================================================================================ 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") ================================================================================
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) <TABLE> <CAPTION> Served as Executive Former Positions and Name Age Officer since Offices with Registrant ---- --- ------------- ----------------------------------------------------- <S> <C> <C> <C> <C> 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. </TABLE> 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 <TABLE> <CAPTION> (In millions) 1999 1998 1997 ---- ---- ---- <S> <C> <C> <C> 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 </TABLE> 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. <TABLE> <CAPTION> (In millions, except per share amounts) 1999 1998 1997 ---- ---- ---- <S> <C> <C> <C> 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 </TABLE> 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: <TABLE> <CAPTION> (In millions) 1999 1998 1997 ---- ---- ---- <S> <C> <C> <C> Net sales.............................................................. $2,015.7 $1,874.5 $1,824.5 Income from operations before interest and taxes....................... 182.4 167.4 171.9 </TABLE> 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: <TABLE> <CAPTION> (In millions) 1999 1998 1997 <S> <C> <C> <C> Net sales.................................................................. $1,932.5 $1,741.4 $1,671.9 Income from operations before interest and taxes........................... 222.1 226.7 187.9 </TABLE> 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. <TABLE> <CAPTION> Signature Title Date <S> <C> <C> /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 </TABLE> 15
<TABLE> <CAPTION> Signature Title Date <S> <C> <C> /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 </TABLE> 16
AVERY DENNISON CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES <TABLE> <CAPTION> 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: <S> <C> <C> 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 </TABLE> 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. <TABLE> <CAPTION> Data submitted herewith: <S> <C> <C> 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 -- </TABLE> 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) <TABLE> <CAPTION> Additions/(Deductions) ------------------------------------------ Balance Charged at to Costs Balance Beginning and From at End of Year Expenses Acquisitions Other Net* of Year ------------------------------------------------------------------------ 1999 <S> <C> <C> <C> <C> <C> 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 </TABLE> * 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: <TABLE> <CAPTION> Originally Exhibit Filed as No. Item Exhibit No. Document ------- ---- ----------- -------- <S> <C> <C> <C> (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) </TABLE> - ----------------- * 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 - -------------- * 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