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Cover and table of contents
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the quarterly period ended October 2, 2021.
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the transition period from ________________________ to ________________________
Commission file number
1-7685
AVERY DENNISON CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 95-1492269 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| incorporation or organization) | ||
| 207 Goode Avenue Glendale, California | 91203 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (626)
304-2000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common stock, $1 par value | AVY | New York Stock Exchange | ||
| 1.25% Senior Notes due 2025 | AVY25 | Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
| ☒ Large accelerated filer | ☐ Accelerated filer | ☐ Non-accelerated filer | ☐ Smaller reporting company | ☐ Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐ No ☒
Number of shares of $1 par value common stock outstanding as of October 30, 2021:
82,795,583
AVERY DENNISON CORPORATION
FISCAL THIRD QUARTER 2021 QUARTERLY REPORT ON FORM
10-Q
TABLE OF CONTENTS
Safe Harbor Statement
The matters discussed in this Quarterly Report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which are not statements of historical fact, contain estimates, assumptions, projections and/or expectations regarding future events, that may or may not occur. Words such as “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “foresee,” “guidance,” “intend,” “may,” “might,” “objective,” “plan,” “potential,” “project,” “seek,” “shall,” “should,” “target,” “will,” “would,” or variations thereof, and other expressions that refer to future events and trends, identify forward-looking statements. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties, which could cause our actual results to differ materially from the expected results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements also include those related to the acquisition of Vestcom, including its anticipated effect on our long-term targets and future financial results.
We believe that the most significant risk factors that could affect our financial performance in the near-term include: (i) the impacts to underlying demand for our products and/or foreign currency fluctuations from global economic conditions, political uncertainty, changes in environmental standards and governmental regulations, including as a result of
COVID-19;
(ii) competitors’ actions, including pricing, expansion in key markets, and product offerings; (iii) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; and (iv) the execution and integration of acquisitions, including the acquisition of Vestcom.
The more significant risks and uncertainties that may impact us are discussed in more detail under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on Form
10-K
filed on February 25, 2021, and subsequent quarterly reports on
Form10-Q.
These risks and uncertainties include, but are not limited to, the following:
| ● | COVID-19 |
|---|
| ● | International Operations – worldwide and local economic and market conditions; changes in political conditions; and fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets |
|---|
| ● | Our Business – changes in our markets due to competitive conditions, technological developments, environmental standards, laws and regulations, and customer preferences; fluctuations in demand affecting sales to customers; execution and integration of acquisitions, including the acquisition of Vestcom; selling prices; fluctuations in the cost and availability of raw materials and energy; the impact of competitive products and pricing; customer and supplier concentrations or consolidations; financial condition of distributors; outsourced manufacturers; product and service quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; successful implementation of new manufacturing technologies and installation of manufacturing equipment; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; and collection of receivables from customers |
|---|
| ● | The Vestcom Acquisition – risks related to future opportunities and plans for the combined company, including the uncertainty of expected future financial performance and results of the combined company; unknown liabilities; and the possibility that, if we do not achieve the perceived benefits of the acquisition as rapidly or to the extent anticipated by financial analysts or investors, the market price of our common stock could decline |
|---|
| ● | Income Taxes – fluctuations in tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; and the realization of deferred tax assets |
|---|
| ● | Information Technology – disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; and data security breaches |
|---|
| ● | Human Capital – recruitment and retention of employees; fluctuations in employee benefit costs; and collective labor arrangements |
|---|
| ● | Our Indebtedness – credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; volatility of financial markets; fluctuations in interest rates; and compliance with our debt covenants |
|---|
| ● | Ownership of Our Stock – potential significant variability of our stock price and amounts of future dividends and share repurchases |
|---|
| ● | Legal and Regulatory Matters – protection and infringement of intellectual property and impact of legal and regulatory proceedings, including with respect to environmental, health and safety, anti-corruption and trade compliance |
|---|
| ● | Other Financial Matters – fluctuations in pension costs and goodwill impairment |
|---|
Our forward-looking statements are made only as of the date hereof. We assume no duty to update these forward-looking statements to reflect new, changed or unanticipated events or circumstances, other than as may be required by law.
Avery Dennison Corporation
PART I. FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
|---|
CONDENSED CONSOLIDATED BALANCE SHEETS
(
Unaudited
)
| (Dollars in millions, except per share amount) | October 2, 2021 | January 2, 2021 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 207.2 | $ | 252.3 | ||||
| Trade accounts receivable, less allowances of $37 and $44.6 at October 2, 2021 and January 2, 2021, respectively | 1,441.2 | 1,235.2 | ||||||
| Inventories, net | 879.1 | 717.2 | ||||||
| Other current assets | 251.0 | 211.5 | ||||||
| Total current assets | 2,778.5 | 2,416.2 | ||||||
| Property, plant and equipment, net | 1,405.5 | 1,343.7 | ||||||
| Goodwill | 1,896.7 | 1,136.4 | ||||||
| Other intangibles resulting from business acquisitions, net | 931.5 | 224.9 | ||||||
| Deferred tax assets | 152.7 | 197.7 | ||||||
| Other assets | 802.8 | 765.0 | ||||||
| $ | 7,967.7 | $ | 6,083.9 | |||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Short-term borrowings and current portion of long-term debt and finance leases | $ | 398.8 | $ | 64.7 | ||||
| Accounts payable | 1,268.2 | 1,050.9 | ||||||
| Accrued payroll and employee benefits | 283.6 | 239.0 | ||||||
| Other current liabilities | 658.8 | 571.4 | ||||||
| Total current liabilities | 2,609.4 | 1,926.0 | ||||||
| Long-term debt and finance leases | 2,800.2 | 2,052.1 | ||||||
| Long-term retirement benefits and other liabilities | 504.1 | 503.6 | ||||||
| Deferred tax liabilities and income taxes payable | 254.8 | 117.3 | ||||||
| Commitments and contingencies (see Note 12) | ||||||||
| Shareholders’ equity: | ||||||||
| Common stock, $1 par value per share, authorized – 400,000,000 shares at October 2, 2021 and January 2, 2021; issued – 124,126,624 shares at October 2, 2021 and January 2, 2021; outstanding – 82,833,721 shares and 83,151,174 shares at October 2, 2021 and January 2, 2021, respectively | 124.1 | 124.1 | ||||||
| Capital in excess of par value | 854.8 | 862.1 | ||||||
| Retained earnings | 3,749.7 | 3,349.3 | ||||||
| Treasury stock at cost, 41,292,903 shares and 40,975,450 shares at October 2, 2021 and January 2, 2021, respectively | (2,606.4 | ) | (2,501.0 | ) | ||||
| Accumulated other comprehensive loss | (323.0 | ) | (349.6 | ) | ||||
| Total shareholders’ equity | 1,799.2 | 1,484.9 | ||||||
| $ | 7,967.7 | $ | 6,083.9 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Avery Dennison Corporation
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(
Unaudited
)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| (In millions, except per share amounts) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||
| Net sales | $ | 2,071.8 | $ | 1,729.1 | $ | 6,225.1 | $ | 4,980.6 | ||||||||
| Cost of products sold | 1,517.4 | 1,244.9 | 4,497.4 | 3,628.4 | ||||||||||||
| Gross profit | 554.4 | 484.2 | 1,727.7 | 1,352.2 | ||||||||||||
| Marketing, general and administrative expense | 296.9 | 258.3 | 916.2 | 758.7 | ||||||||||||
| Other expense (income), net | 16.0 | 12.4 | 16.3 | 57.3 | ||||||||||||
| Interest expense | 18.0 | 15.6 | 50.2 | 54.4 | ||||||||||||
| Other non-operating expense (income), net | (.9 | ) | .1 | (3.6 | ) | (.2 | ) | |||||||||
| Income before taxes | 224.4 | 197.8 | 748.6 | 482.0 | ||||||||||||
| Provision for (benefit from) income taxes | 59.2 | 46.3 | 187.7 | 114.8 | ||||||||||||
| Equity method investment (losses) gains | (1.1 | ) | (1.0 | ) | (3.5 | ) | (2.8 | ) | ||||||||
| Net income | $ | 164.1 | $ | 150.5 | $ | 557.4 | $ | 364.4 | ||||||||
| Per share amounts: | ||||||||||||||||
| Net income per common share | $ | 1.98 | $ | 1.80 | $ | 6.72 | $ | 4.37 | ||||||||
| Net income per common share, assuming dilution | $ | 1.96 | $ | 1.79 | $ | 6.64 | $ | 4.34 | ||||||||
| Weighted average number of shares outstanding: | ||||||||||||||||
| Common shares | 82.9 | 83.5 | 83.0 | 83.4 | ||||||||||||
| Common shares, assuming dilution | 83.7 | 84.0 | 83.9 | 84.0 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Avery Dennison Corporation
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(
Unaudited
)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| (In millions) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||
| Net income | $ | 164.1 | $ | 150.5 | $ | 557.4 | $ | 364.4 | ||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||
| Foreign currency translation | 1.4 | 9.5 | 19.1 | (45.5 | ) | |||||||||||
| Pension and other postretirement benefits | 1.3 | .6 | 3.3 | 1.9 | ||||||||||||
| Cash flow hedges | 1.9 | (.8 | ) | 4.2 | (2.2 | ) | ||||||||||
| Other comprehensive income (loss), net of tax | 4.6 | 9.3 | 26.6 | (45.8 | ) | |||||||||||
| Total comprehensive income, net of tax | $ | 168.7 | $ | 159.8 | $ | 584.0 | $ | 318.6 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Avery Dennison Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(
Unaudited
)
| Nine Months Ended | ||||||||
| (In millions) | October 2, 2021 | September 26, 2020 | ||||||
| Operating Activities | ||||||||
| Net income | $ | 557.4 | $ | 364.4 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 122.9 | 113.7 | ||||||
| Amortization | 48.6 | 36.1 | ||||||
| Provision for credit losses and sales returns | 26.1 | 50.4 | ||||||
| Stock-based compensation | 27.1 | 12.1 | ||||||
| Pension plan settlement loss | 1.0 | — | ||||||
| Deferred taxes and other non-cash taxes | (1.5 | ) | 17.1 | |||||
| Other non-cash expense and loss (income and gain), net | 17.7 | 35.3 | ||||||
| Changes in assets and liabilities and other adjustments | (36.5 | ) | (187.3 | ) | ||||
| Net cash provided by operating activities | 762.8 | 441.8 | ||||||
| Investing Activities | ||||||||
| Purchases of property, plant and equipment | (130.6 | ) | (91.7 | ) | ||||
| Purchases of software and other deferred charges | (9.8 | ) | (13.8 | ) | ||||
| Proceeds from sales of property, plant and equipment | 1.1 | .2 | ||||||
| Proceeds from insurance and sales (purchases) of investments, net | 1.2 | 5.2 | ||||||
| Proceeds from sale of product line | 6.7 | — | ||||||
| Payments for acquisitions, net of cash acquired, and investments in businesses | (1,474.3 | ) | (262.8 | ) | ||||
| Net cash used in investing activities | (1,605.7 | ) | (362.9 | ) | ||||
| Financing Activities | ||||||||
| Net increase (decrease) in borrowings with maturities of three months or less | 332.0 | (57.1 | ) | |||||
| Additional borrowings under revolving credit facility | — | 500.0 | ||||||
| Repayments of revolving credit facility | — | (500.0 | ) | |||||
| Additional long-term borrowings | 791.9 | 493.7 | ||||||
| Repayments of long-term debt and finance leases | (8.0 | ) | (268.9 | ) | ||||
| Dividends paid | (164.3 | ) | (145.2 | ) | ||||
| Share repurchases | (126.0 | ) | (52.2 | ) | ||||
| Net (tax withholding) proceeds related to stock-based compensation | (25.5 | ) | (20.0 | ) | ||||
| Net cash provided by (used in) financing activities | 800.1 | (49.7 | ) | |||||
| Effect of foreign currency translation on cash balances | (2.3 | ) | 1.8 | |||||
| Increase (decrease) in cash and cash equivalents | (45.1 | ) | 31.0 | |||||
| Cash and cash equivalents, beginning of year | 252.3 | 253.7 | ||||||
| Cash and cash equivalents, end of period | $ | 207.2 | $ | 284.7 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Avery Dennison Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General
The unaudited Condensed Consolidated Financial Statements and related notes in this Quarterly Report on Form
10-Q
are presented as permitted by Article 10 of Regulation
S-X
and do not contain certain information included in the audited Consolidated Financial Statements and
re
lated
notes in our 2020 Annual Report on Form
10-K,
which should be read in conjunction with this Quarterly Report on Form
10-Q.
These unaudited Condensed Consolidated Financial Statements contain all adjustments of a normal and recurring nature necessary for a fair statement of our interim results. Interim results of operations are not necessarily indicative of future results. These unaudited Condensed Consolidated Financial Statements reflect our current estimates and assumptions that affect our reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and our reported amounts of sales and expenses during the reporting periods presented.
Fiscal Periods
The three and nine months ended October 2, 2021 and September 26, 2020 consisted of thirteen-week and thirty-nine week periods, respectively.
Note 2. Acquisitions
V
estcom Acquisition
On August 31, 2021, we completed our acquisition of CB Velocity Holdings, LLC (“Vestcom”), an Arkansas-based provider of shelf-edge pricing, productivity and consumer engagement solutions for retailers and consumer packaged goods companies for a purchase price of $1.46 billion, subject to customary post-closing adjustments. We funded this acquisition using a combination of cash and proceeds from commercial paper borrowings and issuances of senior notes. Refer to Note 4, “Debt,” to the unaudited Condensed Consolidated Financial Statements for more information.
We believe Vestcom’s solutions expand our position in high value categories while adding channel access and data management capabilities to our Retail Branding and Information Solutions (“RBIS
”)
reportable segment.
The table below summarizes the preliminary fair value of assets acquired and liabilities assumed
in
the Vestcom acquisition.
| (In millions) | ||||
| Cash and cash equivalents | $ | 23.9 | ||
| Trade accounts receivable | 100.1 | |||
| Other current assets | 29.9 | |||
| Property, plant and equipment | 61.2 | |||
| Goodwill | 761.8 | |||
| Other intangibles resulting from business acquisition | 727.0 | |||
| Other assets | 20.9 | |||
| Total assets | 1,724.8 | |||
| C urrent liabilities | 52.0 | |||
| Other liabilities | 16.1 | |||
| Deferred tax liabilities | 192.6 | |||
| Total liabilities | 260.7 | |||
| Net assets acquired | $ | 1,464.1 |
Avery Dennison Corporation
T
he final allocation of purchase consideration to assets and liabilities is in process as we continue to evaluate certain balances, estimates and assumptions during the measurement period (up to one year from the acquisition date). Consistent with the allowable time to complete our assessment, the valuation of certain acquired assets and liabilities, including tangible and intangible assets, environmental liabilities and income taxes, is currently pending.
The impact of the Vestcom acquisition was not material to the proforma net sales or net income of our combined operations for the periods presented. Net sales and net income related to Vestcom post-acquisition were not material to the unaudited Condensed Consolidated Statements of Income for the periods presented.
Other 2021 Acquisitions
On March 18, 2021, we completed our acquisition of the net assets of ZippyYum, LLC (“ZippyYum”), a California-based developer of software products used in the food service and food preparation industries. We believe this acquisition enhances the product portfolio in our RBIS reportable segment.
On March 1, 2021, we completed our acquisition of the issued and outstanding stock of JDC Solutions, Inc. (“JDC”), a Tennessee-based manufacturer of pressure-sensitive specialty tapes. We believe this acquisition expands the product portfolio in our Industrial and Healthcare Materials (“IHM
”
) reportable segment.
The acquisitions of ZippyYum and JDC are referred to collectively as the “Other 2021 Acquisitions.”
The aggregate purchase consideration for the Other 2021 Acquisitions was approximately $43 million. We funded the Other 2021 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 approximately $13 million subject to the acquired company’s achievement of certain performance targets. We estimate the fair value of these
earn-out
payments as of October 2, 2021 to be approximately $12 million, which has been included in the $43 million of aggregate purchase consideration.
The Other 2021 Acquisitions were not material, individually or in the aggregate, to the unaudited Condensed Consolidated Financial Statements.
Note 3. Goodwill and Other Intangibles Resulting from Business Acquisitions
Changes in the net carrying amount of goodwill for the nine months ended October 2, 2021 by reportable segment are shown below.
| (In millions) | Label and Graphic Materials | Retail Branding and Information Solutions | Industrial and Healthcare Materials | Total | ||||||||||||
| Goodwill as of January 2, 2021 | $ | 480.9 | $ | 471.8 | $ | 183.7 | $ | 1,136.4 | ||||||||
| Acquisitions (1) | — | 779.7 | 6.9 | 786.6 | ||||||||||||
| Acquisition adjustment (2) | 1.2 | — | — | 1.2 | ||||||||||||
| Translation adjustments | (19.2 | ) | (6.8 | ) | (1.5 | ) | (27.5 | ) | ||||||||
| Goodwill as of October 2, 2021 | $ | 462.9 | $ | 1,244.7 | $ | 189.1 | $ | 1,896.7 |
| (1) | Goodwill acquired related to the acquisitions of Vestcom, JDC and ZippyYum. We expect nearly all of the recognized goodwill related to the Vestcom and JDC acquisitions not to be deductible for income tax purposes and the recognized goodwill related to the ZippyYum acquisition to be deductible for income tax purposes. |
|---|
| (2) | Measurement period adjustment related to the finalization of the purchase price allocation for the acquisition of ACPO, Ltd. completed in December 2020. |
|---|
Finite-Lived and Indefinite-Lived Intangible Assets
In connection with our acquisition of Vestcom, we acquired approximately $
million of identifiable intangible assets consisting of customer relationships, trade names and trademarks, and patented and other developed technology. We utilized the income approach to estimate the fair values of acquired identifiable intangibles, primarily using Level 3 inputs. We applied significant judgment in determining the fair value of intangible assets, which involved the use of 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 preliminary amounts and useful lives of Vestcom’s identifiable intangible assets as of the acquisition date.
| Amount (in millions) | Amortization period (in years) | |||||||
| Customer relationships | $ | 492.0 | 12 | |||||
| Patented and other developed technology | 100.4 | 7 | ||||||
| Trade names and trademarks (1) | 134.6 | N/A |
| (1) | Acquired trade names and trademarks associated with the Vestcom acquisition were not subject to amortization as they were classified as indefinite-lived intangible assets. |
|---|
T
he intangibles assets from the Other 2021 Acquisitions were not material to the unaudited Condensed Consolidated Financial Statements.
Refer to Note 2, “Acquisitions,” to the unaudited Condensed Consolidated Financial Statements for more information.
Avery Dennison Corporation
Note 4. Debt
In August 2021, we issued $500 million of senior notes, due February 15, 2032,
which
bear an interest rate of 2.250%,
payable semiannually in arrears. Our net proceeds from the issuance, after deducting underwriting discounts and offering expenses, were $493.8 million. Additionally
,
in August 2021, we issued
$300
million of senior notes, due August 15, 2024
,
which
may be repaid without penalty on or after August 15, 2022 and bear an interest
rate of
0.850%,
payable semiannually in arrears. Our net proceeds from the issuance, after deducting underwriting discounts and offering expenses, were $298.1 million. We used the net proceeds from these two
debt
issuances to finance a portion of the Vestcom acquisition.
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 include commercial paper issuances and short-term lines of credit, approximates their carrying value given the short duration of these obligations. The fair value of our total debt was $3.37 billion at October 2, 2021 and $2.34 billion at January 2, 2021. Fair values were determined based primarily on Level 2 inputs, which are inputs other than quoted prices in active markets that are either directly or indirectly observable.
Our $800 million revolving credit facility (the “Revolver”) contains a financial covenant requiring that we maintain a specified ratio of total debt in relation to a certain measure of income. As of both October 2, 2021 and January 2, 2021, we were in compliance with this financial covenant. No balance was outstanding under the Revolver as of October 2, 2021 or January 2, 2021.
Note 5. 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 his or her employment with us. For the three and nine months ended October 2, 2021 and September 26, 2020, the net periodic benefit cost related to our U.S. and international plans was not material.
Service cost and the components of net periodic benefit cost (credit) other than service cost were included in “Marketing, general and administrative expense” and “Other
non-operating
expense (income), net” in the unaudited Condensed Consolidated Statements of Income, respectively.
We are also obligated to pay unfunded termination indemnity benefits to certain employees outside of the U.S., which are subject to applicable agreements, laws and regulations. We did not incur significant costs related to these benefits in the three
or
nine months ended October 2, 2021 or September 26, 2020.
Note 6. Cost Reduction Actions
2019/2020 Actions
During the nine months ended October 2, 2021, we recorded $6.7 million in restructuring charges related to our 2019/2020 actions. These charges consisted of severance and related costs for the reduction of approximately 235
positions at numerous locations across our company, which primarily included actions in our RBIS reportable segment. The actions were primarily related to global headcount and footprint reductions, with some actions accelerated or expanded in response to COVID-19.
During the nine months ended October 2, 2021, restructuring charges and payments were as follows:
| (In millions) | Accrual at January 2, 2021 | Charges, Net of Reversals | Cash Payments | Non-cash Impairment | Foreign Currency Translation | Accrual at October 2, 2021 | ||||||||||||||||||
| 2019/2020 Actions | ||||||||||||||||||||||||
| Severance and related costs | $ | 28.3 | $ | 4.9 | $ | (22.7 | ) | $ | — | $ | (.7 | ) | $ | 9.8 | ||||||||||
| Asset impairment | — | 1.6 | — | (1.6 | ) | — | — | |||||||||||||||||
| Lease cancellation costs | — | .2 | (.2 | ) | — | — | — | |||||||||||||||||
| Total | $ | 28.3 | $ | 6.7 | $ | (22.9 | ) | $ | (1.6 | ) | $ | (.7 | ) | $ | 9.8 |
Accruals for severance and related costs, as well as lease cancellation costs, were included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets. Asset impairment charges were based on the estimated market value of the assets, less
sell
ing costs, if applicable. Restructuring charges were included in “Other expense (income), net” in the unaudited Condensed Consolidated Statements of Income.
Avery Dennison Corporation
The table below shows the total amount of restructuring charges, net of reversals, incurred by reportable segment and Corporate.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| (In millions) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||
| Restructuring charges, net of reversals, by reportable segment and Corporate | ||||||||||||||||
| Label and Graphic Materials | $ | .8 | $ | 1.4 | $ | 1.4 | $ | 27.6 | ||||||||
| Retail Branding and Information Solutions | .8 | 2.9 | 3.8 | 16.6 | ||||||||||||
| Industrial and Healthcare Materials | .3 | 6.6 | .8 | 8.6 | ||||||||||||
| Corporate | .5 | — | 1.0 | (.2 | ) | |||||||||||
| Total | $ | 2.4 | $ | 10.9 | $ | 7.0 | $ | 52.6 |
Note 7. Financial Instruments
We enter into foreign exchange hedge contracts to reduce our risk from foreign 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. We also enter into futures contracts to hedge certain price fluctuations for a portion of our anticipated domestic purchases of natural gas. The impact of these foreign exchange and commodities hedge activities on the unaudited Condensed Consolidated Financial Statements was not material.
In March 2020, we entered into U.S. dollar to euro cross-currency swap contracts with a total notional amount of $250 million to have the effect of converting the fixed-rate U.S. dollar-denominated debt to euro-denominated debt, including semiannual interest payments and the payment of principal at maturity. During the term of the contract, which ends on April 30, 2030, we pay fixed-rate interest in euros and receive fixed-rate interest in U.S. dollars. These contracts have been designated as cash flow hedges. The fair value of these contracts was $(18.9) million and
$
(36.7) million as of October 2, 2021 and January 2, 2021, respectively, and was included in “Long-term retirement benefits and other liabilities” in the unaudited Condensed Consolidated Balance Sheets. Refer to Note 11, “Fair Value Measurements,” to the unaudited Condensed Consolidated Financial Statements for more information.
We recorded no ineffectiveness from our cross-currency swap to earnings during the three
or
nine months ended October 2, 2021 or September 26, 2020.
Note 8. Taxes Based on Income
The following table summarizes our income before taxes, provision for (benefit from) income taxes, and effective tax rate:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| (Dollars in millions) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||
| Income before taxes | $ | 224.4 | $ | 197.8 | $ | 748.6 | $ | 482.0 | ||||||||
| Provision for (benefit from) income taxes | 59.2 | 46.3 | 187.7 | 114.8 | ||||||||||||
| Effective tax rate | 26.4 | % | 23.4 | % | 25.1 | % | 23.8 | % |
Our provision for (benefit from) income taxes for the three and nine months ended October 2, 2021 included
$7 million and $21
million, respectively, of net tax charges 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”). Our provision for (benefit from) income taxes for the three and nine months ended October 2, 2021 also reflected $11.3 million of return-to-provision benefit, including $8.7 million related to a GILTI exclusion election and a higher FDII deduction upon completion of our 2020 U.S. federal tax return. In addition, our provision for (benefit from) income taxes for the three and nine months ended October 2, 2021 reflected the tax impact from transaction costs related to the Vestcom acquisition. Moreover, our provision for (benefit from) income taxes for the nine months ended October 2, 2021 reflected the following discrete items: (i) $14.1 million of return-to-provision benefit related to a GILTI exclusion election made on our amended 2018 U.S. tax return; (ii) net tax charges related to the tax effects of outcomes of certain legal proceedings; and (iii) net tax benefit primarily from decreases in certain tax reserves, including associated interest and penalties, as a result of closing tax years.
Our provision for (benefit from) income taxes for the three and nine months ended September 26, 2020 included
$4.5 million and $15
million, respectively, of net tax charges 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. Our provision for (benefit from) income taxes for the nine months ended September 26, 2020 also reflected
$13.9
million of net tax benefit primarily from decreases in certain tax reserves, including associated interest and penalties, as a result of closing tax years and effective settlements of certain foreign tax audits, partially offset by additional interest and penalty accruals.
Avery Dennison Corporation
I
n fiscal year 2020, the U.S. Department of Treasury issued final regulations that provide certain U.S. taxpayers with an annual election to exclude foreign income subject to a high effective tax rate from their GILTI inclusions. This annual election included an option for retroactive application to tax years 2018 through 2020. We elected and recognized related tax benefits for tax years 2018 through 2020 as of October 2, 2021.
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 that 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 the amounts currently reflected in our tax provision and the related liabilities. To date, we and our U.S. subsidiaries have completed the Internal Revenue Service’s Compliance Assurance Process Program through 2017. With limited exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2010.
It is reasonably possible that, during the next 12 months, we may realize a net decrease in our uncertain tax positions, including interest and penalties, of approximately $9 million, primarily as a result of closing tax years.
Note 9. Net Income Per Common Share
Net income per common share was computed as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| (In millions, except per share amounts) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||
| (A) Net income | $ | 164.1 | $ | 150.5 | $ | 557.4 | $ | 364.4 | ||||||||
| (B) Weighted average number of common shares outstanding | 82.9 | 83.5 | 83.0 | 83.4 | ||||||||||||
| Dilutive shares (additional common shares issuable under stock-based awards) | .8 | .5 | .9 | .6 | ||||||||||||
| (C) Weighted average number of common shares outstanding, assuming dilution | 83.7 | 84.0 | 83.9 | 84.0 | ||||||||||||
| Net income per common share: (A) ÷ (B) | $ | 1.98 | $ | 1.80 | $ | 6.72 | $ | 4.37 | ||||||||
| Net income per common share, assuming dilution: (A) ÷ (C) | $ | 1.96 | $ | 1.79 | $ | 6.64 | $ | 4.34 |
Certain stock-based compensation awards were not included in 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 were not significant for the three
or
nine months ended October 2, 2021 or September 26, 2020.
Avery Dennison Corporation
Note 10. Supplemental Equity and Comprehensive Income Information
Consolidated Changes in Shareholders’ Equity
| Three Months Ended | Nine Months Ended | |||||||||||||||
| (In millions) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||
| Common stock issued, $1 par value per share | $ | 124.1 | $ | 124.1 | $ | 124.1 | $ | 124.1 | ||||||||
| Capital in excess of par value | ||||||||||||||||
| Beginning balance | $ | 846.5 | $ | 840.0 | $ | 862.1 | $ | 874.0 | ||||||||
| Issuance of shares under stock-based compensation plans (1) | 8.3 | 10.3 | (7.3 | ) | (23.7 | ) | ||||||||||
| Ending balance | $ | 854.8 | $ | 850.3 | $ | 854.8 | $ | 850.3 | ||||||||
| Retained earnings | ||||||||||||||||
| Beginning balance | $ | 3,637.3 | $ | 3,100.2 | $ | 3,349.3 | $ | 2,979.1 | ||||||||
| Net income | 164.1 | 150.5 | 557.4 | 364.4 | ||||||||||||
| Issuance of shares under stock-based compensation plans (1) | — | — | (7.1 | ) | (3.3 | ) | ||||||||||
| Contribution of shares to 401(k) Plan (1) | 4.6 | 3.2 | 14.4 | 10.5 | ||||||||||||
| Dividends | (56.3 | ) | (48.4 | ) | (164.3 | ) | (145.2 | ) | ||||||||
| Ending balance | $ | 3,749.7 | $ | 3,205.5 | $ | 3,749.7 | $ | 3,205.5 | ||||||||
| Treasury stock at cost | ||||||||||||||||
| Beginning balance | $ | (2,576.7 | ) | $ | (2,447.2 | ) | $ | (2,501.0 | ) | $ | (2,425.1 | ) | ||||
| Repurchase of shares for treasury | (31.0 | ) | (7.0 | ) | (126.0 | ) | (52.2 | ) | ||||||||
| Issuance of shares under stock-based compensation plans (1) | .1 | .9 | 16.3 | 19.5 | ||||||||||||
| Contribution of shares to 401(k) Plan (1) | 1.2 | 1.9 | 4.3 | 6.4 | ||||||||||||
| Ending balance | $ | (2,606.4 | ) | $ | (2,451.4 | ) | $ | (2,606.4 | ) | $ | (2,451.4 | ) | ||||
| Accumulated other comprehensive loss | ||||||||||||||||
| Beginning balance | $ | (327.6 | ) | $ | (403.2 | ) | $ | (349.6 | ) | $ | (348.1 | ) | ||||
| Other comprehensive income (loss), net of tax | 4.6 | 9.3 | 26.6 | (45.8 | ) | |||||||||||
| Ending balance | $ | (323.0 | ) | $ | (393.9 | ) | $ | (323.0 | ) | $ | (393.9 | ) |
| (1) | We fund a portion of our employee-related expenses 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 the awards vested and record net gains or losses associated with using treasury shares to retained earnings. |
|---|
Dividends per common share were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||
| Dividends per common share | $ | .68 | $ | .58 | $ | 1.98 | $ | 1.74 |
Avery Dennison Corporation
Changes in Accumulated Other Comprehensive Loss
The changes in “Accumulated other comprehensive loss” (net of tax) for the nine-month period ended October 2, 2021 were as follows:
| (In millions) | Foreign Currency Translation | Pension and Other Postretirement Benefits | Cash Flow Hedges | Total | ||||||||||||
| Balance as of January 2, 2021 | $ | (248.1 | ) | $ | (92.7 | ) | $ | (8.8 | ) | $ | (349.6 | ) | ||||
| Other comprehensive income (loss) before reclassifications, net of tax | 19.1 | — | 4.4 | 23.5 | ||||||||||||
| Reclassifications to net income, net of tax | — | 3.3 | (.2 | ) | 3.1 | |||||||||||
| Other comprehensive income (loss), net of tax | 19.1 | 3.3 | 4.2 | 26.6 | ||||||||||||
| Balance as of October 2, 2021 | $ | (229.0 | ) | $ | (89.4 | ) | $ | (4.6 | ) | $ | (323.0 | ) |
The changes in “Accumulated other comprehensive loss” (net of tax) for the nine-month period ended September 26, 2020 were as follows:
| (In millions) | Foreign Currency Translation | Pension and Other Postretirement Benefits | Cash Flow Hedges | Total | ||||||||||||
| Balance as of December 28, 2019 | $ | (245.1 | ) | $ | (101.8 | ) | $ | (1.2 | ) | $ | (348.1 | ) | ||||
| Other comprehensive income (loss) before reclassifications, net of tax | (45.5 | ) | — | (2.3 | ) | (47.8 | ) | |||||||||
| Reclassifications to net income, net of tax | — | 1.9 | .1 | 2.0 | ||||||||||||
| Other comprehensive income (loss), net of tax | (45.5 | ) | 1.9 | (2.2 | ) | (45.8 | ) | |||||||||
| Balance as of September 26, 2020 | $ | (290.6 | ) | $ | (99.9 | ) | $ | (3.4 | ) | $ | (393.9 | ) |
Avery Dennison Corporation
Note 11. Fair Value Measurements
Recurring Fair Value Measurements
The assets and liabilities carried at fair value, measured on a recurring basis, as of October 2, 2021 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 | $ | 33.9 | $ | 27.0 | $ | 6.9 | $ | — | ||||||||
| Derivative assets | 13.7 | 1.7 | 12.0 | — | ||||||||||||
| Bank drafts | 13.6 | 13.6 | — | — | ||||||||||||
| Liabilities | ||||||||||||||||
| Cross-currency swap | $ | 18.9 | $ | — | $ | 18.9 | $ | — | ||||||||
| Derivative liabilities | 7.3 | — | 7.3 | — | ||||||||||||
| Contingent consideration liabilities | 10.4 | — | — | 10.4 |
The assets and liabilities carried at fair value, measured on a recurring basis, as of January 2, 2021 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 | $ | 33.6 | $ | 27.4 | $ | 6.2 | $ | — | ||||||||
| Derivative assets | 5.2 | .1 | 5.1 | — | ||||||||||||
| Bank drafts | 12.8 | 12.8 | — | — | ||||||||||||
| Liabilities | ||||||||||||||||
| Cross-currency swap | $ | 36.7 | $ | — | $ | 36.7 | $ | — | ||||||||
| Derivative liabilities | 9.5 | .3 | 9.2 | — |
Investments include 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 net asset value. As of October 2, 2021, investments of $.4 million and $33.5 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the unaudited Condensed Consolidated Balance Sheets. As of January 2, 2021, investments of $1 million and $32.6 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the unaudited Condensed Consolidated Balance Sheets. Derivatives that are exchange-traded are measured at fair value using quoted market prices and classified within Level 1 of the valuation hierarchy. Derivatives measured based on foreign exchange rate inputs that are readily available in public markets are classified within Level 2 of the valuation hierarchy. Bank drafts (maturities greater than three months) are valued at face value due to their short-term nature and were included in “Other current assets” in the unaudited Condensed Consolidated Balance Sheets.
Contingent consideration liabilities relate to estimated earn-out payments associated with one of the Other 2021 Acquisitions. These payments are based on
the
acquired company’s
achievement of certain performance targets based on the terms of the purchase agreement, and our estimates are based on the expected payments related to these targets as of October 2, 2021. We have classified these liabilities as Level 3. As of October 2, 2021, contingent consideration liabilities of approximately $
3 million and $7 million were included in “Other current liabilities” and “Long-term retirement benefits and other liabilities,” respectively, in the unaudited Condensed Consolidated Balance Sheets.
Avery Dennison Corporation
The activity related to contingent consideration for the nine months ended October 2, 2021 is shown below.
| (In millions) | ||||
| Acquisition | $ | 11.6 | ||
| Payments | (1.2 | ) | ||
| Balance at October 2, 2021 | $ | 10.4 |
Note 12. Commitments and Contingencies
L
egal 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 liabilities be incurred that were not previously accrued. Potential insurance reimbursements are not offset against potential liabilities.
We are currently party to a litigation in which ADASA Inc. (“Adasa”), an unrelated third party, alleged that certain of our radio-frequency identification (“RFID”) products infringed on its patent. We recorded a contingent liability related to this matter in the second quarter of 2021 in the amount of
$26.6
million based on a jury verdict issued on May 14, 2021.
During the third quarter of 2021
, the first instance judgment associated with the jury verdict was issued. This resulted in additional potential liability of $35.8
million for, among other things, RFID tags sold prior to
March 31, 2021 and a royalty on a higher number of tags. In addition, Adasa was awarded a royalty on in-scope tags sold after March 31, 2021; we have largely completed our migration to alternative encoding methods used in our other RFID tags. We did not increase the contingent liability we recorded for this additional potential liability. With continued evaluation of the matter and our defenses, as well as consultation with our outside counsel, we continue to believe that ADASA’s patent is invalid and that, even if valid, we have not infringed it, and that the royalty rate used as the basis for the jury’s determination is unreasonable under prevailing industry standards, as well as that any liability related to this matter would be substantially lower than that which is reflected in either the jury verdict or the first instance judgment. On October 22, 2021, we appealed the judgment to the United States Court of Appeals for the Federal Circuit and continue to believe meritorious defenses exist to significantly reduce the liability we currently have recorded. We maintained our current contingent liability of
$
26.6
million for this matter as a reasonable estimate within the range of probable outcomes.
B
ecause of the uncertainties associated with claims resolution and litigation, future expenses to resolve these matters could be higher than the liabilities we have accrued; however, we are unable to reasonably estimate a range of potential expenses. If information were to become available that allowed us to reasonably estimate a range of potential expenses in an amount higher or lower than what we have accrued and determined such 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 such resolution cannot be determined.
Based upon current information, we believe that the impact of the resolution of these matters would not be, individually or in the aggregate, material to our financial position, results of operations or cash flows.
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 liabilities be incurred that were not previously accrued. Potential 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 October 2, 2021, we have been designated by the U.S. Environmental Protection Agency (“EPA”) and/or other responsible state agencies as a PRP at twelve 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; however, we are unable to reasonably estimate a range of potential expenses. If information were to become available that allowed us to reasonably estimate a range of potential expenses in an amount higher or lower than what we have accrued, we
Avery Dennison Corporation
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 such remediation cannot be determined.
The activity related to our environmental liabilities for the nine months ended October 2, 2021 is shown below.
| (In millions) | ||||
| Balance at January 2, 2021 | $ | 21.1 | ||
| Charges, net of reversals | 1.3 | |||
| Payments | (1.6 | ) | ||
| Balance at October 2, 2021 | $ | 20.8 |
Approximately $2 million and $9 million of th
is
balance was classified as short-term and included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets as of October 2, 2021 and January 2, 2021, respectively.
Note 13. Segment and Disaggregated Revenue Information
Disaggregated Revenue Information
Disaggregated revenue information is shown below in the manner that best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Revenue from our Label and Graphic Materials reportable segment is attributed to geographic areas based on the location from which products are shipped. Revenue from our RBIS reportable segment is shown by product group.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| (In millions) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||
| Net sales to unaffiliated customers | ||||||||||||||||
| Label and Graphic Materials: | ||||||||||||||||
| U.S. | $ | 372.1 | $ | 320.7 | $ | 1,094.7 | $ | 963.9 | ||||||||
| Europe, Middle East and North Africa | 499.3 | 404.6 | 1,550.8 | 1,272.2 | ||||||||||||
| Asia | 289.4 | 264.4 | 910.4 | 736.4 | ||||||||||||
| Latin America | 103.6 | 84.1 | 300.0 | 245.2 | ||||||||||||
| Other international | 81.4 | 71.6 | 243.1 | 202.7 | ||||||||||||
| Total Label and Graphic Materials | 1,345.8 | 1,145.4 | 4,099.0 | 3,420.4 | ||||||||||||
| Retail Branding and Information Solutions: | ||||||||||||||||
| Apparel | 436.5 | 371.5 | 1,334.5 | 985.1 | ||||||||||||
| Identification Solutions (1) and Vestcom | 94.2 | 54.6 | 208.2 | 137.8 | ||||||||||||
| Total Retail Branding and Information Solutions | 530.7 | 426.1 | 1,542.7 | 1,122.9 | ||||||||||||
| Industrial and Healthcare Materials | 195.3 | 157.6 | 583.4 | 437.3 | ||||||||||||
| Net sales to unaffiliated customers | $ | 2,071.8 | $ | 1,729.1 | $ | 6,225.1 | $ | 4,980.6 |
| (1) | Previously referred to as Printer Solutions |
|---|
Avery Dennison Corporation
Additional Segment Information
Additional financial information by reportable segment and Corporate is shown below.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| (In millions) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||
| Intersegment sales | ||||||||||||||||
| Label and Graphic Materials | $ | 24.8 | $ | 19.8 | $ | 71.1 | $ | 55.1 | ||||||||
| Retail Branding and Information Solutions | 10.4 | 7.3 | 28.1 | 19.4 | ||||||||||||
| Industrial and Healthcare Materials | 3.7 | 2.0 | 8.0 | 4.8 | ||||||||||||
| Intersegment sales | $ | 38.9 | $ | 29.1 | $ | 107.2 | $ | 79.3 | ||||||||
| Income before taxes | ||||||||||||||||
| Label and Graphic Materials | $ | 184.9 | $ | 173.1 | $ | 639.2 | $ | 483.1 | ||||||||
| Retail Branding and Information Solutions | 58.5 | 47.0 | 160.6 | 67.2 | ||||||||||||
| Industrial and Healthcare Materials | 18.7 | 12.5 | 64.7 | 34.9 | ||||||||||||
| Corporate expense | (20.6 | ) | (19.1 | ) | (69.3 | ) | (49.0 | ) | ||||||||
| Interest expense | (18.0 | ) | (15.6 | ) | (50.2 | ) | (54.4 | ) | ||||||||
| Other non-operating expense (income), net | .9 | (.1 | ) | 3.6 | .2 | |||||||||||
| Income before taxes | $ | 224.4 | $ | 197.8 | $ | 748.6 | $ | 482.0 | ||||||||
| Other expense (income), net, by reportable segment and Corporate | ||||||||||||||||
| Label and Graphic Materials | $ | .2 | $ | 1.4 | $ | (30.2 | ) | $ | 28.3 | |||||||
| Retail Branding and Information Solutions | 14.6 | 4.4 | 44.2 | 20.6 | ||||||||||||
| Industrial and Healthcare Materials | .7 | 6.6 | 1.3 | 8.6 | ||||||||||||
| Corporate | .5 | — | 1.0 | (.2 | ) | |||||||||||
| Other expense (income), net | $ | 16.0 | $ | 12.4 | $ | 16.3 | $ | 57.3 | ||||||||
| Other expense (income), net, by type | ||||||||||||||||
| Restructuring charges: | ||||||||||||||||
| Severance and related costs | $ | 1.1 | $ | 6.5 | $ | 5.1 | $ | 46.4 | ||||||||
| Asset impairment charges and lease cancellation costs | 1.3 | 4.4 | 1.9 | 6.2 | ||||||||||||
| Other items: | ||||||||||||||||
| Transaction and related costs | 19.4 | — | 20.1 | 3.2 | ||||||||||||
| Loss on sale of assets, net | — | — | .2 | — | ||||||||||||
| (Gain) loss on investments | (4.9 | ) | 1.5 | (4.9 | ) | 1.5 | ||||||||||
| Gain on sale of product line | (.9 | ) | — | (5.7 | ) | — | ||||||||||
| Outcomes of legal proceedings, net (1) | — | — | (.4 | ) | — | |||||||||||
| Other expense (income), net | $ | 16.0 | $ | 12.4 | $ | 16.3 | $ | 57.3 |
| (1) | First nine months of 2021 include an indirect tax credit based on a Brazilian Federal Supreme Court ruling in our favor in the amount of $29.1 million, partially offset by a contingent liability related to a patent infringement lawsuit in the amount of $26.6 million. Refer to Note 12, “Commitments and Contingencies,” to the unaudited Condensed Consolidated Financial Statements for more information related to the patent infringement lawsuit. |
|---|
Note 14. Supplemental Financial Information
Inventories
The table below summarizes the amounts in inventories, net.
| (In millions) | October 2, 2021 | January 2, 2021 | ||||||
| Raw materials | $ | 367.3 | $ | 268.6 | ||||
| Work-in-progress | 228.9 | 210.3 | ||||||
| Finished goods | 282.9 | 238.3 | ||||||
| Inventories, net | $ | 879.1 | $ | 717.2 |
Avery Dennison Corporation
Property, Plant and Equipment
The table below summarizes the amounts in property, plant and equipment, net.
| (In millions) | October 2, 2021 | January 2, 2021 | ||||||
| Property, plant and equipment | $ | 3,536.4 | $ | 3,476.3 | ||||
| Accumulated depreciation | (2,130.9 | ) | (2,132.6 | ) | ||||
| Property, plant and equipment, net | $ | 1,405.5 | $ | 1,343.7 |
Allowance for Credit Losses
| The activity related to our allowance for credit losses is shown below. | ||||||||
|---|---|---|---|---|---|---|---|---|
| Nine Months Ended | ||||||||
| (In millions) | October 2, 2021 | September 26, 2020 | ||||||
| Beginning balance | $ | 44.6 | $ | 27.1 | ||||
| (Reversal of) provision for credit losses (1) | (4.8 | ) | 20.0 | |||||
| Amounts written off | (3.1 | ) | (2.3 | ) | ||||
| Other, including foreign currency translation | .3 | 1.0 | ||||||
| Ending balance | $ | 37.0 | $ | 45.8 |
| (1) | For the nine months ended September 26, 2020, our provision for credit losses reflected impacts on customers as a result of COVID-19. |
|---|
Avery Dennison Corporation
Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS