under modified prospective application. Based on current estimates, the pretax expense for stock
options for 2006 is expected to be approximately $17 million, based on unvested stock options
outstanding at year end 2005.
Other Requirements
In October 2005, the FASB issued FSP No. FAS 13-1, Accounting for Rental Costs Incurred during a
Construction Period. This FSP clarifies that rental costs of operating leases that are incurred
during a construction period should be recognized as rental expense. The guidance in this FSP shall
be applied to the first reporting period beginning after December 15, 2005. The adoption of this
guidance is not expected to have a significant impact on the Companys financial results of
operations and financial position.
In September 2005, the consensus of the Emerging Issues Task Force (EITF) Issue No. 04-13,
Accounting for Purchases and Sales of Inventory with the Same Counterparty, was published. An
entity may sell inventory to another entity in the same line of business from which it also
purchases inventory. This Issue states that inventory purchases and sales transactions with the
same counterparty that are entered into in contemplation of one another should be combined for
purposes of applying APB Opinion No. 29. In addition, a nonmonetary exchange whereby an entity
transfers finished goods inventory in exchange for the receipt of raw materials or work-in-process
inventory within the same line of business is not an exchange transaction to facilitate sales to
customers as described in APB Opinion No. 29, and, therefore, should be recognized by the entity at
fair value. Other nonmonetary exchanges of inventory within the same line of business should be
recognized at the carrying amount of the inventory transferred. This Issue is effective for new
arrangements entered into, or modifications or renewals of existing arrangements, beginning in the
first interim or annual reporting period beginning after March 15, 2006. The adoption of this
guidance is not expected to have a significant impact on the Companys financial results of
operations and financial position.
In June 2005, the consensus of EITF Issue No. 05-6, Determining the Amortization Period for
Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination, was
published and was effective for the reporting period after ratification. This Issue addresses the
amortization period for leasehold improvements acquired in a business combination or placed in
service after lease inception. The adoption of this Issue has not had a significant impact on the
Companys financial results of operations and financial position.
In June 2005, the consensus of EITF Issue No. 05-5, Accounting for Early Retirement or
Postemployment Programs with Specific Features (Such as Terms Specified in Altersteilzeit Early
Retirement Arrangements), was published. This Issue addresses how an employer should account for
the bonus feature and additional contributions into the German government pension scheme
(collectively, the additional compensation) under a Type II Altersteilzeit (ATZ) arrangement, and
the government subsidy under Type I and Type II ATZ arrangements. The consensus in this Issue
should be applied to fiscal years beginning after December 15, 2005. The adoption of this Issue is
not expected to have a significant impact on the Companys financial results of operations and
financial position.
Page 13
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Correctionsa replacement
of APB Opinion No. 20 and FASB Statement No. 3. This Statement requires retrospective application
to prior periods financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of the
change. This Statement will be effective for fiscal years beginning after December 15, 2005. The
adoption of this Statement could have a significant impact on the Companys financial results of
operations and financial position, should there be a change in accounting principle once this
Statement is implemented.
In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligations an interpretation of FASB Statement No. 143. This Interpretation clarifies that
the term conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset
Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in
which the timing and/or method of settlement are conditional on a future event that may or may not
be within the control of the entity. Accordingly, an entity is required to recognize a liability
for the fair value of a conditional asset retirement obligation if the fair value of the liability
can be reasonably estimated. This Interpretation is effective no later than the end of fiscal
years ending after December 15, 2005. The adoption of this Interpretation did not have a
significant impact on the Companys financial results of operations and financial position.
In December 2004, the FASB issued FSP No. FAS 109-1, Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by
the American Jobs Creation Act of 2004. This Staff Position provides guidance on the application
of SFAS No. 109, Accounting for Income Taxes, to the provision of the American Jobs Creation Act
of 2004 (the Jobs Act) that provides a tax deduction on qualified production activities. The
FASB staff believes that the deduction should be accounted for as a special deduction in accordance
with SFAS No. 109. This Staff Position was effective immediately. The Company has adopted the
provisions of this guidance in 2005 and the benefit from a tax deduction for qualified production
activities was approximately $2 million for 2005.
In December 2004, the FASB issued FSP No. FAS 109-2, Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. The Jobs
Act provides for a special one-time dividends-received deduction on the repatriation of certain
foreign earnings to a U.S. taxpayer (repatriation provision). This Staff Position provides
accounting and disclosure guidance for the repatriation provision and was effective immediately.
During the third quarter of 2005, the Companys Chief Executive Officer and Board of Directors
approved a domestic reinvestment plan as required by the Jobs Act to repatriate $344 million of
foreign earnings. The tax impact of the repatriation was a one-time expense of $13.5 million
recognized in the third quarter of 2005. The repatriation of earnings took place in the fourth
quarter of 2005.
In November 2004, the FASB issued SFAS No. 151, Inventory Costsan amendment of ARB No. 43,
Chapter 4, to clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). This Statement clarifies that abnormal amounts of
such costs should be recognized as current-period charges. In addition, this Statement requires
that allocation of fixed production overhead to the costs of conversion should be based on the
normal capacity of the production facilities and that unallocated overhead should be expensed as
incurred. This Statement is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The Company adopted this Statement in July 2005, as early application is
allowed under the Statement. The adoption of this Statement has not had a significant impact on
the Companys financial results of operations and financial position.
Related Party Transactions
From time to time, the Company enters into transactions in the normal course of business with
related parties. Management believes that such transactions are at arms-length and for terms that
would have been obtained from unaffiliated third parties. One of the Companys directors, Peter W.
Mullin, is the chairman, chief executive officer and a director of MC Insurance Services, Inc.
(MC), Mullin Insurance Services, Inc. (MINC), and PWM Insurance Services, Inc. (PWM),
executive compensation and benefit consultants and insurance agents. Mr. Mullin is also the
majority stockholder of MC, MINC and PWM (collectively referred to as the Mullin Companies). The
Company paid premiums to insurance carriers for life insurance placed by the Mullin Companies in
connection with several of the Companys employee benefit plans. The Mullin Companies have advised
the Company that MC, MINC and PWM earned commissions from such insurance carriers for the placement
and renewal of this insurance, for which Mr. Mullin had direct and indirect interests related to
these commissions. The majority of these commissions were allocated to and used by MC Insurance
Agency Services, LLC (an affiliate of MC) to administer benefit plans and provide benefit
statements to participants under several of the Companys employee benefit plans. The Mullin
Companies own a minority interest in M Financial Holdings, Inc. (MFH). Substantially all of the
life insurance policies, which the Company placed through the Mullin Companies, are issued by
insurance carriers that participate in reinsurance agreements entered into between these insurance
carriers and M Life Insurance Company (M Life), a wholly-owned subsidiary of MFH. Reinsurance
returns earned by M Life are determined annually by the insurance carriers and can be negative or
positive, depending upon the results of M Lifes aggregate reinsurance pool, which consists of the
insured lives reinsured by M Life. The Mullin Companies have advised the Company that they
participated in net reinsurance gains of M Life. None of these transactions were significant to
the financial position or results of operations of the Company.
Page 14
Avery Dennison Corporation
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Summary of Related Party Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
2003 |
|
Mullin Companies commissions on the Companys insurance premiums |
|
$ |
.9 |
|
|
$ |
1.1 |
|
|
$ |
1.1 |
|
Mr. Mullins direct & indirect interest in these commissions |
|
|
.7 |
|
|
|
.8 |
|
|
|
.7 |
|
|
Mullin Companies reinsurance gains (without risk of forfeiture) ascribed by M Life to the
Companys life insurance policies |
|
|
.2 |
|
|
|
.2 |
|
|
|
|
|
Mr. Mullins direct & indirect interest in reinsurance gains (without risk of forfeiture) |
|
|
.1 |
|
|
|
.2 |
|
|
|
|
|
|
Mullin Companies reinsurance gains (subject to risk of forfeiture) ascribed by M Life to
the Companys life insurance policies |
|
|
1.5 |
|
|
|
|
|
|
|
|
|
Mr. Mullins direct & indirect interest in reinsurance gains (subject to risk of forfeiture) |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
NOTE 2. ACQUISITIONS
The aggregate cost of acquired companies was approximately $3 million in 2005 and $15 million in
2004. Goodwill resulting from these business acquisitions was approximately $1 million in 2005 and
$13 million in 2004. Intangibles resulting from these business acquisitions were approximately $2
million in 2004. These amounts of goodwill and intangibles do not include acquisition adjustments
in the subsequent years following acquisition. Acquisitions during 2005 and 2004 not described
below were not significant to the consolidated financial position of the Company. Pro forma
results for acquisitions in 2005 and 2004 are not presented, as the acquired businesses did not
have a significant impact on the Companys results of operations for those years.
In 2004, the Company completed the acquisition of several small private companies, including Rinke
Etiketten (Rinke), based in Germany, at a total cost of approximately $15 million. Goodwill
recognized for these transactions amounted to $13.2 million and identified amortizable intangible
assets amounted to $1.8 million. This goodwill is not expected to be deductible for U.S. tax
purposes. The final allocation of identifiable intangible assets and fixed assets for Rinke was
assessed by a third-party valuation expert and completed during 2005. The results of operations
for these companies have been included in the Companys Retail Information Services segment as of
the acquisition dates.
In connection with the L&E Packaging (L&E) acquisition in 2002, the Company issued 743,108 shares
at $63.08 per share. The Company also entered into an agreement with L&E whereby in the event the
value of the Companys common shares fell below the price of the shares that were issued to L&E
(adjusted for dividends received), during the period from January 1, 2005 through December 31,
2007, L&E had the option to exercise a true-up right. Upon exercise of this true-up right, the
Company had the option to (1) pay the difference in value to L&E, in the form of (a) cash or (b)
common shares, or (2) repurchase the shares at the issued share price, adjusted for dividends paid.
The true-up obligation was reduced by any shares sold by L&E to third parties. During 2005, L&E
sold 44,603 shares to third parties. On October 20, 2005, L&E notified the Company that L&E was
exercising its true-up right under the agreement for the remaining 698,505 shares. The Company
repurchased the remaining shares under the agreement for approximately $41 million in the fourth
quarter of 2005 and recorded such amount to treasury stock.
NOTE 3. GOODWILL AND OTHER INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Changes in the net carrying amount of goodwill from continuing operations for 2005 and 2004, by
reportable segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
Pressure- |
|
Office and |
|
Retail |
|
specialty |
|
|
|
|
sensitive |
|
Consumer |
|
Information |
|
converting |
|
|
(In millions) |
|
Materials |
|
Products |
|
Services |
|
businesses |
|
Total |
|
Balance as of December 27, 2003 |
|
$ |
314.5 |
|
|
$ |
160.5 |
|
|
$ |
194.9 |
|
|
$ |
.3 |
|
|
$ |
670.2 |
|
Goodwill acquired during the period |
|
|
|
|
|
|
|
|
|
|
13.2 |
|
|
|
|
|
|
|
13.2 |
|
Acquisition adjustments(1) |
|
|
|
|
|
|
|
|
|
|
(5.3 |
) |
|
|
|
|
|
|
(5.3 |
) |
Translation adjustments |
|
|
20.1 |
|
|
|
9.9 |
|
|
|
2.5 |
|
|
|
|
|
|
|
32.5 |
|
|
Balance as of January 1, 2005 |
|
|
334.6 |
|
|
|
170.4 |
|
|
|
205.3 |
|
|
|
.3 |
|
|
|
710.6 |
|
Goodwill acquired during the period |
|
|
|
|
|
|
|
|
|
|
1.1 |
|
|
|
|
|
|
|
1.1 |
|
Acquisition adjustments(2) |
|
|
|
|
|
|
|
|
|
|
(2.7 |
) |
|
|
|
|
|
|
(2.7 |
) |
Translation adjustments |
|
|
(21.0 |
) |
|
|
(12.5 |
) |
|
|
(2.4 |
) |
|
|
|
|
|
|
(35.9 |
) |
|
Balance as of December 31, 2005 |
|
$ |
313.6 |
|
|
$ |
157.9 |
|
|
$ |
201.3 |
|
|
$ |
.3 |
|
|
$ |
673.1 |
|
|
|
|
|
(1) |
|
Acquisition adjustments in 2004 consisted of changes in goodwill for tax
assessments associated with RVL Packaging, Inc. (RVL). |
|
(2) |
|
Acquisition adjustments in 2005 consisted of purchase price allocation of the Rinke
acquisition and resolution of claims associated with RVL. |
Page 15
Avery Dennison Corporation
NOTE 3. GOODWILL AND OTHER INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS (Continued)
The following table sets forth the Companys other intangible assets resulting from business
acquisitions at December 31, 2005 and January 1, 2005, which continue to be amortized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
Gross |
|
|
|
|
|
Net |
|
Gross |
|
|
|
|
|
Net |
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Carrying |
|
Accumulated |
|
Carrying |
(In millions) |
|
Amount |
|
Amortization |
|
Amount |
|
Amount |
|
Amortization |
|
Amount |
|
Amortizable other intangible
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
85.7 |
|
|
$ |
19.0 |
|
|
$ |
66.7 |
|
|
$ |
92.7 |
|
|
$ |
16.6 |
|
|
$ |
76.1 |
|
Trade names and trademarks |
|
|
40.1 |
|
|
|
25.6 |
|
|
|
14.5 |
|
|
|
43.0 |
|
|
|
23.1 |
|
|
|
19.9 |
|
Patented and other acquired
technology |
|
|
26.4 |
|
|
|
9.6 |
|
|
|
16.8 |
|
|
|
26.4 |
|
|
|
7.8 |
|
|
|
18.6 |
|
Other intangibles |
|
|
4.4 |
|
|
|
3.7 |
|
|
|
.7 |
|
|
|
4.6 |
|
|
|
3.4 |
|
|
|
1.2 |
|
|
Total |
|
$ |
156.6 |
|
|
$ |
57.9 |
|
|
$ |
98.7 |
|
|
$ |
166.7 |
|
|
$ |
50.9 |
|
|
$ |
115.8 |
|
|
Amortization expense on other intangible assets resulting from business acquisitions was $12
million for 2005, $11.8 million for 2004, and $11.3 million for 2003. The weighted-average
amortization periods for intangible assets resulting from business acquisitions are twenty-two
years for customer relationships, twelve years for trade names and trademarks, eighteen years for
patented and other acquired technology, seven years for other intangibles and eighteen years in
total. Based on current information, estimated amortization expense for acquired intangible assets
for each of the next five fiscal years is expected to be approximately $11 million, $7 million, $6
million, $6 million and $6 million, respectively.
NOTE 4. DEBT
Long-term debt and its respective weighted-average interest rates at December 31, 2005 consisted of
the following:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
Medium-term notes
|
|
|
|
|
|
|
|
|
Series 1993 at 6.7% due 2005 |
|
$ |
|
|
|
$ |
23.0 |
|
Series 1995 at 7.5% due 2005 through 2025 |
|
|
50.0 |
|
|
|
100.0 |
|
Series 1997 at 6.6% due 2007 |
|
|
60.0 |
|
|
|
60.0 |
|
Series 1998 at 5.9% due 2008 |
|
|
50.0 |
|
|
|
50.0 |
|
Senior notes due 2013 at 4.9% |
|
|
250.0 |
|
|
|
250.0 |
|
Senior notes due 2033 at 6.0% |
|
|
150.0 |
|
|
|
150.0 |
|
Senior notes due 2007 at a floating rate of 4.5% |
|
|
150.0 |
|
|
|
150.0 |
|
Other long-term borrowings |
|
|
14.1 |
|
|
|
7.0 |
|
Variable rate commercial paper borrowings classified as long-term |
|
|
|
|
|
|
290.9 |
|
Less amount classified as current |
|
|
(1.1 |
) |
|
|
(73.7 |
) |
|
|
|
$ |
723.0 |
|
|
$ |
1,007.2 |
|
|
The Companys medium-term notes have maturities from 2007 through 2025 and accrue interest at
fixed rates.
Maturities of long-term debt during the years 2006 through 2010 are $1.1 million (classified as
current), $211.9 million, $51.5 million, $1.5 million and $1.2 million, respectively, with $456.9
million maturing thereafter.
In August 2004, the Company refinanced some of its commercial paper borrowings by issuing $150
million in floating interest rate senior notes due 2007, under the Companys shelf registration
statement filed with the Securities and Exchange Commission (SEC) in the third quarter of 2001,
permitting the Company to issue up to $600 million in debt and equity securities. These notes are
callable at par by the Company. In January 2003, the Company refinanced some of its variable rate
commercial paper borrowings through the offering of $250 million of 4.9% senior notes due 2013 and
$150 million of 6% senior notes due 2033. The aggregate $400 million refinancing was issued under
the 2001 shelf registration.
In the fourth quarter of 2004, the Company filed a shelf registration statement with the SEC to
permit the issuance of up to $500 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. This registration
statement replaced the 2001 shelf registration discussed above, which had a remaining $50 million
of issuance capacity. As of December 31, 2005, no securities have been issued under the 2004
registration statement.
Page 16
Avery Dennison Corporation
NOTE 4. DEBT (Continued)
Variable rate commercial paper borrowings were $255.3 million at December 31, 2005
(weighted-average interest rate of 2.3%) and $290.9 million at January 1, 2005. The change in
outstanding commercial paper was due to the impact of currency, as these are Euro-denominated
borrowings. These borrowings were classified as short-term at year end 2005, but were classified as
long-term in 2004, since the Company intended to refinance this debt and had the ability to under
its $525 million revolving credit agreement, discussed below.
The $60 million one-year callable commercial notes issued in January 2004 were paid at maturity in
2005. In June 2005, the Company issued $75 million of one-year callable commercial notes at a
variable rate of 3.5%, and then called and paid the notes in November 2005.
At December 31, 2005, the Company had $108.3 million of borrowings outstanding under foreign
short-term lines of credit with a weighted-average interest rate of 6.6%.
In July 2004, the Company entered into a revolving credit agreement with 10 domestic and foreign
banks for a total commitment of $525 million, expiring July 16, 2009. This revolving credit
agreement replaced the Companys previous agreements for a $250 million credit facility that would
have expired July 1, 2006 and a $200 million 364-day credit facility that would have expired
December 3, 2004, both of which were terminated in connection with the new revolving credit
agreement. Financing available under the new agreement is used as a commercial paper back-up
facility and is also available to finance other corporate requirements. The terms of the new
agreement are generally similar to the previous agreements. There was no debt outstanding under
this agreement as of year end 2005.
In addition, the Company has a 364-day revolving credit facility with a foreign bank to provide up
to Euro 30 million ($35.6 million) in borrowings through July 19, 2006. The Company may annually
extend the revolving period and due date with the approval of the bank. It is the intention of
management to renegotiate an extension of this facility in 2006. Financing under this agreement is
used to finance cash requirements of the Companys European operations. As of December 31, 2005,
$15.4 million was outstanding under this agreement.
Uncommitted lines of credit were $408.9 million at year end 2005. The Companys uncommitted lines
of credit do not have a commitment expiration date, and may be cancelled at any time by the Company
or the banks.
At December 31, 2005, the Company had available short-term financing arrangements totaling $336.2
million.
Commitment fees relating to the financing arrangements are not significant.
The Companys total interest costs in 2005, 2004 and 2003 were $62.8 million, $61.8 million and
$64.6 million, respectively, of which $4.9 million, $3.1 million and $6 million, respectively, were
capitalized as part of the cost of assets.
The terms of various loan agreements in effect at year end require that the Company maintain
specified ratios on debt and interest expense in relation to certain measures of income. Under the
loan agreements, the ratio of debt to earnings before other expense (see Note 10 Components of
Other Income and Expense), interest, taxes, depreciation and amortization may not exceed 3.5 to
1.0. The Companys ratio at year end 2005 was 1.6 to 1.0. Earnings before other expense, interest
and taxes, as a ratio to interest, may not be less than 3.5 to 1.0. The Companys ratio at year end
2005 was 8.4 to 1.0.
The fair value of the Companys debt is estimated based on the discounted amount of future cash
flows using the current rates offered to the Company for debt of the same remaining maturities. At
year end 2005 and 2004, the fair value of the Companys total debt, including short-term
borrowings, was $1.1 billion and $1.32 billion, respectively.
The Company had standby letters of credit outstanding of $81.2 million and $81 million at the end
of 2005 and 2004, respectively. The aggregate contract amount of outstanding standby letters of
credit approximated fair value.
NOTE 5. FINANCIAL INSTRUMENTS
During 2005, the amount recognized in earnings related to cash flow hedges that were ineffective
was not significant. The aggregate reclassification from other comprehensive income to earnings
for settlement or ineffectiveness was a net loss of $2.6 million and $6.1 million during 2005 and
2004, respectively. A net loss of approximately $.3 million is expected to be reclassified from
other comprehensive income to earnings within the next 12 months.
In connection with the issuance of the $250 million 10-year senior notes in January 2003, the
Company settled a forward starting interest rate swap at a loss of $32.5 million. This loss is
being amortized to interest expense over a 10-year period, which corresponds to the term of the
related debt.
The carrying value of the foreign exchange forward and natural gas futures contracts approximated
the fair value, which, based on quoted market prices of comparable instruments, was a net asset of
$2.6 million at December 2005 and a net liability of $7.7 million at December 2004.
Page 17
Avery Dennison Corporation
NOTE 5. FINANCIAL INSTRUMENTS (Continued)
The carrying value of the foreign exchange option contracts, based on quoted market prices of
comparable instruments, was a net asset of $.1 million at the end of 2005. The carrying value of
the foreign exchange option contracts approximated the fair market value.
The counterparties to foreign exchange and natural gas forward, option and swap contracts consist
primarily of a large number of major international financial institutions. The Company centrally
monitors its positions and the financial strength of its counterparties. Therefore, although the
Company may be exposed to losses in the event of nonperformance by these counterparties, it does
not anticipate such losses.
NOTE 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Defined Benefit Plans
The Company sponsors a number of defined benefit plans (the Plan) covering substantially all U.S.
employees, employees in certain other countries and non-employee directors. It is the Companys
policy to make contributions to the Plan sufficient to meet the minimum funding requirements of
applicable laws and regulations, plus additional amounts, if any, as the Companys actuarial
consultants determine and advise to be appropriate. Plan assets are generally invested in
diversified portfolios that consist primarily of equity and fixed income securities. Benefits
payable to employees are based primarily on years of service and employees pay during their
employment with the Company. Certain benefits provided by one of the Companys U.S. defined
benefit plans may be paid, in part, from an employee stock ownership plan. While the Company has
not expressed any intent to terminate the Plan, the Company may do so at any time.
The Company uses a November 30 measurement date for the majority of its U.S. plans and a fiscal
year end measurement date for its international plans.
Postretirement Health Benefits
The Company provides postretirement health benefits to certain U.S. retired employees up to the age
of 65 under a cost-sharing arrangement, and provides supplemental Medicare benefits to certain U.S.
retirees over the age of 65. The Companys policy is to fund the cost of the postretirement
benefits on a cash basis. The Company uses a fiscal year end measurement date for its
postretirement health benefit plan. While the Company has not expressed any intent to terminate
postretirement health benefits, the Company may do so at any time.
Plan Assets
Assets of the Companys U.S. plans are invested in a diversified portfolio that consists primarily
of equity and fixed income securities. Furthermore, equity investments are diversified across U.S.
and non-U.S. stocks, including growth, value and small and large capitalization stocks. The
Companys target plan asset investment allocation in the U.S is 75% in equity securities and 25% in
fixed income securities, subject to periodic fluctuations in the respective asset classes above.
The Plan assets include investments in the Companys stock, which totaled approximately 630,000
shares as of December 31, 2005. This amount, however, does not include any shares that may be held
in index funds.
Assets of the Companys international plans are invested in accordance with local accepted
practice, with asset allocations and investments varying by country and plan. Investments utilized
by the various plans include equity securities, fixed income securities, real estate and insurance
contracts.
The weighted-average asset allocations for the Companys pension plans at year end 2005 and 2004,
by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
U.S. |
|
Int'l |
|
U.S. |
|
Int'l |
|
Equity securities |
|
|
84 |
% |
|
|
61 |
% |
|
|
79 |
% |
|
|
60 |
% |
Fixed income securities |
|
|
16 |
|
|
|
36 |
|
|
|
21 |
|
|
|
37 |
|
Real estate and insurance contracts |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
Plan Assumptions
Discount Rate
The Company, in consultation with its actuaries, annually reviews and determines the discount rates
to be used in connection with its postretirement obligations. The assumed discount rate for each
pension plan reflects market rates for high quality corporate bonds currently available. In the
U.S., the Companys discount rate was determined by evaluating several yield curves consisting of
large populations of high quality corporate bonds. The projected pension benefit payment streams
were then matched with the bond portfolios to determine a rate that reflected the liability
duration unique to the Companys plans.
Page 18
Avery Dennison Corporation
NOTE 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (Continued)
Long-term Return on Assets
The Company determines the long-term rate of return assumption for plan assets by reviewing the
historical and expected returns of both the equity and fixed income markets, taking into
consideration that assets with higher volatility typically generate a greater return over the long
run. Additionally, current market conditions, such as interest rates, are evaluated and peer data
is reviewed to check for reasonability and appropriateness.
Healthcare Cost Trend Rate
For measurement purposes, an 8% annual rate of increase in the per capita cost of covered health
care benefits was assumed for 2006. This rate is expected to decrease to approximately 5% by 2009.
A one-percentage-point change in assumed health care cost trend rates would have the following
effects:
|
|
|
|
|
|
|
|
|
|
|
One-percentage-point |
|
One-percentage-point |
(In millions) |
|
increase |
|
decrease |
|
Effect on total of service and interest cost
components |
|
$ |
.1 |
|
|
$ |
(.1 |
) |
Effect on postretirement benefit obligation |
|
|
1.0 |
|
|
|
(1.2 |
) |
|
Plan Reconciliations
The following provides a reconciliation of benefit obligations, plan assets and funded status of
the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Postretirement |
|
|
Pension Benefits |
|
Health Benefits |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
(In millions) |
|
U.S. |
|
Int'l |
|
U.S. |
|
Int'l |
|
|
|
|
|
|
|
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
|
$ |
468.7 |
|
|
$ |
407.9 |
|
|
$ |
412.8 |
|
|
$ |
335.4 |
|
|
$ |
41.6 |
|
|
$ |
43.1 |
|
Service cost |
|
|
19.3 |
|
|
|
11.5 |
|
|
|
16.8 |
|
|
|
10.4 |
|
|
|
1.7 |
|
|
|
1.4 |
|
Interest cost |
|
|
27.6 |
|
|
|
18.7 |
|
|
|
25.5 |
|
|
|
18.2 |
|
|
|
2.5 |
|
|
|
2.2 |
|
Participant contribution |
|
|
|
|
|
|
3.4 |
|
|
|
|
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
Amendments |
|
|
2.8 |
|
|
|
|
|
|
|
13.1 |
|
|
|
6.3 |
|
|
|
(14.0 |
) |
|
|
|
|
Actuarial loss (gain) |
|
|
20.2 |
|
|
|
34.1 |
|
|
|
20.3 |
|
|
|
.8 |
|
|
|
6.1 |
|
|
|
(1.6 |
) |
Plan transfer (1) |
|
|
1.1 |
|
|
|
|
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid |
|
|
(26.0 |
) |
|
|
(11.4 |
) |
|
|
(23.5 |
) |
|
|
(10.3 |
) |
|
|
(3.8 |
) |
|
|
(3.5 |
) |
Special termination benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
Net transfer in (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
Pension curtailment |
|
|
|
|
|
|
(.2 |
) |
|
|
|
|
|
|
(.6 |
) |
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
|
|
|
|
(48.3 |
) |
|
|
|
|
|
|
35.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year |
|
$ |
513.7 |
|
|
$ |
415.7 |
|
|
$ |
468.7 |
|
|
$ |
407.9 |
|
|
$ |
34.1 |
|
|
$ |
41.6 |
|
|
|
|
Accumulated benefit obligation at end of year |
|
$ |
504.2 |
|
|
$ |
399.4 |
|
|
$ |
463.1 |
|
|
$ |
390.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Plan transfer represents transfer from the Companys savings plan. |
|
(2) |
|
Net transfer in represents valuation of an additional pension plan. |
Page 19
Avery Dennison Corporation
NOTE 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Postretirement |
|
|
Pension Benefits |
|
Health Benefits |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
(In millions) |
|
U.S. |
|
Intl |
|
U.S. |
|
Intl |
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
476.4 |
|
|
$ |
319.3 |
|
|
$ |
417.4 |
|
|
$ |
264.5 |
|
|
|
|
|
|
|
|
|
Actual return on plan assets |
|
|
42.8 |
|
|
|
42.2 |
|
|
|
52.2 |
|
|
|
20.4 |
|
|
|
|
|
|
|
|
|
Plan transfer (1) |
|
|
1.1 |
|
|
|
|
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contribution |
|
|
26.4 |
|
|
|
15.6 |
|
|
|
26.6 |
|
|
|
9.8 |
|
|
$ |
3.8 |
|
|
$ |
3.5 |
|
Participant contribution |
|
|
|
|
|
|
3.4 |
|
|
|
|
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
Benefits paid |
|
|
(26.0 |
) |
|
|
(11.4 |
) |
|
|
(23.5 |
) |
|
|
(10.3 |
) |
|
|
(3.8 |
) |
|
|
(3.5 |
) |
Net transfer in(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
|
|
|
|
(38.3 |
) |
|
|
|
|
|
|
28.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
520.7 |
|
|
$ |
330.8 |
|
|
$ |
476.4 |
|
|
$ |
319.3 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets in excess of (less than) benefit
obligation |
|
$ |
7.0 |
|
|
$ |
(84.9 |
) |
|
$ |
7.7 |
|
|
$ |
(88.6 |
) |
|
$ |
(34.1 |
) |
|
$ |
(41.6 |
) |
Unrecognized net actuarial loss |
|
|
124.4 |
|
|
|
127.6 |
|
|
|
108.1 |
|
|
|
132.8 |
|
|
|
23.7 |
|
|
|
19.1 |
|
Unrecognized prior service cost |
|
|
10.6 |
|
|
|
6.0 |
|
|
|
9.7 |
|
|
|
7.6 |
|
|
|
(26.0 |
) |
|
|
(12.9 |
) |
Unrecognized net asset |
|
|
|
|
|
|
(4.2 |
) |
|
|
(.2 |
) |
|
|
(6.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
142.0 |
|
|
$ |
44.5 |
|
|
$ |
125.3 |
|
|
$ |
45.7 |
|
|
$ |
(36.4 |
) |
|
$ |
(35.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated
Balance Sheet consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost |
|
$ |
120.7 |
|
|
$ |
48.7 |
|
|
$ |
121.4 |
|
|
$ |
52.7 |
|
|
|
|
|
|
|
|
|
Accrued benefit liability |
|
|
(70.6 |
) |
|
|
(91.4 |
) |
|
|
(84.6 |
) |
|
|
(94.1 |
) |
|
$ |
(36.4 |
) |
|
$ |
(35.4 |
) |
Intangible asset |
|
|
7.8 |
|
|
|
.8 |
|
|
|
6.8 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
84.1 |
|
|
|
86.4 |
|
|
|
81.7 |
|
|
|
85.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
142.0 |
|
|
$ |
44.5 |
|
|
$ |
125.3 |
|
|
$ |
45.7 |
|
|
$ |
(36.4 |
) |
|
$ |
(35.4 |
) |
|
|
|
|
|
|
(1) |
|
Plan transfer represents transfer from the Companys savings plan. |
|
(2) |
|
Net transfer in represents valuation of an additional pension plan. |
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for
pension plans with accumulated benefit obligations in excess of plan assets for U.S. plans were
$330.8 million, $324.7 million and $254.4 million, respectively, at year end 2005 and $311 million,
$308.3 million and $223.8 million, respectively, at year end 2004.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for
pension plans with accumulated benefit obligations in excess of plan assets for international plans
were $215.5 million, $207.2 million and $121.4 million, respectively, at year end 2005 and $202.4
million, $196.4 million and $106.7 million, respectively, at year end 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Postretirement |
|
|
Pension Benefits |
|
Health Benefits |
|
|
2005 |
|
2004 |
|
2003 |
|
2005 |
|
2004 |
|
2003 |
|
|
U.S. |
|
Intl |
|
U.S. |
|
Intl |
|
U.S. |
|
Intl |
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used for
determining year end obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.75 |
% |
|
|
4.49 |
% |
|
|
6.00 |
% |
|
|
4.91 |
% |
|
|
6.25 |
% |
|
|
5.31 |
% |
|
|
5.50 |
% |
|
|
5.75 |
% |
|
|
6.25 |
% |
Rate of increase in future compensation
levels |
|
|
3.59 |
|
|
|
2.79 |
|
|
|
3.61 |
|
|
|
2.68 |
|
|
|
3.62 |
|
|
|
2.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 20
Avery Dennison Corporation
NOTE 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (Continued)
The following table sets forth the components of net periodic benefit cost (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Postretirement |
|
|
Pension Benefits |
|
Health Benefits |
|
|
2005 |
|
2004 |
|
2003 |
|
2005 |
|
2004 |
|
2003 |
(In millions) |
|
U.S. |
|
Int'l |
|
U.S. |
|
Int'l |
|
U.S. |
|
Int'l |
|
|
|
|
|
|
|
|
|
Components of net periodic
benefit cost (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
19.3 |
|
|
$ |
11.5 |
|
|
$ |
16.8 |
|
|
$ |
10.4 |
|
|
$ |
12.3 |
|
|
$ |
8.5 |
|
|
$ |
1.7 |
|
|
$ |
1.4 |
|
|
$ |
1.4 |
|
Interest cost |
|
|
27.6 |
|
|
|
18.7 |
|
|
|
25.5 |
|
|
|
18.2 |
|
|
|
25.0 |
|
|
|
15.2 |
|
|
|
2.5 |
|
|
|
2.1 |
|
|
|
2.9 |
|
Expected return on plan assets |
|
|
(44.0 |
) |
|
|
(20.9 |
) |
|
|
(42.4 |
) |
|
|
(21.2 |
) |
|
|
(40.3 |
) |
|
|
(19.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
(gain) |
|
|
5.2 |
|
|
|
3.7 |
|
|
|
3.5 |
|
|
|
2.5 |
|
|
|
(.3 |
) |
|
|
1.3 |
|
|
|
1.6 |
|
|
|
.7 |
|
|
|
.6 |
|
Amortization of prior service cost |
|
|
1.9 |
|
|
|
.6 |
|
|
|
.1 |
|
|
|
.2 |
|
|
|
.1 |
|
|
|
.4 |
|
|
|
(.9 |
) |
|
|
(.9 |
) |
|
|
(.3 |
) |
Amortization of transition
obligation
or asset |
|
|
(.3 |
) |
|
|
(1.3 |
) |
|
|
(.5 |
) |
|
|
(1.3 |
) |
|
|
(.5 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment |
|
|
|
|
|
|
(.1 |
) |
|
|
|
|
|
|
.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income) |
|
$ |
9.7 |
|
|
$ |
12.2 |
|
|
$ |
3.0 |
|
|
$ |
9.6 |
|
|
$ |
(3.7 |
) |
|
$ |
5.2 |
|
|
$ |
4.9 |
|
|
$ |
3.3 |
|
|
$ |
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Postretirement |
|
|
Pension Benefits |
|
Health Benefits |
|
|
2005 |
|
2004 |
|
2003 |
|
2005 |
|
2004 |
|
2003 |
|
|
U.S. |
|
Int'l |
|
U.S. |
|
Int'l |
|
U.S. |
|
Int'l |
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used for
determining net periodic cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.00 |
% |
|
|
4.91 |
% |
|
|
6.25 |
% |
|
|
5.31 |
% |
|
|
7.00 |
% |
|
|
5.47 |
% |
|
|
5.75 |
% |
|
|
6.25 |
% |
|
|
7.00 |
% |
Expected long-term rate of return on plan assets |
|
|
8.75 |
|
|
|
6.32 |
|
|
|
9.00 |
|
|
|
6.48 |
|
|
|
9.00 |
|
|
|
6.83 |
|
|
|
¯ |
|
|
|
¯ |
|
|
|
¯ |
|
Rate of increase in future compensation levels |
|
|
3.61 |
|
|
|
2.68 |
|
|
|
3.62 |
|
|
|
2.54 |
|
|
|
3.61 |
|
|
|
2.63 |
|
|
|
¯ |
|
|
|
¯ |
|
|
|
¯ |
|
|
As a result of changes in assumptions during 2005 and 2004, the accumulated benefit obligation in
certain plans exceeded the fair value of the underlying pension plan assets and accrued pension
liabilities. The Companys Consolidated Balance Sheet reflects an additional minimum pension
liability of $3.5 million and $12.2 million in 2005 and 2004, respectively, for U.S. pension plans
and an additional minimum pension liability of $.1 million and $20.2 million in 2005 and 2004,
respectively, for international pension plans. These transactions generated a change in intangible
pension assets of $1.1 million and $2.4 million, respectively, in 2005 and 2004 for U.S. pension
plans and $(.7) million and $.5 million in 2005 and 2004, respectively, for international pension
plans with a charge to equity for the remainder.
Plan Contributions
The Company expects to contribute a minimum of $27.6 million and $7 million to its U.S. pension
plans and international pension plans, respectively, and approximately $3.3 million to its
postretirement benefit plan in 2006. In January 2006, the Company contributed $25 million to its
domestic pension plan, which is more than the amount required by U.S. governmental agencies for
2006.
Future Benefit Payments
Benefit payments, which reflect expected future services, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
U.S. Postretirement |
(In millions) |
|
U.S. |
|
Int'l |
|
Health Benefits |
|
2006 |
|
$ |
30.0 |
|
|
$ |
11.8 |
|
|
$ |
3.3 |
|
2007 |
|
|
30.7 |
|
|
|
11.4 |
|
|
|
3.2 |
|
2008 |
|
|
31.4 |
|
|
|
12.8 |
|
|
|
2.9 |
|
2009 |
|
|
32.1 |
|
|
|
14.1 |
|
|
|
2.7 |
|
2010 |
|
|
32.7 |
|
|
|
15.3 |
|
|
|
2.7 |
|
2011-2014 |
|
|
168.2 |
|
|
|
86.7 |
|
|
|
11.7 |
|
|
Page 21
Avery Dennison Corporation
NOTE 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (Continued)
Defined Contribution Plans
The Company sponsors various defined contribution plans worldwide, with the largest plan being the
Avery Dennison Corporation Employee Savings Plan (Savings Plan a 401(k) savings plan covering
its U.S. employees). The Company matches participant contributions to the Savings Plan based on a
formula within the plan. The Savings Plan has a leveraged employee stock ownership plan (ESOP)
feature, which allows the plan to borrow funds to purchase shares of the Companys common
stock at market prices. Savings Plan expense consists primarily of stock contributions from the
ESOP to participant accounts.
ESOP expense is accounted for under the cost of shares allocated method. Net ESOP expense for
2005, 2004 and 2003 was $1.2 million, $.7 million and $.7 million, respectively. Company
contributions to pay interest or principal on ESOP borrowings were $1.7 million, $1.1 million and
$1.1 million in 2005, 2004 and 2003, respectively.
Interest costs incurred by the ESOP for 2005, 2004 and 2003 were $.6 million, $.3 million and $.3
million, respectively. Dividends on unallocated ESOP shares used for debt service were $1.1
million, $1.3 million and $1.5 million for 2005, 2004 and 2003, respectively.
The cost of shares allocated to the ESOP for 2005, 2004 and 2003 was $2.3 million, $2.1 million and
$2.2 million, respectively. Of the total shares held by the ESOP, 2.5 million shares were
allocated and .6 million shares were unallocated at year end 2005, and 3.2 million shares were
allocated and .8 million shares were unallocated at year end 2004.
Other Retirement Plans
The Company has deferred compensation plans which permit eligible employees and directors to defer
a portion of their compensation. The deferred compensation, together with certain Company
contributions, earns specified and variable rates of return. As of year end 2005 and 2004, the
Company had accrued $157.3 million and $145.4 million, respectively, for its obligations under
these plans. These obligations are funded by corporate-owned life insurance contracts and standby
letters of credit. As of year end 2005 and 2004, these obligations were secured by standby letters
of credit of $64.5 million and $63 million, respectively. The Companys expense, which includes
Company contributions and interest expense, was $6.9 million, $13.8 million and $11 million for
2005, 2004 and 2003, respectively. A portion of the interest on certain Company contributions may
be forfeited by participants if employment is terminated before age 55 other than by reason of
death, disability or retirement.
To assist in the funding of these plans, the Company purchases corporate-owned life insurance
contracts. Proceeds from the insurance policies are payable to the Company upon the death of the
participant. The cash surrender value of these policies, net of outstanding loans, included in
Other assets in the Consolidated Balance Sheet, was $160.6 million and $140.8 million at year end
2005 and 2004, respectively.
NOTE 7. COMMITMENTS
Minimum annual rental commitments on operating leases having initial or remaining noncancellable
lease terms of one year or more are as follows:
|
|
|
|
|
Year |
|
(In millions) |
|
2006 |
|
$ |
48.4 |
|
2007 |
|
|
38.7 |
|
2008 |
|
|
28.3 |
|
2009 |
|
|
20.3 |
|
2010 |
|
|
16.6 |
|
Thereafter |
|
|
51.2 |
|
|
Total minimum lease
payments |
|
$ |
203.5 |
|
|
Operating leases relate primarily to office and warehouse space, equipment for electronic data
processing and transportation. The terms of these leases do not impose significant restrictions or
unusual obligations, except as included in Note 8, Contingencies. There are no significant
capital leases.
Rent expense for 2005, 2004 and 2003 was $75 million, $66 million and $64 million, respectively.
Page 22
Avery Dennison Corporation
NOTE 8. CONTINGENCIES
Industry Investigations
On April 14, 2003, the Company announced that it had been advised that the U.S. Department of
Justice was challenging the proposed merger of UPM-Kymmene (UPM) and the Morgan Adhesives
(MACtac) division of Bemis Co., Inc. (Bemis) on the basis of its belief that in certain aspects
of the label stock industry the competitors have sought to coordinate rather than compete. The
Company also announced that it had been notified that the U.S. Department of Justice had initiated
a criminal investigation into competitive practices in the label stock industry.
On April 15, 2003, the U.S. Department of Justice filed a complaint in the U.S. District Court for
the Northern District of Illinois seeking to enjoin the proposed merger (DOJ Merger Complaint).
The DOJ Merger Complaint, which set forth the U.S. Department of Justices theory of its case,
included references not only to the parties to the merger, but also to an unnamed Leading
Producer of North American label stock, which is the Company. The DOJ Merger Complaint asserted
that UPM and the Leading Producer have already attempted to limit competition between themselves,
as reflected in written and oral communications to each other through high level executives
regarding explicit anticompetitive understandings, although the extent to which these efforts have
succeeded is not entirely clear to the United States at the present time.
In connection with the U.S. Department of Justices investigation into the proposed merger, the
Company produced documents and provided testimony by Messrs. Neal, Scarborough and Simcic (then
CEO, President and Group Vice PresidentRoll Materials Worldwide, respectively). On July 25, 2003,
the United States District Court for the Northern District of Illinois entered an order enjoining
the proposed merger. UPM and Bemis thereafter agreed to terminate the merger agreement. The courts
decision incorporated a stipulation by the U.S. Department of Justice that the paper label industry
is competitive.
On April 24, 2003, Sentry Business Products, Inc. filed a purported class action in the United
States District Court for the Northern District of Illinois against the Company, UPM, Bemis and
certain of their subsidiaries seeking treble damages and other relief for alleged unlawful
competitive practices, essentially repeating the underlying allegations of the DOJ Merger
Complaint. Ten similar complaints were filed in various federal district courts. In November 2003,
the cases were transferred to the United States District Court for the Middle District of
Pennsylvania and consolidated for pretrial purposes. Plaintiffs filed a consolidated complaint on
February 16, 2004, which the Company answered on March 31, 2004. On April 14, 2004, the court
separated the proceedings as to class certification and merits discovery, and limited the initial
phase of discovery to the issue of the appropriateness of class certification. On January 4, 2006,
plaintiffs filed an amended complaint. The Company intends to defend these matters vigorously.
On May 6, 2003, Sekuk Global Enterprises filed a purported stockholder class action in the United
States District Court for the Central District of California against the Company and Messrs. Neal,
OBryant and Skovran (then CEO, CFO and Controller, respectively) seeking damages and other relief
for alleged disclosure violations pertaining to alleged unlawful competitive practices.
Subsequently, another similar action was filed in the same court. On September 24, 2003, the court
appointed a lead plaintiff, approved lead and liaison counsel and ordered the two actions
consolidated as the In Re Avery Dennison Corporation Securities Litigation. Pursuant to court
order and the parties stipulation, plaintiff filed a consolidated complaint in mid-February 2004.
The court approved a briefing schedule for defendants motion to dismiss the consolidated
complaint, with a contemplated hearing date in June 2004. In January 2004, the parties stipulated
to stay the consolidated action, including the proposed briefing schedule, pending the outcome of
the government investigation of alleged anticompetitive conduct by the Company. The court has
approved the parties stipulation to stay the consolidated actions. There has been no discovery
and no trial date has been set. The Company intends to defend these matters vigorously.
On May 21, 2003, The Harman Press filed in the Superior Court for the County of Los Angeles,
California, a purported class action on behalf of indirect purchasers of label stock against the
Company, UPM and UPMs subsidiary Raflatac (Raflatac), seeking treble damages and other relief
for alleged unlawful competitive practices, essentially repeating the underlying allegations of the
DOJ Merger Complaint. Three similar complaints were filed in various California courts. In November
2003, on petition from the parties, the California Judicial Council ordered the cases be
coordinated for pretrial purposes. The cases were assigned to a coordination trial judge in the
Superior Court for San Francisco County on March 30, 2004. A further similar complaint was filed in
the Superior Court for Maricopa County, Arizona on November 6, 2003. Plaintiffs voluntarily
dismissed the Arizona complaint without prejudice on October 4, 2004. On January 21, 2005,
American International Distribution Corporation filed a purported class action on behalf of
indirect purchasers in the Superior Court for Chittenden County, Vermont. Similar actions were
filed by Webtego on February 16, 2005, in the Court of Common Pleas for Cuyahoga County, Ohio; by
D.R. Ward Construction Co. on February 17, 2005, in the Superior Court for Maricopa County,
Arizona; by Richard Wrobel, on February 16, 2005, in the District Court of Johnson County, Kansas;
and by Chad and Terry Muzzey, on February 16, 2005 in the District Court of Scotts Bluff County,
Nebraska. On February 17, 2005, Judy Benson filed a purported multi-state class action on behalf
of indirect purchasers in the Circuit Court for Cocke County, Tennessee. On October 7, 2005,
Webtego voluntarily dismissed its complaint. The Company intends to defend the remaining matters
vigorously.
On August 15, 2003, the U.S. Department of Justice issued a subpoena to the Company in connection
with its criminal investigation into competitive practices in the label stock industry. The Company
is cooperating with the investigation.
Page 23
Avery Dennison Corporation
NOTE 8. CONTINGENCIES (Continued)
On June 8, 2004, Pamco Tape & Label filed in the Superior Court for the County of San Francisco,
California, a purported class action on behalf of direct purchasers in California of self-adhesive
label stock, against the Company, Bemis, UPM and Raflatac, seeking actual damages and other relief
for alleged unlawful competitive practices, essentially repeating the underlying allegations of the
DOJ Merger Complaint. Pamco voluntarily dismissed its complaint without prejudice on May 18, 2005.
On May 25, 2004, officials from the European Commission (EC), assisted by officials from national
competition authorities, launched unannounced inspections of and obtained documents from the
Companys pressure-sensitive materials facilities in the Netherlands and Germany. The investigation
apparently seeks evidence of unlawful anticompetitive activities affecting the European paper and
forestry products sector, including the label stock market. The Company is cooperating with the
investigation.
Based on published press reports, certain other European producers of paper and forestry products
received similar visits from European authorities. One such producer, UPM, stated that it had
decided to disclose to competition authorities any conduct that has not comported with applicable
competition laws, and that it had received conditional immunity in the European Union (EU) and
Canada with respect to certain conduct it has previously disclosed to them, contingent on full
cooperation. In February 2006, UPM announced that the U.S. Department of Justice had agreed not to
prosecute UPM in connection with the label stock investigation, and, further, that UPM had received
conditional immunity in jurisdictions in addition to the EU and Canada.
In the course of its internal examination of matters pertinent to the ECs investigation of
anticompetitive activities affecting the European paper and forestry products sector, the Company
discovered instances of improper conduct by certain employees in its European operations. This
conduct violated the Companys policies and in some cases constituted an infringement of EC
competition law. As a result, the Company expects that the EC will fine the Company when its
investigation is completed. The EC has wide discretion in fixing the amount of a fine, up to a
maximum fine of 10% of a companys annual revenue. Because the Company is unable to estimate either
the timing or the amount or range of any fine, the Company has made no provision for a fine in its
financial statements. However, the Company believes that the fine could well be material in amount.
There can be no assurance that additional adverse consequences to the Company will not result from
the conduct discovered by the Company or other matters under EC or other laws. The Company is
cooperating with authorities, continuing its internal examination, and taking remedial actions.
On July 9, 2004, the Competition Law Division of the Department of Justice of Canada notified the
Company that it was seeking information from the Company in connection with a label stock
investigation. The Company is cooperating with the investigation.
On May 18, 2005, Ronald E. Dancer filed a purported class action in the United States District
Court for the Central District of California against the Company, Mr. Neal, Karyn Rodriguez (VP and
Treasurer) and James Bochinski (then VP, Compensation and Benefits), for alleged breaches of
fiduciary duty under the Employee Retirement Income Security Act to the Companys Employee Savings
Plan and Plan participants. The plaintiff alleges, among other things, that permitting investment
in and retention of Company Common Stock under the Plan was imprudent because of alleged
anticompetitive activities by the Company, and that failure to disclose such activities to the Plan
and participants was unlawful. Plaintiff seeks an order compelling defendants to compensate the
Plan for any losses and other relief. The parties stipulated to transfer the case to the judge in
the consolidated case, In Re Avery Dennison Corporation Securities Litigation referenced above,
and the court has approved the parties stipulation to stay the matter pending the outcome of the
government investigation of alleged anticompetitive conduct by the Company. The Company intends to
defend this matter vigorously.
On August 18, 2005, the Australian Competition and Consumer Commission notified two of the
Companys subsidiaries, Avery Dennison Material Pty Limited and Avery Dennison Australia Pty Ltd,
that it was seeking information in connection with a label stock investigation. The Company is
cooperating with the investigation.
The Board of Directors has created an ad hoc committee comprised of independent directors to
oversee the foregoing matters.
The Company is unable to predict the effect of these matters at this time, although the effect
could well be adverse and material.
Environmental
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 fourteen 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 Companys
liability has been agreed. 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 such 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
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 any sites which could be identified in the future for cleanup
could be higher than the liability currently accrued. Amounts currently
Page 24
Avery Dennison Corporation
NOTE 8. CONTINGENCIES (Continued)
accrued are not significant to the consolidated financial position of the Company and, based upon
current information, management believes it is unlikely that the final resolution of these matters
will significantly impact the Companys consolidated financial position, results of operations or
cash flows.
Other
The Company has contacted relevant authorities in the U.S. and reported on the results of an
internal investigation of potential violations of the U.S. Foreign Corrupt Practices Act. The
transactions at issue were carried out by a small number of employees of the Companys reflectives
business in China, and involved, among other things, impermissible payments or attempted
impermissible payments. The payments or attempted payments and the contracts associated with them
appear to have been relatively minor in amount and of limited duration. Corrective and
disciplinary actions have been taken. Sales of the Companys reflectives business in China in 2005
were approximately $7 million. Based on findings to date, no changes to the Companys previously
filed financial statements are warranted as a result of these matters. However, the Company
expects that fines or other penalties could be incurred. While the Company is unable to predict
the financial or operating impact of any such fines or penalties, it believes that its behavior in
detecting, investigating, responding to and voluntarily disclosing these matters to authorities
should be viewed favorably.
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. Based upon current information, management
believes that the resolution of these other matters will not materially affect the Companys
financial position.
The Company participates in receivable financing programs, both domestically and internationally,
with several financial institutions whereby advances may be requested from these financial
institutions. Such advances are guaranteed by the Company. At December 31, 2005, the Company had
guaranteed approximately $19 million.
The Company guaranteed up to approximately $21 million of certain foreign subsidiaries obligations
to their suppliers as of December 31, 2005.
On September 9, 2005, the Company completed the lease financing for a commercial facility to be
located in Mentor, Ohio. This facility will be the new headquarters for the Companys roll
materials worldwide division, and will consist generally of land, buildings, equipment and office
furnishings and equipment (the Facility). The Company will lease the Facility under an operating
lease arrangement, which contains a residual value guarantee of $33.4 million. The Company does
not expect the residual value of the Facility to be less than the amount guaranteed.
NOTE 9. SHAREHOLDERS EQUITY
Common Stock and Common Stock Repurchase Program
The Companys Certificate of Incorporation authorizes five million shares of $1 par value preferred
stock (none outstanding), with respect to which the Board of Directors may fix the series and terms
of issuance, and 400 million shares of $1 par value voting common stock.
In December 1997, the Company redeemed the outstanding preferred stock purchase rights and issued
new preferred stock purchase rights, declaring a dividend of one such right on each outstanding
share of common stock, and since such time, the Company has issued such rights with each share of
common stock that has been subsequently issued. When exercisable, each new right will entitle its
holder to buy one one-hundredth of a share of Series A Junior Participating Preferred Stock at a
price of $150 per one one-hundredth of a share until October 31, 2007. The rights will become
exercisable if a person acquires 20% or more of the Companys common stock or makes an offer, the
consummation of which will result in the persons owning 20% or more of the Companys common stock.
In the event the Company is acquired in a merger, each right entitles the holder to purchase
common stock of the acquiring company having a market value of twice the exercise price of the
right. Likewise, if a person or group acquires 20% or more of the Companys common stock, each
right entitles the holder to purchase the Companys common stock with a market value equal to twice
the exercise price of the right. The rights may be redeemed by the Company at a price of one cent
per right at any time prior to a persons or groups acquiring 20% of the Companys common stock.
The 20% threshold may be reduced by the Company to as low as 10% at any time prior to a persons
acquiring a percent of Company stock equal to the lowered threshold.
The Board of Directors has authorized the repurchase of an aggregate 40.4 million shares of the
Companys outstanding common stock. The acquired shares may be reissued under the Companys stock
option and incentive plans or used for other corporate purposes. At year end 2005, approximately
2.5 million shares remain available for repurchase pursuant to this authorization.
Stock Option and Incentive Plans
The Board of Directors previously authorized the issuance of up to 18 million shares to be used for
the issuance of stock options and the funding of other Company obligations arising from various
employee benefit plans. The remaining shares available are held in the
Page 25
Avery Dennison Corporation
NOTE 9. SHAREHOLDERS EQUITY (Continued)
Companys Employee Stock Benefit Trust (ESBT). The ESBT common stock is carried at market value
with changes in share price from prior reporting periods reflected as an adjustment to capital in
excess of par value.
The Company maintains various stock option and incentive plans which are fixed employee stock-based
compensation plans. Under the plans, incentive stock options and stock options granted to
directors may be granted at not less than 100% of the fair market value of the Companys common
stock on the date of the grant, whereas nonqualified options granted to employees may be issued at
prices no less than par value. The Companys policy is to price stock option grants at fair market
value on the date of the grant. Options generally vest ratably over a two-year period for
directors, or over a four-year period for employees. Options for certain officers may cliff-vest
over a 3- to 9.75-year period based on the Companys performance. Unexercised options expire ten
years from the date of grant.
The following table sets forth stock option information relative to these plans (options in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
|
Weighted-average |
|
Number |
|
Weighted-average |
|
Number |
|
Weighted-average |
|
Number |
|
|
exercise price |
|
of options |
|
exercise price |
|
of options |
|
exercise price |
|
of options |
|
Outstanding at beginning of
year |
|
$ |
55.18 |
|
|
|
9,503.7 |
|
|
$ |
52.66 |
|
|
|
7,951.9 |
|
|
$ |
51.10 |
|
|
|
6,942.4 |
|
Granted |
|
|
59.23 |
|
|
|
1,856.8 |
|
|
|
59.22 |
|
|
|
2,381.7 |
|
|
|
55.66 |
|
|
|
1,490.8 |
|
Exercised |
|
|
36.95 |
|
|
|
(304.0 |
) |
|
|
36.02 |
|
|
|
(586.5 |
) |
|
|
26.09 |
|
|
|
(267.1 |
) |
Forfeited or expired |
|
|
58.79 |
|
|
|
(203.3 |
) |
|
|
58.38 |
|
|
|
(243.4 |
) |
|
|
56.41 |
|
|
|
(214.2 |
) |
|
Outstanding at year end |
|
|
56.32 |
|
|
|
10,853.2 |
|
|
|
55.18 |
|
|
|
9,503.7 |
|
|
|
52.66 |
|
|
|
7,951.9 |
|
Options exercisable at year end |
|
$ |
53.46 |
|
|
|
5,246.2 |
|
|
$ |
50.14 |
|
|
|
3,684.6 |
|
|
$ |
46.64 |
|
|
|
3,428.1 |
|
|
The following table summarizes information on fixed stock options outstanding at December 31, 2005
(options in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding |
|
Options exercisable |
|
|
|
|
|
|
Weighted-average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contractual life |
|
Weighted-average |
|
|
|
|
|
Weighted-average |
Range of exercise prices |
|
Number outstanding |
|
(in years) |
|
exercise price |
|
Number exercisable |
|
exercise price |
|
$ 34.94 to 49.97 |
|
|
1,270.7 |
|
|
|
2.3 |
|
|
$ |
42.52 |
|
|
|
1,243.1 |
|
|
$ |
42.44 |
|
50.03 to 59.76 |
|
|
8,272.3 |
|
|
|
7.7 |
|
|
|
57.40 |
|
|
|
3,492.3 |
|
|
|
55.99 |
|
60.29 to 67.31 |
|
|
1,310.2 |
|
|
|
6.9 |
|
|
|
62.87 |
|
|
|
510.8 |
|
|
|
62.95 |
|
|
$ 34.94 to 67.31 |
|
|
10,853.2 |
|
|
|
6.9 |
|
|
$ |
56.32 |
|
|
|
5,246.2 |
|
|
$ |
53.46 |
|
|
The weighted-average fair value per share of options granted during 2005, 2004 and 2003 was $12.64,
$11.18 and $11.71, respectively. Option grant date fair values were determined using the
Black-Scholes option pricing model. The underlying assumptions used were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
Risk-free interest rate |
|
|
4.11 |
% |
|
|
3.86 |
% |
|
|
3.86 |
% |
Expected stock price volatility |
|
|
20.55 |
|
|
|
19.81 |
|
|
|
21.41 |
|
Expected dividend yield |
|
|
2.67 |
|
|
|
3.01 |
|
|
|
2.59 |
|
Expected option term |
|
7 years |
|
7 years |
|
7 years |
|
Restricted Stock Units and Restricted Stock Grants
In December 2005, the Board of Directors approved the award of restricted stock units (RSUs),
which were issued under the Companys stock option and incentive plan. In 2005, RSUs were granted
to certain employees, which consisted of two groups of employees. These RSUs include dividend
equivalents in the form of additional RSUs, which are equivalent to the amount of the dividend paid
or property distributed on a single share of common stock multiplied by the number of RSUs in the
employees account. Vesting for the two groups of RSUs is as follows:
|
|
A vesting period of 3 years provided that a certain performance objective is met at the end of the third year after
year of the award. If the performance objective is not achieved at the end of the third year, the same unvested RSUs
will be subject to meeting the performance objective at the end of the fourth year, and if not achieved at the end of
the fourth year, then the fifth year following the year of grant |
|
|
|
A vesting period of 3 years, provided that employment is continuous for 3 years |
Page 26
Avery Dennison Corporation
NOTE 9. SHAREHOLDERS EQUITY (Continued)
For both groups, if the above vesting conditions are not met, the RSUs will be forfeited. As of
December 31, 2005, there were no forfeited RSUs.
The following table summarizes information about awarded RSUs at December 31, 2005:
|
|
|
|
|
|
|
2005 |
|
Restricted stock units awarded (in thousands) |
|
|
93.5 |
|
Stock price per share at award date |
|
$ |
59.47 |
|
Pretax compensation expense related to RSUs (in millions) |
|
$ |
.1 |
|
|
During 2005, the Company also awarded 30,000 restricted shares, which vest equally in 2009 and
2012. Pretax compensation expense of $.2 million was recorded for this award in 2005.
NOTE 10. COMPONENTS OF OTHER INCOME AND EXPENSE
Severance charges recorded under the restructuring actions below are included in Other accrued
liabilities in the Consolidated Balance Sheet.
Fourth Quarter 2005
In the fourth quarter of 2005, the Company recorded a pretax charge of $55.5 million associated
with restructuring actions ($41.1 million), as well as expected product line divestitures ($14.4
million). The charge included severance and related costs of $32.9 million related to the
elimination of approximately 850 positions worldwide. Severance and related costs represent cash
paid or to be paid to employees terminated under these actions. Final payments to the terminated
employees will be made during 2006 and 2007. At December 31, 2005, approximately 395 employees
impacted by these actions remain with the Company, and are expected to leave by 2007. Also
included in the charge was $22.6 million related to asset impairment, lease cancellation costs and
other associated costs. Asset impairments were based on the market value of the assets. The table
below details the activity related to this program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other specialty |
|
|
|
|
|
|
Pressure-sensitive |
|
Office and Consumer |
|
Retail Information |
|
converting |
|
|
|
|
(In millions) |
|
Materials Segment |
|
Products Segment |
|
Services Segment |
|
businesses |
|
Corporate |
|
Total |
|
Severance and other employee costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
15.1 |
|
|
$ |
6.8 |
|
|
$ |
5.6 |
|
|
$ |
2.5 |
|
|
$ |
2.9 |
|
|
$ |
32.9 |
|
Payments |
|
|
(2.5 |
) |
|
|
(1.4 |
) |
|
|
(.4 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
(5.3 |
) |
|
Balance at December 31, 2005 |
|
$ |
12.6 |
|
|
$ |
5.4 |
|
|
$ |
5.2 |
|
|
$ |
1.5 |
|
|
$ |
2.9 |
|
|
$ |
27.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings |
|
$ |
2.4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
.8 |
|
|
$ |
3.2 |
|
Machinery and equipment |
|
|
.1 |
|
|
|
10.7 |
|
|
|
.7 |
|
|
|
2.9 |
|
|
|
1.3 |
|
|
|
15.7 |
|
Capitalized software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5 |
|
|
|
2.5 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations |
|
|
|
|
|
|
|
|
|
|
.8 |
|
|
|
|
|
|
|
|
|
|
|
.8 |
|
Other costs |
|
|
|
|
|
|
|
|
|
|
.4 |
|
|
|
|
|
|
|
|
|
|
|
.4 |
|
|
|
|
$ |
2.5 |
|
|
$ |
10.7 |
|
|
$ |
1.9 |
|
|
$ |
2.9 |
|
|
$ |
4.6 |
|
|
$ |
22.6 |
|
|
Second Quarter 2005
In the second quarter of 2005, the Company recorded a pretax charge of $2.1 million relating to
asset impairments ($1.4 million) and restructuring costs ($.7 million). The asset impairment
charges represented impairment of a building for $.7 million in other specialty converting
businesses and write-off of machinery and equipment for $.7 million in the Pressure-sensitive
Materials segment. Asset impairments were based on market value for similar assets.
First Quarter 2005
In the first quarter of 2005, the Company recorded a pretax charge of $6.7 million relating to
restructuring costs and asset impairment charges, partially offset by a gain on sale of assets of
$3.4 million. The charge included severance and related costs of $4 million related to the
elimination of approximately 170 positions in the Office and Consumer Products segment as a result
of the Companys closure of the Gainesville, Georgia label converting plant. Severance and related
costs represent cash paid or to be paid to employees terminated under these actions. The remaining
employees (approximately 5 employees) impacted by these actions are expected to leave the Company
by
Page 27
Avery Dennison Corporation
NOTE 10. COMPONENTS OF OTHER INCOME AND EXPENSE (Continued)
mid-2006 and final payments to the terminated employees will be made during 2006. Also included in
the charge was $2.7 million related to impairment of buildings and land in the Pressure-sensitive
Materials segment. Asset impairments were based on the market value of the assets.
Second Quarter 2004
In the second quarter of 2004, the Company recorded a pretax charge of $13.8 million relating to
restructuring costs, asset impairments and planned disposition of property, plant and equipment,
and lease cancellation costs primarily associated with the completion of the Companys integration
of the Jackstädt GmbH (Jackstädt) acquisition in the Companys Pressure-sensitive Materials
segment, as well as cost reduction actions in the Office and Consumer Products and Retail
Information Services segments. The charge included severance and related costs of $7.7 million
related to approximately 195 positions worldwide. Severance and related costs represent cash paid
or to be paid to employees terminated under these actions. At December 31, 2005, all employees
impacted by these actions had left the Company. Final payments to the terminated employees will be
made during 2006. Also included in the charge was $6.1 million related to asset impairments and
planned disposition of property, plant and equipment, lease cancellation costs and other associated
costs in the Pressure-sensitive Materials segment. Asset impairments were based on the market
values for similar assets.
First Quarter 2004
In the first quarter of 2004, the Company recorded a pretax charge of $21.4 million relating to
restructuring costs and asset impairment charges as part of the Companys integration of the
Jackstädt acquisition in the Companys Pressure-sensitive Materials segment. The charge included
severance and related costs of $15.9 million, which represent cash paid or to be paid to employees
terminated under these actions, involving the elimination of approximately 210 positions. All
employees impacted by these actions had left the Company in 2004 and final payments will be made in
2006. Also included in the charge was $2.9 million related to impairment of software and $2.6
million related to impairment and planned disposition of machinery and equipment. Asset
impairments were based on the market value for similar assets.
Fourth Quarter 2003
In the fourth quarter of 2003, the Company recorded a pretax charge of $34.3 million relating to
Jackstädt integration actions and productivity improvement initiatives, as well as net losses
associated with several product line divestitures. The charge included severance and related costs
of $22 million related to the elimination of approximately 530 positions worldwide. Severance and
related costs represent cash paid or to be paid to employees terminated under these actions. Also
included in the charge was $8.2 million related to asset impairments and planned disposition of
property, plant and equipment, lease cancellation costs and other associated costs. Asset
impairments were based on the market values for similar assets. The Company completed the payments
for the lease cancellation costs in 2004.
NOTE 11. TAXES BASED ON INCOME
Taxes based on income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
2003 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal tax |
|
$ |
33.5 |
|
|
$ |
35.7 |
|
|
$ |
48.4 |
|
State taxes |
|
|
3.0 |
|
|
|
6.0 |
|
|
|
8.3 |
|
International taxes |
|
|
29.7 |
|
|
|
65.0 |
|
|
|
55.6 |
|
|
|
|
|
66.2 |
|
|
|
106.7 |
|
|
|
112.3 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal tax |
|
|
(11.8 |
) |
|
|
8.7 |
|
|
|
5.0 |
|
State taxes |
|
|
(5.2 |
) |
|
|
2.7 |
|
|
|
|
|
International taxes |
|
|
14.3 |
|
|
|
(24.4 |
) |
|
|
(16.9 |
) |
|
|
|
|
(2.7 |
) |
|
|
(13.0 |
) |
|
|
(11.9 |
) |
|
Taxes on income |
|
$ |
63.5 |
|
|
$ |
93.7 |
|
|
$ |
100.4 |
|
|
Page 28
Avery Dennison Corporation
NOTE 11. TAXES BASED ON INCOME (Continued)
The principal items accounting for the difference in taxes as computed at the U.S. statutory rate
and as recorded were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
2003 |
|
Computed tax at 35% of income from continuing operations
before taxes |
|
$ |
128.3 |
|
|
$ |
131.4 |
|
|
$ |
118.5 |
|
Increase (decrease) in taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal tax benefit |
|
|
(3.0 |
) |
|
|
6.9 |
|
|
|
5.4 |
|
Foreign earnings taxed at different rates |
|
|
(31.4 |
) |
|
|
(41.7 |
) |
|
|
(31.8 |
) |
Valuation allowance |
|
|
(15.6 |
) |
|
|
15.3 |
|
|
|
9.8 |
|
Jobs Act repatriation of earnings |
|
|
13.5 |
|
|
|
|
|
|
|
|
|
Tax credits |
|
|
(6.4 |
) |
|
|
(6.6 |
) |
|
|
(4.5 |
) |
Tax audit settlements |
|
|
(9.0 |
) |
|
|
(7.9 |
) |
|
|
|
|
Other items, net |
|
|
(1.4 |
) |
|
|
(3.1 |
) |
|
|
(4.0 |
) |
|
Taxes on income from continuing operations |
|
|
75.0 |
|
|
|
94.3 |
|
|
|
93.4 |
|
Taxes on income from and gain on sale of discontinued
operations |
|
|
(11.5 |
) |
|
|
(.6 |
) |
|
|
7.0 |
|
|
Taxes on income |
|
$ |
63.5 |
|
|
$ |
93.7 |
|
|
$ |
100.4 |
|
|
Consolidated income before taxes for U.S. and international operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
2003 |
|
U.S. |
|
$ |
99.5 |
|
|
$ |
168.3 |
|
|
$ |
155.6 |
|
International |
|
|
267.3 |
|
|
|
207.0 |
|
|
|
182.9 |
|
|
Income from continuing operations before taxes |
|
|
366.8 |
|
|
|
375.3 |
|
|
|
338.5 |
|
Income (loss) from discontinued operations before
taxes |
|
|
(76.9 |
) |
|
|
(1.9 |
) |
|
|
29.8 |
|
|
Income before taxes |
|
$ |
289.9 |
|
|
$ |
373.4 |
|
|
$ |
368.3 |
|
|
U.S. income taxes have not been provided on undistributed earnings of international subsidiaries of
approximately $924 million and $1.03 billion at year ended 2005 and 2004, respectively, because
such earnings are considered to be reinvested indefinitely outside the U.S., except for the
one-time repatriation of earnings in 2005, provided for by the Jobs Act.
The Jobs Act, enacted on October 22, 2004, provided for a temporary 85% dividends-received
deduction on certain foreign earnings repatriated before December 31, 2005. The deduction resulted
in an approximate 5.25% federal tax rate on the repatriated earnings. During the third quarter of
2005, the Companys Chief Executive Officer and Board of Directors approved a domestic reinvestment
plan as required by the Jobs Act to repatriate $344 million of foreign earnings in fiscal 2005.
The repatriation of earnings took place in the fourth quarter of 2005.
Included in the effective tax rate for 2005 is a one-time incremental expense of $13.5 million
associated with the repatriation of accumulated foreign earnings under the Jobs Act and a $9
million benefit from several favorable global tax audit settlements.
The amount of income taxes the Company pays is subject to ongoing audits by taxing jurisdictions
around the world. The Companys estimate of the potential outcome of any uncertain tax issue is
subject to managements assessment of relevant risks, facts, and circumstances existing at that
time. The Company believes that it has adequately provided for reasonably foreseeable outcomes
related to these matters. However, the Companys future results may include favorable or
unfavorable adjustments to its estimated tax liabilities in the period the assessments are made or
resolved, which may impact the Companys effective tax rate.
Operating loss carryforwards of foreign subsidiaries for 2005 and 2004 are $143.7 million and
$252.5 million, respectively. Credit carryforwards for 2005 and 2004 related to foreign investment
tax credits totaled $3.1 million and $3.5 million, respectively. California research credits for
2005 and 2004 totaled $3.9 million and $3.3 million, respectively. Net operating losses, if
unused, of $6.8 million will expire by 2010, and $22.1 million will expire after 2010. Net
operating losses of $114.8 million can be carried forward indefinitely. The foreign investment tax
credit carryforwards begin to expire in 2013. The California research credit can be carried
forward indefinitely. The Company has established a valuation allowance for the net operating loss
and credit carryforwards not expected to be utilized. The valuation allowance for 2005 and 2004 is
$26.5 million and $49.9 million, respectively. The decrease in 2005 is directly attributable to
the decrease in net operating loss carryforwards of foreign subsidiaries.
Tax benefits resulting from the exercise of employee stock option programs recorded in
stockholders equity was approximately $3.2 million for 2005 and $3.5 million for 2004.
Page 29
Avery Dennison Corporation
NOTE 11. TAXES BASED ON INCOME (Continued)
Deferred income taxes reflect the temporary differences between the amounts at which assets and
liabilities are recorded for financial reporting purposes and the amounts utilized for tax
purposes. The primary components of the temporary differences that gave rise to the Companys
deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
Accrued expenses not currently deductible |
|
$ |
34.1 |
|
|
$ |
30.2 |
|
Net operating losses and foreign tax credit carryforwards |
|
|
40.3 |
|
|
|
73.4 |
|
Postretirement and postemployment benefits |
|
|
50.3 |
|
|
|
50.9 |
|
Pension costs |
|
|
9.3 |
|
|
|
3.8 |
|
Inventory reserves |
|
|
12.4 |
|
|
|
11.3 |
|
Other |
|
|
6.1 |
|
|
|
4.3 |
|
Valuation allowance |
|
|
(26.5 |
) |
|
|
(49.9 |
) |
|
Total deferred tax assets |
|
|
126.0 |
|
|
|
124.0 |
|
|
Depreciation and amortization |
|
|
(141.2 |
) |
|
|
(142.4 |
) |
|
Total deferred tax liabilities |
|
|
(141.2 |
) |
|
|
(142.4 |
) |
|
Total net deferred tax liabilities from continuing operations |
|
$ |
(15.2 |
) |
|
$ |
(18.4 |
) |
Net deferred tax assets (liabilities) from discontinued
operations |
|
|
2.6 |
|
|
|
(7.7 |
) |
|
Total net deferred tax liabilities |
|
$ |
(12.6 |
) |
|
$ |
(26.1 |
) |
|
The Company is subject to ongoing tax examinations by federal, state and foreign tax authorities.
NOTE 12. SEGMENT INFORMATION
The accounting policies of the segments are described in Note 1 Summary of Significant Accounting
Policies. Intersegment sales are recorded at or near market prices and are eliminated in
determining consolidated sales. The Company evaluates performance based on income from operations
before interest expense and taxes. General corporate expenses are also excluded from the
computation of income from operations for the segments.
The Company does not disclose total assets by operating segment since the Company does not produce
and review such information internally. The Company does not disclose revenues from external
customers for each product because it is impracticable to do so. As the Companys reporting
structure is not organized by country, results by individual country are not provided because it is
impracticable to do so.
Page 30
Avery Dennison Corporation
NOTE 12. SEGMENT INFORMATION (Continued)
Financial information by reportable segment and other businesses from continuing operations is set
forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005(1) |
|
2004(2) |
|
2003(3) |
|
Net sales to unaffiliated customers: |
|
|
|
|
|
|
|
|
|
|
|
|
Pressure-sensitive Materials |
|
$ |
3,114.5 |
|
|
$ |
2,984.6 |
|
|
$ |
2,546.8 |
|
Office and Consumer Products |
|
|
1,136.1 |
|
|
|
1,172.5 |
|
|
|
1,168.1 |
|
Retail Information Services |
|
|
674.8 |
|
|
|
636.1 |
|
|
|
552.7 |
|
Other specialty converting businesses |
|
|
548.1 |
|
|
|
523.8 |
|
|
|
469.2 |
|
|
Net sales to unaffiliated customers |
|
$ |
5,473.5 |
|
|
$ |
5,317.0 |
|
|
$ |
4,736.8 |
|
|
Intersegment sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Pressure-sensitive Materials |
|
$ |
162.7 |
|
|
$ |
168.9 |
|
|
$ |
175.1 |
|
Office and Consumer Products |
|
|
2.0 |
|
|
|
2.2 |
|
|
|
2.3 |
|
Retail Information Services |
|
|
7.8 |
|
|
|
8.8 |
|
|
|
7.5 |
|
Other specialty converting businesses |
|
|
14.6 |
|
|
|
16.8 |
|
|
|
14.5 |
|
Eliminations |
|
|
(187.1 |
) |
|
|
(196.7 |
) |
|
|
(199.4 |
) |
|
Intersegment sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Income from operations before taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Pressure-sensitive Materials |
|
$ |
259.6 |
|
|
$ |
221.4 |
|
|
$ |
180.2 |
|
Office and Consumer Products |
|
|
168.0 |
|
|
|
186.4 |
|
|
|
188.5 |
|
Retail Information Services |
|
|
42.7 |
|
|
|
47.8 |
|
|
|
24.2 |
|
Other specialty converting businesses |
|
|
9.5 |
|
|
|
35.5 |
|
|
|
43.7 |
|
Corporate expense |
|
|
(55.1 |
) |
|
|
(57.1 |
) |
|
|
(39.6 |
) |
Interest expense |
|
|
(57.9 |
) |
|
|
(58.7 |
) |
|
|
(58.5 |
) |
|
Income before taxes |
|
$ |
366.8 |
|
|
$ |
375.3 |
|
|
$ |
338.5 |
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
Pressure-sensitive Materials |
|
$ |
73.9 |
|
|
$ |
115.3 |
|
|
$ |
131.8 |
|
Office and Consumer Products |
|
|
24.8 |
|
|
|
19.6 |
|
|
|
17.0 |
|
Retail Information Services |
|
|
32.4 |
|
|
|
38.3 |
|
|
|
26.7 |
|
Other specialty converting
businesses |
|
|
37.8 |
|
|
|
29.3 |
|
|
|
18.9 |
|
Corporate |
|
|
2.5 |
|
|
|
1.6 |
|
|
|
4.5 |
|
Discontinued operations |
|
|
.2 |
|
|
|
1.6 |
|
|
|
4.7 |
|
|
Capital expenditures(4) |
|
$ |
171.6 |
|
|
$ |
205.7 |
|
|
$ |
203.6 |
|
|
Depreciation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Pressure-sensitive Materials |
|
$ |
86.2 |
|
|
$ |
80.7 |
|
|
$ |
77.4 |
|
Office and Consumer Products |
|
|
24.7 |
|
|
|
25.3 |
|
|
|
25.7 |
|
Retail Information Services |
|
|
17.3 |
|
|
|
15.3 |
|
|
|
13.7 |
|
Other specialty converting
businesses |
|
|
20.0 |
|
|
|
17.9 |
|
|
|
18.2 |
|
Corporate |
|
|
6.0 |
|
|
|
6.6 |
|
|
|
6.9 |
|
Discontinued operations |
|
|
1.5 |
|
|
|
1.4 |
|
|
|
4.2 |
|
|
Depreciation expense |
|
$ |
155.7 |
|
|
$ |
147.2 |
|
|
$ |
146.1 |
|
|
|
|
|
(1) |
|
Results for 2005 include a pretax charge of $63.6 for restructuring costs, asset
impairment, lease cancellation charges, transition costs and legal accrual related to a patent
lawsuit, partially offset by gain on sale of assets, of which the Pressure-sensitive Materials
segment recorded $23, the Office and Consumer Products segment recorded $21.8, the Retail
Information Services segment recorded $7.5, the other specialty converting businesses recorded
$6.2 and Corporate recorded $5.1. See Note 10 Components of Other Income and Expense, for
further information. |
|
(2) |
|
Results for 2004 include a pretax charge of $35.2 for restructuring costs, asset
impairment and lease cancellation charges, of which the Pressure-sensitive Materials segment
recorded $34.4, the Office and Consumer Products segment recorded $.5 and the Retail
Information Services segment recorded $.3. See Note 10 Components of Other Income and
Expense, for further information. |
|
(3) |
|
Results for 2003 include a net pretax charge of $30.5 for asset impairments,
restructuring costs, lease cancellation costs and net losses associated with several product
line divestitures, partially offset by gain from settlement of a lawsuit during the second
quarter of 2003, of which the Pressure-sensitive Materials segment recorded $13.6, the Office
and Consumer Products segment recorded $12.5, the Retail Information Services segment recorded
$7, the other specialty converting businesses recorded $2.5 and Corporate recorded $(5.1).
See Note 10 Components of Other Income and Expense, for further information. |
|
(4) |
|
The amount of capital spending in the Consolidated Statement of Cash Flows for 2005
was approximately $9 lower due to the capitalization of leased assets. Capital expenditures
accrued but not paid were approximately $27 in both 2005 and 2004. Therefore the amount of
capital expenditures in the Consolidated Statement of Cash Flows in 2004 was approximately $27
lower due to the timing of payments. |
Page 31
Avery Dennison Corporation
NOTE 12. SEGMENT INFORMATION (Continued)
Financial information relating to the Companys continuing operations by geographic area is set
forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2005 |
|
2004 |
|
2003 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
2,521.6 |
|
|
$ |
2,597.6 |
|
|
$ |
2,474.0 |
|
International |
|
|
3,161.7 |
|
|
|
2,934.1 |
|
|
|
2,477.0 |
|
Intergeographic |
|
|
(209.8 |
) |
|
|
(214.7 |
) |
|
|
(214.2 |
) |
|
Net sales |
|
$ |
5,473.5 |
|
|
$ |
5,317.0 |
|
|
$ |
4,736.8 |
|
|
Property, plant and equipment,
net: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
580.6 |
|
|
$ |
599.6 |
|
|
$ |
607.4 |
|
International |
|
|
715.1 |
|
|
|
774.8 |
|
|
|
675.5 |
|
|
Property, plant and equipment,
net |
|
$ |
1,295.7 |
|
|
$ |
1,374.4 |
|
|
$ |
1,282.9 |
|
|
Revenues are attributed to geographic areas based on the location to which the product is shipped.
The Companys international operations, conducted primarily in Europe, are on the FIFO basis
of inventory cost accounting. U.S. operations use both FIFO and LIFO. Export sales from
the United States to unaffiliated customers are not a material factor in the Companys business.
NOTE 13. QUARTERLY FINANCIAL INFORMATION (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
(In millions, except per share data) |
|
Quarter(1) |
|
Quarter(2) |
|
Quarter(3) |
|
Quarter(4) |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales from continuing operations |
|
$ |
1,342.8 |
|
|
$ |
1,411.7 |
|
|
$ |
1,355.0 |
|
|
$ |
1,364.0 |
|
Gross profit from continuing operations |
|
|
387.9 |
|
|
|
424.5 |
|
|
|
394.1 |
|
|
|
414.6 |
|
Net income |
|
|
57.7 |
|
|
|
89.4 |
|
|
|
86.2 |
|
|
|
(6.9 |
) |
Net income per common share |
|
|
.58 |
|
|
|
.89 |
|
|
|
.86 |
|
|
|
(.07 |
) |
Net income per common share, assuming dilution |
|
|
.57 |
|
|
|
.89 |
|
|
|
.86 |
|
|
|
(.07 |
) |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales from continuing operations |
|
$ |
1,242.7 |
|
|
$ |
1,317.2 |
|
|
$ |
1,329.3 |
|
|
$ |
1,427.8 |
|
Gross profit from continuing operations |
|
|
366.1 |
|
|
|
389.0 |
|
|
|
387.8 |
|
|
|
432.1 |
|
Net income |
|
|
52.6 |
|
|
|
68.5 |
|
|
|
75.0 |
|
|
|
83.6 |
|
Net income per common share |
|
|
.53 |
|
|
|
.69 |
|
|
|
.75 |
|
|
|
.84 |
|
Net income per common share, assuming dilution |
|
|
.52 |
|
|
|
.68 |
|
|
|
.75 |
|
|
|
.83 |
|
|
|
|
|
(1) |
|
Results in the first quarter 2005 include a $6.7 pretax charge for
restructuring costs and asset impairment charges, partially offset by a gain on sale of assets
of $3.4. |
|
|
|
Results in the first quarter 2004 include a $21.4 pretax charge for restructuring costs and
asset impairment charges. |
|
(2) |
|
Results in the second quarter 2005 include a $2.1 pretax charge for restructuring
costs and asset impairment charges. |
|
|
|
Results in the second quarter 2004 include a $13.8 pretax charge for restructuring costs, asset
impairment and lease cancellation charges. |
|
(3) |
|
Results in the third quarter 2005 include a $1.3 pretax charge for asset impairment
charges. |
|
(4) |
|
Results in the fourth quarter 2005 include a $55.5 pretax charge for restructuring
costs, asset impairment and lease cancellation charges, and legal accrual related to a patent
lawsuit of $3.8, partially offset by a gain on sale of assets of $2.4. |
NOTE 14. SUBSEQUENT EVENT
On February 25, 2006, the Company completed the sale of one of its product lines, impacting the
Office and Consumer Products segment, the sale of which was announced in December 2005. This
product line had estimated sales of $60 million in 2005, and minimal impact on income.
Page 32
Avery Dennison Corporation
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements and accompanying information were prepared by and are the
responsibility of management. The statements were prepared in conformity with accounting
principles generally accepted in the United States of America and, as such, include amounts that
are based on managements best estimates and judgments.
Oversight of managements financial reporting and internal accounting control responsibilities is
exercised by the Board of Directors, through an Audit Committee, which consists solely of outside
directors (see page 66). The Committee meets periodically with financial management, internal
auditors and the independent registered public accounting firm to obtain reasonable assurance that
each is meeting its responsibilities and to discuss matters concerning auditing, internal
accounting control and financial reporting. The independent registered public accounting firm and
the Companys internal audit department have free access to meet with the Audit Committee without
managements presence.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with
the participation of management, including the chief executive officer and chief financial officer,
the Company conducted an evaluation of the effectiveness of internal control over financial
reporting based on the framework in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on the Companys
evaluation under the framework in Internal Control Integrated Framework, management has
concluded that internal control over financial reporting was effective as of December 31, 2005.
Managements assessment of the effectiveness of internal control over financial reporting as of
December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included herein.
|
|
|
/s/ Dean A. Scarborough
|
|
/s/ Daniel R. OBryant |
|
|
|
Dean A. Scarborough
|
|
Daniel R. OBryant |
President and
|
|
Executive Vice President, Finance |
Chief Executive Officer
|
|
and Chief Financial Officer |
Page 33
Avery Dennison Corporation
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Avery Dennison Corporation:
We have completed integrated audits of Avery Dennison Corporations December 31, 2005 and January
1, 2005 consolidated financial statements and of its internal control over financial reporting as
of December 31, 2005 and an audit of its December 27, 2003 consolidated financial statements in
accordance with the standards of the Public Company Accounting Oversight Board (United States).
Our opinions, based on our audits, are presented below.
Consolidated financial statements
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, shareholders equity, and cash flows present fairly, in all material
respects, the financial position of Avery Dennison Corporation and its subsidiaries at December 31,
2005 and January 1, 2005, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit of financial
statements includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, managements assessment, included in the accompanying Managements Report
on Internal Control Over Financial Reporting, that the Company maintained effective internal
control over financial reporting as of December 31, 2005 based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2005, based on criteria established in
Internal Control Integrated Framework issued by the COSO. The Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on managements assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We conducted our audit of internal
control over financial reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
March 13, 2006
Page 34
Avery Dennison Corporation
Corporate Information
Counsel
Latham & Watkins LLP
Los Angeles, California
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Los Angeles, California
Transfer Agent Registrar
Computershare Trust Co., N.A.
P. O. Box 43023
Providence, RI 02940-3023
(877) 498-8861
(800) 952-9245 (hearing impaired number)
www.computershare.com (Web site)
Annual Meeting
The Annual Meeting of Shareholders will be held at 1:30 p.m. on April 27, 2006, in the Conference
Center of Avery Dennisons Charles D. Miller Corporate Center, 150 North Orange Grove Boulevard,
Pasadena, California.
The DirectSERVICE Investment Program
Shareholders of record may reinvest their cash dividends in additional shares of Avery Dennison
common stock at market price. Investors may also invest optional cash payments of up to $12,500
per month in Avery Dennison common stock at market price. Avery Dennison investors not yet
participating in the program, as well as brokers and custodians who hold Avery Dennison common
stock for clients, may obtain a copy of the program by writing to The DirectSERVICE
Investment Program, c/o Computershare (include a reference to Avery Dennison in the
correspondence), P.O. Box 43081, Providence, RI 02940-3081, or calling (877) 498-8861, or logging
onto their Web site at http://www.computershare.com.
Direct Deposit of Dividends
Avery Dennison shareholders may deposit quarterly dividend checks directly into their checking or
savings accounts. For more information, call Avery Dennisons transfer agent and registrar,
Computershare Trust Co., Inc., at (800) 870-2340.
Other Information
The Company is including, as Exhibits 31.1 and 31.2 to its Annual Report on Form 10-K for fiscal
year 2005 filing with the Securities and Exchange Commission (SEC), certificates of the Chief
Executive Officer and Chief Financial Officer of the Company pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, and the Company submitted to the New York Stock Exchange (NYSE), the
Companys annual written affirmation on April 29, 2005, along with the Chief Executive Officers
certificate that he is not aware of any violation by the Company of NYSEs Corporate Governance
listing standards.
A copy of the Companys Annual Report on Form 10-K, as filed with the SEC, will be furnished to
shareholders and interested investors free of charge upon written request to the Secretary of the
Corporation. Copies may also be obtained from the Companys web site, www.averydennison.com, in
the Investors section.
Page 35
Avery Dennison Corporation
Corporate Headquarters
Avery Dennison Corporation
Miller Corporate Center
150 North Orange Grove Boulevard
Pasadena, California 91103
Phone: (626) 304-2000
Fax: (626) 792-7312
Mailing Address:
P.O. Box 7090
Pasadena, California 91109-7090
Stock and Dividend Data
Common shares of Avery Dennison are listed on the NYSE.
Ticker symbol: AVY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
High |
|
Low |
|
High |
|
Low |
|
Market Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
62.53 |
|
|
$ |
56.10 |
|
|
$ |
64.50 |
|
|
$ |
55.49 |
|
Second Quarter |
|
|
61.48 |
|
|
|
51.35 |
|
|
|
64.94 |
|
|
|
58.63 |
|
Third Quarter |
|
|
56.92 |
|
|
|
51.98 |
|
|
|
64.40 |
|
|
|
58.56 |
|
Fourth Quarter |
|
|
59.44 |
|
|
|
50.30 |
|
|
|
65.78 |
|
|
|
54.90 |
|
|
Prices shown represent closing prices on the NYSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
Dividends Per Common Share |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
.38 |
|
|
$ |
.37 |
|
Second Quarter |
|
|
.38 |
|
|
|
.37 |
|
Third Quarter |
|
|
.38 |
|
|
|
.37 |
|
Fourth Quarter |
|
|
.39 |
|
|
|
.38 |
|
Total |
|
$ |
1.53 |
|
|
$ |
1.49 |
|
|
|
|
|
|
|
|
|
|
|
Number of shareholders of record as of year end |
|
|
10,216 |
|
|
|
10,750 |
|
|
Page 36
exv21
Exhibit 21
|
|
|
|
|
JURISDICTION |
|
|
IN WHICH |
NAME OF CURRENT SUBSIDIARY |
|
ORGANIZED |
1. A.V. CHEMIE GMBH
|
|
SWITZERLAND |
2. ADC PHILIPPINES, INC.
|
|
PHILIPPINES |
3. ADESPAN S.R.L.
|
|
ITALY |
4. ADESPAN U.K. LIMITED
|
|
UNITED KINGDOM |
5. AEAC, INC.
|
|
U.S.A. |
6. AUSTRACOTE PTY LTD.
|
|
AUSTRALIA |
7. AVERY (CHINA) COMPANY LIMITED
|
|
CHINA |
8. AVERY CORP.
|
|
U.S.A. |
9. AVERY DE MEXICO S.A. DE C.V.
|
|
MEXICO |
10. AVERY DENNISON HOLDINGS (MALTA) LIMITED
|
|
MALTA |
11. AVERY DENNISON AUSTRALIA GROUP HOLDINGS PTY LIMITED
|
|
AUSTRALIA |
12. AVERY DENNISON AUSTRALIA INTERNATIONAL HOLDINGS PTY LTD.
|
|
AUSTRALIA |
13. AVERY DENNISON AUSTRALIA PTY LTD.
|
|
AUSTRALIA |
14. AVERY DENNISON BELGIE BVBA
|
|
BELGIUM |
15. AVERY DENNISON BV
|
|
NETHERLANDS |
16. AVERY DENNISON C.A.
|
|
VENEZUELA |
17. AVERY DENNISON CANADA INC.
|
|
CANADA |
18. AVERY DENNISON CHILE S.A.
|
|
CHILE |
19. AVERY DENNISON COLOMBIA S.A.
|
|
COLOMBIA |
20. AVERY DENNISON CONVERTED PRODUCTS DE MEXICO, S.A. DE C.V.
|
|
MEXICO |
21. AVERY DENNISON CONVERTED PRODUCTS EL SALVADOR S.A. DE C.V.
|
|
EL SALVADOR |
22. AVERY DENNISON COORDINATION CENTER BVBA
|
|
BELGIUM |
23. AVERY DENNISON DE ARGENTINA S.A.
|
|
ARGENTINA |
24. AVERY DENNISON DEUTSCHLAND GMBH
|
|
GERMANY |
25. AVERY DENNISON DO BRASIL LTDA.
|
|
BRAZIL |
26. AVERY DENNISON ETIKET TICARET LIMITED SIRKETI
|
|
TURKEY |
27. AVERY DENNISON EUROPE HOLDING (DEUTSCHLAND) GMBH & CO KG
|
|
GERMANY |
28. AVERY DENNISON FINANCE BELGIUM BVBA
|
|
BELGIUM |
29. AVERY DENNISON FINANCE FRANCE S.A.S.
|
|
FRANCE |
30. AVERY DENNISON FINANCE GERMANY GMBH
|
|
GERMANY |
31.
AVERY DENNISON FINANCE LUXEMBOURG II S.A.R.L.
|
|
LUXEMBOURG |
32. AVERY DENNISON FINANCE LUXEMBOURG S.A.R.L.
|
|
LUXEMBOURG |
33. AVERY DENNISON FRANCE S.A.S.
|
|
FRANCE |
34. AVERY DENNISON G HOLDINGS I COMPANY
|
|
U.S.A. |
35. AVERY DENNISON G HOLDINGS III COMPANY
|
|
U.S.A. |
36. AVERY DENNISON G INVESTMENTS III LIMITED
|
|
GIBRALTAR |
37. AVERY DENNISON G INVESTMENTS V LIMITED
|
|
GIBRALTAR |
38. AVERY DENNISON GROUP DANMARK APS
|
|
DENMARK |
39. AVERY DENNISON GROUP SINGAPORE (PTE) LIMITED
|
|
SINGAPORE |
40. AVERY DENNISON HOLDING & FINANCE THE NETHERLANDS BV
|
|
NETHERLANDS |
41. AVERY DENNISON HOLDING AG
|
|
SWITZERLAND |
42. AVERY DENNISON HOLDING GMBH
|
|
GERMANY |
43. AVERY DENNISON HOLDING LUXEMBOURG S.A.R.L.
|
|
LUXEMBOURG |
44. AVERY DENNISON HOLDINGS LIMITED
|
|
AUSTRALIA |
45. AVERY DENNISON HOLDINGS NEW ZEALAND LIMITED
|
|
NEW ZEALAND |
46.
AVERY DENNISON HONG KONG B.V.
|
|
NETHERLANDS |
47. AVERY DENNISON HUNGARY LIMITED
|
|
HUNGARY |
48. AVERY DENNISON IBERICA, S.A.
|
|
SPAIN |
49. AVERY DENNISON INVESTMENTS LUXEMBOURG S.A.R.L.
|
|
LUXEMBOURG |
50.
AVERY DENNISON INVESTMENTS THE NETHERLANDS B.V.
|
|
NETHERLANDS |
51. AVERY DENNISON ITALIA S.R.L.
|
|
ITALY |
52. AVERY DENNISON KOREA LIMITED
|
|
KOREA |
53. AVERY DENNISON LUXEMBOURG S.A.R.L.
|
|
LUXEMBOURG |
1
|
|
|
|
|
JURISDICTION |
|
|
IN WHICH |
NAME OF CURRENT SUBSIDIARY |
|
ORGANIZED |
54. AVERY DENNISON MANAGEMENT GMBH
|
|
GERMANY |
55. AVERY DENNISON MANAGEMENT KGAA
|
|
LUXEMBOURG |
56. AVERY DENNISON MANAGEMENT LUXEMBOURG S.A.R.L.
|
|
LUXEMBOURG |
57. AVERY DENNISON MATERIALS FRANCE S.A.R.L.
|
|
FRANCE |
58. AVERY DENNISON MATERIALS GMBH
|
|
GERMANY |
59. AVERY DENNISON MATERIALS IRELAND LIMITED
|
|
IRELAND |
60.
AVERY DENNISON MATERIALS NEDERLAND B.V.
|
|
NETHERLANDS |
61. AVERY DENNISON MATERIALS NEW ZEALAND LIMITED
|
|
NEW ZEALAND |
62. AVERY DENNISON MATERIALS PTY LIMITED
|
|
AUSTRALIA |
63. AVERY DENNISON MATERIALS SDN BHD
|
|
MALAYSIA |
64. AVERY DENNISON MATERIALS U.K. LIMITED
|
|
UNITED KINGDOM |
65.
AVERY DENNISON MOROCCO S.A.R.L.
|
|
MOROCCO |
66. AVERY DENNISON NETHERLANDS INVESTMENT II B.V.
|
|
NETHERLANDS |
67.
AVERY DENNISON NETHERLANDS INVESTMENT III B.V.
|
|
NETHERLANDS |
68.
AVERY DENNISON NETHERLANDS INVESTMENT VI B.V.
|
|
NETHERLANDS |
69. AVERY DENNISON NORDIC APS
|
|
DENMARK |
70. AVERY DENNISON NORGE A/S
|
|
NORWAY |
71. AVERY DENNISON OFFICE ACCESSORIES U.K. LIMITED
|
|
UNITED KINGDOM |
72. AVERY DENNISON OFFICE PRODUCTS (NZ) LIMITED
|
|
NEW ZEALAND |
73. AVERY DENNISON OFFICE PRODUCTS (PTY.) LTD.
|
|
SOUTH AFRICA |
74. AVERY DENNISON OFFICE PRODUCTS COMPANY
|
|
U.S.A. |
75. AVERY DENNISON OFFICE PRODUCTS DE MEXICO, S.A. DE C.V.
|
|
MEXICO |
76. AVERY DENNISON OFFICE PRODUCTS EUROPE GMBH
|
|
SWITZERLAND |
77. AVERY DENNISON OFFICE PRODUCTS FRANCE S.A.S.
|
|
FRANCE |
78. AVERY DENNISON OFFICE PRODUCTS ITALIA S.R.L.
|
|
ITALY |
79. AVERY DENNISON OFFICE PRODUCTS MANUFACTURING U.K. LTD.
|
|
UNITED KINGDOM |
80. AVERY DENNISON OFFICE PRODUCTS PTY LIMITED
|
|
AUSTRALIA |
81. AVERY DENNISON OFFICE PRODUCTS U.K. LTD.
|
|
UNITED KINGDOM |
82. AVERY DENNISON OSTERREICH GMB
|
|
AUSTRIA |
83. AVERY DENNISON OVERSEAS CORPORATION
|
|
U.S.A. |
84. AVERY DENNISON PERU S.R.L.
|
|
PERU |
85. AVERY DENNISON POLSKA SP. Z O.O.
|
|
POLAND |
86. AVERY DENNISON PRAHA SPOL. R. O.
|
|
CZECH REPUBLIC |
87. AVERY DENNISON RETAIL INFORMATION SERVICES DE MEXICO, S.A. DE C.V.
|
|
MEXICO |
88. AVERY DENNISON RETAIL INFORMATION SERVICES DOMINICAN REPUBLIC, S.A.
|
|
DOMINICAN REPUBLIC |
89. AVERY DENNISON RETAIL INFORMATION SERVICES GUATEMALA, S.A.
|
|
GUATEMALA |
90. AVERY DENNISON RFID COMPANY
|
|
U.S.A. |
91. AVERY DENNISON RINKE GMBH
|
|
GERMANY |
92. AVERY DENNISON RIS KOREA LTD.
|
|
KOREA |
93. AVERY DENNISON RIS LANKA (PRIVATE) LIMITED
|
|
SRI LANKA |
94. AVERY DENNISON SCANDINAVIA APS
|
|
DENMARK |
95. AVERY DENNISON SCHWEIZ AG
|
|
SWITZERLAND |
96. AVERY DENNISON SECURITY PRINTING EUROPE APS
|
|
DENMARK |
97. AVERY DENNISON SHARED SERVICES, INC.
|
|
U.S.A. |
98. AVERY DENNISON SINGAPORE (PTE) LTD
|
|
SINGAPORE |
99. AVERY DENNISON SOUTH AFRICA (PROPRIETARY) LIMITED
|
|
SOUTH AFRICA |
100. AVERY DENNISON SUOMI OY
|
|
FINLAND |
101. AVERY DENNISON SVERIGE AB
|
|
SWEDEN |
102. AVERY DENNISON SYSTEMES DETIQUETAGE FRANCE S.A.S.
|
|
FRANCE |
103. AVERY DENNISON TAIWAN LIMITED
|
|
TAIWAN |
104. AVERY DENNISON U.K. LIMITED
|
|
UNITED KINGDOM |
105. AVERY DENNISON VERMOGENSVERWALTUNGS GMBH & CO K.G.
|
|
GERMANY |
2
|
|
|
|
|
JURISDICTION |
|
|
IN WHICH |
NAME OF CURRENT SUBSIDIARY |
|
ORGANIZED |
106. AVERY DENNISON VERWALTUNGS GMBH
|
|
GERMANY |
107. AVERY DENNISON ZWECKFORM AUSTRIA GMBH
|
|
AUSTRIA |
108. AVERY DENNISON ZWECKFORM OFFICE PRODUCTS EUROPE GMBH
|
|
GERMANY |
109. AVERY DENNISON ZWECKFORM OFFICE PRODUCTS MANUFACTURING GMBH
|
|
GERMANY |
110. AVERY DENNISON ZWECKFORM UNTERSTUTZUNGSKASSE GMBH
|
|
GERMANY |
111. AVERY DENNISON (ASIA) HOLDINGS LIMITED
|
|
MAURITIUS |
112. AVERY DENNISON (BANGLADESH) LTD.
|
|
BANGLADESH |
113. AVERY DENNISON (FIJI) LIMITED
|
|
FIJI |
114. AVERY DENNISON (FUZHOU) CONVERTED PRODUCTS LIMITED
|
|
CHINA |
115. AVERY DENNISON (GUANGZHOU) CO. LTD.
|
|
CHINA |
116. AVERY DENNISON (GUANGZHOU) CONVERTED PRODUCTS LIMITED
|
|
CHINA |
117. AVERY DENNISON (HONG KONG) LIMITED
|
|
HONG KONG |
118. AVERY DENNISON (INDIA) PRIVATE LIMITED
|
|
INDIA |
119. AVERY DENNISON (IRELAND) LIMITED
|
|
IRELAND |
120. AVERY DENNISON (KUNSHAN) CO., LIMITED
|
|
CHINA |
121. AVERY DENNISON (MALAYSIA) SDN. BHD.
|
|
MALAYSIA |
122. AVERY DENNISON (QINGDAO) CONVERTED PRODUCTS COMPANY LIMITED
|
|
CHINA |
123. AVERY DENNISON (SUZHOU) CO. LIMITED
|
|
CHINA |
124. AVERY DENNISON (THAILAND) LTD.
|
|
THAILAND |
125. AVERY DENNISON (VIETNAM) LIMITED
|
|
VIETNAM |
126. AVERY DENNISON, S.A. DE C.V.
|
|
MEXICO |
127. AVERY DENNISON-MAXELL K. K.
|
|
JAPAN |
128. AVERY GRAPHIC SYSTEMS, INC.
|
|
U.S.A. |
129. AVERY GUIDEX LIMITED
|
|
UNITED KINGDOM |
130. AVERY HOLDING LIMITED
|
|
UNITED KINGDOM |
131. AVERY HOLDING S.A.S.
|
|
FRANCE |
132. AVERY PACIFIC LLC
|
|
U.S.A. |
133. AVERY PROPERTIES PTY. LIMITED
|
|
AUSTRALIA |
134. AVERY, INC.
|
|
U.S.A. |
135. DENNISON COMERCIO, IMPORTACAS E EXPORTACAO LTDA.
|
|
BRAZIL |
136. DENNISON DEVELOPMENT ASSOCIATES
|
|
U.S.A. |
137. DENNISON INTERNATIONAL COMPANY
|
|
U.S.A. |
138. DENNISON IRELAND LIMITED
|
|
IRELAND |
139. DENNISON MANUFACTURING COMPANY
|
|
U.S.A. |
140. DMC DEVELOPMENT CORPORATION
|
|
U.S.A. |
141. FASSON CANADA INC.
|
|
CANADA |
142. FASSON PORTUGAL PRODUTOS AUTO-ADESIVOS LDA.
|
|
PORTUGAL |
143. INDUSTRIAL DE MARCAS LTDA
|
|
COLOMBIA |
144. JAC (U.K.) LIMITED
|
|
UNITED KINGDOM |
145. JAC ASIA PACIFIC PTY LTD.
|
|
AUSTRALIA |
146. JAC ASIA PACIFIC SDN BHD
|
|
MALAYSIA |
147. JAC AUSTRALIA PTY LTD.
|
|
AUSTRALIA |
148. JAC CARIBE C.S.Z.
|
|
DOMINICAN REPUBLIC |
149. JAC DO BRASIL LTDA.
|
|
BRAZIL |
150. JAC NEW ZEALAND LIMITED
|
|
NEW ZEALAND |
151. JACKSTADT FRANCE SAR
|
|
FRANCE |
152. JACKSTADT FRANCE SNC
|
|
FRANCE |
153. JACKSTADT GMBH
|
|
GERMANY |
154. JACKSTADT SOUTH AFRICA (PTY) LTD.
|
|
SOUTH AFRICA |
155. JACKSTADT VERMOGENSVERWALTUNGS GMB
|
|
GERMANY |
156. L&E AMERICAS SERVICIOS, S.A. DE C.V.
|
|
MEXICO |
157. L&E PACKAGING FAR EAST LIMITED
|
|
HONG KONG |
3
|
|
|
|
|
JURISDICTION |
|
|
IN WHICH |
NAME OF CURRENT SUBSIDIARY |
|
ORGANIZED |
158. MODERN MARK INTERNATIONAL LIMITED
|
|
HONG KONG |
159. MONARCH INDUSTRIES, INC.
|
|
U.S.A. |
160. PT AVERY DENNISON INDONESIA
|
|
INDONESIA |
161. PT AVERY DENNISON PACKAGING INDONESIA
|
|
INDONESIA |
162. RINKE DIS TISCARET LTD
|
|
TURKEY |
163. RINKE ETIKET SERVIS SANAYI VE TICARET LTD SIRKETI
|
|
TURKEY |
164. RINKE FAR EAST LTD
|
|
HONG KONG |
165. RIPRO FAR EAST LTD
|
|
HONG KONG |
166. RVL AMERICAS, S DE R.L. DE C.V.
|
|
MEXICO |
167. RVL CENTRAL AMERICA, S.A.
|
|
GUATEMALA |
168. RVL PACKAGING FAR EAST LIMITED
|
|
HONG KONG |
169. RVL PACKAGING INDIA PRIVATE LIMITED
|
|
INDIA |
170. RVL PACKAGING MIDDLE EAST F.Z.C.
|
|
UNITED ARAB EMIRATES |
171. RVL PACKAGING SINGAPORE PTE LTD.
|
|
SINGAPORE |
172. RVL PACKAGING TAIWAN LTD.
|
|
TAIWAN |
173. RVL PACKAGING, INC.
|
|
U.S.A. |
174. RVL PHILIPPINES, INC.
|
|
PHILIPPINES |
175. RVL PRINTED LABEL FAR EAST LIMITED
|
|
HONG KONG |
176. RVL PRINTED LABELS, LLC
|
|
U.S.A. |
177. RVL SERVICE, S. DE R. L. DE C.V.
|
|
MEXICO |
178. SECURITY PRINTING DIVISION, INC.
|
|
U.S.A. |
179. SPARTAN INTERNATIONAL, INC.
|
|
U.S.A. |
180. SPARTAN PLASTICS CANADA, LTD
|
|
CANADA |
181. STIMSONITE AUSTRALIA PTY LIMITED
|
|
AUSTRALIA |
182. STIMSONITE CORPORATION
|
|
U.S.A. |
183. STIMSONITE DO BRASIL LTDA
|
|
BRAZIL |
184. STIMSONITE EUROPA LIMITED
|
|
UNITED KINGDOM |
185. STIMSONITE INTERNATIONAL, INC.
|
|
U.S.A. |
186. TIADECO PARTICIPACOES, LTDA.
|
|
BRAZIL |
187. UNIVERSAL PACKAGING & DESIGN, LTD.
|
|
HONG KONG |
188. WORLDWIDE RISK INSURANCE, INC.
|
|
U.S.A. |
4
exv24
Exhibit 24
Power of Attorney
|
|
WHEREAS, Avery Dennison Corporation, a Delaware corporation (the Company), proposes to file
with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of
1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 2005; and |
|
|
|
WHEREAS, the undersigned is a director of the Company; |
|
|
|
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Daniel R. OBryant and
Robert G. van Schoonenberg, and each of them, as attorneys-in-fact for and in the name, place and
stead of the undersigned, and in the capacity of the undersigned as a director of the Company, to
execute the above referenced Form 10-K and any amendments or supplements thereto, hereby giving and
granting to said attorneys-in-fact, full power and authority to do and perform each and every act
and thing required and necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and confirming all that
each attorney-in-fact may or shall lawfully do or cause to be done by virtue of this Power of
Attorney. |
|
|
|
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney effective March 13, 2006. |
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Dean A. Scarborough
Dean A. Scarborough |
|
President and Chief
Executive Officer,
Director
|
|
March 13, 2006 |
/s/ Peter K. Barker
Peter K. Barker |
|
Director
|
|
March 13, 2006 |
/s/ Rolf Börjesson
Rolf Börjesson |
|
Director
|
|
March 13, 2006 |
/s/ John T. Cardis
John T. Cardis |
|
Director
|
|
March 13, 2006 |
/s/ Richard M. Ferry
Richard M. Ferry |
|
Director
|
|
March 13, 2006 |
/s/ Kent Kresa
Kent Kresa |
|
Chairman,
Director
|
|
March 13, 2006 |
/s/ Peter W. Mullin
Peter W. Mullin |
|
Director
|
|
March 13, 2006 |
/s/ David E. I. Pyott
David E. I. Pyott |
|
Director
|
|
March 13, 2006 |
/s/ Patrick T. Siewert
Patrick T. Siewert |
|
Director
|
|
March 13, 2006 |
/s/ Julia A. Stewart
Julia A. Stewart |
|
Director
|
|
March 13, 2006 |
exv31w1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
CERTIFICATION
I, Dean A. Scarborough, certify that:
|
|
|
|
1. |
I have reviewed this annual report on Form 10-K of Avery
Dennison Corporation; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report; |
|
|
4. |
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for
the registrant and we have: |
|
|
|
|
a) |
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared; |
|
|
|
|
b) |
designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; |
|
|
c) |
evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and |
|
|
d) |
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and |
|
|
|
|
5. |
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent function): |
|
|
|
|
a) |
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and |
|
|
b) |
any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting. |
|
|
|
/s/ Dean A. Scarborough
|
|
|
|
Dean A. Scarborough |
|
President and Chief Executive Officer |
March 13, 2006
exv31w2
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
CERTIFICATION
I, Daniel R. OBryant, certify that:
|
|
|
|
1. |
I have reviewed this annual report on Form 10-K of Avery
Dennison Corporation; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report; |
|
|
|
|
4. |
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for
the registrant and we have: |
|
|
|
|
a) |
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared; |
|
|
b) |
designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; |
|
|
c) |
evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and |
|
|
d) |
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and |
|
|
|
|
5. |
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent function): |
|
|
|
|
a) |
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and |
|
|
b) |
any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting. |
|
|
|
/s/ Daniel R.
OBryant
|
|
|
|
Daniel R. OBryant |
|
Executive Vice President, Finance, and |
|
Chief Financial Officer |
March 13, 2006
exv32w1
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER*
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
Pursuant to 18 U.S.C. Section 1350, as created by
Section 906 of the Sarbanes-Oxley Act of 2002, the
undersigned officer of Avery Dennison Corporation (the
Company) hereby certifies, to the best of his
knowledge, that:
|
|
|
|
(i) |
the Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 2005 (the
Report) fully complies with the requirements of
Section 13(a) or Section 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended; and |
|
|
|
|
(ii) |
the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company. |
Dated: March 13, 2006
|
|
|
/s/ Dean A. Scarborough
|
|
|
|
Dean A. Scarborough |
|
President and Chief Executive Officer |
|
|
* |
The above certification accompanies the issuers Annual
Report on Form 10-K and is furnished, not filed, as
provided in SEC Release
33-8238, dated June 5, 2003. |
exv32w2
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER*
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
Pursuant to 18 U.S.C. Section 1350, as created by
Section 906 of the Sarbanes-Oxley Act of 2002, the
undersigned officer of Avery Dennison Corporation (the
Company) hereby certifies, to the best of his
knowledge, that:
|
|
|
|
(i) |
the Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 2005 (the
Report) fully complies with the requirements of
Section 13(a) or Section 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended; and |
|
|
|
|
(ii) |
the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company. |
Dated: March 13, 2006
|
|
|
/s/ Daniel R.
OBryant
|
|
|
|
Daniel R. OBryant |
|
Executive Vice President, Finance, and |
|
Chief Financial Officer |
|
|
* |
The above certification accompanies the issuers Annual
Report on Form 10-K and is furnished, not filed, as
provided in SEC Release 33-8238, dated June 5, 2003. |