Company Quick10K Filing
Avery Dennison
Price113.03 EPS2
Shares85 P/E68
MCap9,619 P/FCF21
Net Debt1,260 EBIT140
TEV10,878 TEV/EBIT78
TTM 2019-09-28, in MM, except price, ratios
10-Q 2020-06-27 Filed 2020-07-28
10-Q 2020-03-28 Filed 2020-05-01
10-K 2019-12-28 Filed 2020-02-26
10-Q 2019-09-28 Filed 2019-10-29
10-Q 2019-06-29 Filed 2019-07-30
10-Q 2019-03-30 Filed 2019-04-30
10-K 2018-12-29 Filed 2019-02-27
10-Q 2018-09-29 Filed 2018-10-30
10-Q 2018-06-30 Filed 2018-07-31
10-Q 2018-03-31 Filed 2018-05-01
10-K 2017-12-30 Filed 2018-02-21
10-Q 2017-09-30 Filed 2017-10-31
10-Q 2017-07-01 Filed 2017-08-01
10-Q 2017-04-01 Filed 2017-05-02
10-K 2016-12-31 Filed 2017-02-23
10-Q 2016-10-01 Filed 2016-11-01
10-Q 2016-07-02 Filed 2016-08-02
10-Q 2016-04-02 Filed 2016-05-03
10-K 2016-01-02 Filed 2016-02-24
10-Q 2015-10-03 Filed 2015-11-03
10-Q 2015-07-04 Filed 2015-08-04
10-Q 2015-04-04 Filed 2015-05-05
10-K 2015-01-03 Filed 2015-02-25
10-Q 2014-09-27 Filed 2014-10-29
10-Q 2014-06-28 Filed 2014-07-31
10-Q 2014-03-29 Filed 2014-05-05
10-K 2013-12-28 Filed 2014-02-26
10-Q 2013-09-28 Filed 2013-11-04
10-Q 2013-06-29 Filed 2013-08-07
10-Q 2013-03-30 Filed 2013-05-07
10-K 2012-12-29 Filed 2013-02-27
10-Q 2012-09-29 Filed 2012-11-06
10-Q 2012-06-30 Filed 2012-08-07
10-Q 2012-03-31 Filed 2012-05-08
10-K 2011-12-31 Filed 2012-02-27
10-Q 2011-10-01 Filed 2011-11-08
10-Q 2011-07-02 Filed 2011-08-09
10-Q 2011-04-02 Filed 2011-05-10
10-K 2011-01-01 Filed 2011-02-28
10-Q 2010-10-02 Filed 2010-11-10
10-Q 2010-07-03 Filed 2010-08-11
10-Q 2010-04-03 Filed 2010-05-12
10-K 2010-01-02 Filed 2010-03-01
8-K 2020-07-27 Earnings, Exhibits
8-K 2020-07-16 Officers
8-K 2020-04-29
8-K 2020-04-23
8-K 2020-03-25
8-K 2020-03-11
8-K 2020-03-04
8-K 2020-02-24
8-K 2020-02-13
8-K 2020-01-29
8-K 2019-10-23
8-K 2019-07-23
8-K 2019-05-16
8-K 2019-04-25
8-K 2019-04-24
8-K 2019-02-26
8-K 2019-01-30
8-K 2018-12-06
8-K 2018-11-29
8-K 2018-10-23
8-K 2018-09-09
8-K 2018-08-29
8-K 2018-07-24
8-K 2018-07-09
8-K 2018-04-26
8-K 2018-04-19
8-K 2018-01-31

AVY 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1. General
Note 2. Acquisitions
Note 3. Goodwill and Other Intangibles Resulting From Business Acquisitions
Note 4. Debt
Note 5. Pension and Other Postretirement Benefits
Note 6. Cost Reduction Actions
Note 7. Financial Instruments
Note 8. Taxes Based on Income
Note 9. Net Income (Loss) per Common Share
Note 10. Supplemental Equity and Comprehensive Income Information
Note 11. Fair Value Measurements
Note 12. Commitments and Contingencies
Note 13. Segment and Disaggregated Revenue Information
Note 14. 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 avy-20200627xex31d1.htm
EX-31.2 avy-20200627xex31d2.htm
EX-32.1 avy-20200627xex32d1.htm
EX-32.2 avy-20200627xex32d2.htm

Avery Dennison Earnings 2020-06-27

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
1.91.51.10.60.2-0.22012201420172020
Rev, G Profit, Net Income
0.50.30.1-0.1-0.3-0.52012201420172020
Ops, Inv, Fin

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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 June 27, 2020.

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

New York Stock Exchange

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 July 25, 2020: 83,462,155

Table of Contents

AVERY DENNISON CORPORATION

FISCAL SECOND QUARTER 2020 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

Page

SAFE HARBOR STATEMENT

1

PART I. FINANCIAL INFORMATION (UNAUDITED)

2

Item 1.

Financial Statements:

2

Condensed Consolidated Balance Sheets June 27, 2020 and December 28, 2019

2

Condensed Consolidated Statements of Operations Three and Six Months Ended June 27, 2020 and June 29, 2019

3

Condensed Consolidated Statements of Comprehensive Income Three and Six Months Ended June 27, 2020 and June 29, 2019

4

Condensed Consolidated Statements of Cash Flows Three and Six Months Ended June 27, 2020 and June 29, 2019

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

17

Non-GAAP Financial Measures

17

Overview and Outlook

18

Analysis of Results of Operations for the Second Quarter

21

Results of Operations by Reportable Segment for the Second Quarter

22

Analysis of Results of Operations for the Six Months Year-to-Date

24

Results of Operations by Reportable Segment for the Six Months Year-to-Date

26

Financial Condition

28

Recent Accounting Requirements

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II. OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

40

Item 5.

Other Information

40

Item 6.

Exhibits

40

Signatures

41

Exhibits

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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.

We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impacts to our business from global economic conditions, political uncertainty, and changes in governmental regulations, including as a result of the coronavirus/COVID-19 pandemic; (2) competitors' actions, including pricing, expansion in key markets, and product offerings; (3) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; and (4) the execution and integration of acquisitions.

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 Annual Report on Form 10-K for the fiscal year ended December 28, 2019, and subsequent quarterly reports on Form 10-Q.  These risks and uncertainties include, but are not limited to the following: the coronavirus/COVID-19 pandemic; fluctuations in demand affecting sales to customers; worldwide and local economic and market conditions; changes in political conditions; fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets; changes in our markets due to competitive conditions, technological developments, laws and regulations, and customer preferences; fluctuations in the cost and availability of raw materials and energy; changes in governmental laws and regulations; the impact of competitive products and pricing; the financial condition and inventory strategies of customers; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; execution and integration of acquisitions; 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; amounts of future dividends and share repurchases; customer and supplier concentrations or consolidations; fluctuations in interest and 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; 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; the realization of deferred tax assets; fluctuations in interest rates; compliance with our debt covenants; fluctuations in pension, insurance, and employee benefit costs; goodwill impairment; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety, anti-corruption and trade compliance; 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.

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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in millions, except per share amount)

    

June 27, 2020

    

December 28, 2019

Assets

Current assets:

Cash and cash equivalents

$

262.6

$

253.7

Trade accounts receivable, less allowances of $46.4 and $27.1 at June 27, 2020 and December 28, 2019, respectively

 

1,114.6

 

1,212.2

Inventories, net

 

726.6

 

663.0

Other current assets

 

220.8

 

211.7

Total current assets

 

2,324.6

 

2,340.6

Property, plant and equipment, net

1,228.8

1,210.7

Goodwill

 

1,039.8

 

930.8

Other intangibles resulting from business acquisitions, net

 

195.5

 

126.5

Deferred tax assets

 

211.1

 

225.4

Other assets

 

651.9

 

654.8

$

5,651.7

$

5,488.8

Liabilities and Shareholders’ Equity

Current liabilities:

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

$

268.6

$

440.2

Accounts payable

 

956.5

 

1,066.1

Accrued payroll and employee benefits

175.3

220.4

Other current liabilities

 

509.1

 

527.1

Total current liabilities

 

1,909.5

 

2,253.8

Long-term debt and finance leases

 

1,997.6

 

1,499.3

Long-term retirement benefits and other liabilities

 

417.4

 

421.4

Deferred tax liabilities and income taxes payable

 

113.3

 

110.3

Commitments and contingencies (see Note 12)

Shareholders’ equity:

Common stock, $1 par value per share, authorized - 400,000,000 shares at June 27, 2020 and December 28, 2019; issued - 124,126,624 shares at June 27, 2020 and December 28, 2019; outstanding - 83,448,042 shares and 83,366,840 shares at June 27, 2020 and December 28, 2019, respectively

 

124.1

 

124.1

Capital in excess of par value

 

840.0

 

874.0

Retained earnings

 

3,100.2

 

2,979.1

Treasury stock at cost, 40,678,582 shares and 40,759,784 shares at June 27, 2020 and December 28, 2019, respectively

 

(2,447.2)

 

(2,425.1)

Accumulated other comprehensive loss

 

(403.2)

 

(348.1)

Total shareholders’ equity

 

1,213.9

 

1,204.0

$

5,651.7

$

5,488.8

See Notes to Unaudited Condensed Consolidated Financial Statements

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended

Six Months Ended

(In millions, except per share amounts)

    

June 27, 2020

    

June 29, 2019

    

June 27, 2020

    

June 29, 2019

Net sales

$

1,528.5

$

1,795.7

$

3,251.5

$

3,535.8

Cost of products sold

 

1,145.6

 

1,313.4

 

2,383.5

 

2,588.1

Gross profit

 

382.9

 

482.3

 

868.0

 

947.7

Marketing, general and administrative expense

 

219.4

 

265.7

 

500.4

 

542.0

Other expense, net

 

40.0

 

7.5

 

44.9

 

15.0

Interest expense

20.0

19.5

38.8

39.0

Other non-operating expense, net

.2

.9

(.3)

447.4

Income (loss) before taxes

 

103.3

 

188.7

 

284.2

 

(95.7)

Provision for (benefit from) income taxes

 

22.2

 

44.9

 

68.5

 

(93.5)

Equity method investment losses

(1.4)

(.4)

(1.8)

(1.3)

Net income (loss)

$

79.7

$

143.4

$

213.9

$

(3.5)

Per share amounts:

Net income (loss) per common share

$

.96

$

1.70

$

2.56

$

(.04)

Net income (loss) per common share, assuming dilution

$

.95

$

1.69

$

2.55

$

(.04)

Weighted average number of shares outstanding:

 

 

 

Common shares

83.4

84.3

83.4

84.3

Common shares, assuming dilution

83.8

85.1

83.9

84.3

See Notes to Unaudited Condensed Consolidated Financial Statements

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Six Months Ended

(In millions)

    

June 27, 2020

    

June 29, 2019

    

June 27, 2020

    

June 29, 2019

Net income (loss)

$

79.7

$

143.4

$

213.9

$

(3.5)

Other comprehensive income (loss), net of tax:

Foreign currency translation

 

13.6

 

(10.5)

 

(55.0)

 

11.6

Pension and other postretirement benefits

 

.7

 

.2

 

1.3

 

300.9

Cash flow hedges

 

(5.5)

 

(.1)

 

(1.4)

 

(.3)

Other comprehensive income (loss), net of tax

 

8.8

 

(10.4)

 

(55.1)

 

312.2

Total comprehensive income, net of tax

$

88.5

$

133.0

$

158.8

$

308.7

See Notes to Unaudited Condensed Consolidated Financial Statements

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

(In millions)

    

June 27, 2020

    

June 29, 2019

Operating Activities

Net income (loss)

$

213.9

$

(3.5)

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

Depreciation

 

74.6

 

70.4

Amortization

 

23.2

 

19.0

Provision for credit losses and sales returns

38.8

26.8

Stock-based compensation

 

1.4

 

16.5

Pension plan settlements and related charges

 

 

446.9

Deferred taxes and other non-cash taxes

16.4

(166.6)

Other non-cash expense and loss (income and gain), net

 

16.7

 

10.3

Changes in assets and liabilities and other adjustments

 

(201.0)

 

(181.0)

Net cash provided by operating activities

 

184.0

 

238.8

Investing Activities

Purchases of property, plant and equipment

 

(63.9)

 

(79.8)

Purchases of software and other deferred charges

 

(11.0)

 

(13.0)

Proceeds from sales of property, plant and equipment

 

.1

 

7.4

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

 

(.4)

 

4.3

Payments for acquisition, net of cash acquired, and investments in businesses

 

(252.8)

 

(6.5)

Net cash used in investing activities

 

(328.0)

 

(87.6)

Financing Activities

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

 

92.5

 

112.9

Additional borrowings under revolving credit facility

500.0

Repayments of revolving credit facility

(500.0)

Additional long-term borrowings

493.7

Repayments of long-term debt and finance leases

 

(267.6)

 

(16.5)

Dividends paid

 

(96.8)

 

(92.7)

Share repurchases

 

(45.2)

 

(116.6)

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

 

(20.5)

 

(20.4)

Payments of contingent consideration

(1.6)

Net cash provided by (used in) financing activities

 

156.1

 

(134.9)

Effect of foreign currency translation on cash balances

 

(3.2)

 

(1.0)

Increase in cash and cash equivalents

 

8.9

 

15.3

Cash and cash equivalents, beginning of year

 

253.7

 

232.0

Cash and cash equivalents, end of period

$

262.6

$

247.3

See Notes to Unaudited Condensed Consolidated Financial Statements

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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 2019 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.  

We expect the effects of the coronavirus/COVID-19 pandemic (collectively referred to herein as "COVID-19") to adversely impact our financial position, results of operations, and cash flows in fiscal year 2020. The unaudited Condensed Consolidated Financial Statements presented herein reflect our current estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and the reported amounts of sales and expenses during the reporting periods presented.

Fiscal Periods

The three and six months ended June 27, 2020 and June 29, 2019 consisted of thirteen-week and twenty-six week periods, respectively.

Accounting Guidance Updates

Credit Losses

In the first quarter of 2020, using the modified retrospective approach, we adopted amended accounting guidance that requires credit losses on financial instruments, including trade receivables, to be measured based on the expected credit loss model instead of the incurred loss model.  The expected credit loss model requires us to consider forward-looking information to estimate our allowance for credit losses. Our adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

Note 2. Acquisitions

On February 28, 2020, we completed the acquisition of Smartrac’s Transponder (RFID Inlay) division ("Smartrac"), a manufacturer of radio-frequency identification (“RFID”) products, for consideration, subject to customary adjustments, of approximately $255 million (€232 million), $4.9 million of which was payable as of June 27, 2020. We believe this acquisition enhances our research and development capabilities, expands product lines, and provides added manufacturing capacity. Consistent with the time allowed to complete our assessment, the valuation of certain acquired assets and liabilities, including intangible assets, environmental liabilities and income taxes, is preliminary. This acquisition was not material to our 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 six months ended June 27, 2020 by reportable segment are shown below.

Label and

Retail Branding

Industrial and

Graphic

and Information

Healthcare

(In millions)

    

Materials

    

Solutions

    

Materials

    

Total

Goodwill as of December 28, 2019

$

407.8

$

349.3

$

173.7

$

930.8

Acquisition(1)

110.5

110.5

Translation adjustments

 

(1.7)

 

.7

(.5)

 

(1.5)

Goodwill as of June 27, 2020

$

406.1

$

460.5

$

173.2

$

1,039.8

(1)Goodwill acquired related to the acquisition of Smartrac, which is based on a preliminary allocation to the Retail Branding and Information Solutions reportable segment. In the first quarter of 2020, a portion of the goodwill related to the acquisition of Smartrac was reported under Label and Graphic Materials, reflecting sales through that segment's channels. To better align the reporting with our current organization structure, the goodwill associated with the acquisition was reclassified and is now included solely under Retail Branding and Information Solutions. The amount of goodwill recognized is not expected to be deductible for income tax purposes.

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The duration and severity of COVID-19 could result in future impairment charges to our reportable segments’ goodwill balances. While we have concluded that a triggering event did not occur during the six months ended June 27, 2020, a prolonged pandemic could significantly impact our results of operations and result in changes to assumptions utilized in the determination of the estimated fair values of goodwill that could trigger an impairment.

Finite-Lived Intangible Assets

In connection with the Smartrac acquisition, we acquired approximately $78 million of identifiable intangible assets, which consisted of customer relationships, trade names and trademarks, and patents and other acquired technology. We utilized the income approach to estimate the fair values of the identifiable intangibles associated with the acquisition, primarily using Level 3 inputs. The discount rate we used to value these assets was 13.5%.

The table below summarizes the amounts and useful lives of these intangible assets as of the acquisition date.

    

    

Amortization

Amount 

period

 (in millions)

(in years)

Patents and other acquired technology

$

60.0

 

11

Customer relationships

 

16.0

 

6

Trade names and trademarks

 

2.0

 

5

Refer to Note 2, “Acquisitions,” to the unaudited Condensed Consolidated Financial Statements for more information.

Note 4.  Debt

In March 2020, we issued $500 million of senior notes, due April 2030. The senior notes bear an interest rate of 2.65% per year, payable semiannually in arrears. Our net proceeds from the offering, after deducting underwriting discounts and offering expenses, were $493.7 million, which we used to repay both existing indebtedness under our commercial paper program used to fund our Smartrac acquisition and the $250 million aggregate principal amount of senior notes that matured in April 2020.

In the second quarter of 2020, we also repaid $15 million of medium-term notes that matured in June 2020.

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 $2.43 billion at June 27, 2020 and $2.05 billion at December 28, 2019. 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.

In February 2020, we amended and restated our $800 million revolving credit facility (the “Revolver”), eliminating one of the financial covenant requirements and extending the maturity date to February 13, 2025. The maturity date may be extended for a one-year period under certain circumstances. The commitments under the Revolver may be increased by up to $400 million, subject to lender approvals and customary requirements. No balance was outstanding under the Revolver as of June 27, 2020 or December 28, 2019. As of both June 27, 2020 and December 28, 2019, we were in compliance with our financial covenants under the Revolver.

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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 months and six months ended June 27, 2020, the net periodic benefit cost related to our U.S. and international plans was not material. For the three months and six months ended June 29, 2019, the combined net periodic benefit cost related to our U.S. and international plans was $2 million and $3.2 million and $449.7 million and $6.5 million, respectively.  Included in the net periodic benefit cost for our U.S. plans for the three months ended June 29, 2019 was a loss on settlement of $446.9 million related to the termination of the Avery Dennison Pension Plan (the “ADPP”), a U.S. defined benefit plan. This loss was partially offset by related tax benefits of approximately $179 million.  Refer to Note 8, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for more information.

In connection with the ADPP termination in 2019, we settled approximately $753 million of the plan's liabilities by entering into an agreement to purchase annuities primarily from American General Life Insurance Company and through a combination of annuities and direct funding to the Pension Benefit Guaranty Corporation for a small portion of former employees and their beneficiaries.

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.

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.

Note 6.  Cost Reduction Actions

2019/2020 Actions

During the six months ended June 27, 2020, we recorded $41.9 million in restructuring charges related to our 2019/2020 actions. These charges consisted of severance and related costs for the reduction of approximately 1,750 positions from numerous locations across our company, which primarily included actions in our LGM and RBIS reportable segments. The actions in LGM were primarily associated with the consolidation of our graphics business in Europe, partially in response to COVID-19. The actions in RBIS were primarily related to global headcount and footprint reduction, with some actions accelerated and expanded in response to COVID-19.

2018/2019 Actions

During the six months ended June 27, 2020, we recorded $.2 million in net restructuring reversals related to our 2018/2019 actions.

During the six months ended June 27, 2020, restructuring charges and payments were as follows:

Charges,

Foreign

Accrual at

Net of

Cash

Non-cash

Currency

Accrual at

(In millions)

    

December 28, 2019

    

Reversals

    

Payments

    

Impairment

    

Translation

    

June 27, 2020

2019/2020 Actions

Severance and related costs

$

21.9

$

40.2

$

(17.8)

$

$

.5

$

44.8

Asset impairment

1.7

(1.7)

2018/2019 Actions

Severance and related costs

6.5

(.2)

(6.2)

.1

.2

Lease cancellation costs

.3

.3

Total

$

28.7

$

41.7

$

(24.0)

$

(1.7)

$

.6

$

45.3

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.

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

Three Months Ended

Six Months Ended

(In millions)

    

June 27, 2020

    

June 29, 2019

    

June 27, 2020

    

June 29, 2019

Restructuring charges, net of reversals, by reportable segment

Label and Graphic Materials

$

25.8

$

4.4

$

26.2

$

12.7

Retail Branding and Information Solutions

 

12.2

 

1.7

 

13.7

 

2.2

Industrial and Healthcare Materials

 

1.5

 

1.4

 

2.0

 

3.3

Corporate

(.2)

(.2)

Total

$

39.3

$

7.5

$

41.7

$

18.2

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 impacts of these foreign exchange and commodities hedge activities on our unaudited Condensed Consolidated Financial Statements were not significant.

Following our Smartrac acquisition and our issuance of the March 2020 senior notes, we entered into U.S. dollar to euro cross-currency swap contracts with a total notional amount of $250 million to have an effect of converting 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 as of June 27, 2020 was $(3) million 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.

Note 8.  Taxes Based on Income

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

Three Months Ended

Six Months Ended

(Dollars in millions)

    

June 27, 2020

    

June 29, 2019

    

June 27, 2020

    

June 29, 2019

Income (loss) before taxes

$

103.3

$

188.7

$

284.2

$

(95.7)

Provision for (benefit from) income taxes

 

22.2

 

44.9

 

68.5

 

(93.5)

Effective tax rate

 

21.5

%  

 

23.8

%

 

24.1

%  

 

97.7

%

Our provision for income taxes for the three and six months ended June 27, 2020 included $3.3 million and $10.5 million, respectively, of net tax charge related to the tax on global intangible low-taxed income (“GILTI”) of our foreign subsidiaries and the recognition of foreign withholding taxes on current year earnings, partially offset by the benefit from foreign-derived intangible income (“FDII”).  Our provisions for income taxes for the three and six months ended June 27, 2020 also included $11.8 million of net discrete 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. Additionally, our provision for income taxes for the six months ended June 27, 2020 primarily reflected $2.8 million of tax benefit related to excess tax benefits associated with stock-based payments.

Our provisions for income taxes for the three and six months ended June 27, 2020 were not materially affected by COVID-19.  Moreover, our ability to generate sufficient taxable income was not adversely affected in certain jurisdictions where a significant portion of our net deferred tax assets is concentrated.  Our provisions for income taxes for the three and six months ended June 27, 2020 were not materially impacted by the stimulus packages and subsequent interpretations enacted in the U.S. and other countries to provide economic relief to businesses in response to COVID-19.

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Avery Dennison Corporation

Our provision for (benefit from) income taxes for the three and six months ended June 29, 2019 included $4.9 million and $10.3 million, respectively, of net tax charge related to the tax on GILTI of our foreign subsidiaries and the recognition of foreign withholding taxes on current year earnings, partially offset by the benefit from FDII.  Effective in 2019, we implemented certain structural changes to better align with our operational strategies, one benefit of which was to reduce our base erosion payments below the statutory minimum threshold.  As a result, our benefits from income taxes for the three and six months ended June 29, 2019 did not include tax charges related to Base Erosion Anti-Abuse Tax.  Our benefit from income taxes for the six months ended June 29, 2019 also primarily reflected the following discrete items: (i) $6.8 million of tax benefit related to excess tax benefits associated with stock-based payments; (ii) $11.5 million of tax benefit from decreases in certain tax reserves, including interest and penalties, as a result of closing tax years; and (iii) approximately $179 million of tax benefit related to the effective settlement of the ADPP, $102 million of which was the related tax effect on the pretax charge of $446.9 million and $77 million of which was related to the release of stranded tax effects in “Accumulated other comprehensive income” through the income statement. The tax effects were stranded primarily as a result of the U.S. federal tax rate change under the U.S. Tax Cuts and Jobs Act. Refer to Note 5, “Pension and Other Postretirement Benefits,” to the unaudited Condensed Consolidated Financial Statements for more information on the termination of the ADPP.

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 amounts reflected in our tax provision and the related liabilities.  To date, we and our U.S. subsidiaries have completed the IRS’ 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.

During the second quarter of 2020, we became aware of a foreign withholding tax regime that could be interpreted to subject us to withholding tax compliance requirements on certain cross-border intellectual property transactions for years remaining open under the applicable statutes of limitations. We continue to evaluate whether this foreign withholding tax regime would apply to us based on its recent interpretation and relevant tax treaties and considering our facts and circumstances. We currently do not expect that our exposure, if any, will have a material impact on our financial position, results of operations or cash flows.

On July 20, 2020, the U.S. Department of Treasury released final regulations that provide certain U.S. taxpayers with an annual election to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The final regulations apply beginning with our 2021 tax year with an option to retroactively apply them to our 2018 through 2020 tax years. Due to the timing of the release and the complexities involved in evaluating the available options, we cannot reasonably estimate the impact of the final regulations at this time.

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 $10 million, primarily as a result of audit settlements and closing tax years.

Note 9.  Net Income (Loss) Per Common Share

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

        

Three Months Ended

Six Months Ended

(In millions, except per share amounts)

    

June 27, 2020

    

June 29, 2019

    

June 27, 2020

    

June 29, 2019

(A)

Net income (loss) available to common shareholders

$

79.7

$

143.4

$

213.9

$

(3.5)

(B)

Weighted average number of common shares outstanding

 

83.4

 

84.3

 

83.4

 

84.3

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

 

.4

 

.8

 

.5

 

(C)

Weighted average number of common shares outstanding, assuming dilution

 

83.8

 

85.1

 

83.9

 

84.3

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

$

.96

$

1.70

$

2.56

$

(.04)

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

$

.95

$

1.69

$

2.55

$

(.04)

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Table of Contents

Avery Dennison Corporation

Certain stock-based compensation awards were not included in the computation of net income (loss) 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 and six months ended June 27, 2020 or June 29, 2019.

For the six months ended June 29, 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 1.0 million shares related to stock-based compensation awards from the computation for the six months ended June 29, 2019.

Note 10. Supplemental Equity and Comprehensive Income Information

Consolidated Changes in Shareholders’ Equity

Three Months Ended

Six Months Ended

(In millions)

    

June 27, 2020

    

June 29, 2019

    

June 27, 2020

    

June 29, 2019

Common stock issued, $1 par value per share

$

124.1

$

124.1

$

124.1

$

124.1

Capital in excess of par value

Beginning balance

$

852.5

$

851.5

$

874.0

$

872.0

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

 

(12.5)

 

6.2

 

(34.0)

 

(14.3)

Ending balance

$

840.0

$

857.7

$

840.0

$

857.7

Retained earnings

Beginning balance

$

3,064.8

$

2,663.5

$

2,979.1

$

2,864.9

Net income (loss)

 

79.7

 

143.4

 

213.9

 

(3.5)

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

 

.9

 

.9

 

(3.3)

 

(13.4)

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

 

3.2

 

3.3

 

7.3

 

7.0

Dividends

 

(48.4)

 

(48.8)

 

(96.8)

 

(92.7)

Ending balance

$

3,100.2

$

2,762.3

$

3,100.2

$

2,762.3

Treasury stock at cost

Beginning balance

$

(2,456.0)

$

(2,287.8)

$

(2,425.1)

$

(2,223.9)

Repurchase of shares for treasury

 

 

(27.9)

 

(45.2)

 

(116.6)

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

 

6.6

 

1.8

 

18.6

 

24.1

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

 

2.2

 

2.1

 

4.5

 

4.6

Ending balance

$

(2,447.2)

$

(2,311.8)

$

(2,447.2)

$

(2,311.8)

Accumulated other comprehensive loss

Beginning balance

$

(412.0)

$

(359.4)

$

(348.1)

$

(682.0)

Other comprehensive income (loss), net of tax(2)

 

8.8

 

(10.4)

 

(55.1)

 

312.2

Ending balance

$

(403.2)

$

(369.8)

$

(403.2)

$

(369.8)

(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 2019, we effectively settled our remaining obligations under the ADPP. Refer to Note 5, "Pension and Other Postretirement Benefits,” to the unaudited Condensed Consolidated Financial Statements for more information.

Dividends per common share were as follows:

Three Months Ended

Six Months Ended

    

June 27, 2020

    

June 29, 2019

    

June 27,