filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Avery Dennison Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Avery Dennison Corporation and its subsidiaries (the “Company”) as of December 28, 2024 and December 30, 2023, and the related consolidated statements of income, of comprehensive income, of shareholders’ equity and of cash flows for each of the three years in the period ended December 28, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 28, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 28, 2024 and December 30, 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 28, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition from Certain Product Revenue
As described in Notes 1 and 15 to the consolidated financial statements, revenue is recognized for an amount that reflects the consideration which is expected from the sale of products when the Company satisfies a performance obligation by transferring control of products to a customer. Management considers a number of factors in determining when control has been transferred to a customer, including the following: (i) the Company’s present right to payment; (ii) the customer’s legal title to the asset; (iii) physical possession of the asset; (iv) the customer’s significant risks and rewards of ownership of the asset; and (v) the customer’s acceptance of the asset. Control generally transfers to a customer upon shipment or delivery, depending on the specific terms of sale with the customer. The Company’s consolidated net sales were $8,755.7 million for the year ended December 28, 2024, of which a majority relates to certain product revenue in the Company’s Materials Group and Solutions Group reportable segments.
The principal consideration for our determination that performing procedures relating to revenue recognition from certain product revenue is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition from certain product revenue.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the recognition of certain product revenue for an amount that reflects the consideration which is expected from the sale of products when the Company satisfies a performance obligation. These procedures also included, among others (i) testing certain product revenue transactions, on a sample basis, by obtaining and inspecting source documents, such as purchase orders, invoices, contracts, proof of shipment or delivery, and subsequent payment receipts; (ii) testing certain product revenue transactions by developing an independent expectation of revenue and comparing the independent expectation to the amount recorded; and (iii) confirming, on a sample basis, outstanding customer invoice balances as of December 28, 2024 and, for confirmations not returned, obtaining and inspecting source documents, such as purchase orders, invoices, proof of shipment or delivery, and subsequent payment receipts.
/s/ PricewaterhouseCoopers LLP
| Los Angeles, California | ||
| February 26, 2025 |
We have served as the Company’s auditor since at least 1960, which were the Company’s first financial statements subject to SEC reporting requirements. We have not been able to determine the specific year we began serving as auditor of the Company or a predecessor company.
Consolidated Balance Sheets
| (Dollars in millions, except per share amount) | December 28, 2024 | December 30, 2023 | ||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 329.1 | $ | 215.0 | ||||||||||
| Trade accounts receivable, less allowances of $29.0 and $34.4 at year-end 2024 and 2023, respectively | 1,466.2 | 1,414.9 | ||||||||||||
| Inventories | 978.1 | 920.7 | ||||||||||||
| Other current assets | 305.3 | 245.4 | ||||||||||||
| Total current assets | 3,078.7 | 2,796.0 | ||||||||||||
| Property, plant and equipment, net | 1,586.7 | 1,625.8 | ||||||||||||
| Goodwill | 1,976.2 | 2,013.6 | ||||||||||||
| Other intangibles resulting from business acquisitions, net | 755.3 | 849.1 | ||||||||||||
| Deferred tax assets | 110.0 | 115.7 | ||||||||||||
| Other assets | 897.3 | 809.6 | ||||||||||||
| Total assets | $ | 8,404.2 | $ | 8,209.8 | ||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Short-term borrowings and current portion of long-term debt and finance leases | $ | 592.3 | $ | 622.2 | ||||||||||
| Accounts payable | 1,340.7 | 1,277.1 | ||||||||||||
| Accrued payroll and employee benefits | 288.9 | 213.4 | ||||||||||||
| Accrued trade rebates | 157.9 | 142.4 | ||||||||||||
| Income taxes payable | 74.7 | 57.6 | ||||||||||||
| Other current liabilities | 408.1 | 386.8 | ||||||||||||
| Total current liabilities | 2,862.6 | 2,699.5 | ||||||||||||
| Long-term debt and finance leases | 2,559.9 | 2,622.1 | ||||||||||||
| Long-term retirement benefits and other liabilities | 434.6 | 500.3 | ||||||||||||
| Deferred tax liabilities and income taxes payable | 234.8 | 260.0 | ||||||||||||
| Commitments and contingencies (see Notes 7 and 8) | ||||||||||||||
| Shareholders’ equity: | ||||||||||||||
| Common stock, $1 par value per share, authorized – 400,000,000 shares at year-end 2024 and 2023; issued – 124,126,624 shares at year-end 2024 and 2023; outstanding – 79,800,396 and 80,495,585 shares at year-end 2024 and 2023, respectively | 124.1 | 124.1 | ||||||||||||
| Capital in excess of par value | 840.6 | 854.5 | ||||||||||||
| Retained earnings | 5,151.2 | 4,691.8 | ||||||||||||
| Treasury stock at cost, 44,326,228 and 43,631,039 shares at year-end 2024 and 2023, respectively | (3,347.5) | (3,134.4) | ||||||||||||
| Accumulated other comprehensive loss | (456.1) | (408.1) | ||||||||||||
| Total shareholders’ equity | 2,312.3 | 2,127.9 | ||||||||||||
| Total liabilities and shareholders' equity | $ | 8,404.2 | $ | 8,209.8 |
See Notes to Consolidated Financial Statements
Consolidated Statements of Income
| (In millions, except per share amounts) | 2024 | 2023 | 2022 | |||||||||||||||||
| Net sales | $ | 8,755.7 | $ | 8,364.3 | $ | 9,039.3 | ||||||||||||||
| Cost of products sold | 6,225.0 | 6,086.8 | 6,635.1 | |||||||||||||||||
| Gross profit | 2,530.7 | 2,277.5 | 2,404.2 | |||||||||||||||||
| Marketing, general and administrative expense | 1,415.3 | 1,313.7 | 1,330.8 | |||||||||||||||||
| Other expense (income), net | 71.6 | 180.9 | (.6) | |||||||||||||||||
| Interest expense | 117.0 | 119.0 | 84.1 | |||||||||||||||||
| Other non-operating expense (income), net | (26.7) | (30.8) | (9.4) | |||||||||||||||||
| Income before taxes | 953.5 | 694.7 | 999.3 | |||||||||||||||||
| Provision for income taxes | 248.6 | 191.7 | 242.2 | |||||||||||||||||
| Net income | $ | 704.9 | $ | 503.0 | $ | 757.1 | ||||||||||||||
| Per share amounts: | ||||||||||||||||||||
| Net income per common share | $ | 8.77 | $ | 6.23 | $ | 9.28 | ||||||||||||||
| Net income per common share, assuming dilution | $ | 8.73 | $ | 6.20 | $ | 9.21 | ||||||||||||||
| Weighted average number of shares outstanding: | ||||||||||||||||||||
| Common shares | 80.4 | 80.7 | 81.6 | |||||||||||||||||
| Common shares, assuming dilution | 80.7 | 81.1 | 82.2 |
See Notes to Consolidated Financial Statements
Consolidated Statements of Comprehensive Income
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Net income | $ | 704.9 | $ | 503.0 | $ | 757.1 | ||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| Foreign currency translation: | ||||||||||||||||||||
| Translation gain (loss) | (46.9) | (14.6) | (96.6) | |||||||||||||||||
| Pension and other postretirement benefits: | ||||||||||||||||||||
| Net gain (loss) recognized from actuarial gain/loss and prior service cost/credit | (1.3) | (25.2) | 6.3 | |||||||||||||||||
| Reclassifications to net income | .8 | (1.0) | 2.8 | |||||||||||||||||
| Cash flow hedges: | ||||||||||||||||||||
| Gain (loss) recognized on cash flow hedges | (5.4) | (7.0) | 4.9 | |||||||||||||||||
| Reclassifications to net income | 2.8 | 3.7 | 1.5 | |||||||||||||||||
| Fair value hedges: | ||||||||||||||||||||
| Changes in excluded components of fair value hedges | 2.0 | — | — | |||||||||||||||||
| Other comprehensive income (loss), net of tax | (48.0) | (44.1) | (81.1) | |||||||||||||||||
| Total comprehensive income, net of tax | $ | 656.9 | $ | 458.9 | $ | 676.0 |
See Notes to Consolidated Financial Statements
Consolidated Statements of Shareholders’ Equity
| (Dollars in millions, except per share amounts) | Common stock, $1 par value | Capital in excess of par value | Retained earnings | Treasury stock | Accumulated other comprehensive loss | Total | ||||||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | 124.1 | $ | 862.3 | $ | 3,880.7 | $ | (2,659.8) | $ | (282.9) | $ | 1,924.4 | ||||||||||||||||||||||||||
| Net income | — | — | 757.1 | — | — | 757.1 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | (81.1) | (81.1) | ||||||||||||||||||||||||||||||||
| Repurchase of 2,173,416 shares for treasury | — | — | — | (379.5) | — | (379.5) | ||||||||||||||||||||||||||||||||
| Issuance of 223,676 shares under stock-based compensation plans | — | 17.0 | (4.4) | 10.6 | — | 23.2 | ||||||||||||||||||||||||||||||||
| Contribution of 153,803 shares to 401(k) plan | — | — | 20.1 | 6.9 | — | 27.0 | ||||||||||||||||||||||||||||||||
| Dividends of $2.93 per share | — | — | (238.9) | — | — | (238.9) | ||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | 124.1 | $ | 879.3 | $ | 4,414.6 | $ | (3,021.8) | $ | (364.0) | $ | 2,032.2 | ||||||||||||||||||||||||||
| Net income | — | — | 503.0 | — | — | 503.0 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | (44.1) | (44.1) | ||||||||||||||||||||||||||||||||
| Repurchase of 780,721 shares for treasury | — | — | — | (137.5) | — | (137.5) | ||||||||||||||||||||||||||||||||
| Issuance of 297,885 shares under stock-based compensation plans | — | (24.8) | 8.9 | 16.5 | — | .6 | ||||||||||||||||||||||||||||||||
| Contribution of 168,404 shares to 401(k) plan | — | — | 22.0 | 8.4 | — | 30.4 | ||||||||||||||||||||||||||||||||
| Dividends of $3.18 per share | — | — | (256.7) | — | — | (256.7) | ||||||||||||||||||||||||||||||||
| Balance as of December 30, 2023 | $ | 124.1 | $ | 854.5 | $ | 4,691.8 | $ | (3,134.4) | $ | (408.1) | $ | 2,127.9 | ||||||||||||||||||||||||||
| Net income | — | — | 704.9 | — | — | 704.9 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | (48.0) | (48.0) | ||||||||||||||||||||||||||||||||
| Repurchase of 1,184,780 shares for treasury | — | — | — | (247.5) | — | (247.5) | ||||||||||||||||||||||||||||||||
| Issuance of 340,048 shares under stock-based compensation plans | — | (13.9) | 7.7 | 26.8 | — | 20.6 | ||||||||||||||||||||||||||||||||
| Contribution of 149,543 shares to 401(k) plan | — | — | 24.3 | 7.6 | — | 31.9 | ||||||||||||||||||||||||||||||||
| Dividends of $3.45 per share | — | — | (277.5) | — | — | (277.5) | ||||||||||||||||||||||||||||||||
| Balance as of December 28, 2024 | $ | 124.1 | $ | 840.6 | $ | 5,151.2 | $ | (3,347.5) | $ | (456.1) | $ | 2,312.3 |
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Operating Activities | ||||||||||||||||||||
| Net income | $ | 704.9 | $ | 503.0 | $ | 757.1 | ||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation | 197.1 | 187.4 | 177.4 | |||||||||||||||||
| Amortization | 115.1 | 111.0 | 113.3 | |||||||||||||||||
| Provision for credit losses and sales returns | 47.4 | 49.9 | 50.1 | |||||||||||||||||
| Stock-based compensation | 28.7 | 22.3 | 47.4 | |||||||||||||||||
| Deferred taxes and other non-cash taxes | (18.5) | (24.4) | 18.4 | |||||||||||||||||
| Other non-cash expense and loss (income and gain), net | 67.2 | 37.1 | 23.5 | |||||||||||||||||
| Changes in assets and liabilities and other adjustments: | ||||||||||||||||||||
| Trade accounts receivable | (107.3) | (16.7) | (22.1) | |||||||||||||||||
| Inventories | (90.7) | 111.7 | (140.7) | |||||||||||||||||
| Accounts payable | 106.7 | (87.6) | 68.2 | |||||||||||||||||
| Taxes on income | 40.2 | (18.7) | 18.9 | |||||||||||||||||
| Other assets | (48.0) | 37.7 | 15.3 | |||||||||||||||||
| Other liabilities | (104.0) | (86.7) | (165.8) | |||||||||||||||||
| Net cash provided by operating activities | 938.8 | 826.0 | 961.0 | |||||||||||||||||
| Investing Activities | ||||||||||||||||||||
| Purchases of property, plant and equipment | (208.8) | (265.3) | (278.1) | |||||||||||||||||
| Purchases of software and other deferred charges | (31.0) | (19.8) | (20.4) | |||||||||||||||||
| Proceeds from company-owned life insurance policies | — | 48.1 | — | |||||||||||||||||
| Purchases of Argentine Blue Chip Swap securities | (34.2) | — | — | |||||||||||||||||
| Proceeds from sales of Argentine Blue Chip Swap securities | 24.0 | — | — | |||||||||||||||||
| Proceeds from sales of property, plant and equipment | .6 | 1.0 | 2.3 | |||||||||||||||||
| Proceeds from insurance and sales (purchases) of investments, net | 10.1 | 1.9 | 1.9 | |||||||||||||||||
| Proceeds from sale of venture investment | — | — | 1.1 | |||||||||||||||||
| Payments for acquisitions, net of cash acquired, and venture investments | (3.8) | (224.9) | (39.5) | |||||||||||||||||
| Net cash used in investing activities | (243.1) | (459.0) | (332.7) | |||||||||||||||||
| Financing Activities | ||||||||||||||||||||
| Net increase (decrease) in borrowings with maturities of three months or less | (269.0) | (36.6) | 34.6 | |||||||||||||||||
| Additional long-term borrowings | 539.2 | 394.9 | — | |||||||||||||||||
| Repayments of long-term debt and finance leases | (308.1) | (255.9) | (6.3) | |||||||||||||||||
| Dividends paid | (277.5) | (256.7) | (238.9) | |||||||||||||||||
| Share repurchases | (247.5) | (137.5) | (379.5) | |||||||||||||||||
| Net (tax withholding) proceeds related to stock-based compensation | (8.4) | (23.8) | (25.1) | |||||||||||||||||
| Other | (4.8) | (1.6) | — | |||||||||||||||||
| Net cash used in financing activities | (576.1) | (317.2) | (615.2) | |||||||||||||||||
| Effect of foreign currency translation on cash balances | (5.5) | (2.0) | (8.6) | |||||||||||||||||
| Increase (decrease) in cash and cash equivalents | 114.1 | 47.8 | 4.5 | |||||||||||||||||
| Cash and cash equivalents, beginning of year | 215.0 | 167.2 | 162.7 | |||||||||||||||||
| Cash and cash equivalents, end of year | $ | 329.1 | $ | 215.0 | $ | 167.2 |
See Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
We are a global materials science and digital identification solutions company. We are Making PossibleTM products and solutions that help advance the industries we serve, providing branding and information solutions that optimize labor and supply chain efficiency, reduce waste, advance sustainability, circularity and transparency, and better connect brands and consumers. We design and develop labeling and functional materials, radio-frequency identification ("RFID") inlays and tags, software applications that connect the physical and digital, and offerings that enhance branded packaging and carry or display information that improves the customer experience. We serve an array of industries worldwide, including home and personal care, apparel, general retail, e-commerce, logistics, food and grocery, pharmaceuticals and automotive.
Principles of Consolidation
Our Consolidated Financial Statements include the accounts of majority-owned and controlled subsidiaries. Intercompany accounts, transactions and profits are eliminated in consolidation.
Fiscal Year
Our fiscal years have generally consisted of 52 weeks, with every fifth or sixth fiscal year consisting of 53 weeks; our 2024, 2023 and 2022 fiscal years consisted of 52-week periods ending December 28, 2024, December 30, 2023 and December 31, 2022, respectively.
Subsequent to fiscal year-end 2024, in January 2025, the Audit Committee of our Board of Directors approved a change to our previous 52- or 53-week fiscal year generally ending on the Saturday closest to December 31 to a fiscal year coincident with the calendar year. Our 2025 fiscal year that began on December 29, 2024 will end on December 31, 2025 and fiscal years 2026 and beyond will begin on January 1 and end on December 31.
Accounting Guidance Updates
Segment Disclosures
In the fourth quarter of 2024, we adopted guidance that requires additional disclosures about significant segment expenses. See Note 15, “Segment and Disaggregated Revenue Information,” for more information.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management to make estimates and assumptions for the reporting period and as of the date of our financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenue and expense. As the effects of future events cannot be determined, actual results could differ significantly from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash on hand, deposits in banks, cash-in-transit, and bank drafts and short-term investments with maturities of three months or less when purchased or received. The carrying value of these assets approximates fair value due to the short maturity of these instruments.
Inventories
We state inventories at the lower of cost or net realizable value and categorize them as raw materials, work-in-progress or finished goods. Cost is determined using the first-in, first-out method. We record inventory that is damaged, obsolete, excess and slow-moving to cost of products sold and establish a lower cost basis for that inventory. Slow-moving inventory is reviewed by category and may be recognized partially or fully to cost of products sold depending on the type of product, level of usage and length of time the product has been included in inventory.
Trade Accounts Receivable
We record trade accounts receivable at the invoiced amount. Our allowances for credit losses reflect customer trade accounts receivable that are estimated to be partially or entirely uncollectible. These allowances are used to reduce gross trade receivables to their net realizable values. We record these allowances based on estimates related to the financial
condition of customers; the aging of receivable balances; our historical collection experience; and current and expected future macroeconomic and market conditions.
Property, Plant and Equipment
We generally compute depreciation using the straight-line method over the estimated useful lives of the respective assets, ranging from ten to 45 years for buildings and improvements and three to 15 years for machinery and equipment. Leasehold improvements are depreciated over the shorter of the useful life of the asset and the term of the associated lease. We expense maintenance and repair costs as incurred; we capitalize renewals and improvements. Upon the sale or retirement of assets, the accounts are relieved of the cost and the related accumulated depreciation, with any resulting gain or loss included in net income.
Leases
Our leases primarily relate to office and warehouse space, machinery, transportation, and equipment for information technology. We determine if an arrangement is a lease or contains a lease at inception. For lease accounting purposes, we do not separate lease and nonlease components, nor do we record operating or finance lease assets and liabilities for short-term leases. We have options to renew or terminate some of our leases. We evaluate renewal and termination options at the lease commencement date and over the lease term to determine if we are reasonably certain to exercise these options. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments. We recognize expense for operating leases on a straight-line basis over the lease term, with variable lease payments recognized in the periods in which they are incurred.
Software
We capitalize software costs incurred during the application development stage of software development, including costs incurred for design, coding, installation to hardware, testing, and upgrades and enhancements that provide the software or hardware with additional functionalities and capabilities. We expense software costs, including internal and external training costs and maintenance costs, incurred during the preliminary project stage and the post-implementation and/or operation stage. Capitalized software, which is included in “Other assets” in the Consolidated Balance Sheets, is amortized on a straight-line basis over the estimated useful life of the software, which is generally between five and ten years.
Cloud Computing Arrangements
We capitalize certain costs incurred during the application development stage of implementation under a hosting arrangement that is a service contract. We expense costs incurred during the preliminary project stage and the post-implementation and/or operation stage. Capitalized implementation costs, which are included in “Other assets” in the Consolidated Balance Sheets, are amortized on a straight-line basis over the term of the hosting arrangement plus optional renewal periods, which is generally between five and ten years.
Venture Investments
We primarily invest in privately held companies and utilize the measurement alternative for equity investments that do not have readily determinable fair values, measuring them at cost less impairment plus or minus observable price changes in an orderly transaction. Venture investments that are publicly traded companies are recorded at fair value using Level 1 inputs. The carrying value of our venture investments is included in “Other assets” in the Consolidated Balance Sheets.
See Note 9, “Fair Value Measurements,” for more information.
Impairment of Long-lived Assets
We record impairment charges when the carrying amounts of long-lived assets are determined not to be recoverable. We measure recoverability by comparing the undiscounted cash flows expected from the applicable asset or asset group’s use and eventual disposition to its carrying value. We calculate the amount of impairment loss as the excess of the carrying value over the fair value. Historically, changes in market conditions and management strategy have caused us to reassess the carrying amount of our long-lived assets.
Goodwill and Other Intangibles Resulting from Business Acquisitions
We account for business combinations using the acquisition method, with the excess of the acquisition cost over the fair value of acquired net tangible assets and identified intangible assets considered goodwill. As a result, we disclose goodwill separately from other intangible assets. Other identifiable intangibles include customer relationships, patented and other developed technology, and trade names and trademarks.
We perform an annual impairment test of goodwill during the fourth quarter and, as necessary, if changes in facts and circumstances that indicate the fair value of a reporting unit may be less than its carrying value. Factors that may cause us to perform an impairment test outside of our annual assessment include significant underperformance of a business relative to expected operating results, significant adverse economic and industry trends, significant decline in our market capitalization for an extended period of time relative to net book value, or our decision to divest a portion of a reporting unit. In performing impairment tests, we have the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative assessment for goodwill impairment. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative assessment. A quantitative assessment primarily uses the present value (discounted cash flow) method to determine the fair value of reporting units with goodwill.
We compare the fair value of each reporting unit to its carrying amount, and, to the extent the carrying amount exceeds the unit’s fair value, we recognize an impairment of goodwill for the excess up to the amount of goodwill of that reporting unit.
In consultation with outside specialists, we estimate the fair value of our reporting units using various valuation techniques, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis requires us to make various assumptions, including a reporting unit's respective forecasted sales, operating margins and growth rates, as well as discount rates. Our assumptions about discount rates are based on the weighted average cost of capital for comparable companies. Our assumptions about sales, operating margins and growth rates are based on our forecasts, business plans, economic projections, anticipated future cash flows, and marketplace data. We also make assumptions for varying perpetual growth rates for periods beyond our long-term business plan period. We base our fair value estimates on projected financial information and assumptions that we believe are reasonable. However, actual future results may differ materially from these estimates and projections. The valuation methodology we use to estimate the fair value of reporting units requires inputs and assumptions that reflect current market conditions, as well as the impact of planned business and operational strategies that require management judgment. The estimated fair value could increase or decrease depending on changes in the inputs and assumptions.
We test indefinite-lived intangible assets, consisting of trade names and trademarks, for impairment in the fourth quarter or whenever events or circumstances indicate that it is more-likely-than-not that their carrying amounts exceed their fair values. In performing the impairment tests, we have the option first to assess qualitative factors to determine whether it is necessary to perform a quantitative assessment for indefinite-lived intangible asset impairment. If we decide not to perform a qualitative assessment, or if the qualitative assessment indicates that it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying value, we perform a quantitative assessment. Fair value is estimated as the discounted value of future revenues using a royalty rate that a third party would pay to use the asset. Variation in the royalty rates could impact our estimate of fair value. If the carrying amount of an asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
We amortize finite-lived intangible assets, consisting of customer relationships, patented and other developed technology, trade names and trademarks, and other intangibles, on a straight-line basis over their estimated useful lives.
See Note 3, “Goodwill and Other Intangibles Resulting from Business Acquisitions,” for more information.
Foreign Currency
We translate asset and liability accounts of international operations into U.S. dollars at current rates. Revenues and expenses are translated at the weighted average currency rate for the fiscal year. We record gains and losses resulting from hedging the value of investments in certain international operations and from the translation of balance sheet accounts directly as a component of other comprehensive income.
We account for our operations in Argentina as highly inflationary because the country’s three-year cumulative inflation rate exceeds 100%. As a result, the functional currency of our Argentine subsidiary is the U.S. dollar.
Financial Instruments
We enter into foreign currency exchange derivative contracts to reduce our risk from exchange rate fluctuations associated with receivables, payables, loans and firm commitments denominated in certain foreign currencies that arise primarily as a result of our operations outside the U.S. From time to time, 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 length of time for which we hedge our exposure to the variability in future cash flows is 36 months for forecasted foreign currency exchange and commodity transactions and 10 years for cross-currency swap transactions.
On the date we enter into a derivative contract, we determine whether the derivative will be designated as a hedge. Other derivatives not designated as hedges are recorded at fair value, with changes in fair value recognized in earnings. Our policy is not to purchase or hold any foreign currency, interest rate or commodity contracts for trading purposes.
All derivative financial instruments are accounted for at fair value and recognized as assets or liabilities in the Consolidated Balance Sheets. Accounting for the gain or loss resulting from the changes in the fair value of a derivative financial instrument depends on whether it has been designated as part of a hedging relationship and is highly effective, as well as the nature of the hedging activity. We formally document all relationships between derivative financial instruments accounted for as designated hedges, the hedged item, the method for assessing effectiveness and the treatment of excluded components. These financial instruments can be designated as:
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Fair value hedges - Hedges of the change in the fair value of a recognized asset or liability. The gain or loss from the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in income during the period of the change in fair value. Hedge effectiveness is based on the spot method and expected to be perfectly effective. Excluded components are not included in the effectiveness assessment, recognized in a systematic and rational method over the term of the contracts and recorded to the same income statement line as the item being hedged.
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Cash flow hedges - Hedges to reduce the variability of future expected cash flows. For derivative instruments that are designated and qualify as cash flow hedges, the entire 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 these derivatives, representing hedge components excluded from the assessment of effectiveness, are recognized in current earnings.
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Net investment hedges - Hedges of the currency exposure related to a net investment in a foreign operation. The gain or loss from the derivative financial instrument is recognized as foreign currency translation in "Accumulated other comprehensive loss" until the hedged net investment is either sold or substantially liquidated. Hedge effectiveness is based on the spot method, with no ineffectiveness expected over the duration of the hedging relationship. Excluded components are not included in the effectiveness assessment, recorded in a systematic and rational basis over the term of the contracts and recorded to “Marketing, general and administrative expense” in the Consolidated Statements of Income.
We assess, both at the inception of any hedge and on an ongoing basis, whether our hedges are highly effective. If we determine that a hedge is not highly effective, we prospectively discontinue hedge accounting. For cash flow hedges, we record gains and losses as components of other comprehensive income and reclassify them into earnings in the same period during which the hedged transaction affects earnings. In the event that the anticipated transaction is no longer highly probable to occur, we recognize the change in fair value of the hedging instrument in current period earnings. We recognize changes in fair value hedges in current period earnings. We also recognize changes in the fair value of underlying hedged items (such as recognized assets or liabilities) in current period earnings and offset the changes in the fair value of the derivative.
In the Consolidated Statements of Cash Flows, hedges are classified in the same category as the hedged item.
See Note 5, “Financial Instruments,” for more information.
Fair Value Measurements
We define fair value as the price that would be received from selling an asset or paid for transferring a liability in an orderly transaction between market participants at the measurement date. In determining fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability.
We determine fair value based on a three-tier fair value hierarchy, which we use to prioritize the inputs used in measuring fair value. These tiers consist of Level 1, which are observable inputs such as quoted prices in active markets; Level 2, which are inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which are unobservable inputs for which little or no market data exists, requiring us to develop our own assumptions to determine the best estimate of fair value.
Revenue Recognition
Substantially all of our revenue is derived from the sale of products. Our Materials Group reportable segment sells pressure-sensitive label materials, films, performance tapes and fasteners. Our Solutions Group reportable segment sells a wide variety of branding and information solutions-oriented products, such as tickets, tags, labels (including RFID inlays), as well as related equipment, services and supplies, that provide our customers with solutions to optimize branding and engagement with their consumers and enable item visibility and traceability. We recognize revenue for an amount that reflects the consideration which we expect from the sale of our products when we satisfy a performance obligation by transferring control of our products to a customer. We consider a number of factors in determining when we have transferred control to a customer, including the following: (i) our present right to payment; (ii) the customer’s legal title to the asset; (iii) physical possession of the asset; (iv) the customer’s significant risks and rewards of ownership of the asset; and (v) the customer’s acceptance of the asset. Generally, there are no substantive differences in revenue recognition considerations among our various products. Control generally transfers to a customer upon shipment or delivery, depending on the specific terms of sale with the customer.
Our payment terms with customers are generally consistent with those used in the industries and regions in which we operate.
We accept sales returns in certain limited circumstances. We record a liability for estimated returns and a corresponding reduction to sales in the amount we expect to repay or credit customers, which we base on historical returns and outstanding customer claims. We update our estimates each reporting period.
Sales rebates, discounts and other customer concessions represent variable consideration and are common in the industries and regions in which we operate, which we account for as a reduction to sales based on estimates at the time at which products are sold. We base these estimates on our historical experience, as well as current information such as sales forecasts. We regularly review our estimates and adjust the revenue recognized from sales as necessary as additional information becomes available.
We exclude sales tax, value-added tax and other taxes we collect from customers from sales. We account for shipping and handling activities after control of a product is transferred to a customer as fulfillment costs and not as separate performance obligations. As a practical expedient, we have elected not to disclose the value of unsatisfied performance obligations for contracts with an expected length of less than one year. We generally expense sales commissions when incurred because their expected amortization period is one year or less. We record these costs in “Marketing, general and administrative expense” in the Consolidated Statements of Income.
Research and Development
Research and development costs are related to research, design and testing of new products and applications, which we expense as incurred.
Long-Term Incentive Compensation
No long-term incentive compensation expense was capitalized in 2024, 2023 or 2022.
Valuation of Stock-Based Awards
We base our stock-based compensation expense on the fair value of awards, adjusted for estimated forfeitures, amortized on a straight-line basis over the requisite service period for stock options and restricted stock units (“RSUs”). We base compensation expense for performance units (“PUs”) on the fair value of awards, adjusted for estimated forfeitures, and amortized on a straight-line basis as these awards cliff-vest at the end of the requisite service period. We base compensation expense related to market-leveraged stock units (“MSUs”) on the fair value of awards, adjusted for estimated forfeitures, and amortized on a graded-vesting basis over their respective performance periods.
Compensation expense for awards with a market condition as a performance objective, which includes MSUs and a component of PUs, is not adjusted if the condition is not met, as long as the requisite service period is met.
We estimate the fair value of stock options as of the date of grant using the Black-Scholes option-pricing model. This model requires input assumptions for our expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term.
We determine the fair value of RSUs and the component of PUs that is subject to the achievement of a performance objective using a financial performance condition based on the fair market value of our common stock as of the date of grant, adjusted for foregone dividends. Over the performance period of the PUs, the estimated number of shares of our common stock issuable upon vesting is adjusted upward or downward from the target shares at the time of grant based on the probability of the performance objectives established for the award being achieved.
We determine the fair value of stock-based awards that are subject to the achievement of performance objectives based on a market condition, which includes MSUs and the other component of PUs, using the Monte-Carlo simulation method, which utilizes multiple input variables, including expected stock price volatility and other assumptions appropriate for determining fair value, to estimate the probability of satisfying the performance objectives established for the award.
Certain of these assumptions are based on management’s estimates, in consultation with outside specialists. Significant changes in assumptions for future awards and actual forfeiture rates could materially impact stock-based compensation expense and our results of operations.
Valuation of Cash-Based Awards
Cash-based awards consist of long-term incentive units (“LTI Units”) granted to eligible employees. We classify LTI Units as liability awards and remeasure them at each quarter-end over the applicable vesting or performance period. In addition to LTI Units with terms and conditions that mirror those of RSUs, we also grant certain employees LTI Units with terms and conditions that mirror those of PUs and MSUs.
Forfeitures
We estimate expected forfeitures in determining the compensation cost to be recognized each period, rather than accounting for forfeitures as they occur. We record changes in estimated forfeiture rates as cumulative adjustments in the period estimates are revised.
See Note 12, “Long-term Incentive Compensation,” for more information.
Taxes Based on Income
Because we are subject to income tax in the U.S. and multiple foreign jurisdictions, judgment is required in evaluating and estimating our worldwide provision for income taxes, accruals for taxes, deferred taxes and tax positions. Our provision for income taxes is determined using the asset and liability approach in accordance with GAAP. Under this approach, deferred taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. We record a valuation allowance to reduce our deferred tax assets when uncertainty regarding their realizability exists. We recognize and measure our uncertain tax positions following the more-likely-than-not threshold for recognition and measurement for tax positions we take or expect to take on a tax return.
See Note 14, “Taxes Based on Income,” for more information.
Recent Accounting Requirements
In November 2024, the FASB issued guidance expanding the disclosure requirements for certain expenses in notes to consolidated financial statements. The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. We are currently assessing the impact of adopting this guidance on our financial statement disclosures.
NOTE 2. BUSINESS ACQUISITIONS
2023 Business Acquisitions
On November 23, 2023, we completed our business acquisition of Silver Crystal Group ("Silver Crystal"), a Canada-based provider of sports apparel customization and application solutions across in-venue, direct-to-business and e-commerce platforms. On May 22, 2023, we completed our business acquisition of LG Group, Inc. ("Lion Brothers"), a Maryland-based designer and manufacturer of apparel brand embellishments. On March 6, 2023, we completed our business acquisition of Thermopatch, Inc. ("Thermopatch"), a New York-based manufacturer specializing in labeling, embellishments and transfers for the sports, industrial laundry, workwear and hospitality industries. These acquisitions expanded the product portfolio in our Solutions Group reportable segment.
The acquisitions of Silver Crystal, Lion Brothers and Thermopatch are referred to collectively as the "2023 Acquisitions."
The aggregate purchase consideration, including purchase consideration payable, for the 2023 Acquisitions was approximately $231 million. We funded the 2023 Acquisitions using cash and commercial paper borrowings. In addition to the cash paid at closing, the sellers in one of these acquisitions are eligible for earn-out payments of up to $5 million, subject to the acquired company achieving certain post-acquisition performance targets. As of the acquisition date, we included an estimate of the fair value of these earn-out payments in the aggregate purchase consideration.
The 2023 Acquisitions were not material, individually or in the aggregate, to the Consolidated Financial Statements.
2022 Business Acquisitions
In January 2022, we completed our business acquisitions of TexTrace AG ("TexTrace"), a Switzerland-based technology developer specializing in custom-made woven and knitted RFID products that can be sewn onto or inserted into garments, and Rietveld Serigrafie B.V. and Rietveld Screenprinting Serigrafi Baski Matbaa Tekstil Ithalat Ihracat Sanayi ve Ticaret Limited Sirketi (collectively, "Rietveld"), a Netherlands-based provider of external embellishment solutions and application and printing methods for performance brands and team sports in Europe. These acquisitions expanded the product portfolio in our Solutions Group reportable segment. The acquisitions of TexTrace and Rietveld are referred to collectively as the "2022 Acquisitions."
The aggregate purchase consideration for the 2022 Acquisitions was approximately $35 million. We funded the 2022 Acquisitions using cash and commercial paper borrowings. In addition to the cash paid at closing, the sellers in one of these acquisitions are eligible for earn-out payments of up to $30 million, subject to the acquired company achieving certain post-acquisition performance targets. As of the acquisition date, we included an estimate of the fair value of these earn-out payments in the aggregate purchase consideration.
The 2022 Acquisitions were not material, individually or in the aggregate, to the Consolidated Financial Statements.
NOTE 3. GOODWILL AND OTHER INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Goodwill
Results from our annual goodwill impairment test in the fourth quarter of 2024 indicated that no impairment occurred during 2024. The assumptions used in our assessment were primarily based on Level 3 inputs.
Changes in the net carrying amount of goodwill for 2024 and 2023 by reportable segment are shown below.
| (In millions) | Materials Group | Solutions Group | Total | |||||||||||||||||||||||||||||
| Goodwill as of December 31, 2022 | $ | 618.7 | $ | 1,243.7 | $ | 1,862.4 | ||||||||||||||||||||||||||
| Acquisitions(1) | — | 135.0 | 135.0 | |||||||||||||||||||||||||||||
| Translation adjustments | 12.0 | 4.2 | 16.2 | |||||||||||||||||||||||||||||
| Goodwill as of December 30, 2023 | 630.7 | 1,382.9 | 2,013.6 | |||||||||||||||||||||||||||||
| Acquisition adjustments(2) | — | (2.7) | (2.7) | |||||||||||||||||||||||||||||
| Translation adjustments | (24.6) | (10.1) | (34.7) | |||||||||||||||||||||||||||||
| Goodwill as of December 28, 2024 | $ | 606.1 | $ | 1,370.1 | $ | 1,976.2 |
(1)Goodwill acquired related to the 2023 Acquisitions. We expect substantially all of the recognized goodwill related to the 2023 Acquisitions not to be deductible for income tax purposes.
(2)Measurement period adjustments related to the finalization of the purchase price allocation for our 2023 Acquisitions.
The carrying amounts of goodwill at December 28, 2024 and December 30, 2023 were net of accumulated impairment losses of $820 million recognized in fiscal year 2009 by our Solutions Group reportable segment.
Indefinite-Lived Intangible Assets
Results from our annual indefinite-lived intangible assets impairment test in the fourth quarter indicated that no impairment occurred in 2024. The carrying value of indefinite-lived intangible assets resulting from business acquisitions, consisting of trade names and trademarks, was $154.5 million and $155.3 million at December 28, 2024 and December 30, 2023, respectively.
Finite-Lived Intangible Assets
In connection with the 2023 Acquisitions, we acquired approximately $94 million of identifiable finite-lived intangible assets, which consisted of customer relationships, patented and other developed technology, and trade names and trademarks. We utilized the income approach to estimate the fair value of acquired identifiable intangibles, primarily using Level 3 inputs. We applied significant judgment in determining the fair value of intangible assets, which included our estimates and assumptions with respect to estimated future revenue and related profit margins, customer retention rates, technology migration curves, royalty rates, discount rates and economic lives assigned to the acquired intangible assets.
The table below summarizes the amounts and weighted average useful lives of the intangible assets associated with the 2023 Acquisitions as of their respective acquisition dates.
| Amount (in millions) | Weighted average amortization period (in years) | |||||||||||||
| Customer relationships | $ | 68.8 | 11 | |||||||||||
| Patented and other developed technology | 22.2 | 7 | ||||||||||||
| Trade names and trademarks | 3.0 | 6 | ||||||||||||
Refer to Note 2, “Business Acquisitions,” for more information.
The table below sets forth our finite-lived intangible assets resulting from business acquisitions at December 28, 2024 and December 30, 2023, which continue to be amortized.
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| (In millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||||
| Customer relationships | $ | 916.0 | $ | 438.5 | $ | 477.5 | $ | 922.5 | $ | 383.7 | $ | 538.8 | ||||||||||||||||||||||||||
| Patented and other developed technology | 275.2 | 156.8 | 118.4 | 278.3 | 130.2 | 148.1 | ||||||||||||||||||||||||||||||||
| Trade names and trademarks | 17.1 | 12.8 | 4.3 | 17.4 | 11.7 | 5.7 | ||||||||||||||||||||||||||||||||
| Other intangibles | 3.2 | 2.6 | .6 | 3.2 | 2.0 | 1.2 | ||||||||||||||||||||||||||||||||
| Total | $ | 1,211.5 | $ | 610.7 | $ | 600.8 | $ | 1,221.4 | $ | 527.6 | $ | 693.8 |
Amortization expense for finite-lived intangible assets resulting from business acquisitions was $89.4 million for 2024, $86.3 million for 2023 and $81.8 million for 2022.
We expect estimated amortization expense for finite-lived intangible assets resulting from business acquisitions for each of the next five fiscal years and thereafter to be as follows:
| (In millions) | Estimated Amortization Expense | |||||||
| 2025 | $ | 88.2 | ||||||
| 2026 | 85.4 | |||||||
| 2027 | 85.0 | |||||||
| 2028 | 77.2 | |||||||
| 2029 | 61.8 | |||||||
| 2030 and thereafter | 203.2 |
NOTE 4. DEBT
Short-Term Borrowings
We had no outstanding borrowings from U.S. commercial paper as of December 28, 2024 and $112 million of outstanding borrowings from U.S. commercial paper issuances as of December 30, 2023 with a weighted average interest rate of 5.54%.
We have a Euro-Commercial Paper Program under which we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of $500 million. Proceeds from issuances under this program may be used for general corporate purposes. The maturities of the notes vary, but may not exceed 364 days from the date of issuance. Our payment obligations with respect to any notes issued under this program are backed by our revolving credit facility (the “Revolver”). There are no financial covenants under this program. We had no outstanding balance as of December 28, 2024 and $199.2 million outstanding under this program as of December 30, 2023 with a weighted average interest rate of 4.13%.
Short-Term Credit Facilities
In June 2024, we entered into a Credit Agreement (the "Credit Agreement") related to the Revolver to borrow up to an aggregate of $1.2 billion through its maturity date of June 26, 2029. The Revolver refinanced the prior revolving credit facility under the Fifth Amended and Restated Credit Agreement dated as of February 13, 2020, as amended. Pursuant to the Credit Agreement, the commitments under the Revolver may be increased by up to $600 million, subject to lender approvals and customary requirements. Under certain circumstances, we may request that the commitments under the Revolver be extended for one-year periods in accordance with the terms and conditions of the Credit Agreement. We use the Revolver as a back-up facility for our commercial paper program and for other corporate purposes.
No balance was outstanding under the Revolver as of December 28, 2024 or our prior revolving credit facility as of December 30, 2023. Commitment fees associated with revolving credit facilities in 2024, 2023 and 2022 were $1.5 million, $1.2 million and $0.9 million, respectively.
In addition to the Revolver, we have short-term lines of credit available in various countries of approximately $261 million in the aggregate at December 28, 2024. These lines may be cancelled at any time by us or the issuing banks. Borrowings under our short-term lines of credit were not material as of December 28, 2024 and December 30, 2023.
From time to time, we provide guarantees on certain arrangements with banks. Our exposure to these guarantees is not material.
Long-Term Borrowings
In November 2024, we issued €500 million of senior notes, due November 4, 2034, which bear an interest rate of 3.750% per year, payable annually in arrears. Our net proceeds from this issuance, after deducting underwriting discounts and offering expenses, were approximately €495 million ($539 million), which we intend to use to repay our €500 million of senior notes maturing in March 2025 and for general corporate purposes.
In August 2024, we repaid our $300 million of senior notes at maturity using cash flows from operations and commercial paper borrowings.
During 2024, we reclassified our $5 million of medium-term notes due in the third quarter of 2025, $25 million of medium-term notes due in the second quarter of 2025 and €500 million of senior notes due in the first quarter of 2025 from "Long-term debt and finance leases" to "Short-term borrowings and current portion of long-term debt and finance leases" in the Consolidated Balance Sheets.
In March 2023, we issued $400 million of senior notes, due March 15, 2033, which bear an interest rate of 5.750% per year, payable semiannually in arrears. Our net proceeds from this issuance, after deducting underwriting discounts and offering expenses, were $394.9 million, which we used to repay indebtedness under our commercial paper programs and our $250 million of senior notes that matured on April 15, 2023.
Our long-term debt, and related interest rates, at year-end 2024 and 2023 is shown below.
| (In millions) | 2024 | 2023 | ||||||||||||
| Long-term debt | ||||||||||||||
| Medium-term notes: | ||||||||||||||
| Series 1995 due 2025 | $ | 30.0 | $ | 30.0 | ||||||||||
| Long-term notes: | ||||||||||||||
| Senior notes due 2024 at 0.85% | — | 299.6 | ||||||||||||
| Senior notes due 2025 at 1.25%(1) | 521.1 | 552.6 | ||||||||||||
| Senior notes due 2028 at 4.875% | 497.4 | 496.7 | ||||||||||||
| Senior notes due 2030 at 2.650% | 496.7 | 496.1 | ||||||||||||
| Senior notes due 2032 at 2.25% | 495.7 | 495.1 | ||||||||||||
| Senior notes due 2033 at 6.0% | 149.3 | 149.2 | ||||||||||||
| Senior notes due 2033 at 5.75% | 395.8 | 395.3 | ||||||||||||
| Senior notes due 2034 at 3.75%(1) | 515.9 | — | ||||||||||||
| Less amount classified as current | (551.1) | (299.6) | ||||||||||||
| Total long-term debt(2) | $ | 2,550.8 | $ | 2,615.0 |
(1) These senior notes are euro-denominated. The senior notes due in 2025 and 2034 each have a face value of €500 million.
(2) Included unamortized debt issuance costs and debt discounts of $12.6 million and $7.9 million, respectively, as of year-end 2024 and $11.3 million and $7.4 million, respectively, as of year-end 2023.
At year-end 2024 and 2023, our medium-term notes had accrued interest at a weighted average fixed rate of 7.5%.
We expect maturities of our long-term debt for each of the next five fiscal years and thereafter to be as follows:
| Year | (In millions) | |||||||
| 2025 | $ | 551.2 | ||||||
| 2026 | — | |||||||
| 2027 | — | |||||||
| 2028 | 500.0 | |||||||
| 2029 | — | |||||||
| 2030 and thereafter | 2,071.2 |
Refer to Note 7, “Commitments and Leases,” for information related to finance leases.
Other
The Revolver contains a financial covenant requiring that we maintain a specified ratio of total debt minus unrestricted cash and cash equivalents in excess of $50 million to a certain measure of income. As of December 28, 2024 and December 30, 2023, we were in compliance with this financial covenant.
Our total interest costs in 2024, 2023 and 2022 were $124.0 million, $126.5 million and $89.8 million, respectively, of which $7.0 million, $7.5 million and $5.7 million, respectively, was capitalized as part of the cost of property, plant and equipment, capitalized software and capitalized implementation costs associated with cloud computing arrangements.
The estimated fair value of our long-term debt is primarily based on the credit spread above U.S. Treasury securities or euro government bond securities, as applicable, on notes with similar rates, credit ratings and remaining maturities. The fair value of short-term borrowings, which includes commercial paper issuances and short-term lines of credit, approximates their carrying value given their short duration. The fair value of our total debt was $3.01 billion at December 28, 2024 and $3.11 billion at December 30, 2023. Fair value amounts were determined based primarily on Level 2 inputs. Refer to Note 1, “Summary of Significant Accounting Policies,” for more information.
NOTE 5. FINANCIAL INSTRUMENTS
We use various derivative financial instruments to manage risks in foreign currency exchange rates, commodity prices and interest rates. We recognize derivative financial instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets.
Fair Value Hedges
During 2024, we entered into foreign currency forward contracts to hedge a portion of our €500 million of senior notes due in the first quarter of 2025 and €500 million of senior notes due in the fourth quarter of 2034 to offset changes in the fair value of the hedged item attributable to foreign currency risk. The foreign currency forward contracts hedging our €500 million of senior notes due in the fourth quarter of 2034 have a maturity date of December 2025.
Cash Flow Hedges
During 2020, we entered into U.S. dollar to euro cross-currency swap contracts with a total notional amount of $250 million to effectively convert our fixed-rate U.S. dollar-denominated debt into euro-denominated debt, including semiannual interest payments and the payment of principal at maturity. During the term of the contract, which ends on April 30, 2030, we pay fixed-rate interest in euros and receive fixed-rate interest in U.S. dollars.
We designate commodity forward contracts on forecasted purchases of commodities as cash flow hedges.
During 2024, we entered into interest rate forward-starting swap contracts that we designated as cash flow hedges that were terminated upon the issuance of our €500 million of senior notes due in the fourth quarter of 2034. The resulting gain will be amortized to interest expense over the term of the hedged fixed-rate interest payments.
Net Investment Hedges
During 2024, we entered into foreign currency forward contracts and zero-cost collars, combining each pair as net investment hedges for accounting purposes. The objective of the hedging activity is to minimize the effect of foreign currency exchange rates on our net investment in certain foreign operations between the sold put strike and the purchased call strike rates of the contracts. The notional amount of these hedges are approximately €420 million and €500 million with maturity dates in March 2025 and December 2025, respectively.
Other Derivatives
Our outstanding foreign currency exchange contracts as of December 28, 2024 were recorded in various currencies, primarily the U.S. dollar, Canadian dollar, euro, Chinese renminbi, British pound sterling and Hong Kong dollar. For other derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings.
Derivative Financial Statement Impacts
The following table shows the fair value and balance sheet locations of other derivatives as of December 28, 2024 and December 30, 2023:
| (In millions) | Notional Amount | Other Current Assets | Other Non-Current Assets | Other Current Liabilities | Other Non-Current Liabilities | Type of Hedge | ||||||||||||||||||||||||||||||||
| December 28, 2024 | ||||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedges: | ||||||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts | $ | 958.9 | $ | .2 | $ | — | $ | 36.7 | $ | — | Fair value | |||||||||||||||||||||||||||
| Cross-currency swap contracts | 250.0 | — | 10.9 | — | — | Cash flow | ||||||||||||||||||||||||||||||||
| Commodity contracts | 2.9 | .4 | — | .4 | — | Cash flow | ||||||||||||||||||||||||||||||||
| Foreign currency forward contracts with collars | 958.9 | 17.8 | — | .2 | — | Net investment | ||||||||||||||||||||||||||||||||
| Total | $ | 18.4 | $ | 10.9 | $ | 37.3 | $ | — | ||||||||||||||||||||||||||||||
| Derivatives not designated as hedges: | ||||||||||||||||||||||||||||||||||||||
| Foreign currency exchange contracts | $ | 1,741.8 | $ | 11.9 | $ | — | $ | 4.2 | $ | — | ||||||||||||||||||||||||||||
| December 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedges: | ||||||||||||||||||||||||||||||||||||||
| Cross-currency swap contracts | $ | 250.0 | $ | — | $ | 2.3 | $ | — | $ | — | Cash flow | |||||||||||||||||||||||||||
| Commodity contracts | 5.8 | — | — | 1.4 | .2 | Cash flow | ||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 2.3 | $ | 1.4 | $ | .2 | ||||||||||||||||||||||||||||||
| Derivatives not designated as hedges: | ||||||||||||||||||||||||||||||||||||||
| Foreign currency exchange contracts | $ | 1,336.6 | $ | 6.3 | $ | — | $ | 6.0 | $ | — |
The following tables show the components of the net gains (losses) recognized in income related to derivative instruments:
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Gain (loss) on derivatives designated as fair value hedges: | ||||||||||||||||||||
| Foreign currency forward contracts - Marketing, general and administrative expense | $ | (36.4) | $ | — | $ | — | ||||||||||||||
The impact of the hedged items associated with the derivative in the table above are recorded to the same income statement line as the derivative instrument. The net gains (losses) recognized in income related to our cross-currency swap contracts and commodity contracts were not material in 2024, 2023 or 2022.
The gain recognized in translation for the net investment hedges was approximately $15 million for the year ended December 28, 2024.
The following table shows the components of the net gains (losses) recognized in income related to the derivative instruments not designated as hedges:
| (In millions) | Statements of Income Location | 2024 | 2023 | 2022 | ||||||||||||||||||||||
| Foreign currency exchange contracts | Cost of products sold | $ | 3.2 | $ | 3.4 | $ | 5.6 | |||||||||||||||||||
| Foreign currency exchange contracts | Marketing, general and administrative expense | (15.2) | 5.5 | (4.3) | ||||||||||||||||||||||
| $ | (12.0) | $ | 8.9 | $ | 1.3 |
NOTE 6. PENSION AND OTHER POSTRETIREMENT BENEFITS
Defined Benefit Plans
We 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 our company.
We are also obligated to pay unfunded termination indemnity benefits to certain employees outside the U.S., which are subject to applicable agreements, laws and regulations. No costs related to these benefits have been included in the disclosures below because they have not been significant.
Plan Assets
Assets in our non-U.S. plans are invested in accordance with locally accepted practices and primarily include equity securities, fixed income securities, insurance contracts and cash. Asset allocations and investments vary by country and plan. Our target plan asset investment allocation for our non-U.S. plans in the aggregate is approximately 25% in equity securities, 61% in fixed income securities and cash, and 14% in insurance contracts and other investments, subject to periodic fluctuations among these asset classes.
Fair Value Measurements
The valuation methodologies we use for assets measured at fair value are described below.
Cash is valued at nominal value. Cash equivalents and mutual funds are valued at fair value as determined by quoted market prices, based upon the net asset value (“NAV”) of shares held at year-end. Pooled funds are structured as collective trusts, not publicly traded and valued by calculating NAV per unit based on the NAV of the underlying funds/trusts as a practical expedient for the fair value of the pooled funds. The pooled funds are categorized by the investment strategy, which is primarily equity and fixed income securities. The pooled funds categorized as other investments are primarily investments in real estate funds. Insurance contracts are valued at book value, which approximates fair value and is calculated using the prior-year balance plus or minus investment returns and changes in cash flows.
These methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While we believe these valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth, by level within the fair value hierarchy (as applicable), non-U.S. plan assets at fair value:
| Fair Value Measurements Using | ||||||||||||||||||||||||||
| (In millions) | Total | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| 2024 | ||||||||||||||||||||||||||
| Cash | $ | 2.1 | $ | 2.1 | $ | — | $ | — | ||||||||||||||||||
| Insurance contracts | 39.0 | — | — | 39.0 | ||||||||||||||||||||||
| Pooled funds – real estate investment trusts | 5.3 | — | — | 5.3 | ||||||||||||||||||||||
| Pooled funds – fixed income securities(1) | 381.0 | |||||||||||||||||||||||||
| Pooled funds – equity securities(1) | 174.2 | |||||||||||||||||||||||||
| Pooled funds – other investments(1) | 57.9 | |||||||||||||||||||||||||
| Total non-U.S. plan assets at fair value | $ | 659.5 | ||||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||
| Cash | $ | 1.3 | $ | 1.3 | $ | — | $ | — | ||||||||||||||||||
| Insurance contracts | 42.6 | — | — | 42.6 | ||||||||||||||||||||||
| Pooled funds – real estate investment trusts | 6.4 | — | — | 6.4 | ||||||||||||||||||||||
| Pooled funds – fixed income securities(1) | 389.8 | |||||||||||||||||||||||||
| Pooled funds – equity securities(1) | 169.4 | |||||||||||||||||||||||||
| Pooled funds – other investments(1) | 53.7 | |||||||||||||||||||||||||
| Total non-U.S. plan assets at fair value | $ | 663.2 |
(1) Pooled funds that are measured at fair value using the NAV per unit (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table reconcile to total non-U.S. plan assets.
The following table presents a reconciliation of Level 3 non-U.S. plan asset activity during 2024 and 2023:
| Level 3 Assets | ||||||||||||||||||||
| (In millions) | Insurance Contracts | Pooled Funds – Real Estate Investment Trusts | Total | |||||||||||||||||
| Balance at December 31, 2022 | $ | 37.1 | $ | 8.3 | $ | 45.4 | ||||||||||||||
| Net realized and unrealized gain (loss) | 1.3 | (2.3) | (1.0) | |||||||||||||||||
| Purchases | 3.5 | — | 3.5 | |||||||||||||||||
| Settlements | (2.8) | — | (2.8) | |||||||||||||||||
| Acquisition | 1.1 | — | 1.1 | |||||||||||||||||
| Impact of changes in foreign currency exchange rates | 2.4 | .4 | 2.8 | |||||||||||||||||
| Balance at December 30, 2023 | 42.6 | 6.4 | 49.0 | |||||||||||||||||
| Net realized and unrealized gain (loss) | 1.1 | (1.0) | .1 | |||||||||||||||||
| Purchases | 3.7 | — | 3.7 | |||||||||||||||||
| Settlements | (5.8) | — | (5.8) | |||||||||||||||||
| Impact of changes in foreign currency exchange rates | (2.6) | (.1) | (2.7) | |||||||||||||||||
| Balance at December 28, 2024 | $ | 39.0 | $ | 5.3 | $ | 44.3 |
Plan Assumptions
Discount Rate
In consultation with our actuaries, we annually review and determine the discount rates used to value our pension and other postretirement obligations. The assumed discount rate for each pension plan reflects market rates for high quality corporate bonds currently available. Our discount rate is determined by evaluating yield curves consisting of large populations of high quality corporate bonds. The projected pension benefit payment streams are then matched with bond portfolios to determine a rate that reflects the liability duration unique to our plans.
We use the full yield curve approach to estimate the service and interest cost components of net periodic benefit cost for our pension and other postretirement benefit plans. Under this approach, we apply multiple discount rates from a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date. We believe that this approach provides a more precise measurement of service and interest cost by aligning the timing of a plan’s liability cash flows to its corresponding rates on the yield curve.
Long-term Return on Assets
We determine the long-term rate of return assumption for plan assets by reviewing the historical and expected returns of both the equity and fixed income markets, taking into account our asset allocation, the correlation between returns in our asset classes, and our mix of active and passive investments. Additionally, we evaluate current market conditions, including interest rates, and review market data for reasonableness and appropriateness.
Measurement Date
We measure the actuarial value of our benefit obligations and plan assets using the calendar month-end closest to our fiscal year-end and adjust for any contributions or other significant events between the measurement date and our fiscal year-end.
Plan Balance Sheet Reconciliations
The following table provides a reconciliation of benefit obligations, plan assets, funded status of the plans and accumulated other comprehensive loss for our defined benefit plans:
Plan Benefit Obligations
| Pension Benefits | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| (In millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||
| Change in projected benefit obligations | ||||||||||||||||||||||||||
| Projected benefit obligations at beginning of year | $ | 49.3 | $ | 679.9 | $ | 51.8 | $ | 586.9 | ||||||||||||||||||
| Service cost | — | 13.8 | — | 10.5 | ||||||||||||||||||||||
| Interest cost | 2.2 | 24.1 | 2.4 | 24.7 | ||||||||||||||||||||||
| Participant contributions | — | 4.7 | — | 4.5 | ||||||||||||||||||||||
| Amendments | — | 5.1 | — | (.1) | ||||||||||||||||||||||
| Actuarial (gain) loss | (.5) | 2.8 | 1.4 | 51.3 | ||||||||||||||||||||||
| Acquisition | — | — | — | 1.2 | ||||||||||||||||||||||
| Benefits paid | (6.4) | (24.5) | (6.3) | (25.3) | ||||||||||||||||||||||
| Settlements | — | (6.0) | — | (.6) | ||||||||||||||||||||||
| Foreign currency translation | — | (35.5) | — | 26.8 | ||||||||||||||||||||||
| Projected benefit obligations at end of year | $ | 44.6 | $ | 664.4 | $ | 49.3 | $ | 679.9 | ||||||||||||||||||
| Accumulated benefit obligations at end of year | $ | 44.6 | $ | 608.0 | $ | 49.3 | $ | 628.7 |
Plan Assets
| Pension Benefits | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| (In millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||
| Change in plan assets | ||||||||||||||||||||||||||
| Plan assets at beginning of year | $ | — | $ | 663.2 | $ | — | $ | 585.3 | ||||||||||||||||||
| Actual return on plan assets | — | 41.6 | — | 54.6 | ||||||||||||||||||||||
| Acquisition | — | — | — | 1.1 | ||||||||||||||||||||||
| Employer contributions | 6.4 | 15.5 | 6.3 | 17.2 | ||||||||||||||||||||||
| Participant contributions | — | 4.7 | — | 4.5 | ||||||||||||||||||||||
| Benefits paid | (6.4) | (24.5) | (6.3) | (25.3) | ||||||||||||||||||||||
| Settlements | — | (6.0) | — | (.6) | ||||||||||||||||||||||
| Foreign currency translation | — | (35.0) | — | 26.4 | ||||||||||||||||||||||
| Plan assets at end of year | $ | — | $ | 659.5 | $ | — | $ | 663.2 |
Funded Status
| Pension Benefits | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| (In millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||
| Funded status of the plans | ||||||||||||||||||||||||||
| Other assets | $ | — | $ | 84.7 | $ | — | $ | 67.8 | ||||||||||||||||||
| Other accrued liabilities | (6.1) | (3.2) | (6.1) | (.2) | ||||||||||||||||||||||
| Long-term retirement benefits and other liabilities(1) | (38.5) | (86.4) | (43.2) | (84.3) | ||||||||||||||||||||||
| Plan assets less than benefit obligations | $ | (44.6) | $ | (4.9) | $ | (49.3) | $ | (16.7) |
(1) In accordance with our funding strategy, we have the option to fund certain of our U.S. liabilities with proceeds from our company-owned life insurance policies.
| Pension Benefits | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||||||
| Weighted average assumptions used to determine year-end benefit obligations | ||||||||||||||||||||||||||
| Discount rate | 5.43 | % | 3.95 | % | 4.86 | % | 3.78 | % | ||||||||||||||||||
| Compensation rate increase | — | 2.80 | — | 2.73 |
For U.S. and non-U.S. plans combined, the projected benefit obligations and fair values of plan assets for pension plans with projected benefit obligations in excess of plan assets were $290 million and $156 million, respectively, at year-end 2024 and $210 million and $76 million, respectively, at year-end 2023.
For U.S. and non-U.S. plans combined, the accumulated benefit obligations and fair values of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $274 million and $151 million, respectively, at year-end 2024 and $162 million and $43 million, respectively, at year-end 2023.
Accumulated Other Comprehensive Loss
The following table shows the pre-tax amounts recognized in “Accumulated other comprehensive loss” in the Consolidated Balance Sheets:
| Pension Benefits | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| (In millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||
| Net actuarial loss | $ | 8.9 | $ | 69.4 | $ | 9.6 | $ | 73.2 | ||||||||||||||||||
| Prior service (credit) cost | — | 2.3 | — | (3.4) | ||||||||||||||||||||||
| Net amount recognized in accumulated other comprehensive loss | $ | 8.9 | $ | 71.7 | $ | 9.6 | $ | 69.8 |
The following table shows the pre-tax amounts recognized in “Other comprehensive loss (income)”:
| Pension Benefits | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||
| (In millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||||||||
| Net actuarial (gain) loss | $ | (.2) | $ | (3.4) | $ | .9 | $ | 32.6 | $ | (5.6) | $ | (.8) | ||||||||||||||||||||||||||
| Prior service credit | — | 5.1 | — | (.1) | — | — | ||||||||||||||||||||||||||||||||
| Amortization of unrecognized: | ||||||||||||||||||||||||||||||||||||||
| Net actuarial (gain) loss | (.5) | (.4) | (.4) | 2.1 | (.8) | (2.5) | ||||||||||||||||||||||||||||||||
| Prior service credit (cost) | — | .5 | — | .4 | — | .4 | ||||||||||||||||||||||||||||||||
| Settlements | — | .1 | — | .1 | (.1) | .1 | ||||||||||||||||||||||||||||||||
| Net amount recognized in other comprehensive loss (income) | $ | (.7) | $ | 1.9 | $ | .5 | $ | 35.1 | $ | (6.5) | $ | (2.8) |
Plan Income Statement Reconciliations
The following table shows the components of net periodic benefit cost:
| Pension Benefits | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||
| (In millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||||||||||||||
| Service cost | $ | — | $ | 13.8 | $ | — | $ | 10.5 | $ | — | $ | 16.5 | ||||||||||||||||||||||||||
| Interest cost | 2.2 | 24.1 | 2.4 | 24.7 | 1.2 | 10.8 | ||||||||||||||||||||||||||||||||
| Actuarial (gain) loss | (.2) | — | .5 | — | (3.5) | — | ||||||||||||||||||||||||||||||||
| Expected return on plan assets | — | (37.4) | — | (33.2) | — | (21.9) | ||||||||||||||||||||||||||||||||
| Amortization of actuarial loss | .5 | .4 | .4 | (2.1) | .8 | 2.5 | ||||||||||||||||||||||||||||||||
| Amortization of prior service (credit) cost | — | (.5) | — | (.4) | — | (.4) | ||||||||||||||||||||||||||||||||
| Recognized loss (gain) on settlements | — | (.1) | — | (.1) | .1 | (.1) | ||||||||||||||||||||||||||||||||
| Net periodic benefit cost (credit) | $ | 2.5 | $ | .3 | $ | 3.3 | $ | (.6) | $ | (1.4) | $ | 7.4 |
Service cost and components of net periodic benefit cost other than service cost were included in “Marketing, general and administrative expense” and “Other non-operating expense (income), net” in the Consolidated Statements of Income, respectively.
The following table shows the weighted average assumptions used to determine net periodic cost:
| Pension Benefits | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||||||||||||||||
| Discount rate | 4.86 | % | 3.78 | % | 5.06 | % | 4.36 | % | 2.19 | % | 1.57 | % | ||||||||||||||||||||||||||
| Expected return on assets | — | 5.04 | — | 4.71 | — | 3.00 | ||||||||||||||||||||||||||||||||
| Compensation rate increase | — | 2.73 | — | 2.75 | — | 2.33 |
Plan Contributions
We make contributions to our defined benefit plans sufficient to meet the minimum funding requirements of applicable laws and regulations, plus additional amounts, if any, we determine to be appropriate. The following table sets forth our expected contributions in 2025:
| (In millions) | ||||||||
| U.S. pension plans | $ | 6.2 | ||||||
| Non-U.S. pension plans | 17.5 |
Future Benefit Payments
The future benefit payments shown below reflect the expected service periods for eligible participants.
| Pension Benefits | ||||||||||||||
| (In millions) | U.S. | Non-U.S. | ||||||||||||
| 2025 | $ | 6.2 | $ | 23.5 | ||||||||||
| 2026 | 5.7 | 29.3 | ||||||||||||
| 2027 | 5.5 | 27.3 | ||||||||||||
| 2028 | 5.0 | 26.6 | ||||||||||||
| 2029 | 4.7 | 26.6 | ||||||||||||
| 2030-2034 | 17.0 | 152.5 |
Postretirement Health Benefits
We provide postretirement health benefits to certain of our retired U.S. employees up to the age of 65 under a cost-sharing arrangement and provide supplemental Medicare benefits to certain of our U.S. retirees over the age of 65. Our postretirement health benefit plan was closed to new participants retiring after December 31, 2021. Our policy is to fund the cost of these postretirement benefits from operating cash flows. While we do not intend to terminate these postretirement health benefits, we may do so at any time, subject to applicable laws and regulations. At year-end 2024, our postretirement health benefits obligation and related loss recorded in “Accumulated other comprehensive loss” were approximately $2 million and $9 million, respectively. At year-end 2023, our postretirement health benefits obligation and related loss recorded in “Accumulated other comprehensive loss” were approximately $2 million and $10 million, respectively. Net periodic benefit cost was not material in 2024, 2023 or 2022.
Defined Contribution Plans
We sponsor various defined contribution plans worldwide, the largest of which is the Avery Dennison Corporation Employee Savings Plan (“Savings Plan”), a 401(k) plan for our U.S. employees.
We recognized expense of $31.9 million, $30.3 million and $27.3 million in 2024, 2023 and 2022, respectively, related to our employer contributions and employer match of participant contributions to the Savings Plan.
Other Retirement Plans
We have deferred compensation plans and programs that permit eligible employees to defer a portion of their compensation. The compensation voluntarily deferred by the participant, together with certain employer contributions, earns specified and variable rates of return. As of year-end 2024 and 2023, we had accrued $99.0 million and $88.2 million, respectively, for our obligations under these plans. A portion of the interest on certain of our contributions may be forfeited by participants if their employment terminates before age 55 other than by reason of death or disability.
Our Directors Deferred Equity Compensation Program allows our non-employee directors to elect to receive their cash compensation in deferred stock units (“DSUs”) issued under our equity plan. Additionally, two legacy deferred compensation plans had DSUs that were issued under our then-active equity plans. Dividend equivalents, representing the value of dividends per share paid on shares of our common stock and calculated with reference to the number of DSUs held as of a quarterly dividend record date, are credited in the form of additional DSUs on the applicable dividend payable date. DSUs are converted into shares of our common stock, less fractional shares, and issued to a participating director upon his or her separation from our Board. Approximately 0.04 million and 0.1 million DSUs were outstanding as of year-end 2024 and 2023, respectively, with an aggregate value of $8 million and $19 million, respectively.
We hold company-owned life insurance policies, the proceeds from which are payable to us upon the death of covered participants. The cash surrender values of these policies, net of outstanding loans, which are included in “Other assets” in the Consolidated Balance Sheets, were $247.4 million and $228.4 million at year-end 2024 and 2023, respectively.
NOTE 7. COMMITMENTS AND LEASES
Supplemental cost information related to leases is shown below.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Operating lease costs | $ | 75.1 | $ | 73.6 | $ | 70.8 |
Lease costs related to finance leases were not material in 2024, 2023 or 2022.
Supplemental balance sheet information related to leases is shown below.
| (In millions) | Balance Sheet Location | 2024 | 2023 | |||||||||||||||||
| Assets | ||||||||||||||||||||
| Operating | Other assets | $ | 227.5 | $ | 200.2 | |||||||||||||||
| Finance(1) | Property, plant and equipment, net | 32.5 | 29.6 | |||||||||||||||||
| Total leased assets | $ | 260.0 | $ | 229.8 | ||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Current: | ||||||||||||||||||||
| Operating | Other current liabilities | $ | 49.6 | $ | 45.4 | |||||||||||||||
| Finance | Short-term borrowings and current portion of long-term debt and finance leases | 4.3 | 6.3 | |||||||||||||||||
| Non-current: | ||||||||||||||||||||
| Operating | Long-term retirement benefits and other liabilities | 176.1 | 152.3 | |||||||||||||||||
| Finance | Long-term debt and finance leases | 9.1 | 7.0 | |||||||||||||||||
| Total lease liabilities | $ | 239.1 | $ | 211.0 |
(1) Finance lease assets are net of accumulated amortization of $18.7 million and $14.6 million as of December 28, 2024 and December 30, 2023, respectively.
Supplemental cash flow information related to leases is shown below.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Cash paid for amounts included in measurement of operating lease liabilities | $ | 61.0 | $ | 55.8 | $ | 60.5 | ||||||||||||||
| Operating lease assets obtained in exchange for operating lease liabilities | 93.0 | 92.4 | 37.2 |
Cash flows related to finance leases were not material in 2024, 2023 or 2022.
Weighted average remaining lease term and discount rate information related to leases as of December 28, 2024 and December 30, 2023 is shown below.
| 2024 | 2023 | |||||||||||||
| Weighted average remaining lease term (in years): | ||||||||||||||
| Operating | 6.7 | 7.1 | ||||||||||||
| Finance | 3.6 | 3.1 | ||||||||||||
| Weighted average discount rate (percentage): | ||||||||||||||
| Operating | 4.6 | % | 4.1 | % | ||||||||||
| Finance | 4.7 | 4.2 |
Operating and finance lease liabilities by maturity date from December 28, 2024 are shown below.
| (In millions) | Operating Leases | Finance Leases | ||||||||||||
| 2025 | $ | 55.6 | $ | 5.3 | ||||||||||
| 2026 | 47.8 | 3.6 | ||||||||||||
| 2027 | 37.0 | 2.8 | ||||||||||||
| 2028 | 26.3 | 1.8 | ||||||||||||
| 2029 | 21.8 | .9 | ||||||||||||
| 2030 and thereafter | 72.5 | .5 | ||||||||||||
| Total lease payments | 261.0 | 14.9 | ||||||||||||
| Less: imputed interest | (35.3) | (1.6) | ||||||||||||
| Present value of lease liabilities | $ | 225.7 | $ | 13.3 |
As of December 28, 2024, we had no significant operating or finance leases that had not yet commenced.
NOTE 8. CONTINGENCIES
Legal Proceedings
We are involved in various lawsuits, claims, inquiries and other regulatory and compliance matters, most of which are routine to the nature of our business. 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 claims 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. Probable insurance reimbursements are not offset against potential liabilities.
Because of the uncertainties associated with claims resolution and litigation, future expenses to resolve legal proceedings could be higher than the liabilities we have accrued. If information were to become available that allowed us to reasonably estimate an amount higher or lower than what we have accrued in the range of potential expenses determined to be probable, 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 their resolution cannot be determined. Based upon current information, we believe that the impact of the resolution of legal proceedings would not be, individually or in the aggregate, material to our financial position, results of operations or cash flows.
We were party to a litigation in which ADASA Inc. (“Adasa”), an unrelated third party, alleged that certain of the RFID products within our Solutions Group reportable segment infringed its patent. The case was filed on October 24, 2017 in the United States District Court in the District of Oregon (Eugene Division) and was captioned ADASA Inc. v. Avery Dennison Corporation. We recorded a contingent liability in the amount of $26.6 million related to this matter in the second quarter of 2021 based on a jury verdict issued on May 14, 2021.
We appealed the first instance judgment associated with the jury verdict – which resulted in additional potential liability for the RFID tags sold during the period from the jury verdict to the issuance of the first instance judgment, a higher royalty applicable to tags sold after the judgment and a royalty on additional late-disclosed tags, as well as sanctions, prejudgment interest, costs, and attorneys’ fees, as well as an ongoing royalty on in-scope tags sold after October 14, 2021 – to the United States Court of Appeals for the Federal Circuit (the “CAFC”). During the fourth quarter of 2022, the CAFC issued its opinion, reversing the grant of summary judgment of validity as to anticipation and obviousness, vacating the sanctions ruling, and remanding the case for retrial with respect to validity for anticipation and obviousness over the prior art. The CAFC affirmed subject-matter eligibility and damages if liability was determined on retrial. On remand, the trial court was required to reconsider the amount of sanctions consistent with the CAFC's instruction to limit sanctions to the late-disclosed tags.
After the U.S. Supreme Court denied our writ of certiorari petition on May 30, 2023, the retrial began on July 10, 2023. On July 18, 2023, the jury in the retrial issued a verdict that Adasa’s patent is valid. We increased our contingent liability to reflect our then-best estimate of the anticipated judgment to $80.4 million as of July 1, 2023, with an expectation to continue adjusting our accrual quarterly, as appropriate. As of December 30, 2023, our contingent liability for this matter was $82.9 million.
On January 25, 2024, the district court issued a revised sanctions order lowering the sanctions against us from approximately $20 million to $5.2 million based on a rate of $0.0025/late-reported tag, which was consistent with the amount we had accrued. In February 2024, the district court issued its decision denying our motion for judgment as a matter of law
and our motion for a new trial. On March 7, 2024, the Court issued an amended final judgment, assessing damages, pre- and post-judgment interest, costs, attorneys' fees, sanctions, and ongoing royalties.
On April 25, 2024, we entered into a Settlement Agreement, License and Mutual Release with Adasa pursuant to which, among other things, (i) we agreed to pay $75.0 million to Adasa without any concessions or admissions of liability; (ii) Adasa agreed to grant us a worldwide, nonexclusive, nontransferable fully-paid up, and ongoing royalty-free perpetual license, without the right to sublicense, to the patents at issue in the litigation; and (iii) the parties mutually released all claims against one another. We paid the agreed-upon settlement amount to Adasa on April 26, 2024. No court approval of the settlement was required; however, as required by the settlement agreement, Adasa filed a Stipulation of Satisfaction of Judgment with the trial court on April 29, 2024.
Environmental Expenditures
Environmental expenditures are generally expensed. 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. Probable insurance reimbursements are not offset against potential liabilities. 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.
As of December 28, 2024, we have been designated by the U.S. Environmental Protection Agency (“EPA”) and/or other responsible state agencies as a PRP at ten 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.
These estimates could change as a result of changes in planned remedial actions, remediation technologies, site conditions, the estimated time to complete remediation, environmental laws and regulations, and other factors. Because of the uncertainties associated with environmental assessment and remediation activities, our future expenses to remediate these sites could be higher than the liabilities we have accrued. If information were to become available that allowed us to reasonably estimate an amount higher or lower than what we have accrued in the range of potential expenses, 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 their remediation cannot be determined.
The activity related to our environmental liabilities in 2024 and 2023 is shown below:
| (In millions) | 2024 | 2023 | ||||||||||||
| Balance at beginning of year | $ | 24.5 | $ | 24.3 | ||||||||||
| Charges, net of reversals | 1.9 | 2.5 | ||||||||||||
| Payments | (13.4) | (2.3) | ||||||||||||
| Balance at end of year | $ | 13.0 | $ | 24.5 |
Approximately $5 million and $11 million, respectively, of this balance was classified as short-term and included in “Other current liabilities” in the Consolidated Balance Sheets as of December 28, 2024 and December 30, 2023.
NOTE 9. FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
Assets and liabilities carried at fair value, measured on a recurring basis, as of December 28, 2024, were as follows:
| Fair Value Measurements Using | ||||||||||||||||||||||||||
| (In millions) | Total | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Investments | $ | 48.0 | $ | 24.2 | $ | 23.8 | $ | — | ||||||||||||||||||
| Derivative assets | 41.2 | .4 | 40.8 | — | ||||||||||||||||||||||
| Bank drafts | 5.2 | 5.2 | — | — | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Derivative liabilities | $ | 41.5 | $ | .4 | $ | 41.1 | $ | — | ||||||||||||||||||
| Contingent consideration liabilities | 4.8 | — | — | 4.8 |
Assets and liabilities carried at fair value, measured on a recurring basis, as of December 30, 2023 were as follows:
| Fair Value Measurements Using | ||||||||||||||||||||||||||
| (In millions) | Total | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Investments | $ | 37.8 | $ | 19.6 | $ | 18.2 | $ | — | ||||||||||||||||||
| Derivative assets | 8.6 | — | 8.6 | — | ||||||||||||||||||||||
| Bank drafts | 5.3 | 5.3 | — | — | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Derivative liabilities | $ | 7.6 | $ | 1.6 | $ | 6.0 | $ | — | ||||||||||||||||||
| Contingent consideration liabilities | 10.0 | — | — | 10.0 |
Investments included fixed income securities (primarily U.S. government and corporate debt securities) measured at fair value using quoted prices/bids and a money market fund measured at fair value using NAV. As of December 28, 2024, investments of $1.5 million, $38.1 million, and $8.4 million were included in “Cash and cash equivalents,” “Other current assets,” and "Other assets," respectively, in the Consolidated Balance Sheets. As of December 30, 2023, investments of $2.7 million and $35.1 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the 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 currency 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 were included in “Other current assets” in the Consolidated Balance Sheets.
Contingent consideration liabilities relate to estimated earn-out payments associated with certain acquisitions completed in 2023, 2022 and 2021, which are subject to the acquired companies achieving certain post-acquisition performance targets. These liabilities were recorded based on the expected payments and have been classified as Level 3. Activity related to contingent consideration was immaterial in 2024 and 2023.
In addition to the investments described above, we hold venture investments that had a total carrying value of approximately $45 million and $71 million as of December 28, 2024 and December 30, 2023, respectively, which was included in “Other assets” in the Consolidated Balance Sheets. Starting in the second quarter of 2024, we began revaluing certain venture investments based on Level 1 inputs; the fair value of these investments was $8.4 million as of December 28, 2024. Related to these investments, we recognized $19.2 million in net losses in 2024, no net gains or losses in 2023 and net gains of $13.5 million in 2022 in “Other expense (income), net” in the Consolidated Statements of Income.
NOTE 10. NET INCOME PER COMMON SHARE
Net income per common share was computed as follows:
| (In millions, except per share amounts) | 2024 | 2023 | 2022 | |||||||||||||||||
| (A) Net income | $ | 704.9 | $ | 503.0 | $ | 757.1 | ||||||||||||||
| (B) Weighted average number of common shares outstanding | 80.4 | 80.7 | 81.6 | |||||||||||||||||
| Dilutive shares (additional common shares issuable under stock-based awards) | .3 | .4 | .6 | |||||||||||||||||
| (C) Weighted average number of common shares outstanding, assuming dilution | 80.7 | 81.1 | 82.2 | |||||||||||||||||
| Net income per common share (A) ÷ (B) | $ | 8.77 | $ | 6.23 | $ | 9.28 | ||||||||||||||
| Net income per common share, assuming dilution (A) ÷ (C) | $ | 8.73 | $ | 6.20 | $ | 9.21 |
Certain stock-based compensation awards were excluded 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 0.1 million shares in 2024 and 2023 and were not significant in 2022.
NOTE 11. SUPPLEMENTAL EQUITY AND COMPREHENSIVE INCOME INFORMATION
Common Stock and Share Repurchase Program
Our Amended and Restated Certificate of Incorporation authorizes five million shares of $1 par value preferred stock (of which no shares are outstanding), with respect to which our Board may fix the series and terms of issuance, and 400 million shares of $1 par value voting common stock.
From time to time, our Board authorizes the repurchase of shares of our outstanding common stock. Repurchased shares may be reissued under our long-term incentive plan or used for other corporate purposes. In 2024, we repurchased approximately 1.2 million shares of our common stock at an aggregate cost of $247.5 million. In 2023, we repurchased approximately 0.8 million shares of our common stock at an aggregate cost of $137.5 million.
In April 2022, our Board authorized the repurchase of shares of our common stock with a fair market value of up to $750 million, excluding any fees, commissions or other expenses related to such purchases and in addition to any amount outstanding under our previous Board authorization. Shares of our common stock in the aggregate amount of $346.9 million remained authorized for repurchase under this Board authorization as of December 28, 2024. Board authorizations remain in effect until shares in the amount authorized thereunder have been repurchased.
Treasury Shares Reissuance
We fund a portion of our employee-related costs using shares of our common stock held in treasury. We reduce capital in excess of par value based on the grant date fair value of vesting awards and record net gains or losses associated with using treasury shares to retained earnings.
Accumulated Other Comprehensive Loss
The changes in “Accumulated other comprehensive loss” (net of tax) for 2024 and 2023 were as follows:
| (In millions) | Foreign Currency Translation**(1)** | Pension and Other Postretirement Benefits | Cash Flow Hedges | Fair Value Hedges | Total | ||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | (314.0) | $ | (51.3) | $ | 1.3 | $ | — | $ | (364.0) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of tax | (14.6) | (25.2) | (7.0) | — | (46.8) | ||||||||||||||||||||||||
| Reclassifications to net income, net of tax | — | (1.0) | 3.7 | — | 2.7 | ||||||||||||||||||||||||
| Net current-period other comprehensive income (loss), net of tax | (14.6) | (26.2) | (3.3) | — | (44.1) | ||||||||||||||||||||||||
| Balance as of December 30, 2023 | $ | (328.6) | $ | (77.5) | $ | (2.0) | $ | — | $ | (408.1) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of tax | (46.9) | (1.3) | (5.4) | 2.0 | (51.6) | ||||||||||||||||||||||||
| Reclassifications to net income, net of tax | — | .8 | 2.8 | — | 3.6 | ||||||||||||||||||||||||
| Net current-period other comprehensive income (loss), net of tax | (46.9) | (.5) | (2.6) | 2.0 | (48.0) | ||||||||||||||||||||||||
| Balance as of December 28, 2024 | $ | (375.5) | $ | (78.0) | $ | (4.6) | $ | 2.0 | $ | (456.1) |
(1) The 2024 changes in foreign currency translation included a pretax gain related to the foreign currency forward contracts and zero-cost collars accounted for as net investment hedges. Refer to Note 5, "Financial Instruments," to the Consolidated Financial Statements for more information.
The following table sets forth the income tax expense (benefit) allocated to each component of other comprehensive income (loss):
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Foreign currency translation: | ||||||||||||||||||||
| Translation gain (loss) | $ | .1 | $ | 1.2 | $ | (7.0) | ||||||||||||||
| Pension and other postretirement benefits: | ||||||||||||||||||||
| Net gain (loss) recognized from actuarial gain/loss and prior service cost/credit | (.6) | (8.2) | .5 | |||||||||||||||||
| Reclassifications to net income | .4 | (.3) | 1.1 | |||||||||||||||||
| Cash flow hedges: | ||||||||||||||||||||
| Gain (loss) recognized on cash flow hedges | (1.7) | (2.2) | 1.6 | |||||||||||||||||
| Reclassifications to net income | .9 | 1.2 | .4 | |||||||||||||||||
| Fair value hedges: | ||||||||||||||||||||
| Changes in excluded components of fair value hedges | .6 | — | — | |||||||||||||||||
| Income tax expense (benefit) allocated to components of other comprehensive income (loss) | $ | (.3) | $ | (8.3) | $ | (3.4) |
NOTE 12. LONG-TERM INCENTIVE COMPENSATION
Stock-Based Awards
Stock-Based Compensation
We grant our annual stock-based compensation awards to eligible employees in March and non-employee directors in May. Certain awards granted to retirement-eligible employees one or more years before their retirement date vest upon retirement; these awards are accounted for as fully vested one year from the date of grant.
Our 2017 Incentive Award Plan, a long-term incentive plan for employees and non-employee directors, allows us to grant stock-based compensation awards – including stock options, RSUs, PUs, MSUs and DSUs – or a combination of these and other awards. Under this plan, 5.4 million shares were made available for issuance, with each full value award counted as 1.5 shares for purposes of the number of shares authorized for issuance. Full value awards include RSUs, PUs and MSUs.
Stock-based compensation expense and the related recognized tax benefit were as follows:
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Stock-based compensation expense | $ | 28.7 | $ | 22.3 | $ | 47.4 | ||||||||||||||
| Tax benefit | 2.6 | 2.4 | 6.7 |
This expense was included in “Marketing, general and administrative expense” in the Consolidated Statements of Income.
As of December 28, 2024, we had approximately $38 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.
Stock Options
Stock options may be granted to employees and non-employee directors at no less than 100% of the fair market value of our common stock on the date of the grant and generally vest over a four-year period. Options expire ten years from the date of grant.
The fair value of stock options is estimated as of the date of grant using the Black-Scholes option-pricing model. This model requires input assumptions for our expected dividend yield, expected stock price volatility, risk-free interest rate and the expected option term.
The weighted average grant date fair value per share for stock options granted in 2023 was $47.65. No stock options were granted in fiscal years 2024 or 2022.
The following assumptions are used in estimating the fair value of granted stock options:
Risk-free interest rate is based on the 52-week average of the Treasury-Bond rate that has a term corresponding to the expected option term. For 2023, it was 3.84%.
Expected stock price volatility represents an average of the implied and historical volatility. For 2023, it was 23.90%.
Expected dividend yield is based on the current annual dividend divided by the 12-month average of our monthly stock price prior to grant. For 2023, it was 1.84%.
Expected option term is determined based on historical experience under our long-term incentive plans. For 2023, it was 6.31 years.
The following table summarizes information related to stock options:
| Number of options (in thousands) | Weighted average exercise price | Weighted average remaining contractual life (in years) | Aggregate intrinsic value (in millions) | |||||||||||||||||||||||
| Outstanding at December 30, 2023 | 204.1 | $ | 109.92 | 4.36 | $ | 18.7 | ||||||||||||||||||||
| Exercised | (141.1) | 73.96 | ||||||||||||||||||||||||
| Outstanding at December 28, 2024 | 63.0 | $ | 190.54 | 8.68 | $ | — | ||||||||||||||||||||
| Options vested and expected to vest at December 28, 2024 | 54.8 | 190.54 | 8.68 | — | ||||||||||||||||||||||
| Options exercisable at December 28, 2024 | — | $ | — | $ | — |
The total intrinsic value of stock options exercised was $19.5 million in 2024. We received approximately $10 million in 2024 from the exercise of stock options, and the tax benefit associated with these exercised options was $4.8 million. There were no stock option exercises in 2023 and the stock option exercises in 2022 were immaterial. The intrinsic value of a stock option is based on the amount by which the market value of our stock exceeds the exercise price of the option.
Performance Units (“PUs”)
PUs are performance-based awards granted to eligible employees under our equity plan. PUs are payable in shares of our common stock at the end of a three- or four-year cliff vesting period provided that the designated performance objectives are achieved at the end of the period. Over the performance period, the estimated number of shares of our common stock issuable upon vesting is adjusted upward or downward based on the probability of achieving the performance objectives established for the award. The number of shares issued generally ranges from 0% to 200% of the target shares at the time of grant; however the shares issued for certain special PU awards can range up to 300% of the target shares at
time of grant. The weighted average grant date fair value for PUs was $224.82, $180.12 and $163.97 in 2024, 2023 and 2022, respectively.
The following table summarizes information related to awarded PUs:
| Number of PUs (in thousands) | Weighted average grant-date fair value | |||||||||||||
| Unvested at December 30, 2023 | 300.7 | $ | 174.54 | |||||||||||
| Granted at target | 68.3 | 224.82 | ||||||||||||
| Adjustment for above-target performance(1) | 37.7 | 197.75 | ||||||||||||
| Vested | (104.2) | 197.75 | ||||||||||||
| Forfeited/cancelled | (10.4) | 184.82 | ||||||||||||
| Unvested at December 28, 2024 | 292.1 | $ | 181.94 |
(1) Reflects adjustments for above-target performance for the 2021-2023 PUs.
The fair value of vested PUs was $20.6 million in 2024, $22.7 million in 2023 and $20.2 million in 2022.
Market-Leveraged Stock Units (“MSUs”)
MSUs are performance-based awards granted to eligible employees under our equity plan. MSUs are payable in shares of our common stock over a four-year period provided that the designated performance objective is achieved as of the end of each vesting period. MSUs accrue dividend equivalents during the vesting period, which are earned and paid only at vesting provided that, at a minimum, threshold-level performance is achieved. The number of shares earned is based upon our absolute total shareholder return at each vesting date and can range from 0% to 200% of the target amount of MSUs subject to vesting. Each of the four vesting periods represents one tranche of MSUs and the fair value of each of these four tranches was determined using the Monte-Carlo simulation model, which utilizes multiple input variables, including expected stock price volatility and other assumptions, to estimate the probability of achieving the performance objective established for the award. The weighted average grant date fair value for MSUs was $259.75, $192.53 and $141.80 in 2024, 2023 and 2022, respectively.
The following table summarizes information related to awarded MSUs:
| Number of MSUs (in thousands) | Weighted average grant- date fair value | |||||||||||||
| Unvested at December 30, 2023 | 195.5 | $ | 167.16 | |||||||||||
| Granted at target | 55.2 | 259.75 | ||||||||||||
| Adjustments for above-target performance(1) | 20.6 | 129.76 | ||||||||||||
| Vested | (99.2) | 147.25 | ||||||||||||
| Forfeited/cancelled | (8.4) | 198.29 | ||||||||||||
| Unvested at December 28, 2024 | 163.7 | $ | 202.83 |
(1) Reflects adjustments for above-target performance for each of the tranches of MSUs vesting in 2024.
The fair value of vested MSUs was $14.6 million in 2024, $16.1 million in 2023 and $19.9 million in 2022.
Restricted Stock Units (“RSUs”)
RSUs are service-based awards granted to eligible employees and non-employee directors under our equity plan. RSUs granted to employees generally vest over a period between one and four years. RSUs granted to non-employee directors generally vest in one year. The vesting of RSUs is subject to continued service through the applicable vesting date. If that condition is not met, unvested RSUs are generally forfeited. The weighted average grant date fair value for RSUs was $210.74, $175.88 and $168.34 in 2024, 2023 and 2022, respectively.
The following table summarizes information related to awarded RSUs:
| Number of RSUs (in thousands) | Weighted average grant-date fair value | |||||||||||||
| Unvested at December 30, 2023 | 66.5 | $ | 171.68 | |||||||||||
| Granted | 53.7 | 210.74 | ||||||||||||
| Vested | (18.4) | 175.42 | ||||||||||||
| Forfeited/cancelled | (6.9) | 196.80 | ||||||||||||
| Unvested at December 28, 2024 | 94.9 | $ | 191.22 |
The fair value of vested RSUs was $3.2 million, $2.7 million and $2.8 million in 2024, 2023 and 2022, respectively.
Cash-Based Awards
Long-Term Incentive Units (“LTI Units”)
LTI Units are cash-based awards granted to employees under our long-term incentive unit plan. LTI Units are service-based awards that generally vest ratably over a four-year period. The settlement value equals the number of vested LTI Units multiplied by the average of the high and low market prices of our common stock on the vesting date. The compensation expense related to these awards is amortized on a straight-line basis and the fair value is remeasured using the estimated percentage of units expected to be earned multiplied by the average of the high and low market prices of our common stock at each quarter-end.
We also grant cash-based awards in the form of performance and market-leveraged LTI Units to eligible employees. Performance LTI Units are payable in cash at the end of a three-year cliff vesting period provided that certain performance objectives are achieved at the end of the performance period. Market-leveraged LTI Units are payable in cash and vest ratably over a period of four years. The number of performance and market-leveraged LTI Units earned at vesting is adjusted upward or downward based upon the probability of achieving the performance objectives established for the respective award and the actual number of units issued can range from 0% to 200% of the designated target units subject to vesting. Performance and market-leveraged LTI Units are remeasured using the estimated percentage of units expected to be earned multiplied by the average of the high and low market prices of our common stock at each quarter-end over their respective performance periods. The compensation expense related to performance LTI Units is amortized on a straight-line basis over their respective performance periods. The compensation expense related to market-leveraged LTI Units is amortized on a graded-vesting basis over their respective performance periods.
The compensation expense related to LTI Units was $14.9 million in 2024, $16.3 million in 2023 and $11.5 million in 2022. This expense was included in “Marketing, general and administrative expense” in the Consolidated Statements of Income. The total recognized tax benefit related to LTI Units was $3.6 million in 2024, $3.9 million in 2023 and $2.7 million in 2022.
NOTE 13. COST REDUCTION ACTIONS
Restructuring Charges
We have plans that provide eligible employees with severance benefits in the event of an involuntary termination. We calculate severance using the benefit formulas under the applicable plans. We record restructuring charges from qualifying cost reduction actions for severance and other exit costs (including asset impairment charges and lease and other contract cancellation costs) when they are probable and estimable.
2025 Actions
In the fourth quarter 2024, we recorded $13.1 million in restructuring charges related to our 2025 actions. These charges consisted of severance and related costs for the reduction of approximately 90 positions, as well as asset impairment charges, at numerous locations across our company, reflecting actions in our Solutions Group reportable segment.
2023 Actions
During 2024, we recorded $28.8 million in restructuring charges, net of reversals, related to our 2023 actions. These charges consisted of severance and related costs for the reduction of approximately 1,280 positions, as well as asset impairment charges, at numerous locations across our company. During 2023, we recorded $49.0 million in restructuring charges, net of reversals, related to these actions. These charges consisted of severance and related costs for the reduction of approximately 1,450 positions, as well as asset impairment charges, at numerous locations across our company.
In the third quarter of 2023, we approved a restructuring plan (the "2023 Plan") to further optimize the European footprint of our Materials Group reportable segment by reducing operations in a manufacturing facility in Belgium. The cumulative charges associated with the 2023 Plan consisted of severance and related costs for the reduction of approximately 210 positions, as well as asset impairment charges. We recorded $30.4 million in 2023 in restructuring charges related to the 2023 Plan. The activities related to the 2023 Plan are expected to be substantially completed by mid-2025.
Accruals for severance and related costs and lease cancellation costs were included in “Other current liabilities” and "Long-term retirement benefits and other liabilities" in the 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 Consolidated Statements of Income.
During 2024, restructuring charges and payments were as follows:
| (In millions) | Accrual at December 30, 2023 | Charges, Net of Reversals | Cash Payments | Non-cash Impairment | Foreign Currency Translation | Accrual at December 28, 2024 | ||||||||||||||||||||||||||||||||
| 2025 Actions | ||||||||||||||||||||||||||||||||||||||
| Severance and related costs | $ | — | $ | 10.0 | $ | — | $ | — | $ | — | $ | 10.0 | ||||||||||||||||||||||||||
| Asset impairment charges | — | 3.1 | — | (3.1) | — | — | ||||||||||||||||||||||||||||||||
| 2023 Actions | ||||||||||||||||||||||||||||||||||||||
| Severance and related costs | 27.7 | 25.4 | (43.3) | — | (.6) | 9.2 | ||||||||||||||||||||||||||||||||
| Asset impairment charges | — | 3.0 | — | (3.0) | — | — | ||||||||||||||||||||||||||||||||
| Lease cancellation costs | — | .4 | (.6) | — | — | (.2) | ||||||||||||||||||||||||||||||||
| Total | $ | 27.7 | $ | 41.9 | $ | (43.9) | $ | (6.1) | $ | (.6) | $ | 19.0 |
During 2023, restructuring charges and payments were as follows:
| (In millions) | Accrual at December 31, 2022 | Charges, Net of Reversals | Cash Payments | Non-cash Impairment | Foreign Currency Translation | Accrual at December 30, 2023 | ||||||||||||||||||||||||||||||||
| 2023 Actions | ||||||||||||||||||||||||||||||||||||||
| Severance and related costs | $ | — | $ | 72.1 | $ | (45.1) | $ | — | $ | .7 | $ | 27.7 | ||||||||||||||||||||||||||
| Asset impairment charges | — | 8.3 | — | (8.3) | — | — | ||||||||||||||||||||||||||||||||
| 2019/2020 Actions | ||||||||||||||||||||||||||||||||||||||
| Severance and related costs | 5.1 | (1.0) | (4.1) | — | — | — | ||||||||||||||||||||||||||||||||
| Total | $ | 5.1 | $ | 79.4 | $ | (49.2) | $ | (8.3) | $ | .7 | $ | 27.7 |
The table below shows the total amount of restructuring charges incurred by reportable segment and Corporate.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Restructuring charges by reportable segment and Corporate | ||||||||||||||||||||
| Materials Group | $ | 5.7 | $ | 52.4 | $ | (1.0) | ||||||||||||||
| Solutions Group | 35.8 | 23.2 | 7.9 | |||||||||||||||||
| Corporate | .4 | 3.8 | .8 | |||||||||||||||||
| Total | $ | 41.9 | $ | 79.4 | $ | 7.7 |
NOTE 14. TAXES BASED ON INCOME
Taxes based on income were as follows:
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| U.S. federal tax | $ | 36.0 | $ | 42.5 | $ | 29.4 | ||||||||||||||
| State taxes | 10.6 | 9.0 | 8.8 | |||||||||||||||||
| Foreign taxes | 214.9 | 160.8 | 177.7 | |||||||||||||||||
| 261.5 | 212.3 | 215.9 | ||||||||||||||||||
| Deferred: | ||||||||||||||||||||
| U.S. federal tax | (8.7) | (29.0) | 5.8 | |||||||||||||||||
| State taxes | (3.3) | (3.5) | .9 | |||||||||||||||||
| Foreign taxes | (.9) | 11.9 | 19.6 | |||||||||||||||||
| (12.9) | (20.6) | 26.3 | ||||||||||||||||||
| Provision for income taxes | $ | 248.6 | $ | 191.7 | $ | 242.2 |
The principal items accounting for the difference between taxes computed at the U.S. federal statutory rate and taxes recorded were as follows:
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Tax provision computed at U.S. federal statutory rate(1) | $ | 200.2 | $ | 145.9 | $ | 209.9 | ||||||||||||||
| Increase (decrease) in taxes resulting from: | ||||||||||||||||||||
| State taxes, net of federal tax benefit | 2.7 | 2.6 | 11.8 | |||||||||||||||||
| Foreign earnings taxed at different rates(1) | 49.5 | 50.4 | 51.7 | |||||||||||||||||
| GILTI high-tax exclusion election, net(2) | (6.2) | (10.0) | (11.9) | |||||||||||||||||
| Valuation allowance | 15.9 | 2.6 | (5.0) | |||||||||||||||||
| U.S. federal research and development tax credits | (7.7) | (8.3) | (6.5) | |||||||||||||||||
| Tax contingencies and audit settlements | 1.9 | 11.9 | (4.3) | |||||||||||||||||
| Other items, net | (7.7) | (3.4) | (3.5) | |||||||||||||||||
| Provision for income taxes | $ | 248.6 | $ | 191.7 | $ | 242.2 |
(1) All years included certain U.S. international tax provisions and foreign earnings taxed in the U.S., net of credits.
(2) In 2024, we recognized $6.2 million from our current year GILTI exclusion election. In 2023, we recognized $4.4 million from our 2023 GILTI exclusion election and $5.6 million related to the election made on our 2022 U.S. federal tax return. In 2022, we recognized $11.9 million of benefit related to a GILTI exclusion election made on our 2021 U.S. federal tax return.
Income before taxes from our U.S. and foreign operations was as follows:
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| U.S. | $ | 211.4 | $ | 187.2 | $ | 232.4 | ||||||||||||||
| Foreign | 742.1 | 507.5 | 766.9 | |||||||||||||||||
| Income before taxes | $ | 953.5 | $ | 694.7 | $ | 999.3 |
Our effective tax rate was 26.1%, 27.6% and 24.2% for fiscal years 2024, 2023 and 2022, respectively.
Our 2024 provision for income taxes included (i) $15.9 million of net tax charge related to the tax on global intangible low-taxed income ("GILTI") of our foreign subsidiaries and the recognition of foreign withholding taxes on current year earnings, partially offset by the benefit from foreign-derived intangible income (“FDII”); (ii) $15.9 million of tax charge from valuation allowances due to the uncertainty of the realization of certain deferred tax assets; and (iii) excess tax benefits associated with stock-based payments, and return-to-provision benefits related to our 2023 U.S. federal tax return, partially offset by net tax charge primarily from the recognition of uncertain tax positions and tax audit settlements in certain foreign jurisdictions.
Our 2023 provision for income taxes included (i) $16.4 million of net tax charge related to the tax on GILTI of our foreign subsidiaries and the recognition of foreign withholding taxes on current year earnings, partially offset by the benefit from FDII; (ii) $14.7 million of return-to-provision benefit primarily related to our GILTI exclusion election and benefits from additional foreign tax credits recognized under temporary relief granted by the Internal Revenue Service ("IRS") in July 2023, related to our 2022 U.S. federal tax return, (iii) $10.5 million of tax charge related to non-deductible expenses resulting from the impact of the Argentine peso remeasurement loss; and (iv) $9.5 million of net tax charge primarily from the
recognition of uncertain tax positions in certain foreign jurisdictions, partially offset by decreases in certain tax reserves as a result of closing tax years.
Our 2022 provision for income taxes included (i) $18.8 million of net tax charge related to the tax on GILTI of our foreign subsidiaries and the recognition of foreign withholding taxes on current year earnings, partially offset by the benefit from FDII; (ii) $17.3 million of return-to-provision benefit, including $11.9 million related to a GILTI exclusion election and a lower net tax charge from other international inclusion items related to our 2021 U.S. federal tax return; and (iii) net tax benefit primarily from decreases in certain tax reserves, including interest and penalties, as a result of closing tax years and the settlement of certain foreign tax audits.
Deferred Taxes
Deferred taxes reflect the temporary differences between the amounts at which assets and liabilities are recorded for financial reporting purposes and the amounts utilized for tax purposes. The primary components of the temporary differences that gave rise to our deferred tax assets and liabilities were as follows:
| (In millions) | 2024 | 2023 | ||||||||||||
| Accrued expenses not currently deductible | $ | 29.8 | $ | 44.5 | ||||||||||
| Net operating loss carryforwards | 137.9 | 138.9 | ||||||||||||
| Tax credit carryforwards | 14.8 | 9.0 | ||||||||||||
| Capitalized research expenses | 81.7 | 59.9 | ||||||||||||
| Stock-based compensation | 8.8 | 10.9 | ||||||||||||
| Pension and other postretirement benefits | 31.1 | 34.2 | ||||||||||||
| Inventory reserve | 19.2 | 16.4 | ||||||||||||
| Lease liabilities | 44.7 | 43.3 | ||||||||||||
| Other assets | 31.6 | 27.9 | ||||||||||||
| Valuation allowance | (72.7) | (62.0) | ||||||||||||
| Total deferred tax assets(1) | 326.9 | 323.0 | ||||||||||||
| Depreciation and amortization | (306.0) | (317.2) | ||||||||||||
| Repatriation accrual | (24.2) | (24.5) | ||||||||||||
| Foreign operating loss recapture | (3.1) | (3.4) | ||||||||||||
| Lease assets | (44.3) | (43.4) | ||||||||||||
| Total deferred tax liabilities(1) | (377.6) | (388.5) | ||||||||||||
| Total net deferred tax assets (liabilities) | $ | (50.7) | $ | (65.5) |
(1) Reflect gross amounts before jurisdictional netting of deferred tax assets and liabilities.
We assess available positive and negative evidence to estimate if sufficient future taxable income is expected to be generated to use existing deferred tax assets. On the basis of our assessment, we record valuation allowances only with respect to the portion of the deferred tax asset that is not more-likely-than-not to be realized. Our assessment of the future realizability of our deferred tax assets relies heavily on our forecasted earnings in certain jurisdictions determined by the manner in which we operate our business and the relevant carryforward periods. Any changes to our operations may affect our assessment of deferred tax assets considered realizable if the positive evidence no longer outweighs the negative evidence.
Net operating loss carryforwards of foreign subsidiaries at December 28, 2024 and December 30, 2023 were $466 million and $481 million, respectively. Tax credit carryforwards of both domestic and foreign subsidiaries at December 28, 2024 and December 30, 2023 totaled $15 million and $9 million, respectively. If unused, foreign net operating losses and tax credit carryforwards will expire as follows:
| (In millions) | Net Operating Losses**(1)** | Tax Credits | ||||||||||||
| Year of Expiry | ||||||||||||||
| 2025 | $ | 2.6 | $ | .2 | ||||||||||
| 2026 | 2.3 | .2 | ||||||||||||
| 2027 | 3.1 | .4 | ||||||||||||
| 2028 | 6.6 | .8 | ||||||||||||
| 2029 | 28.5 | .4 | ||||||||||||
| 2030-2044 | 23.6 | 11.7 | ||||||||||||
| Indefinite life/no expiry | 399.4 | 1.1 | ||||||||||||
| Total | $ | 466.1 | $ | 14.8 |
(1) Net operating losses are presented before tax effects and valuation allowance.
Certain indefinite-lived foreign net operating losses may require decades to be fully utilized under our current business model.
At December 28, 2024, we had net operating loss carryforwards in certain states of $575 million before tax effects. Based on our estimates of future state taxable income, it is more-likely-than-not that the majority of these carryforwards will not be realized before they expire. Accordingly, a valuation allowance has been recorded on $548 million of these carryforwards.
As of December 28, 2024, our provision for income taxes did not materially benefit from applicable tax holidays in foreign jurisdictions.
Unrecognized Tax Benefits
As of December 28, 2024, our unrecognized tax benefits totaled $81 million, $74 million of which, if recognized, would reduce our annual effective income tax rate. As of December 30, 2023, our unrecognized tax benefits totaled $88 million, $75 million of which, if recognized, would reduce our annual effective income tax rate.
Where applicable, we accrue potential interest and penalties related to unrecognized tax benefits in income tax expense. The interest and penalties we recognized during fiscal years 2024, 2023 and 2022 were not material, individually or in aggregate, to the Consolidated Statements of Income. We have $17 million and $16 million of accrued interest and penalties, net of tax benefit, in the Consolidated Balance Sheets at December 28, 2024 and December 30, 2023, respectively.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is set forth below.
| (In millions) | 2024 | 2023 | ||||||||||||
| Balance at beginning of year | $ | 88.0 | $ | 69.5 | ||||||||||
| Additions for tax positions of current year | 11.4 | 15.4 | ||||||||||||
| Additions (reductions) for tax positions of prior years, net | (7.2) | 8.0 | ||||||||||||
| Settlements with tax authorities | (4.6) | (1.8) | ||||||||||||
| Expirations of statutes of limitations | (3.7) | (3.9) | ||||||||||||
| Changes due to translation of foreign currencies | (2.8) | .8 | ||||||||||||
| Balance at end of year | $ | 81.1 | $ | 88.0 |
It is reasonably possible that, during the next 12 months, we may realize a decrease in our uncertain tax positions, including interest and penalties, of approximately $6 million, primarily as a result of closing tax years.
The amount of income taxes we pay is subject to ongoing audits by taxing jurisdictions around the world. Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time. We believe we have adequately provided for reasonably foreseeable outcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate. The final determination of tax audits and any related legal proceedings could materially differ from amounts reflected in our tax provision for income taxes and the related liabilities. To date, we and our U.S. subsidiaries have completed the IRS’ Compliance Assurance Process through 2021. With limited exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2010.
NOTE 15. SEGMENT AND DISAGGREGATED REVENUE INFORMATION
Segment Reporting
We have the following reportable segments:
-
Materials Group – manufactures and sells pressure-sensitive label materials, films for graphic and reflective products, performance tapes and other adhesive products for industrial, medical and other applications, as well as fastener solutions.
-
Solutions Group – designs, manufactures and sells a wide variety of branding and information solutions, including brand and price tickets, tags and labels (including RFID inlays), and related services, supplies and equipment.
Our President and Chief Executive Officer is the chief operating decision maker ("CODM") and is responsible for the allocation of resources and evaluation of performance of our reportable segments. The CODM's oversight includes establishing performance targets to advance our long-term strategy and increase stockholder value, allocating capital to our reportable segments to achieve those targets, developing compensation programs to incentivize segment leaders to achieve those targets, and analyzing key performance metrics to track progress against those targets. The CODM reviews the performance of each segment by comparing each reportable segment’s current period results with its annual operating plan targets, its most recent quarterly forecast, and the prior year to assess how segment results impacted our company’s overall results.
Disaggregated Revenue Information
Disaggregated revenue information is shown below in the manner that best reflects how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Revenue from our 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.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Net sales to unaffiliated customers | ||||||||||||||||||||
| Materials Group: | ||||||||||||||||||||
| U.S. | $ | 1,715.6 | $ | 1,687.8 | $ | 1,892.1 | ||||||||||||||
| Europe, the Middle East and North Africa | 2,091.0 | 2,007.1 | 2,396.2 | |||||||||||||||||
| Asia | 1,388.0 | 1,315.2 | 1,390.3 | |||||||||||||||||
| Latin America | 489.7 | 474.2 | 470.1 | |||||||||||||||||
| Other | 328.7 | 327.0 | 346.4 | |||||||||||||||||
| Total Materials Group | 6,013.0 | 5,811.3 | 6,495.1 | |||||||||||||||||
| Solutions Group: | ||||||||||||||||||||
| Apparel and other | 1,875.5 | 1,661.4 | 1,851.2 | |||||||||||||||||
| Identification Solutions and Vestcom | 867.2 | 891.6 | 693.0 | |||||||||||||||||
| Total Solutions Group | 2,742.7 | 2,553.0 | 2,544.2 | |||||||||||||||||
| Net sales to unaffiliated customers | $ | 8,755.7 | $ | 8,364.3 | $ | 9,039.3 |
Revenue from our Materials Group reportable segment by product group is shown below.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Net sales to unaffiliated customers | ||||||||||||||||||||
| Materials Group: | ||||||||||||||||||||
| Labels, graphics and reflectives | $ | 5,266.0 | $ | 5,076.8 | $ | 5,725.7 | ||||||||||||||
| Tapes and adhesives | 676.0 | 665.3 | 696.3 | |||||||||||||||||
| Other | 71.0 | 69.2 | 73.1 | |||||||||||||||||
| Total Materials Group | $ | 6,013.0 | $ | 5,811.3 | $ | 6,495.1 |
Our total company revenue by geographic area is shown below. Revenue is attributed to geographic areas based on the location from which products are shipped.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Net sales to unaffiliated customers | ||||||||||||||||||||
| U.S. | $ | 2,613.4 | $ | 2,578.3 | $ | 2,565.9 | ||||||||||||||
| Europe, the Middle East and North Africa | 2,418.6 | 2,306.7 | 2,683.6 | |||||||||||||||||
| Asia | 2,763.1 | 2,545.2 | 2,817.2 | |||||||||||||||||
| Latin America | 599.8 | 582.3 | 605.7 | |||||||||||||||||
| Other | 360.8 | 351.8 | 366.9 | |||||||||||||||||
| Net sales to unaffiliated customers | $ | 8,755.7 | $ | 8,364.3 | $ | 9,039.3 |
Net sales to unaffiliated customers in Asia included sales in China (including Hong Kong) of $1.40 billion in 2024, $1.30 billion in 2023 and $1.50 billion in 2022.
No single customer represented 10% or more of our net sales in year-end 2024, 2023 or 2022. Our ten largest customers by net sales in the aggregate represented approximately 16% of our net sales during 2024, 2023 and 2022.
Segment Information
During the fourth quarter of 2024, we modified our segment performance measure to exclude other expense (income), net. These changes align with how our CODM evaluates segment performance and allocates resources. Prior periods have been conformed to the current period presentation. Segment adjusted operating income is defined as income before taxes adjusted for other expense (income), net; interest expense, other non-operating expense (income), net; and other items. Segment results and reconciliation to income before taxes are presented below.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Materials Group | ||||||||||||||||||||
| Net sales to unaffiliated customers | $ | 6,013.0 | $ | 5,811.3 | $ | 6,495.1 | ||||||||||||||
| Segment expense(1) | 5,088.3 | 5,022.1 | 5,649.2 | |||||||||||||||||
| Segment adjusted operating income | $ | 924.7 | $ | 789.2 | $ | 845.9 | ||||||||||||||
| Solutions Group | ||||||||||||||||||||
| Net sales to unaffiliated customers | $ | 2,742.7 | $ | 2,553.0 | $ | 2,544.2 | ||||||||||||||
| Segment expense(1) | 2,453.4 | 2,301.0 | 2,234.1 | |||||||||||||||||
| Segment adjusted operating income | $ | 289.3 | $ | 252.0 | $ | 310.1 |
(1) Segment expense included cost of sales and marketing, general and administrative expense and excluded other expense (income), net, and other items.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Segment adjusted operating income | ||||||||||||||||||||
| Materials Group | $ | 924.7 | $ | 789.2 | $ | 845.9 | ||||||||||||||
| Solutions Group | 289.3 | 252.0 | 310.1 | |||||||||||||||||
| Total | 1,214.0 | 1,041.2 | 1,156.0 | |||||||||||||||||
| Corporate expense | (91.9) | (77.4) | (82.6) | |||||||||||||||||
| Other expense (income), net and other items | (78.3) | (180.9) | .6 | |||||||||||||||||
| Interest expense | (117.0) | (119.0) | (84.1) | |||||||||||||||||
| Other non-operating expense (income), net | 26.7 | 30.8 | 9.4 | |||||||||||||||||
| Income before taxes | $ | 953.5 | $ | 694.7 | $ | 999.3 |
Additional Segment Information
Additional financial information by reportable segment is shown below.
Intersegment sales are recorded at or near market prices and are eliminated in determining consolidated net sales. We do not disclose total assets by reportable segment since we neither generate nor review that information internally. As our reporting structure is neither organized nor reviewed internally by country, results by individual country are not provided.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Intersegment sales | ||||||||||||||||||||
| Materials Group | $ | 162.8 | $ | 157.1 | $ | 137.1 | ||||||||||||||
| Solutions Group | 52.3 | 35.5 | 37.4 | |||||||||||||||||
| Intersegment sales | $ | 215.1 | $ | 192.6 | $ | 174.5 | ||||||||||||||
| Capital expenditures**(1)(2)** | ||||||||||||||||||||
| Materials Group | $ | 96.3 | $ | 117.8 | $ | 153.5 | ||||||||||||||
| Solutions Group | 120.8 | 148.7 | 144.0 | |||||||||||||||||
| Capital expenditures | $ | 217.1 | $ | 266.5 | $ | 297.5 | ||||||||||||||
| Depreciation and amortization expense**(1)** | ||||||||||||||||||||
| Materials Group | $ | 130.9 | $ | 127.8 | $ | 135.8 | ||||||||||||||
| Solutions Group | 181.3 | 170.6 | 154.9 | |||||||||||||||||
| Depreciation and amortization expense | $ | 312.2 | $ | 298.4 | $ | 290.7 |
(1) Corporate capital expenditures and depreciation and amortization expense are allocated to the reportable segments based on their percentage of consolidated net sales.
(2) Capital expenditures for property, plant and equipment included accruals.
Entity-wide Information
Other expense (income), net by type were as follows:
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Other expense (income), net by type | ||||||||||||||||||||
| Restructuring charges, net of reversals: | ||||||||||||||||||||
| Severance and related costs, net of reversals | $ | 35.4 | $ | 70.8 | $ | 7.6 | ||||||||||||||
| Asset impairment and lease cancellation charges | 6.5 | 8.6 | .1 | |||||||||||||||||
| Other items: | ||||||||||||||||||||
| Losses from Argentine peso remeasurement and Blue Chip Swap transactions | 16.4 | 29.9 | — | |||||||||||||||||
| (Gain) loss on venture investments | 19.2 | 1.5 | (13.5) | |||||||||||||||||
| Outcomes of legal matters and settlements, net(1) | (6.2) | 64.3 | 6.3 | |||||||||||||||||
| Transaction and related costs | .3 | 5.3 | .3 | |||||||||||||||||
| (Gain) loss on sales of assets | — | .5 | (1.4) | |||||||||||||||||
| Other expense (income), net | $ | 71.6 | $ | 180.9 | $ | (.6) |
(1) Amount for 2023 included an additional contingent liability related to the Adasa litigation in the amount of $56.3 million. Refer to Note 8, “Contingencies” for more information.
Long-lived assets (including property, plant and equipment, net, and operating lease assets) in our U.S. and non-U.S. operations were as follows:
| (In millions) | 2024 | 2023 | ||||||||||||
| Long-lived assets | ||||||||||||||
| U.S. | $ | 642.7 | $ | 662.8 | ||||||||||
| Non-U.S. | 1,171.5 | 1,163.2 | ||||||||||||
| Long-lived assets | $ | 1,814.2 | $ | 1,826.0 |
Long-lived assets located in China (including Hong Kong) were approximately $288 million in 2024 and $305 million in 2023.
NOTE 16. SUPPLEMENTAL FINANCIAL INFORMATION
Inventories
Inventories at year-end were as follows:
| (In millions) | 2024 | 2023 | ||||||||||||
| Raw materials | $ | 435.0 | $ | 415.4 | ||||||||||
| Work-in-progress | 224.9 | 238.2 | ||||||||||||
| Finished goods | 318.2 | 267.1 | ||||||||||||
| Inventories | $ | 978.1 | $ | 920.7 |
Property, Plant and Equipment, Net
Major classes of property, plant and equipment, stated at cost, at year-end were as follows:
| (In millions) | 2024 | 2023 | ||||||||||||
| Land | $ | 35.1 | $ | 35.9 | ||||||||||
| Buildings and improvements | 852.3 | 817.9 | ||||||||||||
| Machinery and equipment | 2,903.4 | 2,799.5 | ||||||||||||
| Construction-in-progress | 202.7 | 317.1 | ||||||||||||
| Property, plant and equipment | 3,993.5 | 3,970.4 | ||||||||||||
| Accumulated depreciation | (2,406.8) | (2,344.6) | ||||||||||||
| Property, plant and equipment, net | $ | 1,586.7 | $ | 1,625.8 |
Software
Capitalized software costs at year-end were as follows:
| (In millions) | 2024 | 2023 | ||||||||||||
| Cost | $ | 360.0 | $ | 362.4 | ||||||||||
| Accumulated amortization | (249.3) | (257.9) | ||||||||||||
| Software, net | $ | 110.7 | $ | 104.5 |
Software amortization expense was $25.1 million in 2024, $23.4 million in 2023 and $29.5 million in 2022.
Cloud Computing Arrangements
Capitalized implementation costs at year-end were as follows:
| (In millions) | 2024 | 2023 | ||||||||||||
| Cost | $ | 97.1 | $ | 59.8 | ||||||||||
| Accumulated amortization | (17.9) | (9.4) | ||||||||||||
| Capitalized implementation costs, net | $ | 79.2 | $ | 50.4 |
Capitalized implementation cost amortization expense was $8.0 million in 2024 and $4.5 million in 2023.
Allowance for Credit Losses
Given the short-term nature of trade receivables, our allowance for credit losses is based on the financial condition of customers, the aging of receivable balances, our historical collections experience, and current and expected future macroeconomic and market conditions. Balances are written off in the period in which they are determined to be uncollectible.
The activity related to our allowance for credit losses was as follows:
| (In millions) | 2024 | 2023 | ||||||||||||
| Balance at beginning of year | $ | 34.4 | $ | 34.4 | ||||||||||
| Provision for credit losses | 4.6 | 4.4 | ||||||||||||
| Amounts written off | (8.9) | (6.3) | ||||||||||||
| Other, including foreign currency translation | (1.1) | 1.9 | ||||||||||||
| Balance at end of year | $ | 29.0 | $ | 34.4 |
The provision for credit losses was $6.9 million in 2022.
Research and Development
Research and development expense, which was included in “Marketing, general and administrative expense” in the Consolidated Statements of Income, was as follows:
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Research and development expense | $ | 137.8 | $ | 135.8 | $ | 136.1 |
Supplemental Cash Flow Information
Cash paid for interest and income taxes was as follows:
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Interest | $ | 111.8 | $ | 109.9 | $ | 80.9 | ||||||||||||||
| Income taxes, net of refunds | 226.8 | 234.9 | 204.8 |
Foreign Currency Effects
Gains and losses resulting from foreign currency transactions are included in income in the period incurred. Transactions in foreign currencies (including receivables, payables and loans denominated in currencies other than the functional currency), including hedging impacts, were not material in 2024, 2023 or 2022.
Deferred Revenue
Deferred revenue primarily relates to constrained variable consideration on supply agreements for sales of products, as well as to payments received in advance of performance under a contract. Deferred revenue is recognized as revenue as or when we perform under a contract.
The following table shows the amounts and balance sheet locations of deferred revenue as of December 28, 2024 and December 30, 2023:
| (In millions) | December 28, 2024 | December 30, 2023 | ||||||||||||
| Other current liabilities | $ | 15.5 | $ | 18.1 | ||||||||||
| Long-term retirement benefits and other liabilities | 1.2 | 1.3 | ||||||||||||
| Total deferred revenue | $ | 16.7 | $ | 19.4 |
Revenue recognized from amounts included in deferred revenue as of December 30, 2023 was $17.5 million in 2024. Revenue recognized from amounts included in deferred revenue as of December 31, 2022 was $21.0 million in 2023. Revenue recognized from amounts included in deferred revenue as of January 1, 2022 was $23.5 million in 2022. This revenue was included in “Net sales” in the Consolidated Statements of Income.
Supplier Finance Programs
We have agreements with third-party financial institutions to facilitate 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 financial institution on terms directly negotiated with the financial 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 whether an individual invoice is sold by the supplier 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 in our Consolidated Balance Sheets and activities related to these programs are presented as operating activities in our Consolidated Statements of Cash Flows. As of December 28, 2024 and December 30, 2023, the amounts due to financial institutions for suppliers that participate in these programs were $384.6 million and $397.4 million, respectively.
The activity related to our supplier finance programs was as follows:
| (In millions) | 2024 | |||||||
| Balance at beginning of year | $ | 397.4 | ||||||
| Invoices confirmed during the year | 1,339.3 | |||||||
| Invoices paid during the year | (1,328.9) | |||||||
| Other, including foreign currency translation | (23.2) | |||||||
| Balance at end of year | $ | 384.6 |
Argentine Blue Chip Swap Transactions
During 2019, the Argentine 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 2024, we entered into Blue Chip Swap transactions that resulted in losses of approximately $10 million that we recorded in "Other expense (income), net" in our Consolidated Statements of Income. Purchases and the proceeds from sales of Argentine Blue Chip Swap securities were included in investing activities in our Consolidated Statements of Cash Flows.
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