xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
April 2, 2022.
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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| Delaware | 95-1492269 | |||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||
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8080 Norton Parkway Mentor, Ohio | 44060 | |||||||||
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(Address of Principal Executive Offices) | (Zip Code) | |||||||||
(440) 534-6000
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common stock, $1 par value | AVY | New York Stock Exchange | ||||||||||||
| 1.25% Senior Notes due 2025 | AVY25 | Nasdaq Stock Market | ||||||||||||
x Large accelerated filer | o Accelerated filer | o Non-accelerated filer | o Smaller reporting company | o Emerging growth company | ||||||||||||||||||||||
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Exhibits | ||||||||
Certain
We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impacts of global economic conditions and political uncertainty on underlying demand for our products and foreign currency fluctuations; (2) competitors’ actions, including pricing, expansion in key markets, and product offerings; (3) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through selling price increases, without a significant loss of volume; and (4) the execution and integration of acquisitions.
goodwill impairment
(Dollars in millions, except per share amount) September 30, 2017 December 31, 2016 Assets Current assets: Cash and cash equivalents $ 232.3 $ 195.1 Trade accounts receivable, less allowances of $41.3 and $47.8 at September 30, 2017 and December 31, 2016, respectively 1,184.8 1,001.0 Inventories, net 620.0 519.1 Assets held for sale 6.8 6.8 Other current assets 239.4 182.8 Total current assets 2,283.3 1,904.8 Property, plant and equipment 2,941.4 2,661.4 Accumulated depreciation (1,894.4 ) (1,746.2 ) Property, plant and equipment, net 1,047.0 915.2 Goodwill 977.1 793.6 Other intangibles resulting from business acquisitions, net 170.1 66.7 Non-current deferred income taxes 347.4 313.2 Other assets 445.1 402.9 $ 5,270.0 $ 4,396.4 Liabilities and Shareholders’ Equity Current liabilities: Short-term borrowings and current portion of long-term debt and capital leases $ 383.0 $ 579.1 Accounts payable 949.2 841.9 Accrued payroll and employee benefits 226.1 217.4 Other current liabilities 465.0 365.9 Total current liabilities 2,023.3 2,004.3 Long-term debt and capital leases 1,298.4 713.4 Long-term retirement benefits and other liabilities 678.7 660.9 Non-current deferred and payable income taxes 134.7 92.3 Commitments and contingencies (see Note 15) Shareholders’ equity: Common stock, $1 par value per share, authorized – 400,000,000 shares at September 30, 2017 and December 31, 2016; issued – 124,126,624 shares at September 30, 2017 and December 31, 2016; outstanding – 88,080,629 shares and 88,308,860 shares at September 30, 2017 and December 31, 2016, respectively 124.1 124.1 Capital in excess of par value 854.6 852.0 Retained earnings 2,693.3 2,473.3 Treasury stock at cost, 36,045,995 shares and 35,817,764 shares at September 30, 2017 and December 31, 2016, respectively (1,838.0 ) (1,772.0 ) Accumulated other comprehensive loss (699.1 ) (751.9 ) Total shareholders’ equity 1,134.9 925.5 $ 5,270.0 $ 4,396.4 Three Months Ended Nine Months Ended (In millions, except per share amounts) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Net sales $ 1,679.5 $ 1,508.7 $ 4,878.5 $ 4,535.7 Cost of products sold 1,227.9 1,091.1 3,531.9 3,261.4 Gross profit 451.6 417.6 1,346.6 1,274.3 Marketing, general and administrative expense 277.2 270.3 837.2 817.7 Interest expense 16.8 14.7 49.7 45.4 Other expense, net 10.8 4.6 27.5 60.4 Income before taxes 146.8 128.0 432.2 350.8 Provision for income taxes 38.5 38.9 90.8 92.1 Net income $ 108.3 $ 89.1 $ 341.4 $ 258.7 Per share amounts: Net income per common share $ 1.23 $ 1.00 $ 3.86 $ 2.90 Net income per common share, assuming dilution $ 1.20 $ .98 $ 3.79 $ 2.85 Dividends per common share $ .45 $ .41 $ 1.31 $ 1.19 Weighted average number of shares outstanding: Common shares 88.3 89.1 88.4 89.2 Common shares, assuming dilution 89.9 90.6 90.1 90.9 Three Months Ended Nine Months Ended (In millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Net income $ 108.3 $ 89.1 $ 341.4 $ 258.7 Other comprehensive income (loss), net of tax: Foreign currency translation 12.1 15.5 39.3 21.1 Pension and other postretirement benefits 5.0 4.4 14.6 (6.9 ) Cash flow hedges .2 (.1 ) (1.1 ) (.2 ) Other comprehensive income, net of tax 17.3 19.8 52.8 14.0 Total comprehensive income, net of tax $ 125.6 $ 108.9 $ 394.2 $ 272.7 Nine Months Ended (In millions) September 30, 2017 October 1, 2016 Operating Activities Net income $ 341.4 $ 258.7 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 92.6 88.8 Amortization 42.2 46.7 Provision for doubtful accounts and sales returns 28.1 33.8 Net losses from asset impairments and sales/disposals of assets 2.4 3.8 Stock-based compensation 22.2 20.1 Loss from settlement of pension obligations – 41.4 Other non-cash expense and loss 41.0 34.7 Changes in assets and liabilities and other adjustments (177.3 ) (162.3 ) Net cash provided by operating activities 392.6 365.7 Investing Activities Purchases of property, plant and equipment (111.4 ) (104.9 ) Purchases of software and other deferred charges (23.5 ) (16.6 ) Proceeds from sales of property, plant and equipment 3.0 4.3 Purchases of investments, net (4.7 ) (.8 ) Payments for acquisitions, net of cash acquired, and investments in businesses (309.5 ) (227.5 ) Net cash used in investing activities (446.1 ) (345.5 ) Financing Activities Net (decrease) increase in borrowings (maturities of three months or less) (220.1 ) 242.0 Additional long-term borrowings 526.6 – Repayments of long-term debt (2.5 ) (1.9 ) Dividends paid (115.8 ) (106.2 ) Share repurchases (104.8 ) (181.5 ) Proceeds from exercises of stock options, net 17.7 63.4 Tax withholding for and excess tax benefit from stock-based compensation, net (20.3 ) (4.4 ) Net cash provided by financing activities 80.8 11.4 Effect of foreign currency translation on cash balances 9.9 (1.0 ) Increase in cash and cash equivalents 37.2 30.6 Cash and cash equivalents, beginning of year 195.1 158.8 Cash and cash equivalents, end of period $ 232.3 $ 189.4 These unaudited Condensed Consolidated Financial Statements reflect our current estimates and assumptions that affect our reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and our reported amounts of sales and expenses during the reporting periods presented. period. "2022 Acquisitions." (In millions) September 30, 2017 December 31, 2016 Raw materials $ 222.1 $ 185.0 Work-in-progress 182.6 156.8 Finished goods 215.3 177.3 Inventories, net $ 620.0 $ 519.1 (In millions) Label and Retail Branding Industrial and Total Goodwill as of December 31, 2016 $ 373.3 $ 353.9 $ 66.4 $ 793.6 2017 Acquisitions(1) 20.8 – 114.8 135.6 Acquisition adjustments(2) 5.0 – .7 5.7 Translation adjustments 35.6 2.7 3.9 42.2 Goodwill as of September 30, 2017 $ 434.7 $ 356.6 $ 185.8 $ 977.1 are shown below. Amount Weighted-average Customer relationships $ 74.3 15 Patents and other acquired technology 32.2 9 Trade names and trademarks 4.2 6 4. Debt Pension Benefits Three Months Ended Nine Months Ended September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 (In millions) U.S. Int’l U.S. Int’l U.S. Int’l U.S. Int’l Service cost $ .1 $ 4.6 $ .1 $ 3.5 $ .3 $ 13.4 $ .3 $ 10.4 Interest cost 8.1 3.7 8.1 4.1 26.2 10.6 26.4 12.4 Actuarial loss .2 – .7 – 1.1 – 2.4 – Expected return on plan assets (10.1 ) (5.4 ) (10.4 ) (5.4 ) (30.4 ) (15.6 ) (32.3 ) (16.1 ) Recognized net actuarial loss 4.7 2.8 4.9 1.7 14.1 8.0 14.1 5.3 Amortization of prior service cost (credit) .3 (.1 ) .3 – .7 (.3 ) .9 (.2 ) Recognized loss on settlements(1) – – – – – – 41.4 – Net periodic benefit cost $ 3.3 $ 5.6 $ 3.7 $ 3.9 $ 12.0 $ 16.1 $ 53.2 $ 11.8 U.S. Postretirement Health Benefits Three Months Ended Nine Months Ended (In millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Interest cost $ – $ – $ .1 $ .1 Recognized net actuarial loss .4 .5 1.1 1.3 Amortization of prior service credit (.9 ) (.9 ) (2.5 ) (2.5 ) Net periodic benefit credit $ (.5 ) $ (.4 ) $ (1.3 ) $ (1.1 ) footprint reductions. Accruals for severance and related costs, (In millions) Accrual at Charges Cash Non-cash Foreign Accrual at 2015/2016 Actions Severance and related costs $ 3.3 $ 22.4 $ (22.5) $ – $ .1 $ 3.3 Lease cancellation costs .2 1.1 (.4) – – .9 Asset impairment charges – 1.0 – (1.0 ) – – Prior actions Severance and related costs 1.3 (.7) (.7) – .1 – Total $ 4.8 $ 23.8 $ (23.6) $ (1.0 ) $ .2 $ 4.2 Three Months Ended Nine Months Ended (In millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Restructuring charges by reportable segment and Corporate Label and Graphic Materials $ 3.1 $ .7 $ 9.9 $ 7.3 Retail Branding and Information Solutions 7.4 1.5 13.7 6.4 Industrial and Healthcare Materials – .4 .2 .9 Corporate – – – – Total $ 10.5 $ 2.6 $ 23.8 $ 14.6 Asset Liability (In millions) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Foreign exchange contracts Other current assets $ 5.7 Other current liabilities $ 3.0 Asset Liability (In millions) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Foreign exchange contracts Other current assets $ 4.6 Other current liabilities $ 7.8 Commodity contracts Other current assets .5 Other current liabilities – Commodity contracts Other assets .1 $ 5.2 $ 7.8 Three Months Ended Nine Months Ended (In millions) Location of Net Gains September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Foreign exchange contracts Cost of products sold $ (.1 ) $ (.2 ) $ (1.1 ) $ 1.5 Foreign exchange contracts Marketing, general and administrative expense (18.9 ) (2.8 ) (41.6 ) (.4 ) $ (19.0 ) $ (3.0 ) $ (42.7 ) $ 1.1 Three Months Ended Nine Months Ended (In millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Foreign exchange contracts $ 1.3 $ (1.3 ) $ (2.2 ) $ (3.1 ) Commodity contracts – (.2 ) (.4 ) .1 $ 1.3 $ (1.5 ) $ (2.6 ) $ (3.0 ) Three Months Ended Nine Months Ended (In millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Foreign currency denominated debt $ (22.7 ) $ n/a $ (60.4 ) $ n/a unaudited Condensed Consolidated Financial Statements for more information. Three Months Ended Nine Months Ended (Dollars in millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Income before taxes $ 146.8 $ 128.0 $ 432.2 $ 350.8 Provision for income taxes 38.5 38.9 90.8 92.1 Effective tax rate 26.2 % 30.4 % 21.0 % 26.3 % return may be significant. 2010. Three Months Ended Nine Months Ended (In millions, except per share amounts) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 (A) Net income available to common shareholders $ 108.3 $ 89.1 $ 341.4 $ 258.7 (B) Weighted average number of common shares outstanding 88.3 89.1 88.4 89.2 Dilutive shares (additional common shares issuable under stock-based awards)(1) 1.6 1.5 1.7 1.7 (C) Weighted average number of common shares outstanding, assuming dilution 89.9 90.6 90.1 90.9 Net income per common share (A) ÷ (B) $ 1.23 $ 1.00 $ 3.86 $ 2.90 Net income per common share, assuming dilution (A) ÷ (C) $ 1.20 $ .98 $ 3.79 $ 2.85 April 2, 2022 or April 3, 2021. Information (In millions) Foreign Pension and Cash Flow Total Balance as of December 31, 2016 $ (212.6 ) $ (540.3 ) $ 1.0 $ (751.9 ) Other comprehensive income (loss) before reclassifications, net of tax 39.3 – (2.1 ) 37.2 Reclassifications to net income, net of tax – 14.6 1.0 15.6 Net current-period other comprehensive income (loss), net of tax 39.3 14.6 (1.1 ) 52.8 Balance as of September 30, 2017 $ (173.3 ) $ (525.7 ) $ (.1 ) $ (699.1 ) (In millions) Foreign Pension and Cash Flow Total Balance as of January 2, 2016 $ (158.9 ) $ (521.6 ) $ (2.5 ) $ (683.0 ) Other comprehensive income (loss) before reclassifications, net of tax 21.1 (46.7 ) (2.2 ) (27.8 ) Reclassifications to net income, net of tax – 39.8 2.0 41.8 Net current-period other comprehensive income (loss), net of tax 21.1 (6.9 ) (.2 ) 14.0 Balance as of October 1, 2016 $ (137.8 ) $ (528.5 ) $ (2.7 ) $ (669.0 ) Amounts Reclassified from Accumulated Three Months Ended Nine Months Ended (In millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Affected Line Item Cash flow hedges: Foreign exchange contracts $ 1.0 $ (1.2 ) $ .1 $ (2.1 ) Cost of products sold Commodity contracts – – .2 (.6 ) Cost of products sold Interest rate contracts – (.1 ) (1.8 ) (.1 ) Interest expense 1.0 (1.3 ) (1.5 ) (2.8 ) Total before tax (.3 ) .4 .5 .8 Provision for income taxes .7 (.9 ) (1.0 ) (2.0 ) Net of tax Pension and other postretirement benefits(1) (7.2 ) (6.5 ) (21.1 ) (60.3 ) 2.2 2.1 6.5 20.5 Provision for income taxes (5.0 ) (4.4 ) (14.6 ) (39.8 ) Net of tax Total reclassifications for the period $ (4.3 ) $ (5.3 ) $ (15.6 ) $ (41.8 ) Total, net of tax Fair Value Measurements Using (In millions) Total Quoted Prices in Significant Other Significant Other Assets Trading securities $ 22.6 $ 14.2 $ 8.4 $ – Derivative assets 5.7 – 5.7 – Bank drafts 13.4 13.4 – – Liabilities Derivative liabilities $ 3.0 $ – $ 3.0 $ – Fair Value Measurements Using (In millions) Total Quoted Prices in Significant Other Significant Other Assets Trading securities $ 18.1 $ 11.7 $ 6.4 $ – Derivative assets 5.2 .6 4.6 – Bank drafts 14.3 14.3 – – Liabilities Derivative liabilities $ 7.8 $ – $ 7.8 $ – We review our estimates of the costs of complying with environmental laws related to remediation and cleanup of various sites, including sites in which governmental agencies have designated us as a potentially responsible party (“PRP”). However, environmental expenditures for newly acquired assets and those that extend or improve the economic useful life of existing assets are capitalized and amortized over the shorter of the estimated useful life of the acquired asset or the remaining life of the existing asset. (In millions) Balance at December 31, 2016 $ 21.3 Acquisitions 3.1 Charges (reversals), net 3.1 Payments (4.7 ) Balance at September 30, 2017 $ 22.8 for the three months ended April 2, 2022 is shown below. January 1, 2022, respectively. Three Months Ended Nine Months Ended (In millions) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 Net sales to unaffiliated customers Label and Graphic Materials $ 1,137.3 $ 1,046.3 $ 3,350.0 $ 3,123.5 Retail Branding and Information Solutions 373.8 351.5 1,115.7 1,069.5 Industrial and Healthcare Materials 168.4 110.9 412.8 342.7 Net sales to unaffiliated customers $ 1,679.5 $ 1,508.7 $ 4,878.5 $ 4,535.7 Intersegment sales Label and Graphic Materials $ 16.2 $ 16.6 $ 47.9 $ 49.3 Retail Branding and Information Solutions .7 .6 2.3 2.3 Industrial and Healthcare Materials 2.1 1.6 5.3 6.0 Intersegment sales $ 19.0 $ 18.8 $ 55.5 $ 57.6 Income before taxes Label and Graphic Materials $ 145.5 $ 130.7 $ 429.3 $ 395.6 Retail Branding and Information Solutions 25.3 23.2 80.1 67.8 Industrial and Healthcare Materials 13.8 12.3 37.6 44.8 Corporate expense (21.0 ) (23.5 ) (65.1 ) (112.0 ) Interest expense (16.8 ) (14.7 ) (49.7 ) (45.4 ) Income before taxes $ 146.8 $ 128.0 $ 432.2 $ 350.8 Other expense, net by reportable segment Label and Graphic Materials $ 3.2 $ 2.7 $ 10.4 $ 11.0 Retail Branding and Information Solutions 7.4 1.5 14.0 7.1 Industrial and Healthcare Materials .2 .4 3.1 .9 Corporate – – – 41.4 Other expense, net $ 10.8 $ 4.6 $ 27.5 $ 60.4 Other expense, net by type Restructuring charges: Severance and related costs $ 8.7 $ 1.9 $ 21.7 $ 10.7 Asset impairment charges and lease cancellation costs 1.8 .7 2.1 3.9 Other items: Transaction costs .3 2.0 3.7 4.1 Loss from settlement of pension obligations – – – 41.4 Loss on sale of asset – – – .3 Other expense, net $ 10.8 $ 4.6 $ 27.5 $ 60.4 related notes. divestitures. Three Months Ended Nine Months Ended September 30, 2017 September 30, 2017 Reported sales change 11 % 8 % Foreign currency translation (1 ) – Sales change ex. currency 10 % 8 % Acquisitions/divestitures (5 ) (4 ) Organic sales change 5 % 4 % below. 2022 Acquisitions April 2, 2022. Nine Months Ended (In millions) September 30, 2017 October 1, 2016 Net cash provided by operating activities $ 392.6 $ 365.7 Purchases of property, plant and equipment (111.4 ) (104.9 ) Purchases of software and other deferred charges (23.5 ) (16.6 ) Proceeds from sales of property, plant and equipment 3.0 4.3 Purchases of investments, net (4.7 ) (.8 ) Free cash flow $ 256.0 $ 247.7 same period last year primarily due to a decrease in net cash provided by operating activities and an increase in purchases of property, plant and equipment. Three Months Ended (Dollars in millions) September 30, 2017 October 1, 2016 Net sales $ 1,679.5 $ 1,508.7 Cost of products sold 1,227.9 1,091.1 Gross profit 451.6 417.6 Marketing, general and administrative expense 277.2 270.3 Interest expense 16.8 14.7 Other expense, net 10.8 4.6 Income before taxes $ 146.8 $ 128.0 Gross profit margin 26.9 % 27.7 % Three Months Ended (In millions) September 30, 2017 October 1, 2016 Other expense, net by type Restructuring charges: Severance and related costs $ 8.7 $ 1.9 Asset impairment charges and lease cancellation costs 1.8 .7 Other items: Transaction costs .3 2.0 Other expense, net $ 10.8 $ 4.6 (Income), Net restructuring charges. Three Months Ended (Dollars in millions, except per share amounts) September 30, 2017 October 1, 2016 Income before taxes $ 146.8 $ 128.0 Provision for income taxes 38.5 38.9 Net income $ 108.3 $ 89.1 Net income per common share $ 1.23 $ 1.00 Net income per common share, assuming dilution 1.20 .98 Effective tax rate 26.2 % 30.4 % other non-operating expense (income), net. Three Months Ended (In millions) September 30, 2017 October 1, 2016 Net sales including intersegment sales $ 1,153.5 $ 1,062.9 Less intersegment sales (16.2 ) (16.6 ) Net sales $ 1,137.3 $ 1,046.3 Operating income(1) 145.5 130.7 (1) Included costs associated with restructuring and transaction costs in both quarters. $ 3.2 $ 2.7 Reported sales change % Foreign currency translation America and Western Europe. Three Months Ended (In millions) September 30, 2017 October 1, 2016 Net sales including intersegment sales $ 374.5 $ 352.1 Less intersegment sales (.7 ) (.6 ) Net sales $ 373.8 $ 351.5 Operating income(1) 25.3 23.2 (1)Included costs associated with restructuring in both quarters. $ 7.4 $ 1.5 Reported sales change % Foreign currency translation Acquisitions Intelligent Labels solutions increased over 20%. employee-related costs. Three Months Ended (In millions) September 30, 2017 October 1, 2016 Net sales including intersegment sales $ 170.5 $ 112.5 Less intersegment sales (2.1 ) (1.6 ) Net sales $ 168.4 $ 110.9 Operating income(1) 13.8 12.3 (1)Included transaction costs in 2017 and costs associated with restructuring in 2016. $ .2 $ .4 Reported sales change % Foreign currency translation Acquisitions Nine Months Ended (Dollars in millions) September 30, 2017 October 1, 2016 Net sales $ 4,878.5 $ 4,535.7 Cost of products sold 3,531.9 3,261.4 Gross profit 1,346.6 1,274.3 Marketing, general and administrative expense 837.2 817.7 Interest expense 49.7 45.4 Other expense, net 27.5 60.4 Income from continuing operations before taxes $ 432.2 $ 350.8 Gross profit margin 27.6 % 28.1 % Nine Months Ended (In millions) September 30, 2017 October 1, 2016 Other expense, net by type Restructuring charges: Severance and related costs $ 21.7 $ 10.7 Asset impairment charges and lease cancellation costs 2.1 3.9 Other items: Transaction costs 3.7 4.1 Loss from settlement of pension obligations – 41.4 Loss on sale of asset – .3 Other expense, net $ 27.5 $ 60.4 Nine Months Ended (Dollars in millions, except per share amounts) September 30, 2017 October 1, 2016 Income before taxes $ 432.2 $ 350.8 Provision for income taxes 90.8 92.1 Net income $ 341.4 $ 258.7 Net income per common share $ 3.86 $ 2.90 Net income per common share, assuming dilution 3.79 2.85 Effective tax rate 21.0 % 26.3 % Nine Months Ended (In millions) September 30, 2017 October 1, 2016 Net sales including intersegment sales $ 3,397.9 $ 3,172.8 Less intersegment sales (47.9 ) (49.3 ) Net sales $ 3,350.0 $ 3,123.5 Operating income(1) 429.3 395.6 (1)Included costs associated with restructuring and transaction costs in both years. $ 10.4 $ 11.0 Nine Months Ended (In millions) September 30, 2017 October 1, 2016 Net sales including intersegment sales $ 1,118.0 $ 1,071.8 Less intersegment sales (2.3 ) (2.3 ) Net sales $ 1,115.7 $ 1,069.5 Operating income(1) 80.1 67.8 (1) Included costs associated with restructuring and transaction costs in both years, and loss on sale of an asset in 2016. $ 14.0 $ 7.1 Nine Months Ended (In millions) September 30, 2017 October 1, 2016 Net sales including intersegment sales $ 418.1 $ 348.7 Less intersegment sales (5.3 ) (6.0 ) Net sales $ 412.8 $ 342.7 Operating income(1) 37.6 44.8 (1) Included costs associated with restructuring in both years and transaction costs in 2017. $ 3.1 $ .9 Nine Months Ended (In millions) September 30, 2017 October 1, 2016 Net income $ 341.4 $ 258.7 Depreciation and amortization 134.8 135.5 Provision for doubtful accounts and sales returns 28.1 33.8 Net losses from asset impairments and sales/disposals of assets 2.4 3.8 Stock-based compensation 22.2 20.1 Loss from settlement of pension obligations – 41.4 Other non-cash expense and loss 41.0 34.7 Changes in assets and liabilities and other adjustments (177.3 ) (162.3 ) Net cash provided by operating activities $ 392.6 $ 365.7 Equipment Nine Months Ended (In millions) September 30, 2017 October 1, 2016 Purchases of property, plant and equipment $ (111.4 ) $ (104.9 ) Purchases of software and other deferred charges (23.5 ) (16.6 ) Proceeds from sales of property, plant and equipment 3.0 4.3 Purchases of investments, net (4.7 ) (.8 ) Payments for acquisitions, net of cash acquired, and investments in businesses (309.5 ) (227.5 ) Net cash used in investing activities $ (446.1 ) $ (345.5 ) Other Deferred Charges the U.S. Nine Months Ended (In millions) September 30, 2017 October 1, 2016 Net (decrease) increase in borrowings (maturities of three months or less) $ (220.1 ) $ 242.0 Additional long-term borrowings 526.6 – Repayments of long-term debt (2.5 ) (1.9 ) Dividends paid (115.8 ) (106.2 ) Share repurchases (104.8 ) (181.5 ) Proceeds from exercises of stock options, net 17.7 63.4 Tax withholding for and excess tax benefit from stock-based compensation, net (20.3 ) (4.4 ) Net cash provided by financing activities $ 80.8 $ 11.4 purposes. same period last year primarily as a result of equity awards vesting at lower share prices. translation. the preliminary valuation of intangible assets associated with the 2022 Acquisitions. shareholders’ equity was $1.93 billion. Refer to Note Nine Months Ended (In millions) September 30, 2017 Change in net sales $ (13 ) Change in net income (3 ) sales. the unaudited Condensed Consolidated Financial Statements for more information. Nine Months Ended (Dollars in millions) September 30, 2017 October 1, 2016 (A) Working capital (deficit) $ 260.0 $ (42.5 ) Reconciling items: Cash and cash equivalents (232.3 ) (189.4 ) Assets held for sale (6.8 ) (5.9 ) Other current assets (239.4 ) (183.3 ) Short-term borrowings and current portion of long-term debt and capital leases 383.0 587.6 Accrued payroll and employee benefits and other current liabilities 691.1 601.8 (B) Operational working capital $ 855.6 $ 768.3 (C) Annualized net sales (year-to-date sales, divided by three and multiplied by four) $ 6,504.7 $ 6,047.6 Working capital (deficit), as a percentage of annualized net sales (A) ÷ (C) 4.0 % (.7 )% Operational working capital, as a percentage of annualized net sales (B) ÷ (C) 13.2 % 12.7 % Operational working capital, as a percentage of annualized current-quarter net sales, in the first quarter of 2022 was higher compared to the first quarter of 2021. foreign currency translation. anticipated increased demand. higher accounts payable balances due to our inventory build to manage supply chain disruptions and anticipated increased demand. Our cash balances are held in numerous locations throughout the world. subsidiaries, primarily in Asia Pacific. April 2, 2022 or January 1, 2022. commercial paper borrowings. Period(1) Total number Average Total number of shares Approximate dollar July 2, 2017 – July 29, 2017 19.0 $ 91.71 19.0 July 30, 2017 – August 26, 2017 136.5 93.13 136.5 August 27, 2017 – September 30, 2017 212.6 94.57 212.6 Total 368.1 $ 93.89 368.1 $ 650.1 April 2, 2022. Exhibit 31.2* Exhibit 32.1** Exhibit 32.2** Exhibit Inline XBRL Instance Document Exhibit Inline XBRL Extension Schema Document Exhibit Inline XBRL Extension Calculation Linkbase Document Exhibit Inline XBRL Extension Label Linkbase Document Exhibit Inline XBRL Extension Presentation Linkbase Document Exhibit Inline XBRL Extension Definition Linkbase Document (Registrant) /s/ Gregory S. Lovins Gregory S. Lovins Senior Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Lori J. Bondar Lori J. Bondar Vice President, Controller, Treasurer, and Chief Accounting Officer (Principal Accounting Officer) (Dollars in millions, except per share amount) April 2, 2022 January 1, 2022 Assets Current assets: Cash and cash equivalents $ 147.1 $ 162.7 Trade accounts receivable, less allowances of $39.5 and $33 at April 2, 2022 and January 1, 2022, respectively 1,551.4 1,424.5 Inventories 960.9 907.2 Other current assets 234.9 240.2 Total current assets 2,894.3 2,734.6 Property, plant and equipment, net 1,477.5 1,477.7 Goodwill 1,890.0 1,881.5 Other intangibles resulting from business acquisitions, net 910.8 911.4 Deferred tax assets 128.8 130.2 Other assets 837.4 836.2 $ 8,138.8 $ 7,971.6 Liabilities and Shareholders’ Equity Current liabilities: Short-term borrowings and current portion of long-term debt and finance leases $ 494.9 $ 318.8 Accounts payable 1,372.5 1,298.8 Accrued payroll and employee benefits 214.9 299.0 Other current liabilities 640.9 631.3 Total current liabilities 2,723.2 2,547.9 Long-term debt and finance leases 2,773.8 2,785.9 Long-term retirement benefits and other liabilities 465.0 474.9 Deferred tax liabilities and income taxes payable 244.3 238.5 Commitments and contingencies (see Note 11) 0 0 Shareholders’ equity: Common stock, $1 par value per share, authorized – 400,000,000 shares at April 2, 2022 and January 1, 2022; issued – 124,126,624 shares at April 2, 2022 and January 1, 2022; outstanding – 82,014,117 shares and 82,605,953 shares at April 2, 2022 and January 1, 2022, respectively 124.1 124.1 Capital in excess of par value 844.6 862.3 Retained earnings 4,023.2 3,880.7 Treasury stock at cost, 42,112,507 shares and 41,520,671 shares at April 2, 2022 and January 1, 2022, respectively (2,799.4) (2,659.8) Accumulated other comprehensive loss (260.0) (282.9) Total shareholders’ equity 1,932.5 1,924.4 $ 8,138.8 $ 7,971.6 Three Months Ended (In millions, except per share amounts) April 2, 2022 April 3, 2021 Net sales $ 2,349.3 $ 2,051.3 Cost of products sold 1,708.0 1,454.3 Gross profit 641.3 597.0 Marketing, general and administrative expense 355.0 312.3 Other expense (income), net (1.6) .9 Interest expense 19.6 16.2 Other non-operating expense (income), net (1.4) (1.3) Income before taxes 269.7 268.9 Provision for income taxes 71.5 58.1 Equity method investment (losses) gains — (1.3) Net income $ 198.2 $ 209.5 Per share amounts: Net income per common share $ 2.41 $ 2.52 Net income per common share, assuming dilution $ 2.39 $ 2.50 Weighted average number of shares outstanding: Common shares 82.4 83.1 Common shares, assuming dilution 83.0 83.9 Three Months Ended (In millions) April 2, 2022 April 3, 2021 Net income $ 198.2 $ 209.5 Other comprehensive income (loss), net of tax: Foreign currency translation 20.3 7.6 Pension and other postretirement benefits .8 1.2 Cash flow hedges 1.8 (5.3) Other comprehensive income (loss), net of tax 22.9 3.5 Total comprehensive income, net of tax $ 221.1 $ 213.0 (Unaudited)Three Months Ended (In millions) April 2, 2022 April 3, 2021 Operating Activities Net income $ 198.2 $ 209.5 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 43.8 40.0 Amortization 28.2 14.4 Provision for credit losses and sales returns 16.1 8.9 Stock-based compensation 11.1 9.9 Pension plan settlement loss — .4 Deferred taxes and other non-cash taxes 1.9 1.5 Other non-cash expense and loss (income and gain), net 6.5 2.7 Changes in assets and liabilities and other adjustments (179.6) (78.0) Net cash provided by operating activities 126.2 209.3 Investing Activities Purchases of property, plant and equipment (49.7) (25.2) Purchases of software and other deferred charges (5.6) (2.3) Proceeds from sales of property, plant and equipment .3 .7 Proceeds from insurance and sales (purchases) of investments, net 1.8 (.5) Proceeds from sale of product line — 6.7 Payments for acquisitions, net of cash acquired, and investments in businesses (33.4) (30.6) Net cash used in investing activities (86.6) (51.2) Financing Activities Net increase (decrease) in borrowings with maturities of three months or less 179.4 53.8 Repayments of long-term debt and finance leases (1.9) (1.5) Dividends paid (56.2) (51.6) Share repurchases (151.5) (55.6) Net (tax withholding) proceeds related to stock-based compensation (24.9) (25.3) Net cash used in financing activities (55.1) (80.2) Effect of foreign currency translation on cash balances (.1) (2.2) Increase (decrease) in cash and cash equivalents (15.6) 75.7 Cash and cash equivalents, beginning of year 162.7 252.3 Cash and cash equivalents, end of period $ 147.1 $ 328.0 thereto in our 20162021 Annual Report on Form 10-K, which should be read in conjunction with this Quarterly Report on Form 10-Q. The accompanyingThese unaudited Condensed Consolidated Financial Statements includecontain all adjustments of a normal and recurring adjustmentsnature necessary for a fair statement of our interim results. Interim results of operations are not necessarily indicative of future results.and nine months ended September 30, 2017April 2, 2022 and October 1, 2016April 3, 2021 each consisted of a thirteen-week and thirty-nine-week periods, respectively.Accounting Guidance UpdateIn the first quarter of 2017, we adopted an accounting guidance update that simplifies several aspects of the accounting for stock-based payment transactions. As a result of adopting this update, beginning in the first quarter of 2017, (i) the tax effects related to stock-based payments at settlement or expiration were recognized through the income statement, a change from the previous requirement that certain tax effects be recognized in capital in excess of par value, and, as required by this guidance, this change was applied prospectively, and (ii) all tax-related cash flows resulting from stock-based payments were reported as operating activities on the statements of cash flows, a change from the previous requirement to present excess tax benefits as an inflow from financing activities and an outflow from operating activities, and, as permitted by this update, prior periods were not retrospectively adjusted. Refer to Note 8, “Long-Term Incentive Compensation and Supplemental Equity Information,” and Note 11, “Taxes Based on Income,” for further information.On June 23, 2017,the stock acquisitionour acquisitions of Yongle Tape Ltd. (“Yongle Tape”TexTrace AG ("TexTrace"), a China-based manufacturerSwitzerland-based technology developer specializing in custom-made woven and knitted radio-frequency identification ("RFID") products that can be sewn onto or inserted into garments, and Rietveld Serigrafie B.V. and Rietveld Screenprinting Serigrafi Baski Matbaa Tekstil Ithalat Ihracat Sanayi ve Ticaret Limited Sirketi ("Rietveld"), a Netherlands-based provider of specialty tapesexternal embellishment solutions and related products usedapplication and printing methods for performance brands and team sports in a variety of industrial markets, from Yongle Tape’s managementEurope. These acquisitions expand the product portfolio in our Retail Branding and Shaw Kwei & Partners.On May 19, 2017, we completed the stock acquisition of Finesse Medical Limited (“Finesse Medical”Information Solutions ("RBIS"), an Ireland-based manufacturer of healthcare products used in the management of wound care and skin conditions, from Finesse Medical’s management.On March 1, 2017, we completed the net asset acquisition of Hanita Coatings Rural Cooperative Association Limited and stock acquisition of certain of its subsidiaries (“Hanita”), an Israel-based pressure-sensitive manufacturer of specialty films and laminates, from Kibbutz Hanita Coatings and Tene Investment Funds.We expect the reportable segment.Yongle Tape, Finesse Medical,TexTrace and Hanita (collectively,Rietveld are referred to collectively as the “2017 Acquisitions”) to expand our product portfolio and provide new growth opportunities.these acquisitions, which is subject to customary post-closing adjustments,the 2022 Acquisitions was approximately $344$35 million. This included $15 million of payments based on Yongle Tape’s achievement of certain pre-acquisition performance targets. The payments forWe funded the 20172022 Acquisitions were funded throughusing cash and existing credit facilities.commercial paper borrowings. In addition to the cash paid at closing, the closingsellers in one of the 2017 Acquisitions, certain sellersthese acquisitions are eligible for earn-out payments of up to approximately $45$30 million relatedsubject to the achievementacquired company achieving certain post-acquisition performance targets. As of certain performance targets for 2017 and 2018. Based on our current estimates,the acquisition date, we have accrued approximately $38 million forincluded an estimate of the fair value of these additional earn-out payments which has been included in the $344 million of aggregate purchase consideration.Consistent with the allowable time to complete our assessment, the valuations of certain acquired assets and liabilities, including tangible and intangible assets, environmental liabilities and income taxes, are currently pending.20172022 Acquisitions were not material, individually or in the aggregate, to ourthe unaudited Condensed Consolidated Financial Statements.Avery Dennison CorporationNote 3. InventoriesNet inventories consisted of:4.3. Goodwill and Other Intangibles Resulting from Business AcquisitionsGoodwillninethree months ended September 30, 2017,April 2, 2022 by reportable segment were as follows:
Graphic
Materials
and Information
Solutions
Healthcare
Materials(In millions) Total Goodwill as of January 1, 2022 $ 456.4 $ 1,236.0 $ 189.1 $ 1,881.5 — 16.3 — 16.3 — (.7) — (.7) Translation adjustments (3.4) (2.9) (.8) (7.1) Goodwill as of April 2, 2022 $ 453.0 $ 1,248.7 $ 188.3 $ 1,890.0 acquisitions of Hanita, which is included in the Label and Graphic Materials reportable segment, and Finesse Medical and Yongle Tape, which are included in the Industrial and Healthcare Materials reportable segment.(2)Goodwill purchase price allocation adjustments related to the acquisition of the European business of Mactac completed in August 2016.The carrying amounts of goodwill at September 30, 2017 and December 31, 2016 were net of cumulative impairment losses of $820 million recognized in fiscal year 2009 by our Retail Branding and Information Solutions reportable segment.In connection with the 2017 Acquisitions, we recognized goodwill based on our expectation of synergies and other benefits from acquiring these businesses.2022 Acquisitions. We expect the majority of the recognized goodwill related to the Hanita acquisition2022 Acquisitions not to be deductible for income tax purposes.Finite-Lived Intangible Assets20172022 Acquisitions, we acquired approximately $111$21 million of identifiable finite-lived intangible assets, which consisted of customer relationships, trade names and trademarks, and patentspatented and other acquired technology. We utilizeddeveloped technology as well as customer relationships.income approachthree months ended April 2, 2022 and April 3, 2021, respectively.estimate the fair values of the identifiable intangibles associated with the 2017 Acquisitions, using primarily Level 3 inputs. The discount rates we used to value theseexisting finite-lived intangible assets were between 10% and 16%.The table below summarizes the preliminary amounts and weighted useful lives of these intangible assets:
(in millions)
amortization period
(in years)Refer to Note 2, “Acquisitions,” for more information.Avery Dennison CorporationNote 5. DebtIn March 2017, we issued €500 million of senior notes, due March 2025. The senior notes bear an interest rate of 1.25% per year, payable annually in arrears. The net proceeds from the offering, after deducting underwriting discounts and estimated offering expenses, were $526.6 million (€495.5 million), a portion of which was used to repay commercial paper borrowings that we used to finance a portion of our acquisition of the European business of Mactac (“Mactac”) in August 2016 and the remainder of which was usedfiscal year 2022 and for general corporate purposes, including acquisitions. We designatedeach of the senior notes as a net investment hedgenext four fiscal years is shown below. These amounts include the effects of our investment in foreign operations. Refer to the 2022 Acquisitions and updated amounts from year-end 2021.Estimated
Amortization
Expense2022 (remainder of year) $ 62.2 2023 81.9 2024 80.2 2025 79.3 2026 76.3 10, “Financial Instruments,” for more information.$1.7$3.19 billion at September 30, 2017April 2, 2022 and $1.31$3.25 billion at December 31, 2016.January 1, 2022. Fair value amountsvalues were determined based primarily on Level 2 inputs, which are inputs other than quoted prices in active markets that are either directly or indirectly observable.$700$800 million revolving credit facility (the “Revolver”) contains a financial covenantscovenant requiring that we maintain a specified ratiosratio of total debt and interest expense in relation to a certain measuresmeasure of income. As of September 30, 2017both April 2, 2022 and December 31, 2016,January 1, 2022, we were in compliance with ourthis financial covenants.On October 2, 2017, subsequent to the end of the third quarter of 2017, we repaid $250 million of senior notes at maturity using commercial paper borrowings.Note 6. Pension and Other Postretirement BenefitsDefined Benefit PlansWe sponsor a number of defined benefit plans, the accrual of benefits under some of which has been frozen, covering eligible employees in the U.S. and certain other countries. Benefits payable to an employee are based primarily on years of service and the employee’s compensation during the course of his or her employment with us.We are also obligated to pay unfunded termination indemnity benefits to certain employees outside of the U.S., which are subject to applicable agreements, laws and regulations. We have not incurred significant costs related to these benefits, and, therefore, no related costs are included in the disclosures below.The following table sets forth the components of net periodic benefit cost (credit), which are recorded in income, for our defined benefit plans:(1)In the second quarter of 2016, we recognized loss on settlements related to the Avery Dennison Pension Plan, our U.S. pension plan, as a result of lump-sum pension payments to eligible former employees who were vested participants in the plan. The loss on settlementscovenant. No balance was recorded in “Other expense, net” in the unaudited Condensed Consolidated Statements of Income.Avery Dennison CorporationNote 7. Research and DevelopmentResearch and development expense was $23.6 million and $70 million for the three and nine months ended September 30, 2017, respectively, and $22.4 million and $67.4 million for the three and nine months ended October 1, 2016, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income.Note 8. Long-Term Incentive Compensation and Supplemental Equity InformationAs discussed in Note 1, “General,” we adopted an accounting guidance update in the first quarter of 2017 that, among other things, provided an accounting policy election to account for forfeitures of stock-based awards as they occur, rather than based on an estimate of expected forfeitures. We elected to continue our current practice of estimating expected forfeitures in determining the compensation cost to be recognized each period.In April 2017, our shareholders approved our 2017 Incentive Award Plan (the “2017 Plan”) to replace our Amended and Restated Stock Option and Incentive Plan. The 2017 Plan, a long-term incentive plan for eligible employees and non-employee directors, allows us to grant stock-based compensation awards – including stock options, restricted stock units, performance units, and market-leveraged stock units – or a combination of these and other awards. Under the 2017 Plan, the aggregate number of shares available for issuance is 5.4 million shares and each full value award will be counted as 1.5 shares for purposes of the number of shares authorized for issuance. Full value awards include restricted stock units, performance units, and market-leveraged stock units.Stock-Based AwardsStock-based compensation expense was $9 million and $22.2 million for the three and nine months ended September 30, 2017, respectively, and $6 million and $20.1 million for the three and nine months ended October 1, 2016, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income.As of September 30, 2017, we had approximately $46 million of unrecognized compensation expense related to unvested stock-based awards, which is expected to be recognized over the remaining weighted-average requisite service period of approximately two years.Cash-Based AwardsThe compensation expense related to long-term incentive units was $7.8 million and $24.6 million for the three and nine months ended September 30, 2017, respectively, and $7 million and $21.7 million for the three and nine months ended October 1, 2016, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income.Share Repurchase ProgramIn April 2017, our Board of Directors (“Board”) authorized the repurchase of shares of our common stock with a fair market value of up to $650 million, exclusive of any fees, commissions or other expenses related to such purchases and in addition to the amount outstanding under our previous Board authorization. Our Board repurchase authorizations remain in effect until shares in the respective amount authorized thereunder have been repurchased.9.5. Cost Reduction Actions2015/2016ninethree months ended September 30, 2017,April 2, 2022, we recorded $24.4$0.9 million in restructuring charges net of reversals, related to restructuring actions initiated during the third quarter of 2015 (“2015/2016 Actions”).our 2019/2020 actions. These charges consisted of severance and related costs for the reduction of approximately 67020 positions lease cancellation costs,at numerous locations across our company. These actions, which were primarily taken in our RBIS reportable segment, largely related to global headcount and asset impairment charges.andas well as lease cancellation costs, were included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets. Asset impairment charges were based on the estimated market valuenot material as of the assets, less selling costs, if applicable. Restructuring charges were included in “Other expense, net” in the unaudited Condensed Consolidated Statements of Income.Avery Dennison CorporationDuring the nine months ended September 30, 2017, restructuring charges and payments were as follows:
December 31, 2016
(Reversals),
net
Payments
Impairment
Currency
Translation
September 30, 2017The table below shows the total amount of restructuring charges incurred by reportable segment and Corporate:10.6. Financial Instrumentsenter into interest rate contracts to help manage our exposure to certain interest rate fluctuations. We also enter into futures contracts to hedge certain price fluctuations for a portion of our anticipated domestic purchases of natural gas. The maximum lengthimpact of time for whichthese foreign exchange and commodities hedge activities on the unaudited Condensed Consolidated Financial Statements was not material.hedge our exposure to the variability in future cash flows for forecasted transactions is 36 months.As of September 30, 2017, the aggregateentered into U.S. dollar equivalentto euro cross-currency swap contracts with a total notional amount of $250 million to have the effect of converting the fixed-rate U.S. dollar-denominated debt to euro-denominated debt, including semiannual interest payments and the payment of principal at maturity. During the term of the contract, which ends on April 30, 2030, we pay fixed-rate interest in euros and receive fixed-rate interest in U.S. dollars. These contracts have been designated as cash flow hedges. The fair value of our outstanding commodity contracts and foreign exchangethese contracts was $4.4$(5.0) million and $1.84 billion, respectively.We recognize derivative instruments$(10.3) million as either assets or liabilities at fair valueof April 2, 2022 and January 1, 2022, respectively, which was included in “Long-term retirement benefits and other liabilities” in the unaudited Condensed Consolidated Balance Sheets. We designate commodity forward contracts on forecasted purchases of commodities and foreign exchange contracts on forecasted transactions as cash flow hedges and designate foreign exchange contracts on existing balance sheet items as fair value hedges.The following table shows the fair value and balance sheet locations of derivatives as of September 30, 2017:The following table shows the fair value and balance sheet locations of derivatives as of December 31, 2016:Avery Dennison CorporationFair Value HedgesThe following table shows the components of net gains (losses), before taxes, recognized in income related to fair value hedge contracts. The corresponding gains or losses on the underlying hedged items approximated the net gains (losses) on these fair value hedge contracts.
(Losses) in IncomeFor derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings, resulting in no material net impact to income.Cash Flow HedgesGains (losses), before taxes, recognized in “Accumulated other comprehensive loss” (effective portion) on derivatives related to cash flow hedge contracts were as follows:For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of “Accumulated other comprehensive loss” and reclassified into earnings in the same period(s) during which the hedged transaction impacts earnings. Gains and losses on the derivative, representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings.The amount recognized in income related to the ineffective portion of, and the amount excluded from, effectiveness testing for cash flow hedges and derivatives not designated as hedging instruments was not material for the three and nine months ended September 30, 2017 and October 1, 2016, respectively.As of September 30, 2017, we expected a net loss of approximately $.1 million to be reclassified from “Accumulated other comprehensive loss” to earnings within the next 12 months.Net Investment HedgeIn March 2017, we designated our €500 million of euro-denominated 1.25% senior notes due 2025 as a net investment hedge of our investment in foreign operations. The net assets from the investment in foreign operations were greater than the senior notes, and as such, the net investment hedge was effective. Refer to Note 5, “Debt,10, “Fair Value Measurements,” for further information about our euro-denominated debt.Gain (loss), before tax, recognized in “Accumulated other comprehensive loss” (effective portion) related to the net investment hedge was as follows:net investment hedge incross-currency swap to earnings during the three or nine months ended September 30, 2017.April 2, 2022 or April 3, 2021.11.7. Taxes Based on IncomeTheThree Months Ended (Dollars in millions) April 2, 2022 April 3, 2021 Income before taxes $ 269.7 $ 268.9 Provision for income taxes 71.5 58.1 Effective tax rate 26.5 % 21.6 % threeimpact of these elections and nine months ended September 30, 2017 included $1.7 million and $3.2 million, respectively, of taxcurrently anticipate that the benefit from the releases of valuation allowances on certain U.S. state deferred tax assets and $1.1 million and $4.5 million, respectively, of tax benefit from the effective settlements of certain tax examinations and changes in our judgment about tax filing positions as a result of new information. The effective tax rate for the nine months ended September 30, 2017 included $4.6 million of tax benefit from decreases in certain tax reserves, including interest and penalties, as a result of closing tax years.The effective tax rate for the three and nine months ended September 30, 2017 also included a net benefit of $.3 million and $13.6 million, respectively, related to our adoption of the accounting guidance update related to stock-based payments described in Note 1, “General.” The accounting guidance update related to stock-based payments requires that the effect of excess tax benefits associated with stock-based payments be recognized in the income statement instead of in capital in excess of par value as was the case prior to our adoption ofmaking this update. Excess tax benefits are the effects of tax deductions in excess of compensation expenses recognized for financial accounting purposes. These benefits related to stock-based awards are generally generated as a result of stock price appreciation during the vesting period or between the time of grant and the time of exercise. We expect future excess tax benefits pursuant to this update to vary dependingelection on our stock-based payments in future reporting periods. These excess tax benefits may cause variability in our future effective tax rate as they can fluctuate based on vesting and exercise activity, as well as our future stock price. The tax effect of the tax deductions in excess of compensation cost related to the exercise of nonqualified stock options and vesting of other stock-based compensation awards recognized in capital in excess of par value was $2.9 million and $10.0 million for the three and nine months ended October 1, 2016, respectively.The effective tax rate for the three and nine months ended September 30, 2017 also included the immediate recognition of $1.6 million of tax expense primarily from intra-entity sales and transfers of assets other than inventory related to the integration of a recent acquisition. The remaining tax effects were recognized as deferred tax charges and recorded in “Other current assets” and “Other assets.” However, we expect the deferred tax charges to be derecognized as an adjustment to retained earnings upon adoption of the accounting guidance update described in Note 17, “Recent Accounting Requirements.”In addition, the effective tax rate for the three and nine months ended September 30, 2017 compared to the same period last year reflects a decrease in tax expense related to the repatriation of non-permanently reinvested earnings of certain foreign subsidiaries and favorable changes in the geographic mix of our income before taxes.The effective tax rate for the three and nine months ended October 1, 2016 included $4.8 million and $3.1 million of tax expense, respectively, resulting from return to provision adjustments pursuant to the completion of the 20152021 or 2022 U.S. federal tax return; $1 million and $7.1 million of tax benefit, respectively, from our change in judgment about tax filing positions in certain foreign jurisdictions as a result of new information gained from our interactions with tax authorities; and $17.7 million and $26.9 million of tax expense, respectively, associated with the tax cost to repatriate non-permanently reinvested earnings of certain foreign subsidiaries. The effective tax rate for each of the three and nine months ended October 1, 2016 also included $11.1 million of tax benefit resulting from effective settlements of tax examinations in various foreign jurisdictions. Included in the $11.1 million of tax benefit was an effective settlement for certain members of a consolidated tax group under examination. Additionally, the effective tax rate for the nine months ended October 1, 2016 included $6.7 million of tax benefit from the releases of valuation allowances against certain deferred tax assets in a foreign jurisdiction associated with a structural simplification approved by the tax authority and $3.3 million of tax benefit due to decreases in certain tax reserves as a result of closing tax years.With some exceptions,The final determination of tax audits and any related legal proceedings could materially differ from the amounts currently reflected in our tax provision for income taxes and the related liabilities. To date, we and our U.S. subsidiaries have completed the Internal Revenue Service’s Compliance Assurance Process Program through 2018. With limited exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2006.Avery Dennison Corporation$23$9 million, primarily as a result of audit settlements and closing tax years.12.8. Net Income Per Common Share(1)In 2017, the dilutive shares calculation reflects the impact of our adoption of the accounting guidance update described in Note 1, “General.”Three Months Ended (In millions, except per share amounts) April 2, 2022 April 3, 2021 $ 198.2 $ 209.5 82.4 83.1 Dilutive shares (additional common shares issuable under stock-based awards) .6 .8 83.0 83.9 Net income per common share: (A) ÷ (B) $ 2.41 $ 2.52 Net income per common share, assuming dilution: (A) ÷ (C) $ 2.39 $ 2.50 totaled approximately .1 million shares for the nine months ended September 30, 2017, and approximately .1 million shares and .2 million shares for the three and nine months ended October 1, 2016, respectively. No stock-based compensation awards were anti-dilutivenot significant for the three months ended September 30, 2017.13.9. Supplemental Equity and Comprehensive IncomeThree Months Ended (In millions) April 2, 2022 April 3, 2021 Common stock issued, $1 par value per share $ 124.1 $ 124.1 Capital in excess of par value Beginning balance $ 862.3 $ 862.1 (17.7) (16.3) Ending balance $ 844.6 $ 845.8 Retained earnings Beginning balance $ 3,880.7 $ 3,349.3 Net income 198.2 209.5 (5.8) (7.7) 6.3 4.9 Dividends (56.2) (51.6) Ending balance $ 4,023.2 $ 3,504.4 Treasury stock at cost Beginning balance $ (2,659.8) $ (2,501.0) Repurchase of shares for treasury (151.5) (55.6) 9.7 8.6 2.2 1.7 Ending balance $ (2,799.4) $ (2,546.3) Accumulated other comprehensive loss Beginning balance $ (282.9) $ (349.6) Other comprehensive income (loss), net of tax 22.9 3.5 Ending balance $ (260.0) $ (346.1) Three Months Ended April 2, 2022 April 3, 2021 Dividends per common share $ .68 $ .62 nine-monththree-month period ended September 30, 2017April 2, 2022 were as follows:
Currency
Translation
Other
Postretirement
Benefits
Hedges(In millions) Total Balance as of January 1, 2022 $ (217.4) $ (60.4) $ (5.1) $ (282.9) Other comprehensive income (loss) before reclassifications, net of tax 20.3 — 2.6 22.9 Reclassifications to net income, net of tax — .8 (.8) — Other comprehensive income (loss), net of tax 20.3 .8 1.8 22.9 Balance as of April 2, 2022 $ (197.1) $ (59.6) $ (3.3) $ (260.0) nine-monththree-month period ended October 1, 2016April 3, 2021 were as follows:
Currency
Translation
Other
Postretirement
Benefits
HedgesAvery Dennison CorporationThe amounts reclassified from “Accumulated other comprehensive loss” to increase (decrease) net income were as follows:
Other Comprehensive Loss
in the Statements
Where Net Income
is Presented(1)See Note 6, “Pension and Other Postretirement Benefits,” for more information.(In millions) Total Balance as of January 2, 2021 $ (248.1) $ (92.7) $ (8.8) $ (349.6) Other comprehensive income (loss) before reclassifications, net of tax 7.6 — (4.8) 2.8 Reclassifications to net income, net of tax — 1.2 (.5) .7 Other comprehensive income (loss), net of tax 7.6 1.2 (5.3) 3.5 Balance as of April 3, 2021 $ (240.5) $ (91.5) $ (14.1) $ (346.1) 14.10. Fair Value MeasurementsThe following table shows the assetsSeptember 30, 2017:
Active Markets
(Level 1)
Observable Inputs
(Level 2)
Unobservable Inputs
(Level 3)The following table shows the assetsApril 2, 2022 were as follows:Fair Value Measurements Using (In millions) Total Significant
Other
Unobservable
Inputs
(Level 3)Assets Investments $ 32.5 $ 26.0 $ 6.5 $ — Derivative assets 14.2 2.1 12.1 — Bank drafts 8.3 8.3 — — Liabilities Cross-currency swap $ 5.0 $ — $ 5.0 $ — Derivative liabilities 10.3 — 10.3 — Contingent consideration liabilities 12.6 — — 12.6 December 31, 2016:
Active Markets
(Level 1)
Observable Inputs
(Level 2)
Unobservable Inputs
(Level 3)Avery Dennison CorporationTrading securitiesJanuary 1, 2022 were as follows:Fair Value Measurements Using (In millions) Total Assets Investments $ 33.9 $ 27.1 $ 6.8 $ — Derivative assets 7.1 .6 6.5 — Bank drafts 14.1 14.1 — — Liabilities Cross-currency swap $ 10.3 $ — $ 10.3 $ — Derivative liabilities 3.6 — 3.6 — Contingent consideration liabilities 7.6 — — 7.6 September 30, 2017, trading securitiesApril 2, 2022, investments of $1.1$0.4 million and $21.5$32.1 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the unaudited Condensed Consolidated Balance Sheets. As of December 31, 2016, trading securitiesJanuary 1, 2022, investments of $.5$0.5 million and $17.6$33.4 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the unaudited Condensed Consolidated Balance Sheets. Derivatives that are exchange-traded are measured at fair value using quoted market prices and classified within Level 1 of the valuation hierarchy. Derivatives measured based on foreign exchange rate inputs that are readily available in public markets are classified within Level 2 of the valuation hierarchy. Bank drafts (maturities greater than three months) are valued at face value due to their short-term nature and arewere included in “Other current assets” in the unaudited Condensed Consolidated Balance Sheets.15.11. Commitments and Contingencies be incurred that were not previously accrued. Potential insurance reimbursements are not offset against thesepotential liabilities. However, environmental expenditures for newly acquired assets and those which extend or improve the economic useful life of existing assets are capitalized and amortized over the shorter of the estimated useful life of the acquired asset or the remaining life of the existing asset. We review our estimates of the costs of complying with environmental laws related to remediation and cleanup of various sites, including sites in which governmental agencies have designated us as a potentially responsible party (“PRP”). When it is probable that a loss will be incurred and where a range of the loss can be reasonably estimated, the best estimate within the range is accrued. When the best estimate within the range cannot be determined, the low end of the range is accrued. The ultimate resolution of these matters could affect future results of operations should our exposure be materially different from our estimates or should we incur liabilities that were not previously accrued. Potential insurance reimbursements are not offset against thesepotential liabilities.September 30, 2017,April 2, 2022, we have been designated by the U.S. Environmental Protection Agency (“EPA”) and/or other responsible state agencies as a PRP at thirteen12 waste disposal or waste recycling sites that are the subject of separate investigations or proceedings concerning alleged soil and/or groundwater contamination. No settlement of our liability related to any of these sites has been agreed upon. We are participating with other PRPs at these sites and anticipate that our share of remediation costs will be determined pursuant to agreements that we negotiate with the EPA or other governmental authorities.Avery Dennison Corporation for the nine months ended September 30, 2017 related to our environmental liabilities was as follows:(In millions) Balance at January 1, 2022 $ 21.9 Charges, net of reversals .7 Payments (.5) Balance at April 2, 2022 $ 22.1 $8$2 million of thethis balance was classified as short-term and included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets as of both September 30, 2017April 2, 2022 and December 31, 2016.16.12. Segment and Disaggregated Revenue InformationFinancialby reportable segment is set forth below:Avery Dennison CorporationNote 17. Recent Accounting RequirementsIn August 2017, the Financial Accounting Standards Board (“FASB”) issued amended guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements, as well as to simplify the application of hedge accounting. The amended presentation and disclosure guidance is required prospectively. The guidance will be effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. We are currently assessing the impact of this guidance on our financial position, results of operations, cash flows, and disclosures.In May 2017, the FASB issued amended guidance that provides clarity on which changes to share-based awards are considered substantive and require modification accounting to be applied. This guidance will be effective for interim and annual periods beginning after December 15, 2017. We do not regularly modify the terms and conditions of share-based awards and do not believe adoption of this amended guidance will have a significant effect on our financial position, results of operations, cash flows, and disclosures.In March 2017, the FASB issued guidance that requires employers with defined benefit plans to present only the service cost component of net periodic benefit costshown below in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Employers are required to present the other components of the net periodic benefit cost separately from the line item(s)manner that includes the service cost and outside of any subtotal of operating income. Components other than the service cost component will not be eligible for capitalization in assets. Employers are required to apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively, while the guidance that limits the capitalization of net periodic benefit cost in assets to the service cost component must be applied prospectively. This guidance will be effective for interim and annual periods beginning after December 15, 2017. The other components of net periodic pension cost totaled approximately $13 million and $53 million for the nine months ended September 30, 2017 and October 1, 2016, respectively. The amount in 2016 included a recognized loss on settlement of approximately $41 million. We continue to assess the impact of this guidance on the presentation of our results of operations and disclosures.In January 2017, the FASB issued amended guidance that simplifies the subsequent measurement of goodwill. This amended guidance eliminates step two of the goodwill impairment test, so that a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We adopted this guidance in the third quarter of 2017. This adoption did not have a significant impact on our financial position, results of operations, cash flows, or disclosures.In October 2016, the FASB issued guidance that requires companies to recognize the income tax effects of intra-entity sales and transfers of assets other than inventory in the period in which they occur. This guidance will be effective for fiscal years and interim periods beginning after December 15, 2017. The guidance requires modified retrospective adoption. Upon adoption, we expect to derecognize tax-related deferred charges and recognize deferred taxes related to certain intra-entity asset transfers as a net reduction to retained earnings. We do not believe adoption of this guidance will have a significant effect on our financial position, results of operations, cash flows, and disclosures.In March 2016, the FASB issued guidance on accounting for leases that requires lessees to recognize the rights and obligations created by leases on their balance sheets. This guidance, which will be effective for interim and annual periods beginning after December 15, 2018, also requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. Early adoption is permitted. We expect to adopt this guidance as of the effective date. A modified retrospective approach is required for adoption with respect to all leases that exist at or commence after the date of initial application, with an option to use certain practical expedients. While we are currently assessing the impact of this guidance on our financial position, results of operations, cash flows, and disclosures, we expect its adoption to have a significant impact on our financial position and disclosures.In May 2014, and in subsequent updates, the FASB issued revised guidance on revenue recognition. This revised guidance provides a single comprehensive model for accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This revised guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This revised guidance creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. This revised guidance also requires additional disclosure aboutbest depicts how the nature, amount, timing and uncertainty of our revenue and cash flows arisingare affected by economic factors. Revenue from customer contracts, including qualitativeour Label and quantitative information about contracts with customers, significant judgments and changes in judgments, and assets recognizedGraphic Materials reportable segment is attributed to geographic areas based on the location from costs incurred to obtain or fulfill a contract. This revised guidancewhich products are shipped. Revenue from our RBIS reportable segment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and can be applied retrospectively either to each prior reporting period presented (“full retrospective”) or with the cumulative effectshown by product group.adoption recognized at the date of initial application (“modified retrospective”). We expect to adopt this revised guidance under the modified retrospective approach in the firstContentsquarterThree Months Ended (In millions) April 2, 2022 April 3, 2021 Net sales to unaffiliated customers Label and Graphic Materials: U.S. $ 419.6 $ 364.9 Europe 559.0 515.6 Asia 308.8 323.1 Latin America 106.0 95.5 Other international 86.8 77.9 Total Label and Graphic Materials 1,480.2 1,377.0 Retail Branding and Information Solutions: Apparel 514.6 428.4 Identification Solutions and Vestcom 164.4 54.3 Total Retail Branding and Information Solutions 679.0 482.7 Industrial and Healthcare Materials 190.1 191.6 Net sales to unaffiliated customers $ 2,349.3 $ 2,051.3 Three Months Ended (In millions) April 2, 2022 April 3, 2021 Intersegment sales Label and Graphic Materials $ 28.7 $ 21.6 Retail Branding and Information Solutions 11.0 8.3 Industrial and Healthcare Materials 5.0 2.1 Intersegment sales $ 44.7 $ 32.0 Income before taxes Label and Graphic Materials $ 207.2 $ 226.2 Retail Branding and Information Solutions 90.3 60.0 Industrial and Healthcare Materials 15.6 23.5 Corporate expense (25.2) (25.9) Interest expense (19.6) (16.2) Other non-operating expense (income), net 1.4 1.3 Income before taxes $ 269.7 $ 268.9 Other expense (income), net, by reportable segment and Corporate Label and Graphic Materials $ (3.2) $ (1.9) Retail Branding and Information Solutions 1.6 2.1 Industrial and Healthcare Materials — .1 Corporate — .6 Other expense (income), net $ (1.6) $ .9 Three Months Ended (In millions) April 2, 2022 April 3, 2021 Other expense (income), net, by type Restructuring charges: Severance and related costs $ .9 $ 2.4 Asset impairment charges and lease cancellation costs — .5 Other items: Outcomes of legal proceedings 1.0 2.1 Transaction and related costs .2 .7 Gain on venture investment (3.7) — Gain on sale of product line — (4.8) Other expense (income), net $ (1.6) $ .9 (In millions) April 2, 2022 January 1, 2022 Raw materials $ 409.8 $ 393.6 Work-in-progress 245.6 233.1 Finished goods 305.5 280.5 Inventories $ 960.9 $ 907.2 cross-functional teamEquipment(In millions) April 2, 2022 January 1, 2022 Property, plant and equipment $ 3,650.2 $ 3,626.2 Accumulated depreciation (2,172.7) (2,148.5) Property, plant and equipment, net $ 1,477.5 $ 1,477.7 manage the assessment, design, and implementation of this new guidance. Based on our assessment to date, we do not anticipate that the adoption of this revised guidance will have a significant impact on our financial position, results of operations, or cash flows. Upon adoption of this guidance, allowances for customer returns, currently presented as a reduction of trade accounts receivable, will be classified as a returns liability. The allowance for customer returns was $12.1 million and $10 million ascredit losses is shown below.Three Months Ended (In millions) April 2, 2022 April 3, 2021 Beginning balance $ 33.0 $ 44.6 Provision for (reversal of) credit losses 6.6 (1.9) Amounts written off (.4) (1.1) Other, including foreign currency translation .3 (.9) Ending balance $ 39.5 $ 40.7 September 30, 2017 and December 31, 2016, respectively. Upon adoption, we do not expect the value of return assets to be significant. We are in the process of implementing appropriate changes to processes, policies, systems, and controls to support revenue recognition and disclosures in accordance with the revised guidance.Contentsnotes thereto, and includes the following sections:uponon feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessments of our performance and operating trends, as well as liquidity.settlements,proceedings, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains andor losses from curtailment andor settlement of pension obligations, gains or losses on sales of certain assets, gains or losses on venture investments and other items), we believe that we are providing meaningful supplemental information to facilitatethat facilitates an understanding of our core operating results and liquidity measures. These non-GAAP financial measures are used internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single period. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency, or timing.following non-GAAP financial measures described below in this MD&A:·&A.translation.translation and the reclassification of sales between segments, and, where applicable, an extra week in our fiscal year and the calendar shift resulting from the extra week in the prior fiscal year and currency adjustment for transitional reporting of highly inflationary economies. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of foreign currency fluctuations.·the increase or decrease in sales change ex. currency, excluding the estimated impact of foreign currency translation,acquisitions and product line exits, acquisitions and divestitures, and, where applicable, an extra week in our fiscal year.growthchange from the ongoing activities of our businesses and better enable themenhance their ability to evaluate our results from period to period.·from operations,provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for, where applicable, certain acquisition-related transaction costs. We believe that free cash flow assists investors by indicatingshowing the amount of cash we have available for debt reductions, dividends, share repurchases and acquisitions.·held-for-sale.held-for-sale divided by annualized current quarter net sales. We believe that operational working capital as a percentage of annualized current quarter net sales assists investors in assessing our working capital requirements because it excludes the impact of fluctuations attributable to our financing and other activities (which affect cash and cash equivalents, deferred taxes, other current assets, and other current liabilities) that tend to be disparate in amount, frequency, or timing, and that may increase the volatility of working capital as a percentage of sales from period to period. The items excluded from this measure are not significantly influenced by our day-to-day activities managed at the operating level and do not necessarily reflect the underlying trends in our operations.below:Three Months Ended
April 2, 2022Reported sales change 15 % Foreign currency translation 3 18 Acquisitions (5) 13 % and nine months ended September 30, 2017,April 2, 2022, net sales increased on an organic basis due to higher volume.Net IncomeNet income increased approximately $83 million in the first nine months of 2017 compared to the same period last year.in the prior year due to pricing actions and higher volume/mix.first nine months of 2017 included:Positive factors:· Volume/mix· Benefits from productivity initiatives, including savings from restructuring actions, net of transition costs· Prior year loss from settlement of pension obligationsOffsetting factors:· Higher employee-related costs·aggregate purchase consideration.net impact of pricing and raw material costs· Higher restructuring chargesDuring the first nine months of 2017, we completed the 2017 Acquisitions, which were not material, individually or in the aggregate, to ourthe unaudited Condensed Consolidated Financial Statements.2015/2016ninethree months ended September 30, 2017,April 2, 2022, we recorded $24.4$0.9 million in restructuring charges net of reversals, related to the 2015/2016 Actions.our 2019/2020 actions. These charges consisted of severance and related costs for the reduction of approximately 67020 positions at numerous locations across our company. These actions, which were primarily taken in our RBIS reportable segment, largely related to global headcount and footprint reductions. Accruals for severance and related costs, as well as lease cancellation costs, and asset impairment charges.Impactwere not material as of Cost Reduction ActionsWe anticipate incremental savings, net of transition costs, from the 2015/2016 Actions to be approximately $50 million to $55 million in 2017. We estimate cash restructuring costs to be approximately $35 million in 2017.9,5, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information.Free Cash FlowFree cash flow inThree Months Ended (In millions) April 2, 2022 April 3, 2021 Net cash provided by operating activities $ 126.2 $ 209.3 Purchases of property, plant and equipment (49.7) (25.2) Purchases of software and other deferred charges (5.6) (2.3) Proceeds from sales of property, plant and equipment .3 .7 Proceeds from insurance and sales (purchases) of investments, net 1.8 (.5) Payments for certain acquisition-related transaction costs .3 — Free cash flow $ 73.3 $ 182.0 ninethree months of 2017 increased2022, net cash provided by operating activities decreased compared to the same period last year primarily due to higher net income, partially offset by higher net capital and software expenditures and purchases of investments, higher income tax payments, net of refunds, andchanges in operational working capital, improvements inhigher incentive compensation payments and timing of payroll payments. During the prior year, the benefitfirst three months of which did not repeat in the current year. Free2022, free cash flow in the first nine months of 2017 also reflected the impact of our adoption of the accounting guidance update related to stock-based payments described in Note 1, “General,”decreased compared to the unaudited Condensed Consolidated Financial Statements. for 2017 are described below:·below. our net sales to increase by approximately 8%.·12% to 14%, including a decrease of approximately 3% from the effect of foreign currency translation and an increase of approximately 3% from the effect of acquisitions.approximately 28%.·in the mid-twenty percent range.anticipate ourexpect fixed and IT capital and software expendituresspend of up to be approximately $215$350 million.· We estimate pre-tax cash restructuring and certain acquisition-related transaction costs to total approximately $40 million.beforeBefore Taxes(In millions, except percentages) April 2, 2022 April 3, 2021 Net sales $ 2,349.3 $ 2,051.3 Cost of products sold 1,708.0 1,454.3 Gross profit 641.3 597.0 Marketing, general and administrative expense 355.0 312.3 Other expense (income), net (1.6) .9 Interest expense 19.6 16.2 Other non-operating expense (income), net (1.4) (1.3) Income before taxes $ 269.7 $ 268.9 Gross profit margin 27.3 % 29.1 % thirdfirst quarter of 20172022 decreased from the same period last year primarily due to the net unfavorable impact of higher selling prices, higher raw material costs and higher freight costs, as well as higher employee-related costs, partially offset by higher volume/mix.driven by acquisitions as well as the net impact of pricing and raw material costs in our Label and Graphic Materials and Industrial and Healthcare Materials reportable segments.Marketing, General and Administrative ExpenseMarketing, general and administrative expense increased in the third quarter of 2017 compareddue to the same period last year reflecting higher employee-related costs and the impact of acquisitions partially offset by benefits from productivity initiatives, including savings from restructuring, netand growth investments.netThree Months Ended (In millions) April 2, 2022 April 3, 2021 Other expense (income), net, by type Restructuring charges: Severance and related costs $ .9 $ 2.4 Asset impairment charges and lease cancellation costs — .5 Other items: Outcomes of legal proceedings 1.0 2.1 Transaction and related costs .2 .7 Gain on venture investment (3.7) — Gain on sale of product line — (4.8) Other expense (income), net $ (1.6) $ .9 9,5, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information regarding charges associated with restructuring.Avery Dennison Corporation(In millions, except per share amounts and percentages) April 2, 2022 April 3, 2021 Income before taxes $ 269.7 $ 268.9 Provision for income taxes 71.5 58.1 Equity method investment (losses) gains — (1.3) Net income $ 198.2 $ 209.5 Per share amounts: Net income per common share $ 2.41 $ 2.52 Net income per common share, assuming dilution 2.39 2.50 Effective tax rate 26.5 % 21.6 % TheSeptember 30, 2017 included $1.7 million of tax benefit from the releases of valuation allowances on certain U.S. state deferred tax assets and $1.1 million of tax benefit from the effective settlements of certain tax examinations and changes in our judgment about tax filing positions as a result of new information.The effective tax rate for the three months ended September 30, 2017 also included the immediate recognition of $1.6 million of tax expense primarily from intra-entity sales and transfers of assets other than inventory related to the integration of a recent acquisition. The remaining tax effects were recognized as deferred tax charges and recorded in “Other current assets” and “Other assets.” However, we expect the deferred tax charges to be derecognized as an adjustment to retained earnings upon adoption of the accounting guidance update described in Note 17, “Recent Accounting Requirements,” to the unaudited Condensed Consolidated Financial Statements.In addition, the effective tax rate for the three months ended September 30, 2017April 2, 2022 was 26.5% compared to 21.6% in the same period last year reflectsyear. The lower rate in the prior-year period reflected a decrease in tax expensediscrete return-to-provision benefit related to the repatriation of non-permanently reinvested earnings of certain foreign subsidiaries and favorable changes in the geographic mix ofan election made on our income before taxes.The effective tax rate for the three months ended October 1, 2016 included $4.8 million of tax expense resulting from return to provision adjustments pursuant to the completion of the 2015amended 2018 U.S. federal tax return; $1 million of tax benefit from our change in judgment about tax filing positions in certain foreign jurisdictions as a result of new information gained from our interactions with tax authorities; $17.7 million of tax expense associated with the tax cost to repatriate non-permanently reinvested earnings of certain foreign subsidiaries; and $11.1 million of tax benefit resulting from effective settlements of tax examinations in various foreign jurisdictions.Our effective tax rate can vary widely from quarter to quarter due to interim reporting requirements, the recognition of discrete events, and the timing of repatriation of foreign earnings.return. Refer to Note 11,7, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for furthermore information.taxes.Avery Dennison Corporation(In millions) April 2, 2022 April 3, 2021 Net sales including intersegment sales $ 1,508.9 $ 1,398.6 Less intersegment sales (28.7) (21.6) Net sales $ 1,480.2 $ 1,377.0 207.2 226.2 $ (3.2) $ (1.9) below:below.Three Months Ended September 30, 2017April 2, 2022 8 94 (2)12 7%Acquisitions(2)12 5%thirdfirst quarter of 2017,2022, net sales increased on an organic basis compared to the same period in the prior year due to higher volume. Sales increased onpricing actions, partially offset by a modest decline in volume/mix. On an organic basis, atnet sales increased by a high-singlelow-to-mid-single digit rate in emerging markets a mid-single digit rate in Western Europe, and a low-single digit ratehigh teens rates in North America.increaseddecreased in the thirdfirst quarter of 20172022 compared to the same period last year primarily due to higher volume and benefits from productivity initiatives, including savings from restructuring actions, net of transition costs, partially offset by higher employee-related costsunfavorable currency translation and the net unfavorable impact of pricing andhigher selling prices, higher raw material costs and higher freight costs.(In millions) April 2, 2022 April 3, 2021 Net sales including intersegment sales $ 690.0 $ 491.0 Less intersegment sales (11.0) (8.3) Net sales $ 679.0 $ 482.7 90.3 60.0 $ 1.6 $ 2.1 below:below.Three Months Ended September 30, 2017April 2, 2022 41 63 –43 7%(23) 20 7%(1)Total may not sum due to roundingthirdfirst quarter of 2017, net sales increased2022, on an organic basis, due to higher volume, reflecting growthsales increased by over 20% in high value categories and a mid-teens rate in the base business.both radio-frequency identification products and base apparel tickets and tags.thirdfirst quarter of 20172022 compared to the same period last year primarily due to higher organic volume benefits from productivity initiatives, including savings from restructuring actions, netand the impact of transition costs, and lower amortization expense,acquisitions, partially offset by higher employee-related costsamortization of other intangibles resulting from business acquisitions, growth investments and higher restructuring charges.Avery Dennison Corporation(In millions) April 2, 2022 April 3, 2021 Net sales including intersegment sales $ 195.1 $ 193.7 Less intersegment sales (5.0) (2.1) Net sales $ 190.1 $ 191.6 15.6 23.5 $ — $ .1 below:below.Three Months Ended September 30, 2017April 2, 2022 (1) 522 (2)1 50%(1) (47)1 3%thirdfirst quarter of 2017,2022, net sales increased on an organic basis duecompared to volume growththe same period in boththe prior year by a low-double digit rate in healthcare categories, partially offset by a low-single digit rate decrease in industrial and healthcare categories.increaseddecreased in the thirdfirst quarter of 20172022 compared to the same period last year primarily due to higher volume and benefits from productivity initiatives, including savings from restructuring actions, netlower volume/mix.transition costs, partially offset by acquisition-related costs, higher employee-related costs, and the net impact of pricing and raw material costs.ANALYSIS OF RESULTS OF OPERATIONS FOR THE NINE MONTHS YEAR-TO-DATEContentsIncome before TaxesGross Profit MarginGross profit margin forThree months ended (In millions) April 2, 2022 April 3, 2021 Net income $ 198.2 $ 209.5 Depreciation 43.8 40.0 Amortization 28.2 14.4 Provision for credit losses and sales returns 16.1 8.9 Stock-based compensation 11.1 9.9 Pension plan settlement loss — .4 Deferred taxes and other non-cash taxes 1.9 1.5 Other non-cash expense and loss (income and gain), net 6.5 2.7 Changes in assets and liabilities and other adjustments (179.6) (78.0) Net cash provided by operating activities $ 126.2 $ 209.3 ninethree months of 20172022, net cash provided by operating activities decreased compared to the same period last year primarily due to margin decline in the Industrial and Healthcare Materials reportable segment driven by the impact of acquisitions and a program loss in personal care tapes.Marketing, General and Administrative ExpenseMarketing, general and administrative expense increased in the first nine months of 2017 compared to the same period last year reflecting the impact of acquisitions and higher employee-related costs, partially offset by benefits from productivity initiatives, including savings from restructuring, net of transition costs.Avery Dennison CorporationOther Expense, netRefer to Note 9, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information regarding costs associated with restructuring.Refer to Note 6, “Pension and Other Postretirement Benefits,” to the unaudited Condensed Consolidated Financial Statements for more information regarding loss from settlement of pension obligations.Net Income and Earnings per ShareProvision for Income TaxesThe effective tax rate for the nine months ended September 30, 2017 included $3.2 million of tax benefit from the releases of valuation allowances on certain U.S. state deferred tax assets; $4.5 million of tax benefit from the effective settlements of certain tax examinations and changes in our judgment about tax filing positions as a result of new information;operational working capital, higher incentive compensation payments and $4.6 million of tax benefit from decreases in certain tax reserves, including interest and penalties, as a result of closing tax years.The effective tax rate for the nine months ended September 30, 2017 also included a net benefit of $13.6 million related to our adoption of the accounting guidance update related to stock-based payments described in Note 1, “General,” to the unaudited Condensed Consolidated Financial Statements. The accounting guidance update related to stock-based payments requires that the effect of excess tax benefits associated with stock-based payments be recognized in the income statement instead of in capital in excess of par value as was the case prior to our adoption of this update. Excess tax benefits are the effects of tax deductions in excess of compensation expenses recognized for financial accounting purposes. These benefits related to stock-based awards are generally generated as a result of stock price appreciation during the vesting period or between the time of grant and the time of exercise. We expect future excess tax benefits pursuant to this update to vary depending on our stock-based payments in future reporting periods. These excess tax benefits may cause variability in our future effective tax rate as they can fluctuate based on vesting and exercise activity, as well as our future stock price. The tax effect of the tax deductions in excess of compensation cost related to the exercise of nonqualified stock options and vesting of other stock-based compensation awards recognized in capital in excess of par value was $10.0 million for the nine months ended October 1, 2016.The effective tax rate for the nine months ended September 30, 2017 also included the immediate recognition of $1.6 million of tax expense primarily from intra-entity sales and transfers of assets other than inventory related to the integration of a recent acquisition. The remaining tax effects were recognized as deferred tax charges and recorded in “Other current assets” and “Other assets.” However, we expect the deferred tax charges to be derecognized as an adjustment to retained earnings upon adoption of the accounting guidance update described in Note 17, “Recent Accounting Requirements,” to the unaudited Condensed Consolidated Financial Statements.Avery Dennison CorporationIn addition, the effective tax rate for the nine months ended September 30, 2017 compared to the same period last year reflects a decrease in tax expense related to the repatriation of non-permanently reinvested earnings of certain foreign subsidiaries and favorable changes in the geographic mix of our income before taxes.The effective tax rate for the nine months ended October 1, 2016 included $3.1 million of tax expense resulting from return to provision adjustments pursuant to the completion of the 2015 U.S. federal tax return; $7.1 million of tax benefit from our change in judgment about tax filing positions in certain foreign jurisdictions as a result of new information gained from our interactions with tax authorities; $26.9 million of tax expense associated with the tax cost to repatriate non-permanently reinvested earnings of certain foreign subsidiaries; $11.1 million of tax benefit resulting from effective settlements of tax examinations in various foreign jurisdictions; $6.7 million of tax benefit from the releases of valuation allowances against certain deferred tax assets in a foreign jurisdiction associated with a structural simplification approved by the tax authority; and $3.3 million of tax benefit due to decreases in certain tax reserves as a result of closing tax years.Our effective tax rate can vary widely from quarter to quarter due to interim reporting requirements, the recognition of discrete events and the timing of repatriationpayroll payments.Three months ended (In millions) April 2, 2022 April 3, 2021 Purchases of property, plant and equipment $ (49.7) $ (25.2) Purchases of software and other deferred charges (5.6) (2.3) Proceeds from sales of property, plant and equipment .3 .7 Proceeds from insurance and sales (purchases) of investments, net 1.8 (.5) Proceeds from sale of product line — 6.7 Payments for acquisitions, net of cash acquired, and investments in businesses (33.4) (30.6) Net cash used in investing activities $ (86.6) $ (51.2) foreign earnings. Refer to Note 11, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for further information.RESULTS OF OPERATIONS BY REPORTABLE SEGMENT FOR THE NINE MONTHS YEAR-TO-DATEOperating income refers to income before interestProperty, Plant and taxes.Label and Graphic MaterialsNet SalesThe factors impacting reported sales change are shown in the table below:Nine Months EndedSeptember 30, 2017Reported sales change7%Foreign currency translation–Sales change ex. currency7%Acquisitions(3)Organic sales change4%In the first nine months of 2017, net sales increased on an organic basis primarily due to higher volume. Net sales increased on an organic basis at a high-single digit rate in emerging markets, a mid-single digit rate in Western Europe, and a low-single digit rate in North America.Operating IncomeOperating income increased in the first nine months of 2017 compared to the same period last year primarily reflecting higher volume/mix and benefits from productivity initiatives, including savings from restructuring, net of transition costs, partially offset by higher employee-related costs and the net impact of pricing and raw material costs.Avery Dennison CorporationRetail Branding and Information SolutionsNet SalesThe factors impacting reported sales change are shown in the table below:Nine Months EndedSeptember 30, 2017Reported sales change4%Foreign currency translation1Sales change ex. currency5%Organic sales change5%In the first nine months of 2017, net sales increased on an organic basis due to higher volume reflecting growth in both radio-frequency identification products and base apparel tickets and tags.Operating IncomeOperating income increased in the first nine months of 2017 compared to the same period last year reflecting higher volume and benefits from productivity initiatives, including savings from restructuring actions, net of transition costs, partially offset by higher employee-related costs and higher restructuring charges.Industrial and Healthcare MaterialsNet SalesThe factors impacting reported sales change are shown in the table below:Nine Months EndedSeptember 30, 2017Reported sales change20%Foreign currency translation1Sales change ex. currency21%Acquisitions(20)Organic sales change1%In the first nine months of 2017, net sales increased slightly on an organic basis primarily due to higher volume, as growth in industrial categories largely offset the anticipated decline in healthcare categories.Operating IncomeOperating income decreased in the first nine months of 2017 compared to the same period last year due to higher employee-related costs, including growth investments, as well as the net impact of pricing and raw material costs, partially offset by benefits from productivity initiatives, including savings from restructuring actions, net of transition costs. The net impact of acquisitions was not material.Avery Dennison CorporationLiquidityOperating ActivitiesFor cash flow purposes, changes in assets and liabilities and other adjustments exclude the impact of foreign currency translation (discussed below in “Analysis of Selected Balance Sheet Accounts”).ninethree months of 2017, cash flow from operating activities increased compared to the same period last year2022, we primarily due to higher net income, partially offset by higher income tax payments, net of refunds, and operational working capital improvements in the prior year, the benefit of which did not repeat in the current year. In addition, in the first nine months of 2017, operating activities reflected the impact of our adoption of the accounting guidance update related to stock-based payments described in Note 1, “General,” to the unaudited Condensed Consolidated Financial Statements.Investing ActivitiesCapital and Software SpendingDuring the first nine months of 2017, we invested in newbuildings and equipment to support growth in certain countries in Europe, the U.S. and certain countries in Latin America for our Labels and Graphic Materials (“LGM”) reportable segment, in the U.S. for our IHM reportable segment and in the U.S. and certain countries in Asia Europe, and North America, and to improve manufacturing productivity.for our RBIS reportable segment. During the first ninethree months of 2016,2021, we primarily invested in new equipment to support growth primarilyin the U.S. for our LGM and IHM reportable segments and in certain countries in Asia for our RBIS reportable segment.to improve manufacturing productivity.ninethree months of 20172022 and 2016,2021, we primarily invested in information technology primarily associated with enterprise resource planning system implementationsupgrades in North America, Asia, and Europe.ninethree months of 2017 and 2016, the aggregate payments for acquisitions,2022, we paid consideration, net of cash acquired, and investments in businesses wereof approximately $310$30 million and $228 million, respectively, which wefor the 2022 Acquisitions. We funded throughthe 2022 Acquisitions using cash and commercial paper borrowings.Refer to Note 2, “Acquisitions,” to During the unaudited Condensed Consolidated Financial Statementsfirst three months of 2021, we paid consideration, net of cash acquired, of approximately $30 million for more information.Three months ended (In millions) April 2, 2022 April 3, 2021 Net increase (decrease) in borrowings with maturities of three months or less $ 179.4 $ 53.8 Repayments of long-term debt and finance leases (1.9) (1.5) Dividends paid (56.2) (51.6) Share repurchases (151.5) (55.6) Net (tax withholding) proceeds related to stock-based compensation (24.9) (25.3) Net cash used in financing activities $ (55.1) $ (80.2) Given the seasonality of our cash flow from operating activities, duringninethree months of 20172022 and 2016,2021, our commercial paper borrowings were used to fund share repurchase activity,acquisitions, dividend payments, share repurchases, capital expenditures and capital expenditures. During the first nine months of 2017 and 2016, commercial paper borrowings were also used to fund acquisitions.In March 2017, we issued €500 million of senior notes, due March 2025. The senior notes bear an interest rate of 1.25% per year, payable annually in arrears. The net proceeds from the offering, after deducting underwriting discounts and estimated offering expenses, were $526.6 million (€495.5 million), a portion of which was used to repay commercial paper borrowings that we used to finance a portion of our acquisition of Mactac in August 2016 and the remainder of which was used forother general corporate purposes, including acquisitions.5,4, “Debt,” to the unaudited Condensed Consolidated Financial Statements for more information.Dividend Payments$1.31$.68 per share in the first ninethree months of 20172022 compared to $1.19$.62 per share in the same period last year. In April 2017,2022, subsequent to the end of our first quarter 2022, we increased our quarterly dividend rate to $.45$.75 per share, representing an increase of approximately 10% from our previous quarterly dividend rate of $.41$.68 per share.ninethree months of 2017,2022 and 2021, we repurchased 1.3approximately 0.8 million and 0.3 million shares of our common stock, at an aggregate costrespectively. $104.8 million. During the first nine monthsquarter of 2016, we repurchased 2.7 million shares of our common stock at an aggregate cost of $181.5 million.In April 2017,2022, our Board authorized the repurchase of shares of our common stock with a fair market value of up to $650$750 million, exclusive ofexcluding any fees, commissions or other expenses related to such purchases and in addition to anythe amount outstanding under our previous Board authorization. Our Board repurchase authorizations remain in effect until shares in the respective amount authorized thereunder have been repurchased.As of September 30, 2017, shares of our common stock in the aggregate amount of $650.1 million remained authorized for repurchase under our outstanding Board authorizations.Tax Withholding for and Excess Tax Benefit from Netninethree months of 2017,2022, tax withholding for and excess tax benefit from stock-based compensation net, reflected the impact of our adoption of the accounting guidance update related to stock-based payments described in Note 1, “General,”decreased compared to the unaudited Condensed Consolidated Financial Statements.ninethree months ended September 30, 2017, property, plant and equipment, net, increased by approximately $132 million to $1.05 billion, which primarily reflected the preliminary valuation of property, plant and equipment from the 2017 Acquisitions of approximately $68 million, as well as purchases of property, plant and equipment, partially offset by depreciation expense.In the nine months ended September 30, 2017,April 2, 2022, goodwill increased by approximately $184$9 million to $977.1 million,$1.89 billion, which reflected the preliminary valuation of goodwill associated with the 20172022 Acquisitions, partially offset by the impact of foreign currency translation, and purchase price allocation adjustments associated with our acquisition of Mactac in August 2016.Avery Dennison Corporationninethree months ended September 30, 2017,April 2, 2022, other intangibles resulting from business acquisitions, net, increaseddecreased by approximately $103$1 million to $170.1$910.8 million, which reflected the preliminary valuation of other intangibles from the 2017 Acquisitionscurrent year amortization expense and the impact of foreign currency translation, partially offset by current year amortization expense.2, “Acquisitions,” and Note 4,3, “Goodwill and Other Intangibles Resulting from Business Acquisitions,” to the unaudited Condensed Consolidated Financial Statements for more information.Innine months ended September 30, 2017, other assets increased by approximately $42 million to $445.1 million, which reflected an increase to deferred tax charges associated with the integration of a recent acquisition, an increase in the cash surrender valuebalance of our corporate-owned life insurance policies, and the impact of foreign currency translation, partially offset by amortization expense related to software and other deferred charges, net of purchases.11, “Taxes Based on9, “Supplemental Equity and Comprehensive Income Information,” to the unaudited Condensed Consolidated Financial Statements for more information.Shareholders’ Equity AccountsIn the nine months ended September 30, 2017, the balanceThree Months Ended (In millions) April 2, 2022 Change in net sales $ (60) 76%72% of our net sales during the ninethree months ended September 30, 2017.April 2, 2022. Our future results are subject to changes in political and economic conditions in the regions in which we operate and the impact of fluctuations in foreign currency exchange and interest rates.ninethree months of 20172022 compared to the same period last year was primarily related to sales in China and Turkey, and euro-denominated sales, partially offset by sales in Brazil.We also utilize certain foreign currency denominated debtRefer to mitigate foreign currency exposure relatedNote 6, “Financial Instruments,” to our investment in foreign operations.Avery Dennison CorporationWorking Capital (Deficit) We believe this information assists our investors in understanding the drivers impacting our cash flow other than net income and capital expenditures.RatiosThe increase in working capital (deficit) (current assets minus current liabilities), as a percentage of annualized net sales, of 4% in the first nine months of 2017 compared to (.7)% in the first nine months of 2016 was primarily the result of a decrease in short-term borrowings and current portion of long-term debt and capital leases, as well as increases in trade accounts receivable, net. The decrease in short-term borrowings and current portion of long-term debt and capital leases was a result of the repayment of commercial paper borrowings used to finance a portion of our acquisition of Mactac in August 2016 using senior notes issued in March 2017. Refer to “Borrowings and Repayment of Debt” for more information.The increase in operationalRatiowithto working capital below, of 13.2% in the first nine months of 2017 compared to 12.7% in the first nine months of 2016 was primarily the result of the impact of acquisitions.below. Our objective is to minimize our investment in operational working capital, as a percentage of annualized current-quarter net sales, to maximize cash flow and return on investment.(In millions, except percentages) April 2, 2022 April 3, 2021 (A) Working capital $ 171.1 $ 573.9 Reconciling items: Cash and cash equivalents (147.1) (328.0) Other current assets (234.9) (216.3) Short-term borrowings and current portion of long-term debt and finance leases 494.9 116.9 Accrued payroll and employee benefits and other current liabilities 855.8 763.6 (B) Operational working capital $ 1,139.8 $ 910.1 (C) First-quarter net sales, annualized $ 9,397.2 $ 8,205.2 Operational working capital, as a percentage of annualized current-quarter net sales: (B) ÷ (C) 12.1 % 11.1 % three-quarter average trade accounts receivable balance at quarter-end divided by the average daily sales for the first nine months, was 64 days in the first nine monthsquarter of 20172022 and 63 days in the first nine months of 2016.2021, respectively. The increase in the average number of days sales outstanding from the prior yearwas primarily reflecteddue to the impact of acquisitions and the timing of collections.sales (cost of sales for the first nine months, divided by threeproducts sold in 2022 and multiplied by four)2021, respectively, and divided by the three-quarter average inventory balance was 7.8 in the first nine months of 2017 and 8.5 in the first nine months of 2016.at quarter-end. The decrease in the current year average inventory turnover primarily reflected the impact of acquisitionsinventory build to manage supply chain disruptions and the timing of inventory purchases.three-quarter average accounts payable balance at quarter-end divided by the average dailyannualized first-quarter cost of products sold, forin 2022 and 2021, respectively. The decrease in average number of days payable outstanding primarily reflected the first nine months, was 72 days in bothimpact of acquisitions,first nine monthsimpact of 2017foreign currency translation and 2016.financing. At September 30, 2017,financing, including access to commercial paper borrowings supported by our Revolver. We use these resources to fund our operational needs.approximately $232$147.1 million held in accounts at third-party financial institutions.At September 30, 2017,As of April 2, 2022, the majority of our cash and cash equivalents was held by our foreign subsidiaries.Avery Dennison Corporationcommercial paper, borrowings from foreign subsidiaries, and repatriating foreign earnings.earnings and profits. However, if we were to repatriate incremental foreign earnings we mayand profits, a portion would be subject to additionalcash payments of withholding taxes imposed by foreign tax authorities. Additional U.S. taxes may also result from the impact of foreign currency fluctuations related to these earnings and profits.the U.S.Our $700 million revolving creditFebruary 2025, is used as a back-up facility (the “Revolver”) contains financial covenants requiring that we maintain specified ratios of total debt and interest expense in relation to certain measures of income. As of September 30, 2017 and December 31, 2016, we were in compliance withfor our financial covenants.In March 2017, we issued €500 million of senior notes, due March 2025. The senior notes bear an interest rate of 1.25% per year, payable annually in arrears. Refer to Note 5, “Debt,” to the unaudited Condensed Consolidated Financial Statements for more information.On October 2, 2017, subsequent to the end of the third quarter of 2017, we repaid $250 million of senior notes at maturity using commercial paper borrowings.We are currently in the process of amendingborrowings and can be used for other corporate purposes. No balance was outstanding under the Revolver to, among other things, increase our borrowing capacity under our current agreement.We are exposed to financial market risk resulting from changes in interest and foreign currency rates, and to possible liquidity and credit risksas of our counterparties.Our$389$164 million in the first ninethree months of 20172022 to $1.68$3.27 billion, primarily reflecting the issuance of senior notesa net increase in March 2017. Refer to “Financing Activities” above for more information.paidwe pay and our access to commercial paper, credit facilities and other borrowings. A downgrade of our short-term credit ratings could impact our ability to access the commercial paper markets. If our access to commercial paper markets were to become limited, we believe that the Revolver and our other credit facilities would be available to meet our short-term funding requirements, if necessary.requirements. When determining a credit rating, we believe that rating agencies primarily consider our competitive position, business outlook, consistency of cash flows, debt level and liquidity, geographic dispersion and management team. We remain committed to maintaining an investment grade rating.15,11, “Commitments and Contingencies,” to the unaudited Condensed Consolidated Financial Statements.RECENT ACCOUNTING REQUIREMENTSRefer to Note 17, “Recent Accounting Requirements,” to the unaudited Condensed Consolidated Financial Statements.Avery Dennison CorporationDecember 31, 2016.January 1, 2022 that have not been disclosed in our periodic filings with the SEC.Glendale, California.Mentor, Ohio. As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of such time to provide reasonable assurance that information was recorded, processed, summarized and reported within the time periodsWe periodically assess our internal control environment. During 2014, we began a phased implementation of a new transactional system in our Retail Branding and Information Solutions reportable segment that is expected to continue through 2021. Processes affected by this implementation include order management, pricing, shipping, general accounting, manufacturing and planning. Where appropriate, we are reviewing related internal controls and making changes. Other than this implementation, there have been We are currently in the processreviewing our internal control structure related to the 2017 Acquisitions. We will make any necessary changes as we integrate the 2017 Acquisitions into our overall process of internal control over financial reporting.Contents15,11, “Commitments and Contingencies,” to the unaudited Condensed Consolidated Financial Statements in Part 1, Item 1.1 for this information.December 31, 2016.January 1, 2022 that have not been disclosed in our periodic filings with the SEC, except as set forth below.three fiscal months of the thirdfirst quarter of 20172022 are listedshown in the table below. Repurchased shares may be reissued under our stock option andlong-term incentive plan or used for other corporate purposes.
of shares
purchased(2)
price paid
per share
purchased as part of
publicly announced
plans(2)(3)
value of shares that may
yet be purchased under
the plans(4)Average
price paid
per shareJanuary 2, 2022 – January 29, 2022 151.5 $ 205.18 151.5 $ 328.4 January 30, 2022 – February 26, 2022 128.8 194.02 128.8 303.4 February 27, 2022 – April 2, 2022 568.8 167.78 568.8 208.0 Total 849.1 $ 178.43 849.1 $ 208.0 September 30, 2017.2017,2019, our Board authorized the repurchase of shares of our common stock with a fair market value of up to $650 million, exclusiveexcluding any fees, commissions or other expenses related to such purchases. This Board authorization will remain in effect until shares in the amount authorized thereunder have been repurchased..and in addition to the amount outstanding under our previous Board authorization. Ourauthorization pursuant to which purchases were made in the periods shown in the table above. Board repurchase authorizations remain in effect until shares in the respective amount authorized thereunder have been repurchased.(4)Dollars in millions.Exhibit 10.1* Exhibit 10.2* Exhibit 10.3* Exhibit 31.1* 101.INS101.SCH101.CAL101.LAB101.PRE101.DEFExhibit 104*** Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included as part of this Exhibit 101 inline XBRL document set * Filed herewith.** Furnished herewith.* Filed herewith. ** Furnished herewith. *** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act and otherwise are not subject to liability under those sections. AVERY DENNISON CORPORATION October 31, 2017