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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7685
AVERY DENNISON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1492269
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
150 NORTH ORANGE GROVE BOULEVARD 91103
PASADENA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (626) 304-2000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH
EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
------------------- -----------------
Common stock, $1 par value New York Stock Exchange
Pacific Exchange
Preferred Share Purchase Rights New York Stock Exchange
Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act:
Not applicable.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates as of
February 24, 1998, was approximately $5,081,410,848.
Number of shares of common stock, $1 par value, outstanding as of February
24, 1998: 118,069,484.
The following documents are incorporated by reference into the Parts of this
report below indicated:
DOCUMENT INCORPORATED BY REFERENCE INTO:
-------- -------------------------------
Annual Report to Shareholders for fiscal
year ended December 27, 1997 (the "1997
Annual Report")........................ PARTS I, II
Definitive Proxy Statement for Annual
Meeting of Stockholders to be held
April 23, 1998 (the "1998 Proxy
Statement")............................ PARTS III, IV
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PART I
ITEM 1. BUSINESS
Avery Dennison Corporation ("Registrant") was incorporated in 1977 in the
state of Delaware as Avery International Corporation, the successor
corporation to a California corporation of the same name which was
incorporated in 1946. In 1990, Registrant merged one of its subsidiaries into
Dennison Manufacturing Company ("Dennison"), as a result of which Dennison
became a wholly owned subsidiary of Registrant, and in connection with which
Registrant's name was changed to Avery Dennison Corporation.
The business of Registrant and its subsidiaries (Registrant and its
subsidiaries are sometimes hereinafter referred to as the "Company") include
the production of pressure-sensitive adhesives and materials and the
production of consumer and converted products. Some pressure-sensitive
adhesives and materials are "converted" into labels and other products through
embossing, printing, stamping and die-cutting, and some are sold in
unconverted form as base materials, tapes and reflective sheeting. The Company
also manufactures and sells a variety of consumer and converted products and
other items not involving pressure-sensitive components, such as notebooks,
three-ring binders, organizing systems, markers, glues, fasteners, business
forms, tickets, tags, and imprinting equipment.
A self-adhesive material is one that adheres to a surface by mere press-on
contact. It consists of four elements--a face material, which may be paper,
metal foil, plastic film or fabric; an adhesive which may be permanent or
removable; a release coating; and a backing material to protect the adhesive
against premature contact with other surfaces, and which can also serve as the
carrier for supporting and dispensing individual labels. When the products are
to be used, the release coating and protective backing are removed, exposing
the adhesive, and the label or other device is pressed or rolled into place.
Self-adhesive materials may initially cost more than materials using heat or
moisture activated adhesives, but their use often effects substantial cost
savings because of their easy and instant application, without the need for
adhesive activation. They also provide consistent and versatile adhesion,
minimum adhesive deterioration and are available in a large selection of
materials in nearly any size, shape or color.
International operations, principally in Western Europe, constitute a
significant portion of the Company's business. In addition, the Company is
currently expanding its operations in Asia Pacific, Latin America and Eastern
Europe. The Company manufactures and sells its products from 200 manufacturing
facilities and sales offices located in 39 countries, and employs a total of
approximately 16,200 persons worldwide. The Company is subject to certain
risks referred to in Exhibit 99 hereto, including those normally attending
international operations, such as changes in economic conditions, currency
fluctuation, exchange control regulations and the effect of international
relations and domestic affairs of foreign countries on the conduct of
business.
Except as set forth below, no material part of the Company's business is
dependent upon a single customer or a few customers and the loss of a
particular customer or a few customers would not have a material adverse
effect on the Company's business. Sales of the Company's U.S. consumer
products are increasingly concentrated in a small number of major customers,
principally discount office products superstores and distributors (see Note 4
of Notes to Consolidated Financial Statements on page 41 of the 1997 Annual
Report, which is incorporated by reference). United States export sales are an
insignificant part of the Company's business. Backlogs are not considered
material in the industries in which the Company competes.
PRESSURE-SENSITIVE ADHESIVES AND MATERIALS SECTOR
The Pressure-Sensitive Adhesives and Materials sector manufactures and sells
Fasson- and Avery Dennison-brand pressure-sensitive base materials, specialty
tapes, marking films and chemicals. Base materials consist primarily of
papers, fabrics, plastic films and metal foils which are primed and coated
with Company-developed and purchased adhesives, and then laminated with
specially coated backing papers and films for protection. They
1
are sold in roll or sheet form with either solid or patterned adhesive
coatings, and are available in a wide range of face materials, sizes,
thicknesses and adhesive properties. The business of this sector is not
seasonal.
Base material products consist of a wide range of pressure-sensitive coated
papers, films and foils which are sold to label printers and converters for
labeling, decorating, fastening, electronic data processing and special
applications. Other product offerings include paper and film stock for use in
a variety of industrial, commercial and consumer applications. The Company
also manufactures and sells proprietary film face stocks, release-coated
materials and specialty insulation paper.
Specialty tape products are single- and double-coated tapes and transfer
adhesives for use in non-mechanical fastening systems in various industries
and are sold to industrial and medical converters, original equipment
manufacturers and disposable-diaper producers worldwide.
Marking films products consist of a variety of films and other products sold
to the worldwide automotive, architectural, commercial sign, digital,
printing, and graphics markets. The Company also sells durable cast and
reflective films to the construction, automotive, fleet transportation, sign
and industrial equipment markets, and reflective films for government and
traffic applications. In addition, the Company sells specialty print-receptive
films to the industrial label market, metallic dispersion products to the
packaging industry and proprietary woodgrain film laminates for housing
exteriors and automotive applications. During 1997, the Company reorganized
its marking films businesses on a worldwide basis to serve, in a more focused
manner, the expanding commercial graphic arts market, including wide-format
digital printing applications.
Chemical products include a range of solvent and emulsion-based acrylic
polymer adhesives, protective coatings and binders for internal uses as well
as for sale to other companies.
During 1997, the Company established a distribution center in India to
market and sell a variety of pressure-sensitive materials. In early 1998, the
Company acquired base materials manufacturing capabilities in Colombia.
The Company competes, both domestically and internationally, with a number
of medium to large firms. Entry of competitors into the field of pressure-
sensitive adhesives and materials is limited by high capital requirements and
a need for sophisticated technical know-how.
CONSUMER AND CONVERTED PRODUCTS SECTOR
The Consumer and Converted Products sector manufactures and sells a wide
range of Avery-brand consumer products, custom label products, specialty
automotive films and labels and fastening devices. The business of this sector
is not seasonal except for certain consumer products sold during the back-to-
school season.
The Company's principal consumer products are generally sold worldwide
through wholesalers and dealers, mass market channels of distribution, and
discount superstores. The Company manufactures and sells a wide range of
Avery-brand products for home, school and office uses, including copier, laser
and ink-jet printer labels, related computer software, presentation and
organizing systems, laser-printer card and index products; data-processing
labels; notebooks; notebook and presentation dividers; three-ring binders;
sheet protectors; and various vinyl and heat-sealed products. A wide range of
other stationery products is offered, including children's laser and ink-jet
labels, markers, adhesives and specialty products under brand names such as
Avery, Avery Kids, Marks-A-Lot and HI-LITER, and accounting products, note
pads and business forms under the Avery and National brand names. The extent
of product offerings varies by geographic market. Operations in Latin America,
Asia Pacific and Europe have been established to market and distribute the
Avery-brand line of stock self-adhesive products, including copier, laser and
ink-jet labels and related software; laser printed card products and other
unprinted labels.
Custom label products in North America primarily consist of custom pressure-
sensitive and heat-transfer labels for automotive and durable goods industries
and custom pressure-sensitive labels and specialty combination products for
the electronic data-processing market. These products are sold directly to
2
manufacturers and packagers and retailers, as well as through international
subsidiaries, distributors and licensees. Label products in Europe include
custom and stock labels, labeling machinery and data printing systems, which
are marketed to a wide range of industrial and retail users.
The Company designs, fabricates and sells a wide variety of tags and labels,
including bar-coded tags and labels, and a line of machines for imprinting,
dispensing and attaching preprinted roll tags and labels. The machine products
are generally designed for use with tags and labels as a complete system. The
Company also designs, assembles and sells labeling systems for integration
into a customer's shipping and receiving operations. Principal markets include
apparel, retail and industrial companies for identification, tracking and
control applications principally in North America, Europe and Asia Pacific.
Fastener products include plastic tying and attaching products for retail and
industrial users. These products are sold directly to end users and
internationally through subsidiaries, as well as through distributors and
licensees in other countries.
The Company also manufactures and sells on-battery testing labels to battery
manufacturers, and self-adhesive stamps to the U.S. and international postal
services. The Company is an integrated supplier of adhesive coating, security
printing and converting technologies for postage stamp production. Specialty
automotive films products are used for interior and exterior vehicle finishes,
striping decoration and identification. Other products include pressure-
sensitive sheeted and die-cut papers and films, which are sold through fine-
paper merchants.
During 1997, the Company acquired a company in Australia, and broadened its
distribution of Avery-brand products in Asia Pacific and Latin America.
The Company competes, both domestically and internationally, with a number
of small to large firms (among the principal competitors are Esselte AB,
Fortune Brands, Inc. and Minnesota Mining and Manufacturing Co.). The Company
believes that its ability to service its customers with an extensive product
line; its distribution strength; its ability to develop internally and to
commercialize successfully new products; its diverse technical foundation,
including a range of electronic imprinting and automatic labeling systems, are
among the more significant factors in developing and maintaining its
competitive position.
RESEARCH AND DEVELOPMENT
Many of the Company's current products are the result of its own research
and development efforts. The Company expended $61.1 million, $54.6 million,
and $52.7 million in 1997, 1996 and 1995, respectively, on research related
activities by operating units and the Avery Research Center (the "Research
Center"), located in Pasadena, California. A substantial amount of the
Company's research and development activities are conducted at the Research
Center. Much of the effort of the Research Center applies to both of the
Company's industry sectors.
The operating units' research efforts are directed primarily toward
developing new products and processing operating techniques and improving
product performance, often in close association with customers. The Research
Center supports the operating units' patent and product development work, and
focuses on research and development in new adhesives, materials and coating
processes. Research and development generally focuses on projects affecting
more than one industry sector in such areas as printing and coating
technologies, and adhesive, release, coating and ink chemistries.
The loss of any of the Company's individual patents or licenses would not be
material to the business of the Company taken as a whole, nor to either one of
the Company's industry sectors except those referred to above. The Company's
principal trademarks are Avery, Fasson and Avery Dennison. These trademarks
are significant in the markets in which the Company's products compete.
3
THREE-YEAR SUMMARY OF SECTOR INFORMATION
The Business Sector Information attributable to the Company's operations for
the three years ended December 27, 1997, which appears in Note 10 of Notes to
Consolidated Financial Statements on pages 46 through 48 of the 1997 Annual
Report, is incorporated herein by reference.
OTHER MATTERS
The raw materials used by the Company are primarily paper, plastic and
chemicals which are purchased from a variety of commercial and industrial
sources. Although from time to time shortages could occur, these raw materials
are currently generally available.
At present, the Company produces a majority of its self-adhesive materials
using non-solvent technology. However, a significant portion of the Company's
manufacturing process for self-adhesive materials utilizes certain evaporative
organic solvents which, unless controlled, would be emitted into the
atmosphere. Emissions of these substances are regulated by instrumentalities of
federal, state, local and foreign governments. During the past several years,
the Company has made a substantial investment in solvent capture and control
units and solvent-free systems. Installation of these units and systems has
reduced atmospheric emissions and the Company's requirements for solvents.
Major research efforts have been directed toward development of new adhesives
and solvent-free adhesive processing systems. Emulsion and hot-melt adhesives
and solventless silicone systems have been installed in the Company's
facilities in Peachtree City, Georgia; Fort Wayne and Greenfield, Indiana;
Rancho Cucamonga, California; Quakertown, Pennsylvania; Rodange, Luxembourg;
Turnhout, Belgium; Hazerswoude, The Netherlands; and Cramlington, England, as
well as other plants in the United States, Australia, Brazil, France, Germany,
Korea, China and India.
The Company does not believe that the costs of complying with applicable laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, will have a material effect upon
the capital expenditures, earnings or competitive position of the Company.
The Company wishes to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, and is including Exhibit 99
to this filing to incorporate this safe harbor statement.
For information regarding the Company's potential responsibility for cleanup
costs at certain hazardous waste sites, see "Legal Proceedings" (Part I, Item
3) and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" (Part II, Item 7). For information regarding the Company's
actions to address the Year 2000 Issue, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (Part II, Item 7).
ITEM 2. PROPERTIES
The Company operates approximately 28 principal manufacturing facilities
ranging in size from approximately 100,000 square feet to approximately 370,000
square feet and totaling over 5 million square feet. The following sets forth
the locations of such principal facilities and the business sectors for which
they are presently used:
PRESSURE-SENSITIVE ADHESIVES AND MATERIALS SECTOR
Domestic--Painesville and Fairport, Ohio; Peachtree City, Georgia;
Quakertown, Pennsylvania; Rancho Cucamonga, California; Greenfield,
Fort Wayne, Lowell and Schererville, Indiana.
Foreign--Hazerswoude, The Netherlands; Cramlington, England; Champ-sur-Drac,
France; Turnhout, Belgium; Ajax, Canada; Rodange, Luxembourg; and
Haan, Germany.
4
CONSUMER AND CONVERTED PRODUCTS SECTOR
Domestic--Gainesville, Georgia; Rochelle, Illinois; Chicopee and Framingham,
Massachusetts; Meridian, Mississippi; Philadelphia, Pennsylvania;
Clinton, South Carolina; and Crossville, Tennessee.
Foreign--Bowmanville, Canada; La Monnerie and Troyes, France; Hong Kong
(S.A.R.), China and Utrecht, The Netherlands.
In addition to the Company's principal manufacturing facilities described
above, the Company's principal facilities include its corporate headquarters
facility and Research Center in Pasadena, California, and offices located in
Maidenhead, England; Leiden, The Netherlands; Concord, Ohio and Framingham,
Massachusetts.
All of the Company's principal properties identified above are owned in fee
except the facilities in Ajax, Canada; Haan, Germany and small portions of the
facilities in Framingham, Massachusetts; and La Monnerie, France, which are
leased.
All of the buildings comprising the facilities identified above were
constructed after 1954, except parts of the Framingham, Massachusetts plant
and office complex. All buildings owned or leased are well maintained and of
sound construction, and are considered suitable and generally adequate for the
Company's present needs. The Company will expand capacity and provide
facilities to meet future increased demand as needed. Owned buildings and
plant equipment are insured against major losses from fire and other usual
business risks. The Company knows of no material defects in title to, or
encumbrances on, any of its properties except for mortgage liens against four
other facilities not listed separately above.
ITEM 3. LEGAL PROCEEDINGS
The Company, like other U.S. corporations, has periodically received notices
from the U.S. Environmental Protection Agency ("EPA") and state environmental
agencies alleging that the Company is a potentially responsible party ("PRP")
for past and future cleanup costs at hazardous waste sites. The Company has
been designated by the EPA and/or other responsible state agencies as a PRP at
15 waste disposal or waste recycling sites which are the subject of separate
investigations or proceedings concerning alleged soil and/or groundwater
contamination and for which no settlement of the Company's liability has been
agreed upon. Litigation has been initiated by a governmental authority with
respect to two of these sites, but the Company does not believe that any such
proceedings will result in the imposition of monetary sanctions. The Company
is participating with other PRPs at all such sites, and anticipates that its
share of cleanup costs will be determined pursuant to remedial agreements
entered into in the normal course of negotiations with the EPA or other
governmental authorities. The Company has accrued liabilities for all sites,
including sites in which governmental agencies have designated the Company as
a PRP, where it is probable that a loss will be incurred and the amount of the
loss can be reasonably estimated. However, because of the uncertainties
associated with environmental assessment and remediation activities, future
expense to remediate the currently identified sites, and sites which could be
identified in the future for cleanup, could be higher than the liability
currently accrued. Based on current site assessments, management believes the
potential liability over the amounts currently accrued would not materially
affect the Company.
The Registrant and its subsidiaries are involved in various other lawsuits,
claims and inquiries, most of which are routine to the nature of the business.
In the opinion of the Company's management, the resolution of these matters
will not materially affect the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
5
EXECUTIVE OFFICERS OF THE REGISTRANT*
SERVED AS
EXECUTIVE FORMER POSITIONS AND
NAME AGE OFFICER SINCE OFFICES WITH REGISTRANT
- ---- --- ------------- -----------------------
Charles D. Miller....... 70 May 1965 1964-1983 Various positions of
Chairman and Chief increasing responsibility
Executive Officer (also
Director of Registrant)
Philip M. Neal.......... 57 January 1974 1974-1990 Various positions of
President and Chief increasing responsibility
Operating Officer (also
Director of Registrant)
Kim A. Caldwell......... 50 June 1990 1990-1997 Senior Group V.P., Worldwide
Executive Vice Materials--Americas and
President, Global Asia
Technology and New
Business Development
Robert M. Calderoni..... 38 October 1997 **1985-1994 Various positions of
Senior Vice President, increasing responsibility
Finance and Chief at IBM
Financial Officer
**1994-1996 V.P., Finance, IBM Storage
Systems Division
**1996-1997 Senior V.P., Finance, Apple
Computer, Inc.
Robert G. van 51 December 1981 1981-1996 Vice President, General
Schoonenberg........... Counsel and Secretary
Senior Vice President,
General Counsel and
Secretary
Wayne H. Smith.......... 56 June 1979 None
Vice President and
Treasurer
Thomas E. Miller........ 50 March 1994 1973-1993 Various positions of
Vice President and increasing responsibility
Controller
1993-1994 V.P. and Assistant
Controller
Diane B. Dixon.......... 46 December 1985 1985-1997 V.P., Corporate
Vice President, Communications
Worldwide
Communications and
Advertising
Susan B. Garelli........ 46 October 1994 **1991-1993 Senior V.P., Human Resources
Vice President, Human and Corporate
Resources Communications, JWP, Inc.
**1993-1994 Consultant, JWP, Inc.
Lynne M. Galligan....... 47 September 1997 **1977-1994 Various positions of
Vice President, increasing responsibility
Technical Strategic at Dow Corning Corp.
Initiatives and Chief
Technology Officer
**1994-1996 General Manager, Dendritech,
Inc.
**1996-1997 Technical Director, General
Electric Co.
Johan J. Goemans........ 54 October 1992 1975-1992 Various positions of
Vice President, increasing responsibility
Management Information
Systems
6
SERVED AS
EXECUTIVE FORMER POSITIONS AND
NAME AGE OFFICER SINCE OFFICES WITH REGISTRANT
- ---- --- ------------- -----------------------
Geoffrey T. Martin...... 43 January 1994 1992-1993 V.P., Office Products Group
Senior Group Vice Europe
President, Worldwide 1993-1994 Group V.P., Converting and
Converting, Graphic Office Products Europe
Systems and Specialty 1994-1997 Senior V.P., Worldwide Tape
Tapes & Converting and
Materials--Europe
Stephanie A. Streeter... 40 March 1996 1991-1993 V.P. and General Manager,
Group Vice President, Avery Office Labels
Worldwide Office 1993-1996 V.P. and General Manager,
Products Avery Dennison Brands
Dean A. Scarborough,.... 42 August 1997 1990-1995 V.P. and General Manager,
Group Vice President, Fasson Roll Division--
Fasson Roll--North Europe
America and Europe 1995-1997 V.P. and General Manager,
Fasson Roll Division--U.S.
Flavio T. Lacerda....... 51 May 1996 **1991-1994 Latin America Regional
Group Vice President, Manager, Loctite Corp.
Latin America **1995-1996 President for Latin America
and South Africa, Loctite
Corp.
Donald R. McKee......... 61 December 1995 1971-1993 Various positions of
Vice President, Label increasing responsibility
Ventures 1993-1995 V.P. and General Manager,
Soabar Systems Division
1995-1996 V.P., Soabar Products and
Fastener Divisions
1996-1997 Group V.P., Converted and
Fastener Products N.A.
- --------
* All officers are elected to serve a one year term and until their successors
are elected and qualify.
** Business experience prior to service with Registrant.
7
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information called for by this item appears on page 52 of Registrant's
1997 Annual Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of Registrant's last five fiscal years
appears on pages 26 and 27 of Registrant's 1997 Annual Report and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
1997 1996 1995
-------- -------- --------
(DOLLARS IN MILLIONS)
Net sales........................................ $3,345.7 $3,222.5 $3,113.9
Cost of products sold............................ 2,263.0 2,204.2 2,156.6
-------- -------- --------
Gross profit..................................... 1,082.7 1,018.3 957.3
Marketing, general and administrative expense.... 739.8 712.4 689.8
Net gain on divestitures and restructuring
charges......................................... -- 2.1 1.5
-------- -------- --------
Earnings before interest and taxes............... $ 342.9 $ 308.0 $ 269.0
Sales increased 3.8 percent to $3.35 billion in 1997, compared to $3.22
billion in 1996. Excluding changes in foreign currency exchange rates, sales
increased 6.6 percent. In 1996, sales increased 3.5 percent over 1995 sales of
$3.11 billion. Excluding the impact of business divestitures and changes in
foreign currency exchange rates for 1996, sales increased 6.4 percent. During
the fourth quarter of 1995, the Company sold a portion of its North American
label converting operations. These businesses accounted for approximately 2
percent of the Company's 1995 total sales.
Gross profit margins for the years ended 1997, 1996 and 1995 were 32.4
percent, 31.6 percent and 30.7 percent, respectively. The improvement in 1997
over 1996 was primarily due to increased productivity, cost control and an
improved product mix. The improvement in 1996 over 1995 was primarily
attributable to an improved product mix, new products, cost reduction and
control programs and increased capacity utilization. Gross profit margins were
also impacted by a $4.2 million and $3.2 million LIFO benefit reported during
1997 and 1996, respectively.
Marketing, general and administrative expense as a percent of sales was 22.1
percent in 1997 and 1996 and 22.2 percent in 1995. The expense for 1997
benefited from cost control and lower costs for certain employee benefit
plans; however, these benefits were offset by increased expenditures for
marketing, and research and development activities. The improvement in 1996
over 1995 was primarily attributable to cost control and reduction efforts
throughout the Company and was achieved despite major investments in
geographic expansion, business realignment and new product programs.
During the third quarter of 1996, restructuring actions were taken,
resulting in a net pretax gain of $2.1 million. The Company sold its equity
interest in a label operation in Japan for $28.4 million, resulting in a
pretax gain of $17.9 million. The Company also recorded $15.8 million of
restructuring charges, which included an asset impairment write-down of $6.3
million for long-lived assets held in the Company's Consumer and converted
products sector. The restructuring program also included the reorganization of
certain manufacturing, distribution and administrative sites. These costs
consisted of severance and related costs for approximately
8
200 positions worldwide ($7.4 million) and the discontinuance of product lines
and related asset write-offs ($2.1 million). These actions were completed
during the third quarter of 1997 and are expected to result in estimated
annual savings of approximately $9 million to $11 million.
Business restructuring actions taken during the fourth quarter of 1995
resulted in a net pretax gain of $1.5 million. Certain businesses which no
longer met the Company's strategy for converting technology were sold for $95
million. A $40.7 million pretax gain on the sale of these businesses was
offset by restructuring charges of $39.2 million, which included the closure
of four plants and the reorganization of certain manufacturing, distribution
and administrative sites. These costs consisted of severance and related costs
for approximately 400 positions worldwide ($16.2 million), discontinuance of
product lines and related asset write-offs ($13.1 million), and plant closure
and other costs ($9.9 million). This program was completed at year-end 1997
and is expected to result in estimated annual savings of $14 million to $17
million.
Interest expense for the years ended 1997, 1996 and 1995 was $31.7 million,
$37.4 million and $44.3 million, respectively. The decrease in 1997 was
primarily due to lower weighted-average interest rates and lower average
borrowings. The decrease in 1996 was primarily due to the expiration of
interest rate swap agreements during the fourth quarter of 1995 and an overall
lower cost of borrowing.
Income before taxes, as a percent of sales, was 9.3 percent for 1997, 8.4
percent for 1996 and 7.2 percent for 1995. The improvement during 1997 and
1996 was primarily due to higher gross profit margins and lower interest
expense as a percent of sales. The effective tax rate was 34.2 percent in
1997, 35 percent in 1996 and 36 percent in 1995. The decrease in 1997 was
primarily due to the utilization of foreign tax loss carryforwards and an
increase in U.S. tax credits for research and experimentation. The Company
estimates that the effective tax rate for 1998 will be 34- to-35 percent.
1997 1996 1995
------ ------ ------
(IN MILLIONS, EXCEPT
PER
SHARE AMOUNTS)
Net income............................................. $204.8 $175.9 $143.7
Net income per common share............................ 1.99 1.68 1.35
Net income per common share, assuming dilution......... 1.93 1.63 1.32
Net income increased to $204.8 million in 1997 compared to $175.9 million in
1996, reflecting a 16.4 percent increase over 1996. Net income in 1995 was
$143.7 million. Net income, as a percent of sales, was 6.1 percent, 5.5
percent and 4.6 percent in 1997, 1996 and 1995, respectively.
Net income per common share increased to $1.99 in 1997 compared to $1.68 in
1996, an 18.5 percent improvement. Net income per common share was $1.35 in
1995. Net income per common share, assuming dilution, was $1.93 in 1997
compared to $1.63 in 1996, an 18.4 percent increase. Net income per common
share, assuming dilution was $1.32 in 1995.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share", during the fourth quarter of 1997. All prior year
net income per share data, as shown above, has been restated in accordance
with the new standard.
RESULTS OF OPERATIONS BY BUSINESS SECTOR
PRESSURE-SENSITIVE ADHESIVES AND MATERIALS:
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
Net sales........................................ $1,741.4 $1,702.6 $1,589.7
Income from operations before interest and taxes. 170.1 159.1 145.0
9
The Pressure-sensitive adhesives and materials sector reported increased
sales and profitability for 1997 compared to 1996. The U.S. operations' sales
growth was primarily led by increased sales volume for products in its
pharmaceutical, variable imprint and graphics businesses; however, sales were
partially impacted by paper price deflation and product mix. Income from the
U.S. operations benefited from improved capacity utilization and the extent of
restructuring charges taken in 1996 compared to 1997. The international
businesses reported increased sales and profitability primarily due to higher
unit volume and geographic expansion, which were partially offset by changes
in foreign currency rates.
The Pressure-sensitive adhesives and materials sector reported increased
sales and income for 1996 compared to 1995. The sector's income results
include restructuring charges of $7.1 million in 1996 and $15.1 million in
1995. The U.S. operations reported sales growth for the year primarily due to
increased volume and new products. Profitability improved as a result of cost
reduction actions, increased capacity utilization and improved operating
efficiencies. The international businesses reported increased sales primarily
due to its geographic expansion in emerging markets and increased volume.
Profitability for the international businesses increased primarily due to the
extent of restructuring charges taken in 1995 compared to 1996. This increase
was partially offset by costs related to continued investments in geographic
expansion and major equipment start-up costs.
CONSUMER AND CONVERTED PRODUCTS:
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
Net sales........................................ $1,752.6 $1,660.8 $1,583.5
Income from operations before interest and taxes. 192.6 160.6 147.8
The Consumer and converted products sector reported increased sales and
profitability for 1997 compared to 1996. Increased sales in the U.S.
operations continued to be led by growth of its Avery-brand products, new
products and other consumer products. Profitability in the U.S. businesses
improved primarily as a result of its Avery-brand products, new products and
an improved product mix. Sales for the international businesses in 1997 were
comparable to 1996. Sales for 1997 benefited from geographic expansion;
however, this increase was offset by changes in foreign currency rates and
sales declines at certain European operations. Profitability for the
international businesses was primarily impacted by operations in France,
decreased sales at other select European operations due to the softness of
certain economies, and investment for the market expansion of new products.
The Consumer and converted products sector reported increased sales and
profitability for 1996 compared to 1995. The sector's income results include
restructuring charges of $8.7 million for 1996 compared to a $16.6 million net
gain on divestitures and restructuring charges in 1995. The U.S. operations
reported increased sales primarily due to the growth of its battery label
business and for its Avery-brand products. Profitability improved primarily
due to increased sales volume, new products and operating improvements,
including lower distribution expenses. The international businesses reported
higher sales due to geographic expansion and growth of its office label
businesses; however, this sales increase was partially offset by sales
declines in a portion of the French operations. Profitability in 1996 for the
international businesses was comparable to 1995. Profit improvements from cost
control programs and product pruning were offset by lower sales in one of the
French operations and start-up costs related to geographic expansion.
FINANCIAL CONDITION
Average working capital, excluding short-term debt, as a percent of sales
was 8 percent in 1997, 9.1 percent in 1996 and 9.6 percent in 1995. The
decrease in 1997 was primarily due to increased sales, reduced days sales
outstanding in accounts receivable, improved inventory turnover and better
payables management programs. The decrease in 1996 was primarily due to higher
sales and an increase in current liabilities. Average inventory turnover was
9.5 turns in 1997, 9.3 turns in 1996 and 9 turns in 1995; the average number
of days sales outstanding in accounts receivable was 52 days in 1997 and 55
days in 1996 and 1995.
10
Net cash flow from operating activities was $368.4 million in 1997, $304
million in 1996 and $187.9 million in 1995. The increase in net cash flow in
1997 and 1996 was primarily due to changes in working capital requirements and
the Company's improved profitability.
Total debt decreased $19.2 million to $447.7 million compared to year end
1996. Total debt to total capital was 34.8 percent at year end 1997 compared
to 35.9 percent at year end 1996. Long-term debt as a percent of total long-
term capital increased to 32.6 percent from 30.8 percent at year end 1996.
In October 1996, the Company established the Avery Dennison Corporation
Employee Stock Benefit Trust (the "ESBT") to fund a portion of the Company's
obligations arising from various current and future employee benefit plans. As
a result, the Company sold 18 million shares of treasury stock to the ESBT at
fair market value. This transaction had no impact on the Company's financial
condition. The ESBT has a 15-year life during which it will utilize the stock
to satisfy certain Company obligations. The market value of shares held in the
ESBT, after the issuance of shares under the Company's stock and incentive
plans, increased by $85.4 million to $729.7 million from year end 1996.
Shareholders' equity increased to $837.2 million from $832 million at year
end 1996. During 1997, the Company repurchased 2.5 million shares of common
stock at a cost of $99.3 million. As of year end 1997, a cumulative 27.9
million shares of common stock had been purchased since 1991 and 2.5 million
shares remained available for repurchase under the Board of Directors'
authorization.
The return on average shareholders' equity was 24.8 percent in 1997, 21.4
percent in 1996 and 18.6 percent in 1995. The return on average total capital
for those three years was 18.1 percent, 16.4 percent and 14.4 percent,
respectively. The improvements in 1997 and 1996 for these returns were
primarily due to an increase in profitability, more effective utilization of
the Company's assets and the impact from share repurchases.
The Company, like other U.S. corporations, has periodically received notices
from the U.S. Environmental Protection Agency and state environmental agencies
alleging that the Company is a potentially responsible party (PRP) for past
and future cleanup costs at hazardous waste sites. The Company has received
requests for information, notices and/or claims with respect to 15 waste sites
in which the Company has no ownership interest. Litigation has been initiated
by a governmental authority with respect to two of these sites, but the
Company does not believe that any such proceedings will result in the
imposition of monetary sanctions. Environmental investigatory and remediation
projects are also being undertaken on property presently owned by the Company.
The Company has accrued liabilities for all sites where it is probable that a
loss will be incurred and the minimum cost or amount of the loss can be
reasonably estimated. However, because of the uncertainties associated with
environmental assessments and remediation activities, future expense to
remediate the currently identified sites, and sites which could be identified
in the future for cleanup, could be higher than the liability currently
accrued. Based on current site assessments, management believes that the
potential liability over the amounts currently accrued would not materially
affect the Company.
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash flow from operations, the Company has more than adequate
financing arrangements, at competitive rates, to conduct its operations.
During the fourth quarter of 1996, the Company registered with the
Securities and Exchange Commission $150 million in principal amount of
uncollaterized medium-term notes, of which $60 million in notes had been
issued as of year end 1997. Proceeds from the medium-term notes were used to
reduce debt and for other general corporate purposes. The Company's currently
outstanding medium-term notes have maturities from 2000 through 2025 and have
a weighted-average interest rate of 7.1 percent.
The Company's restructuring programs were completed in 1997 and included the
1996 $28.4 million sale of its equity interest in a label operation in Japan
and the 1995 $95 million sale of certain non-strategic label
11
converting businesses. The restructuring programs had a cost of $15.8 million
and $39.2 million for 1996 and 1995, respectively.
Capital expenditures were $177.3 million in 1997 and $187.6 million in 1996.
Capital expenditures for 1998 are expected to be approximately $175 million to
$200 million.
The annual dividend rate per share increased to $.72 in 1997 from $.62 in
1996 and $.55 in 1995.
The Company continues to expand its operations in Asia Pacific, Latin
America and Europe. The Company's future results are subject to changes in
economic conditions and the impact of fluctuations in foreign currency
exchange and interest rates. To manage its exposure to these fluctuations, the
Company may enter into foreign exchange forward and option contracts, and
interest rate contracts, where appropriate. The recent turmoil in certain
Asian financial markets had an immaterial effect on the Company's 1997
results.
In 1997, the Company's operations located in Mexico and Brazil, were treated
as hyperinflationary economies for accounting purposes due to the cumulative
inflation rate over the past three years. As a result, all translation gains
and losses were included in net income. These operations were not significant
to the Company's consolidated financial position.
Beginning in 1998, Brazil will no longer be treated as a hyperinflationary
economy for accounting purposes. As a result, all asset and liability accounts
for the Company's Brazilian operations will be translated into U.S. dollars at
current rates and recorded directly to a component of shareholders' equity.
Gains and losses resulting from foreign currency transactions will be included
in net income currently.
FUTURE ACCOUNTING REQUIREMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income". The standard establishes guidelines
for the reporting and display of comprehensive income and its components in
financial statements. Comprehensive income includes items such as foreign
currency translation adjustments and adjustments to the minimum pension
liability that are currently presented as components of shareholders' equity.
Companies will be required to report total comprehensive income for interim
periods beginning first quarter of 1998. Disclosure of comprehensive income
and its components will be required beginning fiscal year end 1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information". The standard establishes guidelines
for reporting information on operating segments in interim and annual
financial statements. The new rules will be effective for the 1998 fiscal
year. Abbreviated quarterly disclosure will be required beginning first
quarter of 1999, and will include both 1999 and 1998 information. The Company
does not believe that the new standard will have a material impact on the
reporting of its segments.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in system failures or miscalculations.
The Company is currently working to resolve the Year 2000 issue and has
established processes for evaluating and managing the risks and costs
associated with this issue. The Company will utilize both internal and
external resources to reprogram or replace, and test the software for Year
2000 modifications. In addition, the Company is communicating with suppliers
and customers with whom the Company does business to coordinate the Year 2000
conversion. The Company plans to complete the Year 2000 project by fiscal year
end 1998.
12
Based on current assessments, costs of addressing the Year 2000 issue are
not expected to have a material impact on the Company's future financial
results.
SAFE HARBOR STATEMENT
Except for historical information contained herein, the matters discussed in
the Management's Discussion and Analysis of Results of Operations and
Financial Condition, Market-Sensitive Instruments and Risk Management and
other sections of this annual report contain "forward-looking statements"
within the meaning of the Private Securities Reform Act of 1995. These
statements, which are not statements of historical fact, may contain
estimates, assumptions, projections and/or expectations regarding future
events. Such forward-looking statements, and financial or other business
targets, are subject to certain risks and uncertainties which could cause
actual results to differ materially from any future results, performance or
achievements of the Company expressed or implied by such forward-looking
statements. Such risks and uncertainties include, but are not limited to,
risks and uncertainties relating to investment in new production facilities,
timely development and successful marketing of new products, impact of
competitive products and pricing, customer and supplier and manufacturing
concentrations, changes in customer order patterns, increased competition,
litigation risks, fluctuations in foreign exchange rates or other risks
associated with foreign operations, changes in economic or political
conditions, and other factors. Any forward-looking statements should be
considered in light of the factors detailed in Exhibit 99 in the Company's
Annual Report on Form 10-K for the years ended December 27, 1997 and December
28, 1996.
The Company's forward-looking statements represent its judgment only on the
dates such statements are made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed or
unanticipated events or circumstances.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
The Company is exposed to the impact of interest rate and foreign currency
exchange rate changes.
The Company does not hold or purchase any foreign currency or interest rate
contracts for trading purposes.
The Company's objective in managing the exposure to foreign currency changes
is to reduce the risk to earnings and cash flow associated with foreign
exchange rate changes. As a result, the Company enters into foreign exchange
forward and option contracts to reduce risks associated with the value of its
existing foreign currency assets, liabilities, firm commitments and
anticipated foreign revenues and costs. The gains and losses on these
contracts are intended to offset changes in the related exposures. The Company
does not hedge its foreign currency exposure in a manner that would entirely
eliminate the effects of changes in foreign exchange rates on the Company's
consolidated net income.
The Company's objective in managing its exposure to interest rate changes is
to limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objectives, the Company will
periodically use interest rate contracts to manage net exposure to interest
rate changes related to its borrowings. The Company had no interest rate
contracts outstanding at year end 1997.
In the normal course of operations, the Company also faces other risks that
are either nonfinancial or nonquantifiable. Such risks principally include
changes in economic or political conditions, other risks associated with
foreign operations, commodity price risk and litigation risk which are not
represented in the analyses that follow.
13
FOREIGN EXCHANGE VALUE-AT-RISK
The Company uses a "Value-at-Risk" (VAR) model to determine the estimated
maximum potential one-day loss in earnings associated with both its foreign
exchange positions and contracts. This approach assumes that market rates or
prices for foreign exchange positions and contracts are normally distributed.
The VAR model estimates were made assuming normal market conditions. Firm
commitments, receivables and accounts payable denominated in foreign
currencies, which certain of these instruments are intended to hedge, were
included in the model. Forecasted transactions, which certain of these
instruments are intended to hedge, were excluded from the model.
The VAR was estimated using a variance-covariance methodology based on
historical volatility for each currency. The volatility and correlation used
in the calculation were based on historical observations, using one year's
data with equal weightings. This data was obtained from the publicly available
JP Morgan RiskMetrics data set on the InterNet. A 95 percent confidence level
was used for a one-day time horizon.
The VAR model is a risk analysis tool and does not purport to represent
actual losses in fair value that could be incurred by the Company, nor does it
consider the potential effect of favorable changes in market factors.
The estimated maximum potential one-day loss in earnings for the Company's
foreign exchange positions and contracts would have been immaterial to the
Company's 1997 earnings.
INTEREST RATE SENSITIVITY
An assumed 60 basis point move in interest rates (10 percent of the
Company's weighted-average floating rate interest rates) affecting the
Company's variable-rate borrowings would have had an immaterial effect on the
Company's 1997 earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is contained in Registrant's
Consolidated Financial Statements and the Notes thereto appearing on pages 34
through 48, and in the Report of Independent Certified Public Accountants on
page 49 of Registrant's 1997 Annual Report and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors called for by this item is incorporated
by reference from pages 2, 3 and 4 of the 1998 Proxy Statement which is to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the end of the fiscal year covered by this report.
Information concerning executive officers called for by this item appears in
Part I of this report. The information concerning late filings under Section
16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by
reference from page 14 of the 1998 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by items 11, 12 and 13 is incorporated by
reference from pages 5 through 20 of the 1998 Proxy Statement which is to be
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) (2) Financial statements and financial statement schedules filed as
part of this report are listed in the accompanying Index to Financial
Statements and Financial Statement Schedules.
(3) Exhibits filed as a part of this report are listed in the Exhibit
Index, which follows the financial statements and schedules referred to
above. Each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c)
is identified in the Exhibit Index.
(b) Reports on Form 8-K: Registrant filed one Report on Form 8-K for the
three months ended December 27, 1997:
Form 8-K dated October 24, 1997, in connection the 1997 Rights Plan.
(c) Those Exhibits and the Index thereto, required to be filed by Item 601
of Regulation S-K are attached hereto.
(d) Those financial statement schedules required by Regulation S-X which are
excluded from Registrant's 1997 Annual Report by Rule 14a-3(b)(1), and which
are required to be filed as financial statement schedules to this report, are
indicated in the accompanying Index to Financial Statements and Financial
Statement Schedules.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Avery Dennison Corporation
By /s/ Robert M. Calderoni
___________________________________
Robert M. Calderoni
Senior Vice President, Finance and
Chief Financial Officer
Dated: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Charles D. Miller Chairman and Chief Executive March 26, 1998
____________________________________ Officer; Director
Charles D. Miller
/s/ Philip M. Neal President and Chief March 26, 1998
____________________________________ Operating Officer; Director
Philip M. Neal
/s/ Robert M. Calderoni Senior Vice President, March 26, 1998
____________________________________ Finance and Chief Financial
Robert M. Calderoni Officer (Principal
Financial Officer)
/s/ Thomas E. Miller Vice President and March 26, 1998
____________________________________ Controller (Principal
Thomas E. Miller Accounting Officer)
16
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Dwight L. Allison, Jr. Director March 26, 1998
____________________________________
Dwight L. Allison, Jr.
/s/ John C. Argue Director March 26, 1998
____________________________________
John C. Argue
/s/ Joan T. Bok Director March 26, 1998
____________________________________
Joan T. Bok
/s/ Frank V. Cahouet Director March 26, 1998
____________________________________
Frank V. Cahouet
/s/ Richard M. Ferry Director March 26, 1998
____________________________________
Richard M. Ferry
/s/ Peter W. Mullin Director March 26, 1998
____________________________________
Peter W. Mullin
/s/ Sidney R. Petersen Director March 26, 1998
____________________________________
Sidney R. Petersen
/s/ John B. Slaughter Director March 26, 1998
____________________________________
John B. Slaughter
17
AVERY DENNISON CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
REFERENCE (PAGE)
-------------------
FORM
10-K ANNUAL
ANNUAL REPORT TO
REPORT SHAREHOLDERS
------ ------------
Data incorporated by reference from the attached portions
of the 1997 Annual
Report to Shareholders of Avery Dennison Corporation:
Report of Independent Certified Public Accountants...... -- 49
Consolidated Balance Sheet at December 27, 1997 and De-
cember 28, 1996........................................ -- 34
Consolidated Statement of Income for 1997, 1996 and
1995................................................... -- 35
Consolidated Statement of Shareholders' Equity for 1997,
1996 and 1995.......................................... -- 36
Consolidated Statement of Cash Flows for 1997, 1996 and
1995................................................... -- 37
Notes to Consolidated Financial Statements.............. -- 38-48
Individual financial statements of 50% or less owned entities accounted for
by the equity method have been omitted because, considered in the aggregate or
as a single subsidiary, they do not constitute a significant subsidiary.
With the exception of the consolidated financial statements and the
accountants' report thereon listed in the above index, and the information
referred to in Items 1, 5 and 6, all of which is included in the 1997 Annual
Report and incorporated herein by reference, the 1997 Annual Report is not to
be deemed "filed" as part of this report.
Data submitted herewith:
Report of Independent Certified Public Accountants...... S-2 --
Financial Statement Schedules (for 1997, 1996 and 1995):
II--Valuation and Qualifying Accounts and Reserves.... S-3 --
Consent of Independent Accountants...................... S-4 --
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 CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Avery Dennison Corporation
Our report on the consolidated financial statements of Avery Dennison
Corporation and subsidiaries has been incorporated by reference in this Form
10-K from page 49 of the 1997 Annual Report to Shareholders of Avery Dennison
Corporation. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on page S-1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
January 27, 1998
S-2
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
ADDITIONS
---------------------
BALANCE CHARGED DEDUCTIONS--
AT TO COSTS UNCOLLECTIBLE BALANCE
BEGINNING AND FROM ACCOUNTS AT END
OF YEAR EXPENSES ACQUISITIONS WRITTEN OFF OF YEAR
--------- -------- ------------ ------------- -------
1997
Allowance for doubtful
accounts.............. $17.5 $4.3 $-- $6.2 $15.6
===== ==== === ==== =====
1996
Allowance for doubtful
accounts.............. $17.6 $4.1 $-- $4.2 $17.5
===== ==== === ==== =====
1995
Allowance for doubtful
accounts.............. $18.5 $4.7 $-- $5.6 $17.6
===== ==== === ==== =====
S-3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Avery Dennison Corporation on Form S-3 (File Nos. 333-16375 and 333-38905)
and Form S-8 (File Nos. 33-1132, 33-3645, 33-27275, 33-35995-01, 33-41238, 33-
45376, 33-54411, 33-58921, 33-63979, 333-38707 and 333-38709) of our report,
dated January 27, 1998, which appears on page 49 of the 1997 Annual Report to
Shareholders and is incorporated by reference in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report on the
financial statement schedule listed in the index on page S-1.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 26, 1998
S-4
AVERY DENNISON CORPORATION
EXHIBIT INDEX
FOR THE YEAR ENDED DECEMBER 27, 1997
INCORPORATED BY REFERENCE:
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
(3.1) Restated Articles of
Incorporation.......... B Proxy Statement dated February 28,
1977 for Annual Meeting of
Stockholders March 30, 1977;
located in File No. 0-225 at
Securities and Exchange Commission,
450 5th St., N.W., Washington, D.C.
(3.1.1) Amendment to Certificate
of Incorporation, filed
April 10, 1984 with
Office of Delaware
Secretary of State..... 3.1.1 1983 Annual Report on Form 10-K
(3.1.2) Amendment to Certificate
of Incorporation, filed
April 11, 1985 with
Office of Delaware
Secretary of State..... 3.1.2 1984 Annual Report on Form 10-K
(3.1.3) Amendment to Certificate
of Incorporation filed
April 6, 1987 with
Office of Delaware
Secretary of State..... 3.1.3 1986 Annual Report on Form 10-K
(3.1.4) Amendment to Certificate
of Incorporation filed
October 17, 1990 with
Office of Delaware
Secretary of State..... Current Report on Form 8-K filed
October 31, 1990
(3.1.5) Amendment to Certificate
of Incorporation filed
April 28, 1997 with
Office of Delaware
Secretary of State..... 3 First Quarterly report for 1997 on
Form 10-Q
(3.2) By-laws, as amended..... 3(ii) 1996 Annual Report on Form 10-K
(4.1) Rights Agreement dated
as of October 23, 1997. Current Report on Form 8-K filed
October 24, 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)
(4.3) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes"
under the Indenture.... Current Report on Form 8-K filed
March 25, 1991
(4.4) First Supplemental
Indenture, dated as of
March 16, 1993, between
Registrant and
BankAmerica National
Trust Company, as
successor Trustee (the
"Supplemental
Indenture")............ Registration Statement on Form S-3
(File No. 33-59642)
1
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
(4.5) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes"
under the Indenture, as
amended by the
Supplemental Indenture. Current Report on Form 8-K filed
April 7, 1993
(4.6) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes,
Series B" under the
Indenture, as amended
by the Supplemental
Indenture.............. Current Report on Form 8-K filed
March 29, 1994
(4.7) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes,
Series C" under the
Indenture, as amended
by the Supplemental
Indenture.............. Current Report on Form 8-K filed
May 12, 1995
(4.8) Officers' Certificate
establishing a series
of Securities entitled
"Medium-Term Notes,
Series D" under the
Indenture, as amended
by the Supplemental
Indenture.............. Current Report on Form 8-K filed
December 16, 1996
(10.1) *Amended 1973 Stock
Option and Stock
Appreciation Rights
Plan for Key Employees
of Avery International
Corporation ("1973
Plan")................. 10.1 1987 Annual Report on Form 10-K
(10.1.1) *Form of Incentive Stock
Option Agreement for
use under 1973 Plan.... 10.1.3 1984 Annual Report on Form 10-K
(10.1.2) *Form of Non-Qualified
Stock Option Agreement
for use under 1973
Plan................... 10.1.4 1987 Annual Report on Form 10-K
(10.1.3) *Form of coupled Stock
Appreciation Right
Agreement for use under
1973 Plan.............. 10.1.5 1985 Annual Report on Form 10-K
(10.1.4) 1985 U.K. Stock Option
Scheme................. 10.1.7 1985 Annual Report on Form 10-K
(10.1.5) Form of Incentive Stock
Option Agreement for
use under U.K. Stock
Option Scheme.......... 10.1.8 1985 Annual Report on Form 10-K
(10.1.6) Form of Stock Option
Agreement for use under
U.K. Stock Option
Scheme................. 10.1.9 1985 Annual Report on Form 10-K
(10.2.2) *Form of Incentive Stock
Option Agreement for
use under 1988 Plan.... 10.2.2 1991 Annual Report on Form 10-K
(10.3) *Deferred Compensation
Plan for Directors..... 10.3 1981 Annual Report on Form 10-K
(10.5) *Executive Medical and
Dental Plan
(description).......... 10.5 1981 Annual Report on Form 10-K
(10.6) *Executive Financial
Counseling Service
(description).......... 10.6 1981 Annual Report on Form 10-K
(10.7.1) *Executive Employment
Security Policy dated
February 1, 1983....... 10.7.1 1982 Annual Report on Form 10-K
(10.7.2) *Executive Employment
Security Policy dated
February 1, 1985....... 10.13 1984 Annual Report on Form 10-K
2
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
(10.7.3) *Executive Employment
Security Policy dated
November 19, 1987...... 10.7.3 1993 Annual Report on Form 10-K
(10.8.1) *Agreement dated October
24, 1990 with Charles
D. Miller.............. 10.8.1 1990 Annual Report on Form 10-K
(10.8.2) *Agreement dated October
23, 1990 with Philip M.
Neal................... 10.8.2 1990 Annual Report on Form 10-K
(10.8.3) *Agreement dated March
16, 1996 with R.G. van
Schoonenberg........... 10.8.3 1996 Annual Report on Form 10-K
(10.9) *Executive Group Life
Insurance Plan......... 10.9 1982 Annual Report on Form 10-K
(10.10) *Form of Indemnity
Agreements between
Registrant and certain
directors and officers. 10.10 1986 Annual Report on Form 10-K
(10.10.1) *Form of Indemnity
Agreement between
Registrant and certain
directors and officers. 10.10.1 1993 Annual Report on Form 10-K
(10.11) *Supplemental Executive
Retirement Plan........ 10.11 1983 Annual Report on Form 10-K
(10.11.1) *Amended Letter of Grant
to C.D. Miller under
Supplemental Executive
Retirement Plan........ 10.11.2 1992 Annual Report on Form 10-K
(10.12) *Complete Restatement
and Amendment of Avery
Dennison Corporation
Executive Deferred
Compensation Plan...... 10.12 1994 Annual Report on Form 10-K
(10.12.1) *Form of Enrollment
Agreement for use under
Executive Deferred
Compensation Plan...... 10.13.2 1985 Annual Report on Form 10-K
(10.13) *Fourth Amended Avery
Dennison Retirement
Plan for Directors..... 10.13.2 1992 Annual Report on Form 10-K
(10.15) *1988 Stock Option Plan
for Non-Employee
Directors ("Director
Plan")................. 10.15 1987 Annual Report on Form 10-K
(10.15.1) *Amendment No. 1 to 1988
Stock Option Plan for
Non-Employee Directors
("Director Plan")...... 10.15.1 1994 Annual Report on Form 10-K
(10.15.2) *Form of Non-Employee
Director Stock Option
Agreement for use under
Director Plan.......... 10.15.2 1994 Annual Report on Form 10-K
(10.16) *Complete Restatement
and Amendment of Avery
Dennison Corporation
Executive Variable
Deferred Compensation
Plan................... 10.16 1994 Annual Report on Form 10-K
(10.16.1) *Form of Enrollment
Agreement for use under
Executive Variable
Deferred Compensation
Plan................... 10.16.1 1987 Annual Report on Form 10-K
(10.17) *Complete Restatement
and Amendment of Avery
Dennison Corporation
Directors Deferred
Compensation Plan...... 10.17 1994 Annual Report on Form 10-K
(10.17.1) *Form of Enrollment
Agreement for use under
Directors Deferred
Compensation Plan...... 10.17.2 1985 Annual Report on Form 10-K
3
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
(10.18) *Complete Restatement
and Amendment of Avery
Dennison Corporation
Directors Variable
Deferred Compensation
Plan................... 10.18 1994 Annual Report on Form 10-K
(10.18.1) *Form of Enrollment
Agreement for use under
Directors Variable
Deferred Compensation
Plan................... 10.18.1 1989 Annual Report on Form 10-K
(10.19) *1990 Stock Option and
Incentive Plan for Key
Employees of Avery
International
Corporation ("1990
Plan")................. 10.19 1989 Annual Report on Form 10-K
(10.19.1) *Amendment No. 1 to 1990
Plan................... 10.19.1 1993 Annual Report on Form 10-K
(10.19.2) *Form of Incentive Stock
Option Agreement for
use under 1990 Plan.... 10.19.2 1991 Annual Report on Form 10-K
(10.19.3) *Form of Non-Qualified
Stock Option Agreement
for use under 1990
Plan................... 10.19.3 1994 Annual Report on Form 10-K
(10.19.4) *Form of Non-Qualified
Stock Option Agreement
for use under 1990 Plan
(for LTIP
Participants).......... 10.19.4 1994 Annual Report on Form 10-K
(10.19.5) *Amendment No. 2 to 1990
Plan................... 10.19.5 1996 Annual Report on Form 10-K
(10.20.1) *1982 Incentive Stock
Option Plan of Dennison
Manufacturing Company.. Registration Statement on Form S-8
(File No. 33-35995-01)
(10.20.2) *1985 Incentive Stock
Option Plan of Dennison
Manufacturing Company.. Registration Statement on Form S-8
(File No. 33-35995-01)
(10.20.3) *1988 Stock Option Plan
of Dennison
Manufacturing Company.. Registration Statement on Form S-8
(File No. 33-35995-01)
(10.20.4) *Amendments effective as
of October 16, 1990 to
the 1982 Incentive
Stock Option Plan, 1985
Incentive Stock Option
Plan and 1988 Stock
Option Plan of Dennison
Manufacturing Company.. Registration Statement on Form S-8
(File No. 33-35995-01)
(10.21) *1996 Stock Incentive
Plan of Avery Dennison
Corporation............ 10.21 1996 Annual Report on Form 10-K
(10.27.1) *Amended and Restated
Key Executive Long-Term
Incentive Plan
("LTIP")............... 10.27.1 1993 Annual Report on Form 10-K
(10.27.2) *Second Amended and
Restated Key Executive
LTIP................... 1995 Annual Report on Form 10-K
(10.27.3) *Third Amended and
Restated Key Executive
LTIP................... 10.27.3 1996 Annual Report on Form 10-K
(10.28) *Complete Restatement
and Amendment of Avery
Dennison Corporation
Executive Deferred
Retirement Plan........ 10.28 1994 Annual Report on Form 10-K
(10.28.1) *Form of Enrollment
Agreement for use under
Executive Deferred
Retirement Plan........ 10.28.1 1992 Annual Report on Form 10-K
4
ORIGINALLY
FILED AS
EXHIBIT EXHIBIT
NO. ITEM NO. DOCUMENT
------- ---- ---------- --------
(10.29) *Executive Incentive
Compensation Plan...... 10.29 1993 Annual Report on Form 10-K
(10.30) *Senior Executive
Incentive Compensation
Plan................... 10.30 1993 Annual Report on Form 10-K
(10.31) *Executive Variable
Deferred Retirement
Plan................... 10.31 Registration Statement on Form S-8
(File No. 33-63979)
(10.31.1) *Amended and Restated
Executive Variable
Deferred Retirement
Plan................... 10.31.1 1995 Annual Report on Form 10-K
(10.32) *Benefit Restoration
Plan................... 10.32 1995 Annual Report on Form 10-K
(10.33.1) *Trust Agreement for
Employee Stock Benefit
Trust.................. 10.1 Current Report on Form 8-K filed
October 24, 1996
(10.33.2) *Common Stock Purchase
Agreement.............. 10.2 Current Report on Form 8-K filed
October 24, 1996
(10.33.3) *Promissory Note........ 10.3 Current Report on Form 8-K filed
October 24, 1996
(10.34.1) *Capital Accumulation
Plan ("CAP")........... 4.1 Registration Statement on Form S-8
(File No. 333-38707)
(10.34.2) *Trust under CAP........ 4.2 Registration Statement on Form S-8
(File No. 333-38707)
- --------
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
5
SUBMITTED HEREWITH:
EXHIBIT
NO. ITEM
-------- ----
10.8.1.1 *Amendment dated April 15, 1997 to Agreement with Charles D. Miller
10.8.1.2 *Amendment dated February 26, 1998 to Agreement with Charles D.
Miller
10.8.2.1 *Agreement dated April 15, 1997 with Philip M. Neal
10.8.4 *Form of Employment Agreement dated April 15, 1997
10.31.1 *Amended and Restated Executive Variable Deferred Retirement Plan
10.33.1 *Restated Trust Agreement for Employee Stock Benefit Trust
10.33.3 *Restated Promissory Note
11 Statement re Computation of Net Income Per Share Amounts
12 Computation of Ratio of Earnings to Fixed Changes
13 Portions of Annual Report to Shareholders for fiscal year ended
December 27, 1997
21 List of Subsidiaries
23 Consent of Independent Accountants (see page S-4)
27 Financial Data Schedule for current period and restated Financial
Data Schedules for other periods.
99 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
- --------
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
STATEMENT AND AGREEMENT REGARDING
LONG-TERM DEBT OF REGISTRANT
Except as indicated above, Registrant has no instrument with respect to
long-term debt under which securities authorized thereunder equal or exceed
10% of the total assets of Registrant and its subsidiaries on a consolidated
basis. Registrant agrees to furnish a copy of its long-term debt instruments
to the Commission upon request.
6