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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 1, 2000
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
Pasadena, California 91103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 304-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of Each Class exchange on which 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. [X]
The aggregate market value of voting stock held by non-affiliates as of
February 28, 2000 was approximately $5,896,263,000.
Number of shares of common stock, $1 par value, outstanding as of February
28, 2000: 112,421,211.
The following documents are incorporated by reference into the Parts of
this report below indicated:
Incorporated by
Document reference into:
-------- ---------------
Annual Report to Shareholders for fiscal year ended Parts I, II-
January 1, 2000 (the "1999 Annual Report")
Definitive Proxy Statement for Annual Meeting of Stockholders Parts III, IV
to be held April 27, 2000 (the "2000 Proxy Statement")
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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") includes
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, fasteners, business forms, tickets, tags, and imprinting
equipment.
A pressure-sensitive, or 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 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
effects 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. In February 2000, the Company announced plans to invest over $40 million
dollars in the People's Republic of China during the next several years. This
investment will include three new facilities and an expansion of the existing
Kunshan manufacturing plant. As of January 1, 2000, the Company manufactured and
sold its products from approximately 200 manufacturing facilities and sales
offices located in 39 countries, and employed a total of approximately 17,400
persons worldwide.
During the first quarter of 1999, the Company announced a major realignment
of its cost structure to increase operating efficiencies and improve
profitability. In connection with this realignment, the Company has announced
that it will close a number of facilities, five of which have been completed:
Nykobing, Denmark; Roye, France; Rochelle, Illinois; Rancho Cucamonga,
California; and Haan, Germany. As a result of these closures, at January 1,
2000, approximately 950 employees have left the Company out of a total of
approximately 1,500 positions that will be eliminated.
The Company wishes to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, and is subject to certain
risks referred to in Exhibit 99 hereto, including those normally attending
international and domestic operations, such as changes in economic or political
conditions, currency fluctuation, 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 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 generally would not have a material adverse effect
on the Company's business. However, sales and related accounts receivable of the
Company's U.S. consumer products are increasingly concentrated in a small number
1
of major customers, principally discount office products superstores and
distributors (see Note 5 of Notes to Consolidated Financial Statements on page
41 of the 1999 Annual Report, which is incorporated by reference). United States
export sales are not a significant part of the Company's business. Backlogs are
not considered material in the industries in which the Company competes.
Pressure-sensitive Adhesives and Materials Segment
The Pressure-sensitive Adhesives and Materials segment manufactures and
sells Fasson- and Avery Dennison-brand pressure-sensitive base materials,
specialty tapes, graphic films, reflective highway safety products, and
chemicals. Base materials consist primarily of papers, plastic films, metal
foils and fabrics which are primed and coated with Company-developed and
purchased adhesives, and then laminated with specially coated backing papers and
films for protection. 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. The business of this
segment 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, 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.
Graphic products consist of a variety of films and other products sold to
the worldwide automotive, architectural, commercial sign, digital printing, and
other related markets. The Company also sells durable cast and reflective films
to the construction, automotive, fleet transportation, sign and industrial
equipment markets, and reflective films and highway safety products for traffic
and safety 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. The Company's graphics businesses
are organized on a worldwide basis to serve 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, top coats, protective coatings and binders for internal uses
as well as for sale to other companies.
During the third quarter of 1999, the Company acquired Stimsonite
Corporation, based in Niles, Illinois, a leading manufacturer of reflective
safety products for the transportation and highway safety markets. In late 1999,
the Company acquired the remaining minority ownership position in its base
materials operation in Argentina.
In this segment, 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. The
Company believes that its ability to serve its customers with a broad product
line of quality products and the development and commercialization of new
products are among the more significant factors in developing and maintaining
its competitive position.
Consumer and Converted Products Segment
The Consumer and Converted Products segment manufactures and sells a wide
range of Avery-brand consumer products, custom label products, high performance
specialty films and labels, automotive applications and fasteners. The business
of this segment 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 markers, adhesives and specialty
products under brand names such as Avery, Marks-A-Lot and HI-LITER, and
accounting products, note pads and presentation products under the National
brand name. The extent of product offerings varies by geographic market.
Operations in Latin America and Asia Pacific 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.
2
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 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 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.
The Company also manufactures and sells on-battery 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
distributors.
During the first quarter of 1999, the Company completed a transaction with
Steinbeis Holding GmbH to combine substantially all of the Company's office
products businesses in Europe with Zweckform Buro-Produkte GmbH ("Zweckform"), a
German office products supplier.
In this segment, 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 serve its customers
with an extensive product line, its distribution strength, its ability to
develop and to commercialize new products, and 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 $64.3 million, $65 million, and
$61.1 million, in 1999, 1998 and 1997, 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 operating
segments.
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, as well as new product applications. Research and development
generally focuses on projects affecting more than one operating segment 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 operating segments. 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 Segment Information
The Business Segment Information and financial information by geographical
areas of the Company's operations for the three years ended January 1, 2000,
which appears in Note 11 of Notes to Consolidated Financial Statements on pages
45 and 46 of the 1999 Annual Report, are 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 agencies 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.
Efforts have been directed toward development of new adhesives and
solvent-free adhesive processing systems. Emulsion, hot-melt adhesives or
solventless silicone systems have been installed in the Company's facilities in
Peachtree City, Georgia; Fort Wayne and Greenfield, Indiana; Quakertown,
Pennsylvania; Rodange, Luxembourg; Turnhout, Belgium; Hazerswoude, The
Netherlands; Cramlington, England; and Gotha, Germany as well as other plants in
the United States, Argentina, Australia, Brazil, Colombia, France, Germany,
Korea, China, India and Thailand.
Based on current information, 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.
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 Results of Operations and
Financial Condition" (Part II, Item 7). For information regarding the Company's
actions in addressing the Year 2000 Issue, see "Management's Discussion and
Analysis of Results of Operations and Financial Condition" (Part II, Item 7).
Item 2. PROPERTIES
At January 1, 2000, the Company operated approximately 30 principal
manufacturing facilities in excess of 100,000 square feet and totaling
approximately 5 million square feet. The following sets forth the locations of
such principal facilities and the operating segments for which they are
presently used:
Pressure-sensitive Adhesives and Materials Segment
Domestic--Painesville and Fairport, Ohio; Peachtree City, Georgia;
Quakertown, Pennsylvania; and Greenfield, Fort Wayne, Lowell,
and Schererville, Indiana.
Foreign--Hazerswoude, The Netherlands; Cramlington, England;
Champ-sur-Drac, France; Turnhout, Belgium; Ajax, Canada; Rodange,
Luxembourg; and Gotha, Germany.
Consumer and Converted Products Segment
Domestic--Gainesville, Georgia; Chicopee and Framingham, Massachusetts;
Meridian, Mississippi; Philadelphia, Pennsylvania; Clinton,
South Carolina; and Crossville, Tennessee.
Foreign--Bowmanville, Canada; La Monnerie, France; Hong Kong, China;
Juarez and Tijuana, Mexico; Utrecht, The Netherlands;
Maidenhead, U.K.; and Oberlaidern, Germany.
4
In addition to the Company's principal manufacturing facilities described
above, the Company's other 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 and Juarez, Mexico; and 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 significant encumbrances on
its properties except for certain mortgage liens.
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 13 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(1)
Served as
Executive Former Positions and
Name Age Officer since Offices with Registrant
---- --- ------------- -----------------------------------------------------
Charles D. Miller(2)................. 72 May 1965 1964-1983 Various positions of increasing
Chairman responsibility
(also Director of Registrant)
1983-1998 Chairman and Chief Executive Officer
Philip M. Neal(2).................... 59 January 1974 1974-1990 Various positions of increasing
President and Chief responsibility
Executive Officer
(also Director of Registrant) 1990-1998 President and Chief Operating Officer
Kim A. Caldwell...................... 52 June 1990 1990-1997 Senior Group V.P.,
Executive Vice President, Worldwide Materials -
Global Technology and Americas and Asia
New Business Development
Robert M. Calderoni.................. 40 October 1997 1994-1996(3) V.P., Finance
Senior Vice President, Finance IBM Storage Systems Division
and Chief Financial Officer 1996-1997(3) Senior V.P., Finance
Apple Computer, Inc.
Robert G. van Schoonenberg........... 53 December 1981 1981-1996 V.P., General Counsel and Secretary
Senior Vice President,
General Counsel and Secretary
Wayne H. Smith....................... 58 June 1979 1979-1999 V.P. and Treasurer
Vice President, Financial
Services and Treasurer
Thomas E. Miller 52 March 1994 1993-1994 V.P. and Assistant Controller
Vice President and Controller
Diane B. Dixon....................... 48 December 1985 1985-1997 V.P., Corporate Communications
Vice President, Worldwide
Communications and Advertising
Geoffrey T. Martin................... 45 January 1994 1994-1997 Senior V.P., Worldwide Tape &
Senior Group Vice President, Converting and Materials - Europe
Worldwide Converting, Graphic
Systems and Specialty Tapes
Dean A. Scarborough(4)............... 44 August 1997 1993-1995 V.P. and General Manager,
Group Vice President, Fasson Roll Division - U.S.
Fasson Roll Worldwide 1995-1997 V.P. and General Manager,
Fasson Roll Division - Europe
1997-1999 Group V.P., Fasson North America and
Europe
- -------------------------
(1) All officers are elected to serve a one year term and until their
successors are elected and qualify.
(2) As previsouly planned, Mr. Miller, Chairman, will retire from that role on
May 1, 2000, and he will remain a Director of the Company; Mr. Neal will
become Chairman and Chief Executive Officer when Mr. Scarborough assumes
his new position on May 1, 2000.
(3) Business experience prior to service with Registrant.
(4) Mr. Scarborough has been elected President and Chief Operating Officer,
effective May 1, 2000.
6
PART II
Item 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information called for by this item appears on page 50 of Registrant's
1999 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 1999 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
(In millions) 1999 1998 1997
---- ---- ----
Net sales.......................................................... $3,768.2 $3,459.9 $3,345.7
Cost of products sold.............................................. 2,486.8 2,315.4 2,263.0
-------- -------- --------
Gross profit....................................................... 1,281.4 1,144.5 1,082.7
Marketing, general and administrative expense...................... 842.6 773.2 739.8
Restructuring charge............................................... 65.0 - -
-------- -------- --------
Earnings before interest and taxes................................. $ 373.8 $ 371.3 $ 342.9
Sales increased 8.9 percent to $3.77 billion in 1999, compared to $3.46
billion in 1998. Excluding changes in foreign currency exchange rates, sales
increased 10.3 percent. The Company's 1999 and 1997 fiscal years reflected
52-week periods compared to a 53-week period in 1998. In 1998, sales increased
3.4 percent over 1997 sales of $3.35 billion. Excluding the impact of currency,
sales increased 4.8 percent in 1998.
Gross profit margins for the years ended 1999, 1998 and 1997 were 34
percent, 33.1 percent and 32.4 percent, respectively. The improvement in 1999
was due to sales growth, cost reduction initiatives and productivity
improvements. The increase in 1998 was primarily due to increased productivity,
cost control and an improved product mix.
Marketing, general and administrative expense as a percent of sales was
22.4 percent in 1999, 22.3 percent in 1998 and 22.1 percent in 1997.
In the first quarter of 1999, the Company announced a major realignment of
its cost structure designed to increase operating efficiencies and improve
profitability. The realignment resulted in a pretax restructuring charge of $65
million, or $.42 per diluted share on an after-tax basis. The restructuring
involves the consolidation of manufacturing and distribution capacity in both of
the Company's operating segments. The $65 million charge reflects the costs to
close eight manufacturing and distribution facilities, the elimination of
approximately 1,500 positions (principally in manufacturing), and other
initiatives to exit activities. The restructuring charge includes severance and
related costs for approximately 1,500 positions ($35.1 million), and asset
write-downs ($29.9 million). Severance and related costs represent cash paid or
to be paid to employees being terminated under the program. Asset write-downs
identified as part of the restructuring program, principally related to
equipment, represent non-cash charges required to reduce the carrying value of
the assets to be disposed of to net realizable value as of the planned date of
disposal. At the end of 1999, five plant closures were completed and
approximately 950 employees had left the Company. In addition, $22.8 million had
been paid for severance and related costs and $23.2 million had been utilized in
asset write-downs. The Company realized approximately $20 million net pretax
savings from this program in 1999. The Company expects 2000 pretax savings in
the range of $38 million to $40 million. When fully implemented, the Company
estimates cumulative annual pretax savings of approximately $58 million to $62
million.
Results from operations and certain other key financial measures for 1999
are shown with and without the impact of the restructuring charge. The
additional proforma financial information, which excludes the restructuring
charge, is not in accordance with generally accepted accounting principles.
7
Interest expense for the years ended 1999, 1998 and 1997 was $43.4 million,
$34.6 million and $31.7 million, respectively. The increase in 1999 compared to
1998 was primarily due to increased debt to fund acquisitions and share
repurchases. The increase in 1998 compared to 1997 was primarily due to higher
average borrowings to support a more aggressive share repurchase program.
Income before taxes, as a percent of sales, was 8.8 percent in 1999.
Excluding the restructuring charge, income before taxes, as a percent of sales,
increased to 10.5 percent in 1999. In 1998 and 1997, income before taxes, as a
percent of sales, was 9.7 percent and 9.3 percent, respectively. The
improvements in 1999, excluding the restructuring charge, and 1998 were mainly
attributable to higher gross profit margins. The effective tax rate was 34.8
percent in 1999, 33.7 percent in 1998 and 34.2 percent in 1997. The increase in
1999 was primarily due to a change in the geographic mix of income. The decrease
in 1998 was primarily due to an increase in U.S. tax credits for research and
experimentation. The Company estimates that the effective tax rate for 2000 will
be comparable to 1999.
(In millions, except per share amounts) 1999 1998 1997
---- ---- ----
Net income................................................................. $215.4 $223.3 $204.8
Net income per common share................................................ 2.17 2.20 1.99
Net income per common share, assuming dilution............................. 2.13 2.15 1.93
Net income totaled $215.4 million in 1999, $223.3 million in 1998 and
$204.8 million in 1997. Excluding the restructuring charge, 1999 net income was
$257.8 million, a 15.5 percent increase over 1998. Net income, as a percent of
sales, was 5.7 percent, 6.5 percent and 6.1 percent in 1999, 1998 and 1997,
respectively. Excluding the restructuring charge, net income, as a percent of
sales, increased to 6.8 percent in 1999.
Net income per common share was $2.17 in 1999 compared to $2.20 in the
prior year. Excluding the restructuring charge, net income per common share
increased 18.2 percent to $2.60 in 1999. Net income per common share was $1.99
in 1997.
Net income per common share, assuming dilution, was $2.13 in 1999.
Excluding the restructuring charge, net income per common share, assuming
dilution, was $2.54, an increase of 18.1 percent, from $2.15 in 1998. Net income
per common share, assuming dilution, was $1.93 in 1997.
Results of Operations by Operating Segment
Pressure-sensitive Adhesives and Materials:
(In millions) 1999 1998 1997
---- ---- ----
Net sales.............................................................. $2,015.7 $1,874.5 $1,824.5
Income from operations before interest and taxes....................... 182.4 167.4 171.9
The Pressure-sensitive Adhesives and Materials segment reported increased
sales and income for 1999 compared to 1998. Sales increased 7.5 percent to $2.02
billion in 1999, compared to $1.87 billion in 1998. Excluding changes in foreign
currency exchange rates, sales increased 9.6 percent. Sales increased in the
U.S. operations primarily due to unit volume growth in the U.S. roll materials
business, particularly in sales of film and specialty products, and the recent
acquisition of Stimsonite Corporation (Stimsonite). Sales for the international
operations increased as a result of worldwide unit volume growth. This increase
in international sales was significantly offset by changes in foreign currency
rates.
8
The segment's 1999 income results include a pretax restructuring charge
recorded in the first quarter of $25.1 million ($15.4 million in the U.S.
operations and $9.7 million in the international operations). Excluding this
charge, 1999 segment income was $207.5 million, a 23.9 percent increase over
1998. Income from U.S. operations improved primarily due to sales growth and
margin improvement in the U.S. roll materials business, attributed to cost
reduction actions from Six Sigma (a program designed to improve productivity and
quality, while reducing costs) and restructuring programs, as well as the recent
acquisition of Stimsonite. Income from the international operations increased
primarily due to increased sales and profitability in the Asian and Latin
American businesses.
In the third quarter of 1999, the Company acquired Stimsonite, based in
Niles, Illinois, a leading manufacturer of reflective safety products for the
transportation and highway safety markets. The Company paid approximately $150
million (including the assumption of approximately $20 million in debt) for
Stimsonite, which was primarily funded with the issuance of debt. Stimsonite had
sales of $87 million in 1998. The excess of the cost-basis over the fair value
of net tangible assets acquired was $124.7 million.
In the fourth quarter of 1999, the Company acquired the remaining minority
stake in its Argentine business, the largest pressure-sensitive materials
operation in that country.
The Pressure-sensitive Adhesives and Materials segment reported increased
sales for 1998 compared to 1997. Sales increased in the U.S. operations
primarily due to strong unit volume growth in the core U.S. roll materials
business. Income for total U.S. operations in the segment decreased slightly,
primarily due to changes in product mix and start-up costs for new products.
However, operating margins for the core roll materials business in 1998 remained
constant relative to the prior year. Total international operations in the
segment reported increased sales, reflecting strong unit volume growth in Europe
and geographic expansion efforts. This increase in sales was partially offset by
changes in foreign currency rates. Income for the international operations was
down slightly from the prior year mainly due to pricing pressures in Europe and
costs associated with new plant start-ups.
Consumer and Converted Products:
(In millions) 1999 1998 1997
Net sales.................................................................. $1,932.5 $1,741.4 $1,671.9
Income from operations before interest and taxes........................... 222.1 226.7 187.9
The Consumer and Converted Products segment reported increased sales for
1999 compared to 1998. Sales increased 11 percent to $1.93 billion in 1999 over
1998 sales of $1.74 billion. Excluding the impact of changes in foreign currency
rates, sales increased 11.7 percent. The U.S. operations reported increased
sales as a result of recent acquisitions, and solid sales growth for most
Avery-brand product lines and high performance films. The international
operations also reported increased sales due to the recent Zweckform venture,
sales growth in the worldwide ticketing business and acquisitions. The
international operations' sales increase was partially offset by changes in
foreign currency rates.
The segment's 1999 income results include a pretax restructuring charge
recorded in the first quarter of $37.6 million ($24.3 million in the U.S.
operations and $13.3 million in the international operations). Excluding this
charge, 1999 segment income increased to $259.7 million, a 14.6 percent increase
over 1998. Income for the U.S. operations, excluding the restructuring charge,
improved primarily due to unit volume growth in Avery-brand products and high
performance films. Income for the international operations, excluding the
restructuring charge, increased primarily due to the Zweckform venture and
growth at other office products businesses in Europe, and operations in Asia.
The segment was impacted in 1999 by decreased sales and income in the
battery label business. A key customer in this business made a product mix
change in its battery lines, resulting in a partial shift from higher-priced
tester labels to standard battery labels. The Company expects this negative
year-to-year comparison to continue for the next quarter in its battery label
business. However, it is not expected to have a material impact on the segment's
profitability.
9
In the first quarter of 1999, the Company completed a transaction with
Steinbeis Holding GmbH to combine substantially all of the Company's office
products businesses in Europe with Zweckform Buro-Produkte GmbH (Zweckform), a
German office products supplier. The Company's aggregate cost basis in this
venture was financed through available cash resources of approximately $23
million and the assumption of an obligation as reported in the "Long-term
obligation" line on the Consolidated Balance Sheet. It is the intention of the
Company to pay the entire obligation in 2004. The excess of the cost-basis over
the fair value of net tangible assets acquired was $104.6 million.
In the fourth quarter of 1998, the Company acquired Spartan International,
Inc. (Spartan), a privately held specialty converting company based in Holt,
Michigan. Spartan supplies pressure-sensitive products to the commercial
graphics, sign making, vehicle marking and automotive markets.
The Consumer and Converted Products segment reported increased sales and
profits for 1998 compared to 1997. Increased sales in the U.S. operations were
led by growth of the Avery-brand products, despite several major retailers
implementing inventory reduction programs. The Company experienced some negative
impact from these programs during the last half of 1998. Increased sales in the
U.S. operations were also attributed to growth from the high performance films
businesses, including Avloy-brand products. Income from the U.S. operations
increased primarily as a result of the consumer packaging, high performance
films and office products businesses. The international operations reported
increased sales, primarily due to strong unit volume growth in the European
office products operations, ticketing business and Asian and Latin American
businesses. This increase in sales was partially offset by changes in foreign
currency rates. Income increased in the international operations primarily due
to improved performance in the European converting and office products
operations and the ticketing businesses.
Financial Condition
Average working capital, excluding short-term debt, as a percent of sales
was 5 percent in 1999, 7.1 percent in 1998 and 8 percent in 1997. The decrease
in 1999 was primarily attributable to higher sales and an increase in current
liabilities. The decrease in 1998 was primarily due to improved payables
management. Average inventory turnover was 9.5 turns in 1999, 9.9 turns in 1998
and 9.5 turns in 1997. The average number of days sales outstanding in accounts
receivable was 52 days in 1999, 1998 and 1997.
Total debt increased $148.5 million to $685.7 million compared to year end
1998 primarily due to the debt issuance to fund acquisitions and share
repurchases. Total debt to total capital increased to 45.8 percent at year end
1999 compared to 39.2 percent at year end 1998. Long-term debt as a percent of
total long-term capital increased to 43.3 percent from 35.9 percent at year end
1998.
Shareholders' equity decreased to $809.9 million from $833.3 million at
year end 1998. During 1999, the Company repurchased 2.4 million shares of common
stock at a cost of $121.9 million. As of year end 1999, a cumulative 34.3
million shares of common stock had been repurchased since 1991 and 6.1 million
shares remained available for repurchase under the Board of Directors'
authorization. The market value of shares held in the employee stock benefit
trust, after the issuance of shares under the Company's stock and incentive
plans, increased by $336.4 million to $1,014 million from year end 1998.
Return on average shareholders' equity was 27.1 percent in 1999, 26.7
percent in 1998 and 24.8 percent in 1997. Return on average total capital for
those three years was 17 percent, 19 percent and 18.1 percent, respectively.
Excluding the impact of the 1999 restructuring charge, return on average
shareholders' equity and return on average total capital were 31.1 percent and
19.5 percent, respectively. The improvement in 1999 for these returns was
primarily due to an increase in profitability. The 1998 improvement was 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 13 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.
10
Liquidity and Capital Resources
Net cash flow from operating activities was $435.2 million in 1999, $422.8
million in 1998 and $368.4 million in 1997. The improvements were primarily due
to changes in working capital requirements and the Company's improved
profitability.
In addition to cash flow from operations, the Company has more than
adequate financing arrangements, at competitive rates, to conduct its
operations.
The Company previously registered with the Securities and Exchange
Commission $150 million in principal amount of uncollateralized medium-term
notes, of which $110 million in notes had been issued as of year end 1998. No
notes were issued in 1999. Proceeds from the medium-term notes were used to
refinance short-term debt and for other general corporate purposes. The
Company's outstanding medium-term notes have maturities from 2000 through 2025
and have a weighted-average interest rate of 6.95 percent.
Capital expenditures were $177.7 million in 1999 and $159.7 million in
1998. Capital expenditures for 2000 are expected to be comparable to 1999.
The annual dividend per share increased to $.99 in 1999 from $.87 in 1998
and $.72 in 1997. This was the 24th consecutive year the Company increased
dividends per share.
The Company continues to expand its operations in Europe, Latin America and
Asia Pacific. The Company's 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 its exposure to these fluctuations, the
Company may enter into foreign exchange forward, option and swap contracts, and
interest rate contracts, where appropriate and available.
All translation gains and losses for operations in hyperinflationary
economies were included in net income. Operations are treated as being in a
hyperinflationary economy for accounting purposes, due to the cumulative
inflation rate over the past three years. Operations in hyperinflationary
economies consist of the Company's operations in Turkey for 1999, Mexico for
1998 and 1997, and Brazil for 1997. These operations were not significant to the
Company's consolidated financial position.
Future Accounting Requirements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This Statement requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives will be recorded each period in current earnings or other
comprehensive income. The new rules will be effective the first quarter of 2001.
The Company is in the process of determining the impact of this new standard
and, based on current market conditions, anticipates that it will not have a
material impact on the Company's financial results when effective.
Year 2000
The Company used internal and external resources to remediate and test its
systems. Costs incurred in addressing the Year 2000 (Y2K) issue were expensed as
incurred and were not material to the Company's financial results.
The Company did not experience any significant malfunctions or errors in
its operating or business systems when the date changed from 1999 to 2000. Based
on operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business as a result of the Y2K issue. However, it is
possible that the full impact of the date change has not been fully recognized.
The Company currently is not aware of any significant Y2K or similar problems
that have arisen for its customers and suppliers.
Euro Conversion
On January 1, 1999, a single currency called the euro was introduced in
Europe. Eleven of the fifteen member countries of the European Union adopted the
euro as their common legal currency on that date. Fixed conversion rates between
these countries' existing currencies (legacy currencies) and the euro were
established on that date. The legacy currencies are scheduled to remain legal
tender in these participating countries through July 1, 2002. During the
transition period, parties may settle transactions using either the euro or a
participating country's legacy currency.
11
Certain of the Company's European facilities adopted the euro as their
functional currency in 1999. The cost of system modifications to accommodate the
euro was not material to the Company's financial results. Based on currently
available information, the euro conversion has not had a material adverse impact
on the Company's business or financial condition.
Safe Harbor Statement
Except for historical information contained herein, the matters discussed
in the Management's Discussion and Analysis of Results of Operations and
Financial Condition, 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 future results, performance or achievements of the Company expressed or
implied by such forward-looking statements. Certain of such risks and
uncertainties including, but not limited to, those related 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 and inventory
levels, increased competition, loss of significant customers, impact of Year
2000 issues and the euro conversion, legal proceedings, 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 also 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 January 1, 2000 and January 2, 1999.
The Company's forward-looking statements represent its judgment only on the
dates such statements were made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed or unanticipated
events or circumstances.
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 on earnings and cash flow associated with foreign
exchange rate changes. As a result, the Company enters into foreign exchange
forward, option and swap 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 significant interest
rate contracts outstanding at year end 1999.
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 risks, which are not represented
in the analyses that follow.
12
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 multi-year historical data obtained from publicly
available sources. 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 1999 earnings.
Interest Rate Sensitivity
An assumed 50 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
1999 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 46, and in the Report of Independent Accountants on page 47 of
Registrant's 1999 Annual Report and is incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
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 2000 Proxy Statement
which has been 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 13 of the 2000 Proxy Statement.
Item 11. EXECUTIVE COMPENSATION
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 2000 Proxy Statement which has been
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 did not file any Reports on Form 8-K
for the three months ended January 1, 2000.
(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 1999 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.
14
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 30, 2000
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; Director March 30, 2000
- ------------------------------
Charles D. Miller
/s/ Philip M. Neal President and Chief Executive March 30, 2000
- ------------------------------ Officer; Director
Philip M. Neal
/s/ Robert M. Calderoni Senior Vice President, Finance and March 30, 2000
- ------------------------------ Chief Financial Officer
Robert M. Calderoni (Principal Financial Officer)
/s/ Thomas E. Miller Vice President and Controller March 30, 2000
- ------------------------------ (Principal Accounting Officer)
Thomas E. Miller
15
Signature Title Date
/s/ Dwight L. Allison, Jr. Director March 30, 2000
- -----------------------------------
Dwight L. Allison, Jr.
/s/ John C. Argue Director March 30, 2000
- -----------------------------------
John C. Argue
/s/ Joan T. Bok Director March 30, 2000
- -----------------------------------
Joan T. Bok
/s/ Frank V. Cahouet Director March 30, 2000
- -----------------------------------
Frank V. Cahouet
/s/ Richard M. Ferry Director March 30, 2000
- -----------------------------------
Richard M. Ferry
/s/ Kent Kresa Director March 30, 2000
- -----------------------------------
Kent Kresa
/s/ Peter W. Mullin Director March 30, 2000
- -----------------------------------
Peter W. Mullin
/s/ Sidney R. Petersen Director March 30, 2000
- -----------------------------------
Sidney R. Petersen
/s/ David E. I. Pyott Director March 30, 2000
- -----------------------------------
David E. I. Pyott
/s/ John B. Slaughter Director March 30, 2000
- -----------------------------------
John B. Slaughter
16
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 1999 Annual
Report to Shareholders of Avery Dennison Corporation:
Report of Independent Accountants................................................. -- 47
Consolidated Balance Sheet at January 1, 2000 and January 2, 1999................. -- 34
Consolidated Statement of Income for 1999, 1998 and 1997.......................... -- 35
Consolidated Statement of Shareholders' Equity for 1999, 1998 and 1997............ -- 36
Consolidated Statement of Cash Flows for 1999, 1998 and 1997...................... -- 37
Notes to Consolidated Financial Statements........................................ -- 38-46
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 certain information
referred to in Items 1, 5 and 6, which information is included in the 1999
Annual Report and is incorporated herein by reference, the 1999 Annual Report is
not to be deemed "filed" as part of this report.
Data submitted herewith:
Report of Independent Accountants................................................. S-2 --
Financial Statement Schedules (for 1999, 1998 and 1997):
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 ACCOUNTANTS
To the Board of Directors and Shareholders
of Avery Dennison Corporation:
Our audits of the consolidated financial statements referred to in our
report dated January 25, 2000 appearing in the 1999 Annual Report to
Shareholders of Avery Dennison Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
14(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.
PricewaterhouseCoopers LLP
Los Angeles, California
January 25, 2000
S-2
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In millions)
Additions/(Deductions)
------------------------------------------
Balance Charged
at to Costs Balance
Beginning and From at End
of Year Expenses Acquisitions Other Net* of Year
------------------------------------------------------------------------
1999
Allowance for doubtful accounts $16.5 $8.7 $2.4 $(8.1) $19.5
1998
Allowance for doubtful accounts $15.6 $2.7 $.2 $(2.0) $16.5
1997
Allowance for doubtful accounts $17.5 $4.3 $-- $(6.2) $15.6
* Consists of write-offs of uncollectible accounts and foreign currency
translation.
S-3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File Nos. 333-16375 and 333-38905) and Form S-8 (File
Nos. 33-1132, 33-3645, 33-27275, 33-41238, 33-45376, 33-54411, 33-58921,
33-63979, 333-38707 and 333-38709) of Avery Dennison Corporation of our report
dated January 25, 2000 relating to the financial statements, which appears in
the Annual Report to Shareholders, which is incorporated in this Annual Report
on Form 10-K. We also consent to the incorporation by reference of our report
dated January 25, 2000 relating to the financial statement schedule, which
appears in this Form 10-K.
PricewaterhouseCoopers LLP
Los Angeles, California
March 27, 2000
S-4
AVERY DENNISON CORPORATION
EXHIBIT INDEX
For the Year Ended January 2, 1999
INCORPORATED BY REFERENCE:
Originally
Exhibit Filed as
No. Item Exhibit 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, 3.1.1 1983 Annual Report on Form 10-K
filed April 10, 1984 with Office of
Delaware Secretary of State
(3.1.2) Amendment to Certificate of Incorporation, 3.1.2 1984 Annual Report on Form 10-K
filed April 11, 1985 with Office of
Delaware Secretary of State
(3.1.3) Amendment to Certificate of Incorporation 3.1.3 1986 Annual Report on Form 10-K
filed April 6, 1987 with Office of Delaware
Secretary of State
(3.1.4) Amendment to Certificate of Incorporation Current Report on Form 8-K filed October 31, 1990
filed October 17, 1990 with Office of
Delaware Secretary of State
(3.1.5) Amendment to Certificate of Incorporation 3 First Quarterly report for 1997 on Form 10-Q
filed April 28, 1997 with Office of
Delaware Secretary of State
(3.2) By-laws, as amended 3(ii) Third Quarterly report for 1999 on Form 10-Q
(4.1) Rights Agreement dated as of October 23, Current Report on Form 8-K filed October 24, 1997
1997
(4.2) Indenture, dated as of March 15, 1991, Registration Statement on Form S-3
between Registrant and Security Pacific (File No. 33-39491)
National Bank, as Trustee (the "Indenture")
(4.3) Officers' Certificate establishing a series Current Report on Form 8-K filed March 25, 1991
of Securities entitled "Medium-Term
Notes" under the Indenture
(4.4) First Supplemental Indenture, dated as of Registration Statement on Form S-3
March 16, 1993, between Registrant and (File No. 33-59642)
BankAmerica National Trust Company,
as successor Trustee (the "Supplemental
Indenture")
(4.5) Officers' Certificate establishing a Current Report on Form 8-K filed April 7, 1993
series of Securities entitled "Medium-Term
Notes" under the Indenture, as amended
by the Supplemental Indenture
(4.6) Officers' Certificate establishing a series Current Report on Form 8-K filed March 29, 1994
of Securities entitled "Medium-Term Notes,
Series B" under the Indenture, as amended
by the Supplemental Indenture
(4.7) Officers' Certificate establishing a series Current Report on Form 8-K filed May 12, 1995
of Securities entitled "Medium-Term Notes,
Series C" under the Indenture, as amended
by the Supplemental Indenture
1
Originally
Exhibit Filed as
No. Item Exhibit No. Document
------- ---- ----------- --------
(4.8) Officers' Certificate establishing a series Current Report on Form 8-K filed December 16, 1996
of Securities entitled "Medium-Term Notes,
Series D" under the Indenture, as amended
by the Supplemental Indenture
(10.3) *Deferred Compensation Plan for Directors 10.3 1981 Annual Report on Form 10-K
(10.5) *Executive Medical and Dental Plan 10.5 1981 Annual Report on Form 10-K
(description)
(10.6) *Executive Financial Counseling Service 10.6 1981 Annual Report on Form 10-K
(description)
(10.8.1) *Agreement with Charles D. Miller 10.8.1 1990 Annual Report on Form 10-K
(10.8.1.1)*Amendment to Agreement with 10.8.1 1997 Annual Report on Form 10-K
Charles D. Miller
(10.8.1.2)*Amendment to Agreement with 10.8.2 1997 Annual Report on Form 10-K
Charles D. Miller
(10.8.2) *Agreement with Philip M. Neal 10.8.2.1 1998 Annual Report on From 10-K
(10.8.3) *Agreement with R.G. van Schoonenberg 10.8.3 1996 Annual Report on Form 10-K
(10.8.4) *Form of Employment Agreement 10.8.4 1997 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 Agreement between 10.10 1986 Annual Report on Form 10-K
Registrant and certain directors and
officers
(10.10.1) *Form of Indemnity Agreement between 10.10.1 1993 Annual Report on Form 10-K
Registrant and certain directors and
officers
(10.11) *Amended and Restated Supplemental 10.11.1 1998 Annual Report on From 10-K
Executive Retirement Plan ("SERP")
(10.11.1) *Amended Letter of Grant to C.D. Miller 10.11.2 1992 Annual Report on Form 10-K
under SERP
(10.11.2) *Letter of Grant to Philip M. Neal 10.11.2 1998 Annual Report on From 10-K
under SERP
(10.12) *Complete Restatement and Amendment of 10.12 1994 Annual Report on Form 10-K
Executive Deferred Compensation Plan
(10.13) *Fourth Amended Avery Dennison 10.13.2 1992 Annual Report on Form 10-K
Retirement Plan for Directors
(10.15) *1988 Stock Option Plan for Non- 10.15 1987 Annual Report on Form 10-K
Employee Directors ("Director Plan")
(10.15.1) *Amendment No. 1 to 1988 Stock Option 10.15.1 1994 Annual Report on Form 10-K
Plan for Non-Employee Directors
("Director Plan")
(10.15.2) *Form of Non-Employee Director Stock 10.15.2 1994 Annual Report on Form 10-K
Option Agreement under Director Plan
(10.16) *Complete Restatement and Amendment of 10.16 1994 Annual Report on Form 10-K
Executive Variable Deferred Compensation
Plan ("EVDCP")
2
Originally
Exhibit Filed as
No. Item Exhibit No. Document
------- ---- ----------- --------
(10.17) *Complete Restatement and Amendment of 10.17 1994 Annual Report on Form 10-K
Directors Deferred Compensation Plan
(10.18) *Complete Restatement and Amendment of 10.18 1994 Annual Report on Form 10-K
Directors Variable Deferred Compensation
Plan ("DVDCP")
(10.19) *1990 Stock Option and Incentive Plan 10.19 1989 Annual Report on Form 10-K
("1990 Plan")
(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 10.19.2 1991 Annual Report on Form 10-K
for use under 1990 Plan
(10.19.3) *Form of Non-Qualified Stock Option 10.19.3 1994 Annual Report on Form 10-K
Agreement under 1990 Plan
(10.19.5) *Amendment No. 2 to 1990 Plan 10.19.5 1996 Annual Report on Form 10-K
(10.28) *Complete Restatement and Amendment of 10.28 1994 Annual Report on Form 10-K
Executive Deferred Retirement Plan ("EDRP")
(10.31) *Executive Variable Deferred Retirement 10.31 Registration Statement on Form S-8
Plan ("EVDRP") (File No. 33-63979)
(10.31.1) *Amended and Restated EVDRP 10.31.1 1997 Annual Report on Form 10-K
(10.32) *Benefit Restoration Plan 10.32 1995 Annual Report on Form 10-K
(10.33) *Restated Trust Agreement for Employee 10.33.1 1997 Annual Report on Form 10-K
Stock Benefit Trust
(10.33.1) *Common Stock Purchase Agreement 10.2 Current Report on Form 8-K filed October 24, 1996
(10.33.2) *Restated Promissory Note 10.33.3 1997 Annual Report on Form 10-K
(10.34.1) *Trust under CAP 4.2 Registration Statement on Form S-8
(File No. 333-38707)
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* Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14(c).
3
SUBMITTED HEREWITH:
- --
Exhibit No. Item
----------- ----
10.16.1 *Amendment No. 1 to EVDCP
10.18.1 *Amendment No. 1 to DVDCP
10.19.4 *Form of Non-Qualified Stock Option Agreement under 1990 Plan
10.21 *Amended and Restated 1996 Stock Incentive Plan
10.21.1 *Form of Non-Qualified Stock Option Agreement under 1996 Plan
10.27 *Executive Long-Term Incentive Plan
10.28.1 *Amendment No. 1 to EDRP
10.29 *Executive Leadership Compensation Plan
10.30 *Senior Executive Leadership Compensation Plan
10.31.2 *Amendment No. 1 to EVDRP
10.34 *Amended and Restated Capital Accumulation Plan ("CAP")
10.34.2 *Amendment No. 1 to CAP
12 Computation of Ratio of Earnings to Fixed Changes
13 Portions of Annual Report to Shareholders for fiscal year ended
January 1, 2000
21 List of Subsidiaries
23 Consent of Independent Accountants (see page S-4)
27 Financial Data Schedule
99 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
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* 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.
4