Company Quick10K Filing
Quick10K
Avery Dennison
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$105.54 84 $8,910
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-29 Annual: 2018-12-29
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2016-01-02 Annual: 2016-01-02
10-Q 2015-10-03 Quarter: 2015-10-03
10-Q 2015-07-04 Quarter: 2015-07-04
10-Q 2015-04-04 Quarter: 2015-04-04
10-K 2015-01-03 Annual: 2015-01-03
10-Q 2014-09-27 Quarter: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-K 2013-12-28 Annual: 2013-12-28
8-K 2019-05-16 Officers
8-K 2019-04-25 Shareholder Vote, Other Events
8-K 2019-04-24 Earnings, Exhibits
8-K 2019-02-26 Officers, Exhibits
8-K 2019-01-30 Earnings, Exhibits
8-K 2018-12-06 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-29 Other Events, Exhibits
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-09-09 Officers, Exhibits
8-K 2018-08-29 Other Events
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-07-09 Regulation FD
8-K 2018-04-26 Shareholder Vote
8-K 2018-04-19 Earnings, Exit Costs, Exhibits
8-K 2018-01-31 Earnings, Exhibits
TPX Tempur Sealy 3,390
RGNX Regenxbio 1,690
BE Bloom Energy 1,550
INN Summit Hotel Properties 1,300
GPRO Gopro 1,020
QTRX Quanterix 524
DFFN Diffusion Pharmaceuticals 15
SINO Sino-Global Shipping America 12
CHKE Cherokee 12
MSLP Musclepharm 0
AVY 2019-03-30
Part I. Financial Information
Item 1. Financial Statements
Note 1. General
Note 2. Leases
Note 3. Goodwill
Note 4. Debt
Note 5. Pension and Other Postretirement Benefits
Note 6. Long-Term Incentive Compensation
Note 7. Cost Reduction Actions
Note 8. Financial Instruments
Note 9. Taxes Based on Income
Note 10. Net (Loss) Income per Common Share
Note 11. Supplemental Equity and Comprehensive Income Information
Note 12. Fair Value Measurements
Note 13. Commitments and Contingencies
Note 14. Segment and Disaggregated Revenue Information
Note 15. Supplemental Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 a19-6500_1ex31d1.htm
EX-31.2 a19-6500_1ex31d2.htm
EX-32.1 a19-6500_1ex32d1.htm
EX-32.2 a19-6500_1ex32d2.htm

Avery Dennison Earnings 2019-03-30

AVY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a19-6500_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

x          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2019.

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark 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 x 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. (Check one):

 

x Large accelerated filer 

o Accelerated filer 

o Non-accelerated filer

o Smaller reporting company

o Emerging growth company

 

If an emerging growth company, indicate by checkmark 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 x

 

Number of shares of $1 par value common stock outstanding as of April 27, 2019: 84,415,853

 


Table of Contents

 

AVERY DENNISON CORPORATION

 

FISCAL FIRST QUARTER 2019 QUARTERLY REPORT ON FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

 

Page

SAFE HARBOR STATEMENT

 

1

 

 

 

 

PART I. FINANCIAL INFORMATION (UNAUDITED)

 

 

 

 

 

 

Item 1.

Financial Statements:

 

 

 

Condensed Consolidated Balance Sheets
March 30, 2019 and December 29, 2018

 

2

 

Condensed Consolidated Statements of Operations
Three Months ended March 30, 2019 and March 31, 2018

 

3

 

Condensed Consolidated Statements of Comprehensive Income
Three Months ended March 30, 2019 and March 31, 2018

 

4

 

Condensed Consolidated Statements of Cash Flows
Three Months ended March 30, 2019 and March 31, 2018

 

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

Non-GAAP Financial Measures

 

21

 

Overview and Outlook

 

22

 

Analysis of Results of Operations for the First Quarter

 

24

 

Results of Operations by Reportable Segment for the First Quarter

 

25

 

Financial Condition

 

27

 

Recent Accounting Requirements

 

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4.

Controls and Procedures

 

32

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

33

Item 1A.

Risk Factors

 

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

Item 3.

Defaults Upon Senior Securities

 

33

Item 4.

Mine Safety Disclosures

 

33

Item 5.

Other Information

 

34

Item 6.

Exhibits

 

34

Signatures

 

 

35

Exhibits

 

 

 

 


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, which 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.

 

Certain risks and uncertainties are discussed in more detail under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 include, but are not limited to, risks and uncertainties relating to the following: fluctuations in demand affecting sales to customers; worldwide and local economic conditions; changes in political conditions; changes in governmental laws and regulations; fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in our markets due to competitive conditions, technological developments, laws and regulations, and customer preferences; fluctuations in cost and availability of raw materials; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; the impact of competitive products and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; execution and integration of acquisitions; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates; changes in tax laws and regulations, including the U.S. Tax Cuts and Jobs Act and regulations issued related thereto, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; fluctuations in pension, insurance, and employee benefit costs; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety; protection and infringement of intellectual property; the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other factors.

 

We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impacts of global economic conditions and political uncertainty on underlying demand for our products and foreign currency fluctuations; (2) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through selling price increases, without a significant loss of volume; (3) competitors’ actions, including pricing, expansion in key markets, and product offerings; and (4) the execution and integration of acquisitions.

 

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.

 

1


Table of Contents

 

Avery Dennison Corporation

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(In millions, except per share amount)

 

March 30, 2019

 

December 29, 2018

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

225.7

 

$

232.0

 

Trade accounts receivable, less allowances of $22.1 and $21.1 at March 30, 2019 and December 29, 2018, respectively

 

1,198.7

 

1,189.7

 

Inventories, net

 

688.3

 

651.4

 

Other current assets

 

211.0

 

224.9

 

Total current assets

 

2,323.7

 

2,298.0

 

Property, plant and equipment, net

 

1,144.9

 

1,137.4

 

Goodwill

 

937.2

 

941.8

 

Other intangibles resulting from business acquisitions, net

 

140.6

 

144.0

 

Non-current deferred income taxes

 

191.5

 

205.3

 

Other assets

 

615.8

 

451.0

 

 

 

$

5,353.7

 

$

5,177.5

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term borrowings and current portion of long-term debt and finance leases

 

$

350.3

 

$

194.6

 

Accounts payable

 

1,033.7

 

1,030.5

 

Accrued payroll and employee benefits

 

159.1

 

217.9

 

Other current liabilities

 

497.4

 

551.0

 

Total current liabilities

 

2,040.5

 

1,994.0

 

Long-term debt and finance leases

 

1,759.9

 

1,771.6

 

Long-term retirement benefits and other liabilities

 

441.0

 

334.7

 

Non-current deferred and payable income taxes

 

120.4

 

122.1

 

Commitments and contingencies (see Note 13)

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock, $1 par value per share, authorized — 400,000,000 shares at March 30, 2019 and December 29, 2018; issued — 124,126,624 shares at March 30, 2019 and December 29, 2018; outstanding — 84,399,377 shares and 84,723,655 shares at March 30, 2019 and December 29, 2018, respectively

 

124.1

 

124.1

 

Capital in excess of par value

 

851.5

 

872.0

 

Retained earnings

 

2,663.5

 

2,864.9

 

Treasury stock at cost, 39,727,247 shares and 39,402,969 shares at March 30, 2019 and December 29, 2018, respectively

 

(2,287.8

)

(2,223.9

)

Accumulated other comprehensive loss

 

(359.4

)

(682.0

)

Total shareholders’ equity

 

991.9

 

955.1

 

 

 

$

5,353.7

 

$

5,177.5

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

2


Table of Contents

 

Avery Dennison Corporation

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

(In millions, except per share amounts)

 

March 30,
2019

 

March 31,
2018

 

Net sales

 

$

1,740.1

 

$

1,776.4

 

Cost of products sold

 

1,274.7

 

1,293.0

 

Gross profit

 

465.4

 

483.4

 

Marketing, general and administrative expense

 

276.3

 

295.0

 

Other expense, net

 

7.5

 

12.8

 

Interest expense

 

19.5

 

13.2

 

Other non-operating expense

 

446.5

 

3.3

 

(Loss) income before taxes

 

(284.4

)

159.1

 

(Benefit from) provision for income taxes

 

(138.4

)

33.3

 

Equity method investment net losses

 

(.9

)

(.6

)

Net (loss) income

 

$

(146.9

)

$

125.2

 

 

 

 

 

 

 

Per share amounts:

 

 

 

 

 

Net (loss) income per common share

 

$

(1.74

)

$

1.42

 

Net (loss) income per common share, assuming dilution

 

$

(1.74

)

$

1.40

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

Common shares

 

84.3

 

88.0

 

Common shares, assuming dilution

 

84.3

 

89.6

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

3


Table of Contents

 

Avery Dennison Corporation

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended

 

(In millions)

 

March 30,
2019

 

March 31,
2018

 

Net (loss) income

 

$

(146.9

)

$

125.2

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Foreign currency translation

 

22.1

 

34.3

 

Pension and other postretirement benefits

 

300.7

 

5.7

 

Cash flow hedges

 

(.2

)

.9

 

Other comprehensive income, net of tax

 

322.6

 

40.9

 

Total comprehensive income, net of tax

 

$

175.7

 

$

166.1

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

4


Table of Contents

 

Avery Dennison Corporation

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Operating Activities

 

 

 

 

 

Net (loss) income

 

$

(146.9

)

$

125.2

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

34.9

 

34.3

 

Amortization

 

9.6

 

10.2

 

Provision for doubtful accounts and sales returns

 

14.8

 

12.9

 

Stock-based compensation

 

7.6

 

7.4

 

Pension plan settlements and related charges

 

446.9

 

.5

 

Deferred income taxes and other non-cash taxes

 

(172.8

)

(8.0

)

Other non-cash expense and loss

 

3.3

 

24.0

 

Changes in assets and liabilities and other adjustments

 

(162.0

)

(190.5

)

Net cash provided by operating activities

 

35.4

 

16.0

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Purchases of property, plant and equipment

 

(41.8

)

(35.6

)

Purchases of software and other deferred charges

 

(5.5

)

(7.3

)

Proceeds from sales of property, plant and equipment

 

7.3

 

6.9

 

Proceeds from insurance and sales (purchases) of investments, net

 

4.5

 

.3

 

Payments for investments in businesses

 

(6.5

)

(.1

)

Net cash used in investing activities

 

(42.0

)

(35.8

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Net increase in borrowings (maturities of three months or less)

 

155.4

 

104.3

 

Repayments of long-term debt and finance leases

 

(1.8

)

(1.0

)

Dividends paid

 

(43.9

)

(39.6

)

Share repurchases

 

(88.7

)

(51.6

)

Net (tax withholding) proceeds related to stock-based compensation

 

(20.1

)

(31.4

)

Payments of contingent consideration

 

(1.6

)

(2.5

)

Net cash used in financing activities

 

(.7

)

(21.8

)

 

 

 

 

 

 

Effect of foreign currency translation on cash balances

 

1.0

 

4.7

 

Decrease in cash and cash equivalents

 

(6.3

)

(36.9

)

Cash and cash equivalents, beginning of year

 

232.0

 

224.4

 

Cash and cash equivalents, end of period

 

$

225.7

 

$

187.5

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

5


Table of Contents

 

Avery Dennison Corporation

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.  General

 

The unaudited Condensed Consolidated Financial Statements and notes thereto 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 notes thereto in our 2018 Annual Report on Form 10-K, which should be read in conjunction with this Quarterly Report on Form 10-Q. The accompanying 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.

 

Fiscal Periods

The first quarters of 2019 and 2018 consisted of thirteen-week periods ending March 30, 2019 and March 31, 2018, respectively.

 

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

 

Accounting Guidance Updates

Leases

In the first quarter of 2019, we adopted accounting guidance that requires lessees to recognize the rights and obligations created by leases on their balance sheets. This guidance also requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. As allowed under this guidance, we have elected to apply it using a modified retrospective approach. This approach applies to all leases that exist at or commence after the date of our initial application. As such, prior year comparative periods have not been adjusted.  We elected the transition practical expedients allowed under this guidance.  See Note 2, “Leases,” for more information.

 

Hedge Accounting

In the first quarter of 2019, we prospectively adopted amended accounting guidance issued to improve the financial reporting of hedging relationships to better reflect the economic results of an entity’s risk management activities in its financial statements and simplify the application of hedge accounting.  As a result of our adoption, the reclassification of gains and losses from cash flow hedges to earnings are included in the same financial statement line item as the hedged item.  Our adoption of this guidance did not have a material impact on our financial position, results of operations, cash flows, or disclosures.

 

Reclassification of certain tax effects from accumulated other comprehensive income

In the first quarter of 2019, we adopted accounting guidance that provides entities with the option to reclassify certain tax effects of the U.S. Tax Cuts and Jobs Act (“TCJA”) in accumulated other comprehensive income (“AOCI”) to retained earnings.  We elected not to reclassify the stranded income tax effects lodged in AOCI to retained earnings.  Our accounting policy is to release the income tax effects from AOCI to the income statement at the current statutory rate when the related pretax change is recognized.  Furthermore, we release the disproportionate tax effects in AOCI through the income statement as a discrete tax adjustment in the period when the circumstances upon which they are premised cease to exist.

 

Note 2.  Leases

 

Our leases primarily relate to office and warehouse space, machinery, transportation, and equipment for information technology. 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 determine if an arrangement is a lease or contains a lease at inception. Certain of our leases have options to renew lease terms or be terminated prior to their expiration dates and the exercise of these options is generally at our discretion. We evaluate renewal and termination options based on considerations available 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 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.

 

6


Table of Contents

 

Avery Dennison Corporation

 

Supplemental cost information related to leases is shown below.

 

 

 

Three Months
Ended

 

(In millions)

 

March 30, 2019

 

Operating lease cost

 

$

16.5

 

 

Lease costs related to finance leases were immaterial for the three months ended March 30, 2019.

 

Supplemental balance sheet information related to leases for the quarter is shown below.

 

(In millions)

 

Balance Sheet Location

 

March 30, 2019

 

Assets

 

 

 

 

 

Operating

 

Other assets

 

$

151.5

 

Finance

 

Property, plant and equipment, net(1)

 

25.7

 

Total leased assets

 

 

 

$

177.2

 

 

(1)Finance lease assets are net of accumulated amortization of $5.2 million as of March 30, 2019.

 

Liabilities

 

 

 

 

 

Current:

 

 

 

 

 

Operating

 

Other current liabilities

 

$

40.5

 

Finance

 

Short-term borrowings and current portion of long-term debt and finance leases

 

3.4

 

Non-current:

 

 

 

 

 

Operating

 

Long-term retirement benefits and other liabilities

 

116.7

 

Finance

 

Long-term debt and finance leases

 

15.9

 

Total lease liabilities

 

 

 

$

176.5

 

 

Supplemental cash flow information related to leases is shown below.

 

 

 

Three Months
Ended

 

(In millions)

 

March 30, 2019

 

Cash paid for amounts included in the measurement of operating lease liabilities

 

$

12.5

 

Lease assets obtained in exchange for lease liabilities — operating leases

 

9.8

 

 

Cash flows related to finance leases were immaterial for the three months ended March 30, 2019.

 

Weighted average remaining lease term and discount rate information related to leases are shown below.

 

 

 

March 30, 2019

 

Weighted average remaining lease term (in years):

 

 

 

Operating

 

6.2

 

Finance

 

5.8

 

Weighted average discount rate (%):

 

 

 

Operating

 

4.9

%

Finance

 

3.6

 

 

7


Table of Contents

 

Avery Dennison Corporation

 

Maturities of lease liabilities from March 30, 2019 are shown below.

 

(In millions)

 

Operating Leases

 

Finance Leases

 

2019 (remainder of year)

 

$

34.8

 

$

3.3

 

2020

 

41.2

 

4.0

 

2021

 

30.3

 

3.8

 

2022

 

19.7

 

3.5

 

2023

 

13.1

 

3.3

 

2024 and thereafter

 

42.8

 

4.2

 

Total lease payments

 

181.9

 

22.1

 

Less: imputed interest

 

(24.7

)

(2.8

)

Present value of lease liabilities

 

$

157.2

 

$

19.3

 

 

As of March 30, 2019, we had no additional significant operating or finance leases that had not yet commenced.

 

As of December 29, 2018, $184.8 million of minimum annual rental commitments on operating leases was payable as follows: $47.7 million in 2019, $38.9 million in 2020, $29.4 million in 2021, $18.8 million in 2022, $12.9 million in 2023, and $37.1 million thereafter.

 

Note 3.  Goodwill

 

Changes in the net carrying amount of goodwill for the three months ended March 30, 2019 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 December 29, 2018

 

$

415.5

 

$

349.7

 

$

176.6

 

$

941.8

 

Translation adjustments

 

(4.6

)

(.8

)

.8

 

(4.6

)

Goodwill as of March 30, 2019

 

$

410.9

 

$

348.9

 

$

177.4

 

$

937.2

 

 

The carrying amounts of goodwill at March 30, 2019 and December 29, 2018 were net of accumulated impairment losses of $820 million recognized in fiscal year 2009 by our Retail Branding and Information Solutions (“RBIS”) reportable segment.

 

Note 4.  Debt

 

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 the short duration of these obligations. The fair value of our total debt was $2.18 billion at March 30, 2019 and $2 billion at December 29, 2018. Fair value amounts 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 financial covenants requiring that we maintain specified ratios, including total debt and interest expense in relation to certain measures of income. No balance was outstanding under the Revolver as of March 30, 2019 or December 29, 2018. As of both March 30, 2019 and December 29, 2018, we were in compliance with our financial covenants.

 

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 have been frozen, covering eligible employees in the U.S. and certain other countries. Benefits payable to an employee are based primarily on years of service and the employee’s compensation during the course of his or her employment with us.

 

We are also obligated to pay unfunded termination indemnity benefits to certain employees outside of the U.S., which are subject to applicable agreements, laws and regulations. We have not incurred significant costs related to these benefits, and, therefore, no related costs are included in the disclosures below.

 

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The table below shows the components of net periodic benefit cost (credit), which are recorded in income, for our defined benefit plans.

 

 

 

Pension Benefits

 

U.S. Postretirement
Health Benefits

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

March 30, 2019

 

March 31, 2018

 

March 30,

 

March 31,

 

(In millions)

 

U.S.

 

Int’l

 

U.S.

 

Int’l

 

2019

 

2018

 

Service cost

 

$

 

$

4.0

 

$

 

$

4.9

 

$

 

$

 

Interest cost

 

.7

 

3.7

 

8.6

 

3.9

 

 

 

Expected return on plan assets

 

 

(5.3

)

(10.6

)

(6.1

)

 

 

Recognized net actuarial loss

 

.1

 

1.0

 

5.2

 

2.1

 

.3

 

.4

 

Amortization of prior service (credit) cost

 

 

(.1

)

.2

 

(.1

)

(.8

)

(.8

)

Recognized loss on settlements

 

446.9

 

 

.5

 

 

 

 

Net periodic benefit cost (credit)

 

$

447.7

 

$

3.3

 

$

3.9

 

$

4.7

 

$

(.5

)

$

(.4

)

 

Service cost and components of net periodic benefit cost (credit) other than service cost were included in “Marketing, general and administrative expense” and “Other non-operating expense” in the unaudited Condensed Consolidated Statements of Operations, respectively.

 

In July 2018, our Board of Directors (“Board”) approved the termination of the Avery Dennison Pension Plan (the “ADPP”), a U.S. defined benefit plan, effective as of September 28, 2018. In connection with the termination, we settled approximately $152 million of ADPP liabilities during the fourth quarter of 2018 through lump-sum payments from existing plan assets to eligible participants who elected to receive them and recorded approximately $85 million of non-cash charges associated with these settlements. On March 21, 2019, we effectively settled the remaining ADPP liabilities through the execution of an agreement to purchase annuities from American General Life Insurance Company (“AGL”), a subsidiary of American International Group, Inc. Under the agreement, we settled approximately $750 million of ADPP pension obligations for approximately 8,500 active and former employees and their beneficiaries, with AGL assuming the future annuity payments for these individuals, commencing at April 1, 2019. This settlement resulted in approximately $447 million of pretax charges, partially offset by related tax benefits of $180 million, which we recorded in March 2019.  Refer to Note 9, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for more information.

 

We contributed approximately $7 million of cash to the ADPP during the first quarter of 2019 to cover costs associated with the settlement of these liabilities.

 

Note 6.  Long-Term Incentive Compensation

 

Stock-Based Awards

Stock-based compensation expense was $7.6 million and $7.4 million for the three months ended March 30, 2019 and March 31, 2018, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations.

 

As of March 30, 2019, we had approximately $58 million of unrecognized compensation expense related to unvested stock-based awards, which we expect to recognize over the remaining weighted-average requisite service period of approximately two years.

 

Cash-Based Awards

The compensation expense related to long-term incentive units was $8.4 million and $5.6 million for the three months ended March 30, 2019 and March 31, 2018, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations.

 

Note 7.  Cost Reduction Actions

 

2018/2019 Actions

In April 2018, we approved a restructuring plan (the “2018 Plan”) to consolidate the European footprint of our LGM reportable segment, which is expected to result in a headcount reduction of approximately 400 positions related to the closure of a manufacturing facility. This reduction is expected to be partially offset by headcount additions in other locations, resulting in a net reduction of approximately 150 positions. The cumulative charges associated with the 2018 Plan through the first quarter of 2019 consisted of severance and related costs for the reduction of approximately 345 positions, as well as asset impairment charges. During the three months ended March 30, 2019, we recorded a net $1.9 million in restructuring reversals related to the 2018 Plan. We expect the 2018 Plan to be substantially complete by the end of 2019.

 

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In addition to the net restructuring reversals recorded under the 2018 Plan, we recorded $12.9 million in restructuring charges during the three months ended March 30, 2019 related to other 2018/2019 Actions.  These charges consisted of severance and related costs for the reduction of approximately 140 positions, as well as lease cancellation costs.

 

During the three months ended March 30, 2019, restructuring charges and payments were as follows:

 

(In millions)

 

Accrual at
December 29,
2018

 

Charges,
Net of

Reversals

 

Cash
Payments

 

Non-cash
Impairment

 

Foreign
Currency
Translation

 

Accrual at
March 30,
2019

 

2018/2019 Actions

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and related costs

 

$

40.7

 

$

10.7

 

$

(14.1

)

$

 

$

(.7

)

$

36.6

 

Lease cancellation costs

 

 

.3

 

 

 

 

.3

 

Total

 

$

40.7

 

$

11.0

 

$

(14.1

)

$

 

$

(.7

)

$

36.9

 

 

2015/2016 Actions

During the three months ended March 30, 2019, we recorded $.3 million in restructuring reversals related to restructuring actions initiated during the third quarter of 2015.

 

The activities and related charges and payments for the 2015/2016 Actions were substantially completed in 2018.

 

Accruals for severance and related costs and 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 selling costs, if applicable. Restructuring charges were included in “Other expense, net” in the unaudited Condensed Consolidated Statements of Operations.

 

The table below shows the total amount of restructuring charges, net of reversals, incurred by reportable segment.

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Restructuring charges, net of reversals, by reportable segment

 

 

 

 

 

Label and Graphic Materials

 

$

8.3

 

$

7.5

 

Retail Branding and Information Solutions

 

.5

 

5.2

 

Industrial and Healthcare Materials

 

1.9

 

 

Total

 

$

10.7

 

$

12.7

 

 

Note 8.  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 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 for forecasted transactions is 36 months.

 

As of March 30, 2019, the aggregate U.S. dollar equivalent notional value of our outstanding commodity contracts and foreign exchange contracts was $3.6 million and $1.18 billion, respectively.

 

We recognize derivative instruments as either assets or liabilities at fair value in the unaudited Condensed Consolidated Balance Sheets. We designate commodity forward contracts on forecasted purchases of commodities and foreign exchange contracts on forecasted transactions as cash flow hedges. We also enter into foreign exchange contracts to offset risks arising from foreign exchange rate fluctuations.

 

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The following table shows the fair values and balance sheet locations of cash flow hedges as of March 30, 2019 and December 29, 2018:

 

 

 

 

 

Asset

 

(In millions)

 

Balance Sheet Location

 

March 30, 2019

 

December 29, 2018

 

Foreign exchange contracts

 

Other current assets

 

$

1.8

 

$

.5

 

Commodity contracts

 

Other current assets

 

 

.1

 

 

 

 

 

$

1.8

 

$

.6

 

 

 

 

 

 

Liability

 

(In millions)

 

Balance Sheet Location

 

March 30, 2019

 

December 29, 2018

 

Foreign exchange contracts

 

Other current liabilities

 

$

1.5

 

$

.8

 

 

The following table shows the fair values and balance sheet locations of other derivatives as of March 30, 2019 and December 29, 2018:

 

 

 

 

 

Asset

 

(In millions)

 

Balance Sheet Location

 

March 30, 2019

 

December 29, 2018

 

Foreign exchange contracts

 

Other current assets

 

$

5.6

 

$

3.0

 

 

 

 

 

 

Liability

 

(In millions)

 

Balance Sheet Location

 

March 30, 2019

 

December 29, 2018

 

Foreign exchange contracts

 

Other current liabilities

 

$

6.1

 

$

7.9

 

 

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of “Accumulated other comprehensive loss” and reclassified into earnings in the same period(s) during which the hedged transaction impacts earnings.  Gains and losses on the derivatives, representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings.

 

Gains (losses), before taxes, recognized in “Accumulated other comprehensive loss” (effective portion) on derivatives related to cash flow hedge contracts were as follows:

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Foreign exchange contracts

 

$

.2

 

$

.9

 

Commodity contracts

 

(.1

)

 

Total

 

$

.1

 

$

.9

 

 

The amounts recognized in income related to the ineffective portion of, and the amount excluded from, effectiveness testing for cash flow hedges and derivatives not designated as hedging instruments were immaterial for the three months ended March 30, 2019 and March 31, 2018.

 

As of March 30, 2019, we expected a net loss of approximately $.7 million to be reclassified from “Accumulated other comprehensive loss” to earnings within the next 12 months.

 

Other Derivatives

For other derivative instruments, which are not designated as hedging instruments, the gain or loss is recognized in current earnings.  These derivatives are intended to offset certain of our economic exposures.

 

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The following table shows the components of the net losses recognized in income related to these derivative instruments:

 

 

 

 

 

Three Months Ended

 

(In millions)

 

Statements of Operations Location

 

March 30, 2019

 

March 31, 2018

 

Foreign exchange contracts

 

Cost of products sold

 

$

(.5

)

$

(.8

)

Foreign exchange contracts

 

Marketing, general and administrative expense

 

(.1

)

(9.5

)

Total

 

 

 

$

(.6

)

$

(10.3

)

 

Net Investment Hedge

In March 2017, we designated €500 million of our 1.25% senior notes due 2025 as a net investment hedge of our investment in foreign operations. In January 2018, we reduced the amount we designated as a net investment hedge to €255 million. The net assets from the investment in foreign operations were greater than the senior notes, and as such, the net investment hedge was effective.

 

Gains (losses), before tax, recognized in “Accumulated other comprehensive loss” (effective portion) related to the net investment hedge were as follows:

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Foreign currency denominated debt

 

$

5.7

 

$

(22.8

)

 

We recorded no ineffectiveness from our net investment hedge in net (loss) income during the three months ended March 30, 2019 and March 31, 2018.

 

Note 9.  Taxes Based on Income

 

The following table summarizes our (loss) income before taxes, (benefit from) provision for income taxes, and effective tax rate:

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

(Loss) income before taxes

 

$

(284.4

)

$

159.1

 

(Benefit from) provision for income taxes

 

(138.4

)

33.3

 

Effective tax rate

 

48.7

%

20.9

%

 

Our effective tax rate for the three months ended March 30, 2019 was 48.7%, compared to 20.9% in the same period last year.  The change in tax rate was primarily impacted by the tax effects of the pension plan settlement charges associated with the termination of the ADPP during the three months ended March 30, 2019.

 

Our effective tax rate for the three months ended March 30, 2019 included: (i) a 2%-3% rate impact due to the loss of benefits associated with a concessionary tax rate in a foreign jurisdiction; (ii) $3 million of net tax charges related to the tax on global intangible low-taxed income (“GILTI”) of our foreign subsidiaries, partially offset by the benefit from foreign-derived intangible income (“FDII”); and (iii) $2.4 million of tax charges resulting from recognizing foreign withholding taxes on current year earnings.  Effective in 2019, we implemented certain structural changes to align with operational strategies, one benefit of which was to reduce our base erosion payments below the statutory minimum threshold.  As a result, our effective tax rate for the three months ended March 30, 2019 does not include tax charges related to Base Erosion Antiabuse Tax (“BEAT”).  Additionally, our effective tax rate for the three months ended March 30, 2019 reflected certain discrete items, including the following: (i) $6.9 million of tax benefits related to excess tax benefits associated with stock-based payments and (ii) $179.8 million of tax benefits related to the effective settlement of the ADPP, $102.9 million of which was the related tax effect on the pretax charge of $446.9 million and $76.9 million of which was related to the release of stranded tax effects in AOCI through the income statement.  The tax effects were stranded primarily as a result of the U.S. federal tax rate change under the TCJA. Refer to Note 1, “General,” and Note 5, “Pension and Other Postretirement Benefits,” to the unaudited Condensed Consolidated Financial Statements for more information.

 

Our effective tax rate for the three months ended March 31, 2018 included: (i) $7.2 million of net tax charges related to the tax on GILTI of our foreign subsidiaries and the BEAT on certain foreign earnings, partially offset by the benefit from FDII; (ii) $2.8 million of tax charges resulting from recognizing foreign withholding taxes on current year earnings; and (iii) $4 million of tax benefits from the release of valuation allowances on certain state deferred tax assets, which primarily related to the impact of state conformity to certain TCJA provisions.  These impacts were primarily a result of the TCJA.  Additionally, the effective tax rate for the three months ended March 31, 2018 reflected certain discrete items, including the following: (i) $7.1 million of tax benefits related to excess tax benefits associated with stock-based payments and (ii) $7.1 million of tax benefits from decreases in certain tax reserves, including interest and penalties, as a result of closing tax years.

 

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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.  We anticipate completing the U.S. Internal Revenue Service’s Compliance Assurance Process Program through 2017 in the second quarter of 2019.  With limited exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2007.

 

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 $24 million, primarily as a result of audit settlements and closing tax years.

 

Note 10.  Net (Loss) Income Per Common Share

 

Net (loss) income per common share was computed as follows:

 

 

 

Three Months Ended

 

(In millions, except per share amounts)

 

March 30, 2019

 

March 31, 2018

 

(A)               Net (loss) income available to common shareholders

 

$

(146.9

)

$

125.2

 

(B)               Weighted average number of common shares outstanding

 

84.3

 

88.0

 

Dilutive shares (additional common shares issuable under stock-based awards)

 

 

1.6

 

(C)               Weighted average number of common shares outstanding, assuming dilution

 

84.3

 

89.6

 

Net (loss) income per common share: (A) ÷ (B)

 

$

(1.74

)

$

1.42

 

Net (loss) income per common share, assuming dilution: (A) ÷ (C) 

 

$

(1.74

)

$

1.40

 

 

For the first quarter of 2019, the effect of dilutive shares (additional common shares issuable under stock-based awards) was not included in the computation of net loss per common share, assuming dilution, because we had a net loss. We excluded 1.1 million shares related to stock-based compensation awards from the computation for the three months ended March 30, 2019.

 

For the first quarter of 2018, 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 months ended March 31, 2018.

 

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Note 11.  Supplemental Equity and Comprehensive Income Information

 

Consolidated Changes in Shareholders’ Equity

 

 

 

Three Months Ended

 

(In millions, except per share amount)

 

March 30, 2019

 

March 31, 2018

 

Common stock issued, $1 par value per share

 

$

124.1

 

$

124.1

 

Capital in excess of par value

 

 

 

 

 

Beginning balance

 

$

872.0

 

$

862.6

 

Issuance of shares under stock-based compensation plans(1)

 

(20.5

)

(14.2

)

Ending balance

 

$

851.5

 

$

848.4

 

Retained earnings

 

 

 

 

 

Beginning balance

 

$

2,864.9

 

$

2,596.7

 

Tax accounting for intra-entity asset transfers(2)

 

 

(13.8

)

Net (loss) income

 

(146.9

)

125.2

 

Issuance of shares under stock-based compensation plans(1)

 

(14.3

)

(25.0

)

Contribution of shares to 401(k) Plan(1)

 

3.7

 

4.3

 

Dividends

 

(43.9

)

(39.6

)

Ending balance

 

$

2,663.5

 

$

2,647.8

 

Treasury stock

 

 

 

 

 

Beginning balance

 

$

(2,223.9

)

$

(1,856.7

)

Repurchase of shares for treasury

 

(88.7

)

(51.6

)

Issuance of shares under stock-based compensation plans

 

22.3

 

15.2

 

Contribution of shares to 401(k) Plan

 

2.5

 

2.1

 

Ending balance

 

$

(2,287.8

)

$

(1,891.0

)

Accumulated other comprehensive loss

 

 

 

 

 

Beginning balance

 

$

(682.0

)

$

(680.5

)

Other comprehensive income, net of tax(3)

 

322.6

 

40.9

 

Ending balance

 

$

(359.4

)

$

(639.6

)

 

(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 our use of treasury shares to retained earnings.

(2)In the first quarter of 2018, we adopted an accounting guidance update that requires recognition of the income tax effects of intra-entity sales and transfers of assets other than inventory in the period in which they occur.

(3)In the first quarter of 2019, we effectively settled the ADPP’s remaining obligations.   Refer to Note 5, “Pension and Other Postretirement Benefits,” for more information.

 

Dividends per common share were as follows:

 

 

 

Three Months Ended

 

 

 

March 30, 2019

 

March 31, 2018

 

Dividends per common share

 

$

.52

 

$

.45

 

 

In April 2019, subsequent to the end of the first quarter of 2019, our Board authorized the repurchase of shares of our common stock with a fair market value of up to $650 million, exclusive of any fees, commissions or other expenses related to such purchases and in addition to the amount outstanding under our previous Board authorization.  Board authorizations remain in effect until shares in the amount authorized thereunder have been repurchased.

 

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Changes in Accumulated Other Comprehensive Loss

 

The changes in “Accumulated other comprehensive loss” (net of tax) for the three-month period ended March 30, 2019 were as follows:

 

(In millions)

 

Foreign
Currency
Translation

 

Pension and
Other
Postretirement
Benefits

 

Cash Flow
Hedges

 

Total

 

Balance as of December 29, 2018

 

$

(247.4

)

$

(434.3

)

$

(.3

)

$

(682.0

)

Other comprehensive income before reclassifications, net of tax(1)

 

22.1

 

36.0

 

.1

 

58.2

 

Reclassifications to net loss, net of tax

 

 

264.7

 

(.3

)

264.4

 

Net current-period other comprehensive income (loss), net of tax

 

22.1

 

300.7

 

(.2

)

322.6

 

Balance as of March 30, 2019

 

$

(225.3

)

$

(133.6

)

$

(.5

)

$

(359.4

)

 

(1)Other comprehensive income before reclassifications, net of tax, for pension and other postretirement benefits related to the remeasurement of the ADPP’s net pension obligations.

 

The changes in “Accumulated other comprehensive loss” (net of tax) for the three-month period ended March 31, 2018 were as follows:

 

(In millions)

 

Foreign
Currency
Translation

 

Pension and
Other
Postretirement
Benefits

 

Cash Flow
Hedges

 

Total

 

Balance as of December 30, 2017

 

$

(156.2

)

$

(524.0

)

$

(.3

)

$

(680.5

)

Other comprehensive income before reclassifications, net of tax

 

34.3

 

 

.7

 

35.0

 

Reclassifications to net income, net of tax

 

 

5.7

 

.2

 

5.9

 

Net current-period other comprehensive income, net of tax

 

34.3

 

5.7

 

.9

 

40.9

 

Balance as of March 31, 2018

 

$

(121.9

)

$

(518.3

)

$

.6

 

$

(639.6

)

 

The amounts reclassified from “Accumulated other comprehensive loss” to increase (decrease) net (loss) income were as follows:

 

 

 

Three Months Ended

 

 

 

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

 

Affected Line Item in the
Statements Where Net
(Loss) Income is Presented

 

Cash flow hedges:

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

.4

 

$

(.3

)

 

Cost of products sold

 

 

 

.4

 

(.3

)

 

Total before tax

 

 

 

(.1

)

.1

 

 

Provision for income taxes

 

 

 

.3

 

(.2

)

 

Net of tax

 

Pension and other postretirement benefits

 

(443.8

)

(7.5

)

 

Other non-operating expense

 

 

 

179.1

 

1.8

 

 

Provision for income taxes

 

 

 

(264.7

)

(5.7

)

 

Net of tax

 

Total reclassifications for the period

 

$

(264.4

)

$

(5.9

)

 

Total, net of tax

 

 

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The following table sets forth the income tax expense (benefit) allocated to each component of other comprehensive income:

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Foreign currency translation

 

$

(4.4

)

$

(5.3

)

Pension and other postretirement benefits

 

189.8

 

1.8

 

Cash flow hedges

 

(.1

)

.3

 

Income tax expense (benefit) allocated to components of other comprehensive income

 

$

185.3

 

$

(3.2

)

 

Note 12.  Fair Value Measurements

 

Recurring Fair Value Measurements

The following table provides the assets and liabilities carried at fair value, measured on a recurring basis, as of March 30, 2019:

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Trading securities

 

$

26.9

 

$

22.3

 

$

4.6

 

$

 

Derivative assets

 

7.4

 

 

7.4

 

 

Bank drafts

 

19.6

 

19.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$

7.6

 

$

 

$

7.6

 

$

 

 

The following table provides the assets and liabilities carried at fair value, measured on a recurring basis, as of December 29, 2018:

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Trading securities

 

$

26.3

 

$

21.5

 

$

4.8

 

$

 

Derivative assets

 

3.6

 

.1

 

3.5

 

 

Bank drafts

 

23.0

 

23.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$

8.7

 

$

 

$

8.7

 

$

 

Contingent consideration liability

 

1.6

 

 

 

1.6

 

 

Trading securities 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 March 30, 2019, trading securities of $.5 million and $26.4 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the unaudited Condensed Consolidated Balance Sheets. As of December 29, 2018, trading securities of $.2 million and $26.1 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 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 liability in 2018, which was included in “Other accrued liabilities” in the Consolidated Balance Sheets, was related to an estimated earn-out payment associated with an acquisition we completed in 2017 and was classified as Level 3. This payment was based on the achievement of the designated performance target in 2018 under the terms of the purchase agreement, and our estimate was based on the expected payment related to this target under the terms of the agreement.  This liability was paid during the three months ended March 30, 2019.

 

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Non-Recurring Fair Value Measurements

During the first quarter of 2018, long-lived assets with carrying amounts totaling $17.2 million were written down to their fair value of $10.3 million, resulting in an impairment charge of $6.9 million, which was included in “Other expense, net” in the unaudited Condensed Consolidated Statements of Operations. The fair value was based on the estimated sale price of the assets, less estimated broker fees, which is primarily a Level 3 input.

 

Note 13.  Commitments and 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 liabilities be incurred that were not previously accrued.  Potential insurance reimbursements are not offset against potential liabilities.

 

Because 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, 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.  However, environmental expenditures for newly acquired assets and those which extend or improve the economic useful life of existing assets are capitalized and amortized over the shorter of the estimated useful life of the acquired asset or the remaining life of the existing asset.  We review our estimates of the costs of complying with environmental laws related to remediation and cleanup of various sites, including sites in which governmental agencies have designated us as a potentially responsible party (“PRP”).  When it is probable that a loss will be incurred and where a range of the loss can be reasonably estimated, the best estimate within the range is accrued. When the best estimate within the range cannot be determined, the low end of the range is accrued.  Potential insurance reimbursements are not offset against potential liabilities.

 

As of March 30, 2019, we have been designated by the U.S. Environmental Protection Agency (“EPA”) and/or other responsible state agencies as a PRP at thirteen 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 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.

 

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The activity for the three months ended March 30, 2019 related to our environmental liabilities was as follows:

 

(In millions)

 

 

 

Balance at December 29, 2018

 

$

20.0

 

Charges, net of reversals

 

.7

 

Payments

 

(1.1

)

Balance at March 30, 2019

 

$

19.6

 

 

Approximately $4 million and $5 million, respectively, of the balance was classified as short-term and included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets as of March 30, 2019 and December 29, 2018.

 

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Note 14.  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 LGM 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

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Net sales to unaffiliated customers

 

 

 

 

 

Label and Graphic Materials:

 

 

 

 

 

U.S.

 

$

311.7

 

$

309.8

 

Europe

 

449.9

 

484.9

 

Asia

 

256.2

 

267.3

 

Latin America

 

90.6

 

88.8

 

Other international

 

69.9

 

67.4

 

Total Label and Graphic Materials

 

1,178.3

 

1,218.2

 

Retail Branding and Information Solutions:

 

 

 

 

 

Apparel

 

353.1

 

347.2

 

Printer Solutions

 

45.2

 

38.8

 

Total Retail Branding and Information Solutions

 

398.3

 

386.0

 

Industrial and Healthcare Materials

 

163.5

 

172.2

 

Net sales to unaffiliated customers

 

$

1,740.1

 

$

1,776.4

 

 

Additional Segment Information

Additional financial information by reportable segment is shown below.

 

 

 

Three Months Ended

 

(In millions)

 

March 30 , 2019

 

March 31, 2018

 

Intersegment sales

 

 

 

 

 

Label and Graphic Materials

 

$

21.2

 

$

18.9

 

Retail Branding and Information Solutions

 

4.2

 

.6

 

Industrial and Healthcare Materials

 

2.6

 

1.7

 

Intersegment sales

 

$

28.0

 

$

21.2

 

(Loss) income before taxes

 

 

 

 

 

Label and Graphic Materials

 

$

139.5

 

$

149.7

 

Retail Branding and Information Solutions

 

51.4

 

34.7

 

Industrial and Healthcare Materials

 

13.6

 

13.0

 

Corporate expense

 

(22.9

)

(21.8

)

Interest expense

 

(19.5

)

(13.2

)

Other non-operating expense

 

(446.5

)

(3.3

)

(Loss) income before taxes

 

$

(284.4

)

$

159.1

 

Other expense, net by reportable segment

 

 

 

 

 

Label and Graphic Materials

 

$

7.6

 

$

8.1

 

Retail Branding and Information Solutions

 

(2.0

)

4.7

 

Industrial and Healthcare Materials

 

1.9

 

 

Other expense, net

 

$

7.5

 

$

12.8

 

Other expense, net by type

 

 

 

 

 

Restructuring charges:

 

 

 

 

 

Severance and related costs

 

$

10.4

 

$

4.3

 

Asset impairment charges and lease cancellation costs

 

.3

 

8.4

 

Other items:

 

 

 

 

 

Other restructuring-related charge

 

 

.5

 

Net gain on sales of assets

 

(3.2

)

(.4

)

Other expense, net

 

$

7.5

 

$

12.8

 

 

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Note 15. Supplemental Financial Information

 

Inventories

Net inventories consisted of the following:

 

(In millions)

 

March 30, 2019

 

December 29, 2018

 

Raw materials

 

$

242.3

 

$

236.2

 

Work-in-progress

 

203.2

 

196.7

 

Finished goods

 

242.8

 

218.5

 

Inventories, net

 

$

688.3

 

$

651.4

 

 

Property, Plant and Equipment

 

 

(In millions)

 

March 30, 2019

 

December 29, 2018

 

Property, plant and equipment

 

$

3,083.0

 

$

3,053.7

 

Accumulated depreciation

 

(1,938.1

)

(1,916.3

)

Property, plant and equipment, net

 

$

1,144.9

 

$

1,137.4

 

 

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 March 30, 2019 and December 29, 2018:

 

(In millions)

 

March 30, 2019

 

December 29, 2018

 

Other current liabilities

 

$

14.1

 

$

11.5

 

Long-term retirement benefits and other liabilities

 

.3

 

.3

 

Total deferred revenue

 

$

14.4

 

$

11.8

 

 

Revenue recognized from amounts included in deferred revenue as of December 29, 2018 was $7.7 million for the three months ended March 30, 2019. Revenue recognized from amounts included in deferred revenue as of December 30, 2017 was $8.4 million for the three months ended March 31, 2018. This revenue was included in “Net sales” in the unaudited Condensed Consolidated Statements of Operations.

 

Research and Development

Research and development expense was $24.7 million and $24.8 million for the three months ended March 30, 2019 and March 31, 2018, respectively.  This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations.

 

Equity Method Investment

The carrying value of our equity method investment in PragmatIC Printing Limited was $10.5 million and $6.7 million as of March 30, 2019 and December 29, 2018, respectively, and was included in “Other assets” in the unaudited Condensed Consolidated Balance Sheets.  In January 2019, we made an additional investment of approximately $4 million.

 

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, provides management’s views on our financial condition and results of operations and should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and notes thereto.

 

NON-GAAP FINANCIAL MEASURES

 

We report our financial results in conformity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non-GAAP financial measures.  These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures.  These non-GAAP financial measures are intended to supplement the presentation of our financial results that are prepared in accordance with GAAP. Based upon feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessment of our performance and operating trends, as well as liquidity.

 

Our non-GAAP financial measures exclude the impact of certain events, activities or strategic decisions.  The accounting effects of these events, activities or decisions, which are included in the GAAP financial measures, may make it difficult to assess our underlying performance in a single period.  By excluding the accounting effects, both positive or negative, of certain items (e.g., restructuring charges, legal settlements, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains or losses from curtailment or settlement of pension obligations, gains or losses on sales of certain assets, and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures.  These non-GAAP financial measures are used internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single period.  While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency, or timing.

 

We use the following non-GAAP financial measures in this MD&A:

 

·                  Organic sales change refers to the increase or decrease in net sales excluding the estimated impact of foreign currency translation and currency adjustment for transitional reporting of highly inflationary economies (Argentina), with segment results adjusted for the reclassification of sales between segments; the estimated impact of product line exits, acquisitions and divestitures; and, where applicable, the extra week in our fiscal year. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of foreign currency fluctuations. We believe that organic sales change assists investors in evaluating the sales change from the ongoing activities of our businesses and enhances their ability to evaluate our results from period to period.

·                  Free cash flow refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for our cash contributions related to the termination of our U.S. pension plan.  We believe that free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions.

·                  Operational working capital as a percentage of annualized current quarter net sales refers to trade accounts receivable and inventories, net of accounts payable, and excludes cash and cash equivalents, short-term borrowings, deferred taxes, other current assets and other current liabilities, as well as net current assets or liabilities held-for-sale, divided by annualized current quarter net sales.  We believe that operational working capital as a percentage of annualized current quarter net sales assists investors in assessing our working capital requirements because it excludes the impact of fluctuations attributable to our financing and other activities (which affect cash and cash equivalents, deferred taxes, other current assets, and other current liabilities) that tend to be disparate in amount, frequency, or timing, and that may increase the volatility of working capital as a percentage of sales from period to period.  The items excluded from this measure are not significantly influenced by our day-to-day activities managed at the operating level and do not necessarily reflect underlying trends in our operations.

 

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OVERVIEW AND OUTLOOK

 

Net Sales

The factors impacting reported sales change, as compared to the prior year periods, are shown in the table below.

 

 

 

Three Months
Ended

 

 

 

March 30, 2019

 

Reported sales change

 

(2

)%

Foreign currency translation

 

4

 

Organic sales change

 

2

%

 

In the three months ended March 30, 2019, net sales increased on an organic basis as compared to the same period in the prior year primarily due to prior year pricing actions.

 

Net (Loss) Income

Net loss in the first quarter of 2019 was approximately $147 million, compared to net income of approximately $125 million in the first quarter of 2018.  Major factors affecting the change in net (loss) income included the following:

 

·                  Pension plan settlement charges, net of tax benefits related to effective settlement of pension plan

·                  Higher employee-related costs

·                  Unfavorable impact of foreign currency translation

·                  Growth investments

 

Offsetting factors:

·                  Net impact of pricing and raw material costs

·                  Benefits from productivity initiatives, including savings from restructuring actions, net of transition costs

·                  The combined effect of volume and mix

 

Cost Reduction Actions

2018/2019 Actions

In April 2018, we approved a restructuring plan (the “2018 Plan”) to consolidate the European footprint of our LGM reportable segment, which is expected to result in a headcount reduction of approximately 400 positions related to the closure of a manufacturing facility. This reduction is expected to be partially offset by headcount additions in other locations, resulting in a net reduction of approximately 150 positions. The cumulative charges associated with the 2018 Plan through the first quarter of 2019 consisted of severance and related costs for the reduction of approximately 345 positions, as well as asset impairment charges. During the three months ended March 30, 2019, we recorded a net $1.9 million in restructuring reversals related to the 2018 Plan. We expect the 2018 Plan to be substantially complete by the end of 2019.

 

In addition to restructuring charges recorded under the 2018 Plan, we recorded $12.9 million in restructuring charges during the three months ended March 30, 2019 related to other 2018/2019 Actions.  These charges consisted of severance and related costs for the reduction of approximately 140 positions, as well as lease cancellation costs.

 

2015/2016 Actions

During the three months ended March 30, 2019, we recorded $.3 million in restructuring reversals, related to restructuring actions initiated during the third quarter of 2015.

 

The activities and related charges and payments for the 2015/2016 Actions were substantially completed in 2018.

 

Impact of Cost Reduction Actions

We anticipate savings from cost reduction actions, net of transition costs, of $40 million to $45 million in 2019.

 

Restructuring charges were included in “Other expense, net” in the unaudited Condensed Consolidated Statements of Operations. Refer to Note 7, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information.

 

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U.S. Pension Plan Termination

In July 2018, our Board of Directors (“Board”) approved the termination of the Avery Dennison Pension Plan (the “ADPP”), a U.S. defined benefit plan, effective as of September 28, 2018. In connection with the termination, we settled approximately $152 million of ADPP liabilities during the fourth quarter of 2018 through lump-sum payments from existing plan assets to eligible participants who elected to receive them and recorded approximately $85 million of non-cash charges associated with these settlements. On March 21, 2019, we effectively settled the remaining ADPP liabilities through the execution of an agreement to purchase annuities from American General Life Insurance Company (“AGL”), a subsidiary of American International Group, Inc. Under the agreement, we settled approximately $750 million of ADPP pension obligations for approximately 8,500 active and former employees and their beneficiaries, with AGL assuming the future annuity payments for these individuals, commencing at April 1, 2019. This settlement resulted in approximately $447 million of pretax charges, partially offset by related tax benefits of $180 million, which we recorded in March 2019.

 

Accounting Guidance Updates

Refer to Note 1, “General,” to the unaudited Condensed Consolidated Financial Statements for more information.

 

Cash Flow

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Net cash provided by operating activities

 

$

35.4

 

$

16.0

 

Purchases of property, plant and equipment

 

(41.8

)

(35.6

)

Purchases of software and other deferred charges

 

(5.5

)

(7.3

)

Proceeds from sales of property, plant and equipment

 

7.3

 

6.9

 

Proceeds from insurance and sales (purchases) of investments, net

 

4.5

 

.3

 

Pension plan contribution for plan termination

 

7.4

 

 

Free cash flow

 

$

7.3

 

$

(19.7

)

 

During the first three months of 2019, net cash provided by operating activities increased compared to the same period last year primarily due to lower incentive compensation payments and improved operational working capital, partially offset by higher restructuring payments related to our 2018/2019 Actions, our pension plan contribution associated with the ADPP termination, and higher income tax payments, net of refunds.  During the first three months of 2019, free cash flow increased compared to the same period last year due to an increase in net cash provided by operating activities adjusted for the ADPP contribution and higher proceeds from insurance and sales of investments, partially offset by higher capital expenditures.

 

Outlook

Certain factors that we believe may contribute to our 2019 results are described below:

 

·                  We expect our net sales, including the effects of foreign currency translation, to increase by approximately 1%.

·                  Assuming the continuation of foreign currency rates currently in effect, we expect currency translation to reduce our pre-tax operating income by approximately $27 million.

·                  We expect our full year effective tax rate to be in the single-digit range.

·                  We anticipate capital and software expenditures of $275 million to $285 million.

·                  We estimate savings of $40 million to $45 million from restructuring actions, net of transition costs.

 

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ANALYSIS OF RESULTS OF OPERATIONS FOR THE FIRST QUARTER

 

Income Before Taxes

 

 

 

Three Months Ended

 

(In millions, except percentages)

 

March 30, 2019

 

March 31, 2018

 

Net sales

 

$

1,740.1

 

$

1,776.4

 

Cost of products sold

 

1,274.7

 

1,293.0

 

Gross profit

 

465.4

 

483.4

 

Marketing, general and administrative expense

 

276.3

 

295.0

 

Other expense, net

 

7.5

 

12.8

 

Interest expense

 

19.5

 

13.2

 

Other non-operating expense

 

446.5

 

3.3

 

(Loss) Income before taxes

 

$

(284.4

)

$

159.1

 

 

 

 

 

 

 

Gross profit margin

 

26.7

%

27.2

%

 

Gross Profit Margin

Gross profit margin percentage for the first quarter of 2019 decreased compared to the same period last year primarily reflecting the net impact of higher selling prices to offset raw material inflation.

 

Marketing, General and Administrative Expense

Marketing, general and administrative expense decreased in the first quarter of 2019 compared to the same period last year reflecting the favorable impact of foreign currency translation and benefits from productivity initiatives, including savings from restructuring actions, net of transition costs, partially offset by higher employee-related costs.

 

Other Expense, net

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Other expense, net by type

 

 

 

 

 

Restructuring charges:

 

 

 

 

 

Severance and related costs, net of reversals

 

$

10.4

 

$

4.3

 

Asset impairment charges and lease cancellation costs

 

.3

 

8.4

 

Other items:

 

 

 

 

 

Other restructuring-related charge

 

 

.5

 

Net gains on sale of assets

 

(3.2

)

(.4

)

Other expense, net

 

$

7.5

 

$

12.8

 

 

Refer to Note 7, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information associated with restructuring charges.

 

Interest Expense

Interest expense increased in the first quarter of 2019 compared to the same period last year reflecting the additional interest costs related to the $500 million of senior notes we issued in December 2018.

 

Other Non-Operating Expense

Other non-operating expense increased in the first quarter of 2019 compared to the same period last year due to the settlement of our U.S. pension plan, which resulted in $447 of pretax charges that were partially offset by related tax benefits of $180 million.  Refer to Note 5, “Pension and Other Postretirement Benefits,” and Note 9, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for more information.

 

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Net Income and Earnings per Share

 

 

 

Three Months Ended

 

(In millions, except per share amounts and percentages)

 

March 30, 2019

 

March 31, 2018

 

(Loss) income before taxes

 

$

(284.4

)

$

159.1

 

(Benefit from) provision for income taxes

 

(138.4

)

33.3

 

Equity method investment net losses

 

(.9

)

(.6

)

Net (loss) income

 

$

(146.9

)

$

125.2

 

Per share amounts:

 

 

 

 

 

Net (loss) income per common share

 

$

(1.74

)

$

1.42

 

Net (loss) income per common share, assuming dilution

 

(1.74

)

1.40

 

 

 

 

 

 

 

Effective tax rate

 

48.7

%

20.9

%

 

Provision for Income Taxes

Our effective tax rate for the three months ended March 30, 2019 was 48.7%, compared to 20.9% in the same period last year.  The change in tax rate was primarily impacted by the tax effects of the pension plan settlement charges associated with the termination of the ADPP during the three months ended March 30, 2019.  Refer to Note 9, “Taxes based on Income,” to the unaudited Condensed Consolidated Financial Statements for more information.

 

We currently expect our effective tax rate for 2019 to be in the single-digit range.  Our effective tax rate can vary from quarter to quarter due to the recognition of discrete events, such as changes in tax reserves, settlements of income tax audits, changes in tax laws and regulations, return-to-provision adjustments, tax impacts related to stock-based payments, as well as recurring factors, such as changes in the mix of earnings in countries with differing statutory tax rates, and the execution of tax planning strategies.  We continue to pursue planning opportunities in certain foreign jurisdictions primarily to react to the loss of concessionary tax rates.  Our progress indicates that we are on track to effectuate these opportunities.  We continue to evaluate certain key factors that may significantly influence the amount of benefit to be recognized in 2019.

 

RESULTS OF OPERATIONS BY REPORTABLE SEGMENT FOR THE FIRST QUARTER

 

Operating income refers to income before taxes, interest and other non-operating expenses.

 

Label and Graphic Materials

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Net sales including intersegment sales

 

$

1,199.5

 

$

1,237.1

 

Less intersegment sales

 

(21.2

)

(18.9

)

Net sales

 

$

1,178.3

 

$

1,218.2

 

Operating income(1)

 

139.5

 

149.7

 

 

 

 

 

 

 

(1)Included charges associated with restructuring, net of reversals, in both years

 

$

7.6

 

$

8.1

 

 

Net Sales

The factors impacting reported sales change are shown in the table below.

 

 

 

Three Months Ended

 

 

 

March 30, 2019

 

Reported sales change

 

(3

)%

Reclassification of sales between segments

 

 

Foreign currency translation

 

4

 

Organic sales change

 

1

%

 

In the first quarter of 2019, net sales increased on an organic basis as compared to the same period in the prior year due to prior year pricing actions partially offset by lower volume/mix.  Net sales on an organic basis increased at low-single digit rates in both North America and in emerging markets.

 

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Avery Dennison Corporation

 

Operating Income

Operating income decreased in the first quarter of 2019 compared to the same period last year primarily due to the unfavorable impact of foreign currency translation, lower volume/mix, and higher employee-related costs, partially offset by the net effect of pricing and raw material costs.

 

Retail Branding and Information Solutions

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Net sales including intersegment sales

 

$

402.5

 

$

386.6

 

Less intersegment sales

 

(4.2

)

(.6

)

Net sales

 

$

398.3

 

$

386.0

 

Operating income(1)

 

51.4

 

34.7

 

 

 

 

 

 

 

(1)Included charges associated with restructuring in both quarters.

 

$

(2.0

)

$

4.7

 

 

Net Sales

The factors impacting reported sales change are shown in the table below.

 

 

 

Three Months Ended

 

 

 

March 30, 2019

 

Reported sales change

 

3

%

Reclassification of sales between segments

 

1

 

Foreign currency translation

 

3

 

Organic sales change

 

7

%

 

In the first quarter of 2019, net sales increased on an organic basis as compared to the same period in the prior year, driven by solid growth in the base business and continued strength in radio-frequency identification solutions.

 

Operating Income

Operating income increased in the first quarter of 2019 compared to the same period last year primarily due to higher volume, lower restructuring charges, and lower currency-related transaction costs, partially offset by higher employee-related costs.

 

Industrial and Healthcare Materials

 

 

 

Three Months Ended

 

(In millions)

 

March 30, 2019

 

March 31, 2018

 

Net sales including intersegment sales

 

$

166.1

 

$

173.9

 

Less intersegment sales

 

(2.6

)

(1.7

)

Net sales

 

$

163.5

 

$

172.2

 

Operating income(1)

 

13.6