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 | ||||
2024.
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 | ||||
________________________
| Delaware | 95-1492269 | |||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||
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 | ||||||||
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 (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 Amount Weighted-average Customer relationships $ 74.3 15 Patents and other acquired technology 32.2 9 Trade names and trademarks 4.2 6 unaudited Condensed Consolidated Balance Sheets. 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 ) We do not anticipate additional charges related to the 2023 Plan and expect it to be substantially completed by mid-2025. (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 % 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 1, 2023. 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 30, 2023. 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 thereto. Reconciliations of our non-GAAP financial measures from the most directly comparable GAAP financial measures are provided in accordance with Regulation G and S-K. 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. income taxes We do not anticipate substantially completed by mid-2025. 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 an increase in net cash provided by operating activities and a decrease in purchases of property, plant and equipment. in the mid-twenty percent range. 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. Refer to Note 10, “Commitments and Contingencies,” to the unaudited Condensed Consolidated Financial Statements for more information regarding the outcomes of legal matters and settlements, net. 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 % 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 Group Reported net sales change % Foreign currency translation 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 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 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 investments. 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 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 ) Equipment China, and in the U.S. Proceeds from Sales of Argentine Blue Chip Swap Securities $6 million. Refer to Note 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 other general corporate purposes. senior notes that matured on April 15, 2023. respectively. translation. translation. shareholders’ equity was $2.20 billion. Refer to Note Nine Months Ended (In millions) September 30, 2017 Change in net sales $ (13 ) Change in net income (3 ) euro-denominated 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 % As shown below, operational working capital, as a percentage of annualized current-quarter net sales, in the first quarter of 2024 decreased compared to the first quarter of 2023. collections, partially offset by foreign currency translation. balances due to customer inventory destocking. foreign currency translation. Our cash balances are held in numerous locations subsidiaries, primarily in the Asia Pacific region. $3.24 billion. 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 2024. 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) Vice President, Controller (Principal Accounting Officer) (Dollars in millions, except per share amount) March 30, 2024 December 30, 2023 Assets Current assets: Cash and cash equivalents $ 185.7 $ 215.0 Trade accounts receivable, less allowances of $34.6 and $34.4 at March 30, 2024 and December 30, 2023, respectively 1,478.0 1,414.9 Inventories 972.5 920.7 Other current assets 250.6 245.4 Total current assets 2,886.8 2,796.0 Property, plant and equipment, net 1,598.2 1,625.8 Goodwill 1,993.7 2,013.6 Other intangibles resulting from business acquisitions, net 823.8 849.1 Deferred tax assets 115.5 115.7 Other assets 837.2 809.6 $ 8,255.2 $ 8,209.8 Liabilities and Shareholders’ Equity Current liabilities: Short-term borrowings and current portion of long-term debt and finance leases $ 1,170.5 $ 622.2 Accounts payable 1,301.5 1,277.1 Accrued payroll and employee benefits 203.4 213.4 Other current liabilities 632.8 586.8 Total current liabilities 3,308.2 2,699.5 Long-term debt and finance leases 2,069.9 2,622.1 Long-term retirement benefits and other liabilities 418.5 500.3 Deferred tax liabilities and income taxes payable 254.6 260.0 Commitments and contingencies (see Note 10) Shareholders’ equity: Common stock, $1 par value per share, authorized – 400,000,000 shares at March 30, 2024 and December 30, 2023; issued – 124,126,624 shares at March 30, 2024 and December 30, 2023; outstanding – 80,597,091 shares and 80,495,585 shares at March 30, 2024 and December 30, 2023, respectively 124.1 124.1 Capital in excess of par value 834.0 854.5 Retained earnings 4,809.1 4,691.8 Treasury stock at cost, 43,529,533 shares and 43,631,039 shares at March 30, 2024 and December 30, 2023, respectively (3,141.2) (3,134.4) Accumulated other comprehensive loss (422.0) (408.1) Total shareholders’ equity 2,204.0 2,127.9 $ 8,255.2 $ 8,209.8 Three Months Ended (In millions, except per share amounts) March 30, 2024 April 1, 2023 Net sales $ 2,151.3 $ 2,065.0 Cost of products sold 1,519.1 1,522.7 Gross profit 632.2 542.3 Marketing, general and administrative expense 365.2 334.4 Other expense (income), net 12.6 17.8 Interest expense 28.6 26.4 Other non-operating expense (income), net (8.6) (4.6) Income before taxes 234.4 168.3 Provision for income taxes 62.0 47.1 Net income $ 172.4 $ 121.2 Per share amounts: Net income per common share $ 2.14 $ 1.50 Net income per common share, assuming dilution $ 2.13 $ 1.49 Weighted average number of shares outstanding: Common shares 80.5 80.9 Common shares, assuming dilution 81.0 81.5 Three Months Ended (In millions) March 30, 2024 April 1, 2023 Net income $ 172.4 $ 121.2 Other comprehensive income (loss), net of tax: Foreign currency translation (11.9) .4 Pension and other postretirement benefits .2 (.2) Cash flow hedges (2.2) 2.8 Other comprehensive income (loss), net of tax (13.9) 3.0 Total comprehensive income, net of tax $ 158.5 $ 124.2 (Unaudited)
See Notes to Unaudited Condensed Consolidated Financial StatementsThree Months Ended (In millions) March 30, 2024 April 1, 2023 Operating Activities Net income $ 172.4 $ 121.2 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 49.0 44.8 Amortization 28.3 27.5 Provision for credit losses and sales returns 11.8 10.6 Stock-based compensation 7.5 10.5 Deferred taxes and other non-cash taxes (3.0) (4.5) Other non-cash expense and loss (income and gain), net 18.1 10.1 Changes in assets and liabilities and other adjustments (164.3) (218.3) Net cash provided by operating activities 119.8 1.9 Investing Activities Purchases of property, plant and equipment (48.8) (64.5) Purchases of software and other deferred charges (6.9) (5.3) Purchases of Argentine Blue Chip Swap securities (20.2) — Proceeds from sales of Argentine Blue Chip Swap securities 14.0 — Proceeds from sales of property, plant and equipment .1 .2 Proceeds from insurance and sales (purchases) of investments, net .1 (3.5) Payments for acquisitions, net of cash acquired, and venture investments (.3) (43.5) Net cash used in investing activities (62.0) (116.6) Financing Activities Net increase (decrease) in borrowings with maturities of three months or less 15.9 42.9 Additional long-term borrowings — 394.9 Repayments of long-term debt and finance leases (1.7) (1.4) Dividends paid (65.3) (60.8) Share repurchases (15.6) (50.7) Net (tax withholding) proceeds related to stock-based compensation (18.3) (23.6) Other — (1.5) Net cash (used in) provided by financing activities (85.0) 299.8 Effect of foreign currency translation on cash balances (2.1) (1.0) Increase (decrease) in cash and cash equivalents (29.3) 184.1 Cash and cash equivalents, beginning of year 215.0 167.2 Cash and cash equivalents, end of period $ 185.7 $ 351.3 thereto in our 20162023 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.Fiscal PeriodsThe three and nine months ended September 30, 2017 and October 1, 2016 each consisted of 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.Note 2. AcquisitionsOn June 23, 2017, we completed the stock acquisition of Yongle Tape Ltd. (“Yongle Tape”), a China-based manufacturer of specialty tapes and related products used in a variety of industrial markets, from Yongle Tape’s management and Shaw Kwei & Partners.On May 19, 2017, we completed the stock acquisition of Finesse Medical Limited (“Finesse Medical”), 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 acquisitions of Yongle Tape, Finesse Medical, and Hanita (collectively, the “2017 Acquisitions”) to expand our product portfolio and provide new growth opportunities.The aggregate purchase consideration for these acquisitions, which is subject to customary post-closing adjustments, was approximately $344 million. This included $15 million of payments based on Yongle Tape’s achievement of certain pre-acquisition performance targets. The payments for the 2017 Acquisitions were funded through cash and existing credit facilities. In addition to the cash paid at the closing of the 2017 Acquisitions, certain sellers are eligible for earn-out payments of up to approximately $45 million related to the achievement of certain performance targets for 2017 and 2018. Based on our current estimates, we have accrued approximately $38 million for 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.The 2017 Acquisitions were not material, individually or in the aggregate, to our These unaudited Condensed Consolidated Financial Statements.Avery Dennison CorporationNote 3. InventoriesNet inventoriesStatements reflect our current estimates and assumptions affecting (i) our reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and (ii) our reported amounts of sales and expenses during the reporting periods presented.of:4.2. Goodwill and Other Intangibles Resulting from Business AcquisitionsGoodwillninethree months ended SeptemberMarch 30, 2017,2024 by reportable segment were as follows:
Graphic
Materials
and Information
Solutions
Healthcare
Materials(1)Goodwill acquired related to the 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 allocationshown below.(In millions) Materials Group Solutions Group Total Goodwill as of December 30, 2023 $ 630.7 $ 1,382.9 $ 2,013.6 — (3.0) (3.0) Translation adjustments (10.5) (6.4) (16.9) Goodwill as of March 30, 2024 $ 620.2 $ 1,373.5 $ 1,993.7 acquisitionpurchase price allocation for the 2023 acquisitions of Silver Crystal Group, LG Group, Inc., and Thermopatch, Inc.European businessnext four fiscal years and thereafter is shown below.(In millions) Estimated
Amortization
Expense2024 (remainder of year) $ 66.8 2025 88.4 2026 85.6 2027 85.2 2028 77.4 2029 and thereafter 265.5 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 by2024, we reclassified 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. We expect the majority of the recognized goodwill related to the Hanita acquisition to be deductible for income tax purposes.Finite-Lived Intangible AssetsIn connection with the 2017 Acquisitions, we acquired approximately $111 million of identifiable intangible assets, which consisted of customer relationships, trade names and trademarks, and patents and other acquired technology. We utilized the income approach to 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 these 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 ratein the first quarter of 1.25% per year, payable annually in arrears. The net proceeds2025 from the offering, after deducting underwriting discounts"Long-term debt and estimated offering expenses, were $526.6 million (€495.5 million), afinance leases" to "Short-term borrowings and current portion of which was used to repay commercial paper borrowings that we used tolong-term debt and finance a portion of our acquisition ofleases" in the European business of Mactac (“Mactac”) in August 2016 and the remainder of which was used for general corporate purposes, including acquisitions. We designated the senior notes as a net investment hedge of our investment in foreign operations. Refer to Note 10, “Financial Instruments,” for more information.$1.7$3.08 billion at SeptemberMarch 30, 20172024 and $1.31$3.11 billion at December 31, 2016.30, 2023. 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 million$1.20 billion 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 Septemberboth March 30, 20172024 and December 31, 2016,30, 2023, we were in compliance with ourthis financial covenants.On October 2, 2017, subsequent tocovenant. No balance was outstanding under the endRevolver as of the third quarterMarch 30, 2024 or December 30, 2023.2017, 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 settlements was recorded in “Other expense, net” in the unaudited Condensed Consolidated Statements of Income.Note 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.9.4. Cost Reduction Actions2015/2016During the nine months ended September 30, 2017, we$24.4$6.0 million in restructuring charges, net of reversals, related to restructuring actions initiated during the third quarter of 2015 (“2015/2016 Actions”).three months ended March 30, 2024. These charges consisted of severance and related costs for the reduction of approximately 670100 positions lease cancellationat various locations across our company.andfor the reduction of approximately 210 positions, as well as asset impairment charges.(In millions) 2023 Actions Severance and related costs $ 27.7 $ 4.9 $ (12.8) $ — $ (.5) $ 19.3 Asset impairment charges — .7 — (.7) — — Lease cancellation charges — .4 (.4) — — — Total $ 27.7 $ 6.0 $ (13.2) $ (.7) $ (.5) $ 19.3 andas well as lease cancellation costscharges, were included in “Other current liabilities” and "Long-term retirement benefits and other liabilities" in the unaudited Condensed Consolidated Balance Sheets. Asset impairment charges were based on the estimated market value of the assets, less selling costs, if applicable. Restructuring charges were included in “Other expense (income), 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, 2017Corporate:Three Months Ended (In millions) March 30, 2024 April 1, 2023 Restructuring charges, net of reversals, by reportable segment and Corporate Materials Group $ 2.5 $ 14.3 Solutions Group 3.4 3.4 Corporate .1 (.1) Total $ 6.0 $ 17.6 10.5. Financial Instrumentsourthe risk from foreign exchange rate fluctuations associated with our receivables, payables, loans and firm commitments denominated in certain foreign currencies that arise primarily as a result of our operations outside the U.S. We enter 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 contracts, which end 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$5.3 million and $1.84 billion, respectively.We recognize derivative instruments$2.3 million as either assets or liabilities at fair valueof March 30, 2024 and December 30, 2023, respectively, which was included in "Other Assets" 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,9, “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 SeptemberMarch 30, 2017.2024 or April 1, 2023.11.6. Taxes Based on IncomeThe effective tax rateThree Months Ended (Dollars in millions) March 30, 2024 April 1, 2023 Income before taxes $ 234.4 $ 168.3 Provision for income taxes 62.0 47.1 Effective tax rate 26.5 % 28.0 % and nine months ended SeptemberMarch 30, 20172024 included $1.7 milliona net tax charge related to the tax on global intangible low-taxed income (“GILTI”) of our foreign subsidiaries and $3.2 million, respectively,the recognition of taxforeign withholding taxes on current year earnings, partially offset by 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 rateforeign-derived intangible income (“FDII”). Our provision 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 rateincome taxes for the three and nine months ended SeptemberMarch 30, 2017 also2024 was favorably affected by the tax impacts resulting from Blue Chip Swap transactions in Argentina, partially offset by tax charges driven by higher interest expense in a foreign jurisdiction.benefit of $.3 million and $13.6 million, respectively,tax charge related to the tax on GILTI of 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 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 grantforeign subsidiaries and the timerecognition of exercise. We expect future excess tax benefits pursuant to this update to vary dependingforeign withholding taxes on our stock-based payments in future reporting periods. These excess tax benefits may cause variability in our future effective taxcurrent year earnings, partially offset by the benefit from FDII. Our provision for income taxes for the three months ended April 1, 2023 was also adversely affected by higher non-deductible expenses primarily driven by foreign currency and interest rate as they can fluctuate based on vesting and exercise activity,fluctuations, as well as our future stock price. Thelower 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 2015 U.S. federal tax return; $1 million and $7.1 million of tax benefit, respectively, from our change in judgment about tax filing positionsincentives 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.somelimited exceptions, we and our subsidiaries are no longer subject to income tax examinations by tax authorities for years prior to 2006.Avery Dennison Corporation$23$6 million, primarily as a result of audit settlements and closing tax years.12.7. 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) March 30, 2024 April 1, 2023 $ 172.4 $ 121.2 80.5 80.9 Dilutive shares (additional common shares issuable under stock-based awards) .5 .6 81.0 81.5 Net income per common share: (A) ÷ (B) $ 2.14 $ 1.50 Net income per common share, assuming dilution: (A) ÷ (C) $ 2.13 $ 1.49 not included inexcluded from the computation of net income per common share, assuming dilution, because they would not have had a dilutive effect. Stock-based compensation awards excluded from the computation totaled approximately .1 million shares for the nine months ended September 30, 2017, and approximately .1 million shares and .20.1 million shares for the three and nine months ended October 1, 2016, respectively. No stock-based compensation awardsMarch 30, 2024 and were anti-dilutivenot significant for the three months ended September 30, 2017.13.8. Supplemental Equity and Comprehensive IncomeThree Months Ended (In millions) March 30, 2024 April 1, 2023 Common stock issued, $1 par value per share $ 124.1 $ 124.1 Capital in excess of par value Beginning balance $ 854.5 $ 879.3 (20.5) (28.5) Ending balance $ 834.0 $ 850.8 Retained earnings Beginning balance $ 4,691.8 $ 4,414.6 Net income 172.4 121.2 3.2 4.8 7.0 6.6 Dividends (65.3) (60.8) Ending balance $ 4,809.1 $ 4,486.4 Treasury stock at cost Beginning balance $ (3,134.4) $ (3,021.8) Repurchase of shares for treasury (15.6) (50.7) 6.5 12.6 2.3 2.5 Ending balance $ (3,141.2) $ (3,057.4) Accumulated other comprehensive loss Beginning balance $ (408.1) $ (364.0) Other comprehensive income (loss), net of tax (13.9) 3.0 Ending balance $ (422.0) $ (361.0) Three Months Ended March 30, 2024 April 1, 2023 Dividends per common share $ .81 $ .75 nine-monththree-month period ended SeptemberMarch 30, 20172024 were as follows:
Currency
Translation
Other
Postretirement
Benefits
Hedges(In millions) Total Balance as of December 30, 2023 $ (328.6) $ (77.5) $ (2.0) $ (408.1) Other comprehensive income (loss) before reclassifications, net of tax (11.9) — (2.6) (14.5) Reclassifications to net income, net of tax — .2 .4 .6 Other comprehensive income (loss), net of tax (11.9) .2 (2.2) (13.9) Balance as of March 30, 2024 $ (340.5) $ (77.3) $ (4.2) $ (422.0) nine-monththree-month period ended OctoberApril 1, 20162023 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 December 31, 2022 $ (314.0) $ (51.3) $ 1.3 $ (364.0) Other comprehensive income (loss) before reclassifications, net of tax .4 — 1.8 2.2 Reclassifications to net income, net of tax — (.2) 1.0 .8 Other comprehensive income (loss), net of tax .4 (.2) 2.8 3.0 Balance as of April 1, 2023 $ (313.6) $ (51.5) $ 4.1 $ (361.0) 14.9. Fair Value MeasurementsThe following table shows the assetsSeptemberMarch 30, 2017:
Active Markets
(Level 1)
Observable Inputs
(Level 2)
Unobservable Inputs
(Level 3)The following table shows the assets2024 were as follows:Fair Value Measurements Using (In millions) Total Significant
Other
Unobservable
Inputs
(Level 3)Assets Investments $ 38.1 $ 18.5 $ 19.6 $ — Derivative assets 6.5 — 6.5 — Bank drafts 8.4 8.4 — — Cross-currency swap 5.3 — 5.3 — Liabilities Derivative liabilities $ 8.3 $ 1.1 $ 7.2 $ — Contingent consideration liabilities 10.1 — — 10.1 31, 2016:
Active Markets
(Level 1)
Observable Inputs
(Level 2)
Unobservable Inputs
(Level 3)Avery Dennison CorporationTrading securities30, 2023 were as follows:Fair Value Measurements Using (In millions) Total Assets Investments $ 37.8 $ 19.6 $ 18.2 $ — Derivative assets 6.3 — 6.3 — Bank drafts 5.3 5.3 — — Cross-currency swap 2.3 — 2.3 — Liabilities Derivative liabilities $ 7.6 $ 1.6 $ 6.0 $ — Contingent consideration liabilities 10.0 — — 10.0 SeptemberMarch 30, 2017, trading securities2024, investments of $1.1$2.1 million and $21.5$36.0 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 securities30, 2023, investments of $.5$2.7 million and $17.6$35.1 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.15.10. Commitments and Contingencies be incurred that were not previously accrued. Potential insurance reimbursements are not offset against thesepotential liabilities.these matterslegal proceedings could be higher than the liabilities we have accrued; however, we are unable to reasonably estimate a range of potential expenses. If information were to become available that allowed us to reasonably estimate a range of potential expenses determined to be probable in an amount higher or lower than what we have accrued, we would adjust our accrued liabilities accordingly. Additional lawsuits, claims, inquiries and other regulatory and compliance matters could arise in the future. The range of expenses for resolving any future matters would be assessed as they arise; until then, a range of potential expenses for suchtheir resolution cannot be determined. Based upon current information, we believe that the impact of the resolution of these matterslegal proceedings would not be, individually or in the aggregate, material to our financial position, results of operations or cash flows. 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.SeptemberMarch 30, 2017,2024, we have been designated by the U.S. Environmental Protection Agency (“EPA”) and/or other responsible state agencies as a PRP at thirteeneleven 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.expenses.expenses determined to be probable. If information were to become available that allowed us to reasonably estimate a range of potential expenses in an amount higher or lower than what we have accrued, we would adjust our environmental liabilities accordingly. In addition, we may be identified as a PRP at additional sites in the future. The range of expenses for remediation of any future-identified sites would be addressed as they arise; until then, a range of expenses for suchtheir remediation cannot be determined.Avery Dennison Corporation for the nine months ended September 30, 2017 related to our environmental liabilities was as follows:(In millions) Balance at December 30, 2023 $ 24.5 Charges, net of reversals .5 Payments (2.0) Balance at March 30, 2024 $ 23.0 $8$9 million and $11 million, respectively, of thethis balance was classified as short-term and included in “Other“Other current liabilities”liabilities” in the unaudited Condensed Consolidated Balance Sheets as of both SeptemberMarch 30, 20172024 and December 31, 2016.16.11. 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 thatbest 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 abouthow the nature, amount, timing and uncertainty of our revenue and cash flows arisingare affected by economic factors. Revenue from customer contracts, including qualitativeour Materials Group reportable segment is attributed to geographic areas based on the location from which products are shipped. Revenue from our Solutions Group reportable segment is shown by product group.Three Months Ended (In millions) March 30, 2024 April 1, 2023 Net sales to unaffiliated customers Materials Group: U.S. $ 437.4 $ 446.4 Europe, the Middle East and North Africa 534.7 498.9 Asia 326.2 315.6 Latin America 120.6 113.7 Other 77.6 85.9 Total Materials Group 1,496.5 1,460.5 Solutions Group: Apparel 459.6 418.8 Identification Solutions and Vestcom 195.2 185.7 Total Solutions Group 654.8 604.5 Net sales to unaffiliated customers $ 2,151.3 $ 2,065.0 quantitative information about contractsCorporate is shown below.Three Months Ended (In millions) March 30, 2024 April 1, 2023 Intersegment sales Materials Group $ 47.0 $ 34.9 Solutions Group 10.9 10.0 Intersegment sales $ 57.9 $ 44.9 Income before taxes Materials Group $ 226.1 $ 160.5 Solutions Group 56.1 51.5 Corporate expense (27.8) (21.9) Interest expense (28.6) (26.4) Other non-operating expense (income), net 8.6 4.6 Income before taxes $ 234.4 $ 168.3 Other expense (income), net, by reportable segment and Corporate Materials Group $ 14.4 $ 14.3 Solutions Group (1.9) 3.6 Corporate .1 (.1) Other expense (income), net $ 12.6 $ 17.8 Three Months Ended (In millions) March 30, 2024 April 1, 2023 Other expense (income), net, by type Restructuring charges, net of reversals: Severance and related costs, net of reversals $ 4.9 $ 17.1 Asset impairment and lease cancellation charges 1.1 .5 Other items: Losses from Argentine peso remeasurement and Blue Chip Swap transactions 11.3 — (Gain) loss on venture investment 2.2 — Outcomes of legal matters and settlements, net (6.9) — Transaction and related costs — .2 Other expense (income), net $ 12.6 $ 17.8 (In millions) March 30, 2024 December 30, 2023 Raw materials $ 404.4 $ 415.4 Work-in-progress 230.9 238.2 Finished goods 337.2 267.1 Inventories $ 972.5 $ 920.7 (In millions) March 30, 2024 December 30, 2023 Property, plant and equipment $ 3,923.9 $ 3,970.4 Accumulated depreciation (2,325.7) (2,344.6) Property, plant and equipment, net $ 1,598.2 $ 1,625.8 Three Months Ended (In millions) March 30, 2024 April 1, 2023 Beginning balance $ 34.4 $ 34.4 Provision for credit losses 1.7 .1 Amounts written off (1.4) (1.3) Other, including foreign currency translation (.1) .7 Ending balance $ 34.6 $ 33.9 customers, significant judgments and changes in judgments, and assets recognized from costs incurredthird-party financial institutions to obtain or fulfillfacilitate payments to suppliers. These third-party financial institutions offer voluntary supply chain finance programs that enable certain of our suppliers, at the supplier’s sole discretion, to sell our payment obligations to a contract. This revised guidance 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”) orfinancial institution on terms directly negotiated with the cumulative effectfinancial institution. Participating suppliers decide which payment obligations are sold to the financial institution and we have no economic interest in a supplier’s decision to sell these payment obligations. We make payments to the financial institution on the invoice due date, regardless of adoption recognized atwhether an individual invoice is sold by the datesupplier to the financial institution. Our obligations to our suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers' decisions to sell amounts under these arrangements. Amounts due under our supply chain finance programs are included in accounts payable on our unaudited Condensed Consolidated Balance Sheets and activities related to these programs are presented as operating activities in our unaudited Condensed Consolidated Statements of initial application (“modified retrospective”). We expectCash Flows. As of March 30, 2024 and December 30, 2023, the amounts due to adopt this revised guidance underfinancial institutions for suppliers that participate in these programs were $383.0 million and $397.4 million, respectively.modified retrospective approachArgentine government instituted exchange controls restricting the ability of entities and individuals to exchange Argentine pesos for foreign currencies or remit foreign currency out of Argentina. Due to these currency exchange restrictions, markets in Argentina use a legal trading mechanism known as the Blue Chip Swap that allows entities to transfer U.S. dollars in and out of Argentina. During the first quarter of 2024, we entered into Blue Chip Swap transactions that resulted in losses of approximately $6 million that we recorded in "Other expense (income), net" in the firstunaudited Condensed Consolidated Statements of Income. Purchases and the proceeds from sales of Argentine Blue Chip Swap securities are presented as investing activities in our unaudited Condensed Consolidated Statements of Cash Flows.quarter of 2018. We established a project plan and cross-functional team to 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 as of 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.Avery Dennison Corporationthereto, and includes the following sections:that are prepared in accordance with GAAP. We use these non-GAAP financial measures internally to evaluate trends in our underlying performance, as well as to facilitate comparisons with the results of competitors for quarters and year-to-date periods, as applicable. Based uponon feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are also useful to their assessments of our performance and operating trends, as well as liquidity.andor losses from curtailment andor settlement of pension obligations, gains or losses on sales of certain assets, gains or losses on venture investments, currency adjustments due to highly inflationary economies, 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 defined below in this MD&A:·&A.translation.translation and, where applicable, an extra week in our fiscal year, the calendar shift resulting from the extra week in the prior fiscal year, currency adjustments for transitional reporting of highly inflationary economies, and the reclassification of sales between segments. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior periodprior-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.·Freefrom operations,provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from company-owned life insurance policies, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments.investments, less net cash used for Argentine Blue Chip Swap securities. Where applicable, adjusted free cash flow is also adjusted for certain acquisition-related transaction costs. We believe that adjusted 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:Reported net sales change 4 % Foreign currency translation — 4 Acquisitions (1) 3 % and nine months ended SeptemberMarch 30, 2017,2024, 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. Major factors affecting netin the prior year primarily due to higher volume, partially offset by the impact of raw material deflation-related price reductions.ninethree months of 2017 included:Positive factors:· Volume/mix·2023 to approximately $172 million in the first three months of 2024. The major factors affecting this increase were:· Prior year loss from settlement of pension obligations·· The net impact of pricing and raw material costs·restructuring chargesAcquisitionsDuring the first nine months of 2017, we completed the 2017 Acquisitions, which were not material, individually or in the aggregate, to our unaudited Condensed Consolidated Financial Statements. Refer to Note 2, “Acquisitions,” to the unaudited Condensed Consolidated Financial Statementsprovision for more information.2015/2016During the nine months ended September 30, 2017, we$24.4$6.0 million in restructuring charges, net of reversals, related toduring the 2015/2016 Actions.three months ended March 30, 2024. These charges consisted of severance and related costs for the reduction of approximately 670100 positions lease cancellationat various locations across our company.andfor the reduction of approximately 210 positions, as well as asset impairment charges.Impact of Cost Reduction Actionsincremental savings, net of transition costs, fromadditional charges related to the 2015/2016 Actions2023 Plan and expect it to be approximately $50 million to $55 million in 2017. We estimate cash restructuring costs to be approximately $35 million in 2017.9,4, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information.Free Three Months Ended (In millions) March 30, 2024 April 1, 2023 Net cash provided by operating activities $ 119.8 $ 1.9 Purchases of property, plant and equipment (48.8) (64.5) Purchases of software and other deferred charges (6.9) (5.3) Purchases of Argentine Blue Chip Swap securities (20.2) — Proceeds from sales of Argentine Blue Chip Swap securities 14.0 — Proceeds from sales of property, plant and equipment .1 .2 Proceeds from insurance and sales (purchases) of investments, net .1 (3.5) Adjusted free cash flow $ 58.1 $ (71.2) Free cash flow inninethree months of 20172024, net cash provided by operating activities increased compared to the same period last year primarily due to higher net income, partially offset by higher net capitallower incentive compensation payments and software expenditures and purchases of investments, higher incomelower tax payments, net of refunds, and operational working capital improvements inrefunds. During the prior year, the benefitfirst three months of which did not repeat in the current year. Free2024, adjusted 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,”increased compared to the unaudited Condensed Consolidated Financial Statements. for 2017 are described below:·below.expect ouranticipate net sales to increase by approximately 8%.·due to higher volume as our markets improve following significant inventory destocking downstream from our company in 2023, as well as growth in Intelligent Labels. This increase may be partially offset with raw material deflation-related price reductions.approximately 28%.· We anticipate our capital and software expenditures to be approximately $215 million.· We estimate pre-tax cash restructuring and certain acquisition-related transaction costs to total approximately $40 million.beforeBefore Taxes(In millions, except percentages) March 30, 2024 April 1, 2023 Net sales $ 2,151.3 $ 2,065.0 Cost of products sold 1,519.1 1,522.7 Gross profit 632.2 542.3 Marketing, general and administrative expense 365.2 334.4 Other expense (income), net 12.6 17.8 Interest expense 28.6 26.4 Other non-operating expense (income), net (8.6) (4.6) Income before taxes $ 234.4 $ 168.3 Gross profit margin 29.4 % 26.3 % thirdfirst quarter of 2017 decreased2024 increased from the same period last year due to benefits from productivity initiatives, including material re-engineering and savings from restructuring actions, net of transition costs, the net impact of pricing and raw material input costs, and higher volume, partially offset by higher employee-related costs.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,growth investments, partially offset by the benefits from productivity initiatives, including savings from restructuring actions, net of transition costs.netThree Months Ended (In millions) March 30, 2024 April 1, 2023 Other expense (income), net, by type Restructuring charges: Severance and related costs, net of reversals $ 4.9 $ 17.1 Asset impairment and lease cancellation charges 1.1 .5 Other items: Losses from Argentine peso remeasurement and Blue Chip Swap transactions 11.3 — (Gain) loss on venture investment 2.2 — Outcomes of legal matters and settlements, net (6.9) — Transaction and related costs — .2 Other expense (income), net $ 12.6 $ 17.8 9,4, “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) March 30, 2024 April 1, 2023 Income before taxes $ 234.4 $ 168.3 Provision for income taxes 62.0 47.1 Net income $ 172.4 $ 121.2 Per share amounts: Net income per common share $ 2.14 $ 1.50 Net income per common share, assuming dilution 2.13 1.49 Effective tax rate 26.5 % 28.0 % TheSeptemberMarch 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, 20172024 decreased compared to the same period last year reflects a decrease in tax expense relatedprimarily due 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 months ended October 1, 2016 included $4.8 million of tax expenseimpacts resulting from return to provision adjustments pursuant to the completion of the 2015 U.S. federal tax return; $1 million of tax benefit from our changeBlue Chip Swap transactions 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.Argentina. Refer to Note 11,6, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for furthermore information.taxes.Label and Graphic other non-operating expense (income), net.Avery Dennison Corporation(In millions) March 30, 2024 April 1, 2023 Net sales including intersegment sales $ 1,543.5 $ 1,495.4 Less intersegment sales (47.0) (34.9) Net sales $ 1,496.5 $ 1,460.5 226.1 160.5 $ 14.4 $ 14.3 below:below.Three Months Ended SeptemberMarch 30, 20172024 3 9(1) (2)2 7%Acquisitions(2)2 5%thirdfirst quarter of 2017,2024, net sales increased on an organic basis compared to the same period in the prior year mainly due to higher volume. Sales increased onvolume/mix, partially offset by the impact of raw material deflation-related price reductions. On an organic basis, atnet sales increased by a high-single digit rate in emerging markets, a mid-single digitlow-to-mid single-digit rate in Western Europe and a low-single digitmid single-digit rate in emerging markets, which was partially offset by a low single-digit rate decrease in North America.thirdfirst quarter of 20172024 compared to the same period last year primarily due to benefits from productivity initiatives, including material re-engineering and savings from restructuring actions, net of transition costs, higher volume/mix and lower restructuring charges, partially offset by higher employee-related costs and losses from Argentine peso remeasurement and Blue Chip Swap transactions.(In millions) March 30, 2024 April 1, 2023 Net sales including intersegment sales $ 665.7 $ 614.5 Less intersegment sales (10.9) (10.0) Net sales $ 654.8 $ 604.5 56.1 51.5 $ 4.8 $ 3.6 Three Months Ended March 30, 2024 Reported net sales change 8 % Foreign currency translation 2 10 Acquisitions (4) 6 % the net impact of pricing and raw material costs.Retail Branding and Information SolutionsNet SalesThe factors impacting reported sales change are shown in the table below:Three Months EndedSeptember 30, 2017Reported sales change6%Foreign currency translation–Sales change ex. currency(1)7%Organic sales change7%(1)Total may not sum due to roundingIn the third quarter of 2017, net sales increased on an organic basis due to higher volume, reflecting growth of both radio-frequency identification products and base apparel tickets and tags.Operating IncomeOperating income increased in the third quarter of 2017 due to higher volume, benefits from productivity initiatives, including savings from restructuring actions, net of transition costs, and lower amortization expense, partially offset by higher employee-related costs and higher restructuring charges.Avery Dennison CorporationIndustrial and Healthcare MaterialsNet SalesThe factors impacting reported sales change are shown in the table below:Three Months EndedSeptember 30, 2017Reported sales change52%Foreign currency translation(2)Sales change ex. currency50%Acquisitions(47)Organic sales change3%In the third quarter of 2017, net sales increased on an organic basis due to volume growth in both industrial and healthcare categories.Operating IncomeOperating income increased in the third quarter of 2017 compared to the same period last year due to higher volume and benefits from productivity initiatives, including savings from restructuring actions, net of 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-DATEIncome before TaxesGross Profit MarginGross profit margin for the first nine months of 2017 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; 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 repatriation of 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 interest 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 CorporationFor 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”).Three months ended (In millions) March 30, 2024 April 1, 2023 Net income $ 172.4 $ 121.2 Depreciation 49.0 44.8 Amortization 28.3 27.5 Provision for credit losses and sales returns 11.8 10.6 Stock-based compensation 7.5 10.5 Deferred taxes and other non-cash taxes (3.0) (4.5) Other non-cash expense and loss (income and gain), net 18.1 10.1 Changes in assets and liabilities and other adjustments (164.3) (218.3) Net cash provided by operating activities $ 119.8 $ 1.9 ninethree months of 2017,2024, net cash flow fromprovided by operating activities increased compared to the same period last year primarily due to higher net income, partially offset by higher incomelower incentive compensation payments and lower tax payments, net of refunds,refunds.Three months ended (In millions) March 30, 2024 April 1, 2023 Purchases of property, plant and equipment $ (48.8) $ (64.5) Purchases of software and other deferred charges (6.9) (5.3) Purchases of Argentine Blue Chip Swap securities (20.2) — Proceeds from sales of Argentine Blue Chip Swap securities 14.0 — Proceeds from sales of property, plant and equipment .1 .2 Proceeds from insurance and sales (purchases) of investments, net .1 (3.5) Payments for acquisitions, net of cash acquired, and venture investments (.3) (43.5) Net cash used in investing activities $ (62.0) $ (116.6) 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 Spendingninethree months of 2017,2024, in our Materials Group reportable segment, we primarily invested in newbuildings and equipment to support growth in the U.S. and in certain countries in Europe, primarily France; in our Solutions Group reportable segment, we primarily invested in buildings and equipment in certain countries in Asia Europe,Pacific, including Vietnam and NorthChina, in the U.S. and in certain countries in Latin America, and to improve manufacturing productivity.primarily Mexico. During the first ninethree months of 2016,2023, in our Materials Group reportable segment, we primarily invested in newbuildings and equipment to support growth in certain countries in Europe, including France and the Netherlands, in the U.S. and in certain countries in Latin America, primarily Brazil; in our Solutions Group reportable segment, these investments were made in certain countries in Latin America, primarily Mexico, and Asia, including Malaysia, Hong Kong and to improve manufacturing productivity.ninethree months of 20172024 and 2016,2023, we primarily invested in information technology primarily associated with enterprise resource planning system implementationsupgrades in North America, Asia,the U.S.Europe.Payments for Acquisitions and Investments in Businessesninethree months of 2017 and 2016, the aggregate payments for acquisitions, net2024, we entered into Blue Chip Swap transactions that resulted in losses of cash acquired, and investments in businesses were approximately $310 million and $228 million, respectively, which we funded through cash and commercial paper borrowings.2, “Acquisitions,12, “Supplemental Financial Information,” to the unaudited Condensed Consolidated Financial Statements for more information.Avery Dennison CorporationThree months ended (In millions) March 30, 2024 April 1, 2023 Net increase (decrease) in borrowings with maturities of three months or less $ 15.9 $ 42.9 Additional long-term borrowings — 394.9 Repayments of long-term debt and finance leases (1.7) (1.4) Dividends paid (65.3) (60.8) Share repurchases (15.6) (50.7) Net (tax withholding) proceeds related to stock-based compensation (18.3) (23.6) Other — (1.5) Net cash (used in) provided by financing activities $ (85.0) $ 299.8 Given the seasonality of our cash flow from operating activities, duringninethree months of 20172024 and 2016,2023, 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.2017,2023, we issued €500$400 million of senior notes, due March 2025. The senior notes15, 2033, which bear an interest rate of 1.25%5.750% per year, payable annuallysemiannually in arrears. TheOur net proceeds from the offering,this issuance, after deducting underwriting discounts and estimated offering expenses, were $526.6$394.9 million, (€495.5 million), a portion of which waswe used to repay both existing indebtedness under our commercial paper borrowings that we used to finance a portion of our acquisition of Mactac in August 2016programs and the remainder$250 million aggregate principal amount of which was used for general corporate purposes, including acquisitions.2, “Acquisitions,” and Note 5,3, “Debt,” to the unaudited Condensed Consolidated Financial Statements for more information.Dividend Payments$1.31$0.81 per share in the first ninethree months of 20172024 compared to $1.19$0.75 per share in the same period last year. In April 2017,2024, subsequent to the end of our first quarter 2024, we increased our quarterly dividend rate to $.45$0.88 per share, representing an increase of approximately 10%9% from our previous quarterly dividend rate of $.41$0.81 per share.ninethree months of 2017,2024 and 2023, we repurchased 1.3approximately 0.1 million and 0.3 million shares of our common stock, at an aggregate cost of $104.8 million. During the first nine months of 2016, we repurchased 2.7 million shares of our common stock at an aggregate cost of $181.5 million.In April 2017, our 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 any 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 Stock-Based Compensation, NetDuring the first nine months of 2017, 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,” to the unaudited Condensed Consolidated Financial Statements.Analysis of Selected Balance Sheet Accountsninethree months ended SeptemberMarch 30, 2017, property, plant and equipment, net, increased2024, goodwill decreased by approximately $132$20 million to $1.05$1.99 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, goodwill increased by approximately $184 million to $977.1 million, which reflected the preliminary valuation of goodwill associated with the 2017 Acquisitions,reflecting 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 SeptemberMarch 30, 2017,2024, other intangibles resulting from business acquisitions, net, increaseddecreased by approximately $103$25 million to $170.1$823.8 million, which reflected the preliminary valuation of other intangibles from the 2017 Acquisitionsreflecting current year amortization expense and the impact of foreign currency translation, partially offset by current year amortization expense. “Acquisitions,” and Note 4, “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 on8, “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 balance of our shareholders’ equity increased by approximately $209 million to $1.13 billion, which primarily reflected net income, the use of treasury shares to settle stock-based awards and fund contributions to our U.S. defined contribution plan, and the impact of foreign currency translation. These increases were partially offset by dividend payments and share repurchases.Three Months Ended (In millions) March 30, 2024 Change in net sales $ (1) 76%70% of our net sales during the ninethree months ended SeptemberMarch 30, 2017.2024. Our future results are subject to changes in political, social and economic conditions globally and in the regions in which we operate and the impact of fluctuations in foreign currency exchange and interest rates.ninethree months of 20172024 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 5, “Financial Instruments,” to our investment in foreign operations.Avery Dennison CorporationWorking Capital (Deficit) We believe this information assists our investors in understanding the factors impacting our cash flow other than net income and capital expenditures.RatiosThe increase inRatio, as a percentage of annualized net sales,the first quarter 2024 decreased by approximately $767 million compared to the first quarter of 4%2023 primarily due to the reclassification of our $300 million of senior notes due in the third quarter of 2024 and €500 million of senior notes due in the first nine monthsquarter 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,2025 as well as increases in trade accounts receivable, net. The decrease in short-term borrowings and current portionan increase of long-term debt and capital leases was a result ofapproximately $48 million related to 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”contingent liability for more information.The increase in operational working capital, as a percentage of annualized net sales, reconciled with 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.Adasa legal matter. 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) March 30, 2024 April 1, 2023 (A) Working capital (deficit) $ (421.4) $ 345.5 Reconciling items: Cash and cash equivalents (185.7) (351.3) Other current assets (250.6) (218.2) Short-term borrowings and current portion of long-term debt and finance leases 1,170.5 648.3 Accrued payroll and employee benefits and other current liabilities 836.2 759.2 (B) Operational working capital $ 1,149.0 $ 1,183.5 (C) First-quarter net sales, annualized $ 8,605.2 $ 8,260.0 Operational working capital, as a percentage of annualized current-quarter net sales: (B) ÷ (C) 13.4 % 14.3 % 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 months of 2017 and 63 days in the first nine months of 2016.respective quarter. The increase in the average number of days sales outstanding from the prior yearwas primarily reflected the impact of acquisitions anddue to the timing of collections.sales (cost of sales for the first nine months, divided by threeproducts sold in 2024 and multiplied by four)2023, respectively, and divided by the three-quarter average inventory balance was 7.8at quarter-end. The increase in the first nine months of 2017 and 8.5 in the first nine months of 2016. The decrease in the current year average inventory turnover primarily reflected the impact of acquisitions and the timing ofhigher prior-year inventory purchases.three-quarter average accounts payable balance at quarter-end divided by the average dailyrespective annualized first-quarter cost of products sold forsold. The increase in average number of days payable outstanding primarily reflected the first nine months, was 72 days in bothtiming of vendor payments, partially offset by the first nine monthsimpact of 2017 and 2016.financing. At Septemberfinancing, including access to commercial paper borrowings supported by our $1.20 billion revolving credit facility (the “Revolver”). We use these resources to fund our operational needs.2017,2024, we had cash and cash equivalents of approximately $232$185.7 million held in accounts at third-party financial institutions.throughoutaround the world. At SeptemberAs of March 30, 2017,2024, 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.U.S.Our $700Revolver as of March 30, 2024 or December 30, 2023.revolving credit facility (the “Revolver”) contains financial covenants requiring that we maintain specified ratios of total debtsenior notes and interest expense in relation to certain measures of income. As of September 30, 2017 and December 31, 2016, we were in compliance with 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 annuallymaturing 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 million2024 and first quarter of senior notes at maturity using commercial paper borrowings.We are currently in the process of amending the Revolver to, among other things, increase our borrowing capacity under our current agreement.We are exposed to financial market risk resulting2025, respectively.changes in interest and foreign currency rates, and to possible liquidity and credit risksDebtcounterparties.Capital from DebtOur total debt increaseddecreased by approximately $389$4 million in the first ninethree months of 20172024 to $1.68 billion, primarily reflecting the issuance of senior notes 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.15,10, “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 Corporation31, 2016.30, 2023 that have not been disclosed in our periodic filings with the U.S. Securities and Exchange Commission (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 periods specified in the SEC’s rules and forms, and that such information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure.We 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.Contents15,10, “Commitments and Contingencies,” to the unaudited Condensed Consolidated Financial Statements in Part 1, Item 1.1 for this information.31, 2016.30, 2023 that have not been disclosed in our periodic filings with the SEC.three fiscal months of the thirdfirst quarter of 20172024 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)December 31, 2023 – January 27, 2024 — $ — — $ 592.8 January 28, 2024 – February 24, 2024 3.8 197.51 3.8 592.0 February 25, 2024 – March 30, 2024 68.3 216.75 68.3 577.2 Total 72.1 $ 215.73 72.1 $ 577.2 SeptemberMarch 30, 2017.2017,2022, 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 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.(4)Not ApplicableExhibit 10.1*† 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.† Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-Q. * 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 /s/ Divina F. Santiago Divina F. Santiago /s/ Lori J. BondarLori J. Bondar andChief Accounting OfficerOctober 31, 2017