Company Quick10K Filing
Quick10K
Avery Dennison
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$105.54 84 $8,910
10-Q 2019-06-29 Quarter: 2019-06-29
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 2019-07-23 Earnings, Exhibits
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
AGO Assured Guaranty 4,750
PD PagerDuty 3,620
SHO Sears 3,240
FG FGL Holdings 1,910
AX Axos Financial 1,840
UPLD Upland Software 999
RMTI Rockwell Medical 318
EVER Everquote 105
HTGM HTG Molecular Diagnostics 71
CIFS China Internet Nationwide Financial Services 58
AVY 2019-06-29
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 Income (Loss) 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 avy-20190629ex3116ddfa5.htm
EX-31.2 avy-20190629ex312c80b42.htm
EX-32.1 avy-20190629ex321a494ab.htm
EX-32.2 avy-20190629ex32288a0f9.htm

Avery Dennison Earnings 2019-06-29

AVY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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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 29, 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

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 27, 2019: 84,192,913

Table of Contents

AVERY DENNISON CORPORATION

FISCAL SECOND 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 June 29, 2019 and December 29, 2018

2

Condensed Consolidated Statements of Operations Three and Six Months ended June 29, 2019 and June 30, 2018

3

Condensed Consolidated Statements of Comprehensive Income Three and Six Months ended June 29, 2019 and June 30, 2018

4

Condensed Consolidated Statements of Cash Flows Six Months ended June 29, 2019 and June 30, 2018

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

23

Non-GAAP Financial Measures

23

Overview and Outlook

24

Analysis of Results of Operations for the Second Quarter

26

Results of Operations by Reportable Segment for the Second Quarter

27

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

29

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

31

Financial Condition

33

Recent Accounting Requirements

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

39

Item 6.

Exhibits

40

Signatures

41

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, and subsequent quarterly reports on Form 10-Q, and 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)

    

June 29, 2019

    

December 29, 2018

Assets

Current assets:

Cash and cash equivalents

$

247.3

$

232.0

Trade accounts receivable, less allowances of $23.4 and $21.1 at June 29, 2019 and December 29, 2018, respectively

 

1,232.0

 

1,189.7

Inventories, net

 

671.0

 

651.4

Other current assets

 

226.9

 

224.9

Total current assets

 

2,377.2

 

2,298.0

Property, plant and equipment, net

1,143.8

1,137.4

Goodwill

 

940.8

 

941.8

Other intangibles resulting from business acquisitions, net

 

136.3

 

144.0

Non-current deferred income taxes

 

180.2

 

205.3

Other assets

 

611.4

 

451.0

$

5,389.7

$

5,177.5

Liabilities and Shareholders’ Equity

Current liabilities:

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

$

558.5

$

194.6

Accounts payable

 

1,055.4

 

1,030.5

Accrued payroll and employee benefits

169.4

217.9

Other current liabilities

 

495.2

 

551.0

Total current liabilities

 

2,278.5

 

1,994.0

Long-term debt and finance leases

 

1,503.3

 

1,771.6

Long-term retirement benefits and other liabilities

 

433.3

 

334.7

Non-current deferred and payable income taxes

 

112.1

 

122.1

Commitments and contingencies (see Note 13)

Shareholders’ equity:

Common stock, $1 par value per share, authorized - 400,000,000 shares at June 29, 2019 and December 29, 2018; issued - 124,126,624 shares at June 29, 2019 and December 29, 2018; outstanding - 84,227,395 shares and 84,723,655 shares at June 29, 2019 and December 29, 2018, respectively

 

124.1

 

124.1

Capital in excess of par value

 

857.7

 

872.0

Retained earnings

 

2,762.3

 

2,864.9

Treasury stock at cost, 39,899,229 shares and 39,402,969 shares at June 29, 2019 and December 29, 2018, respectively

 

(2,311.8)

 

(2,223.9)

Accumulated other comprehensive loss

 

(369.8)

 

(682.0)

Total shareholders’ equity

 

1,062.5

 

955.1

$

5,389.7

$

5,177.5

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 29, 2019

    

June 30, 2018

    

June 29, 2019

    

June 30, 2018

Net sales

$

1,795.7

$

1,854.2

$

3,535.8

$

3,630.6

Cost of products sold

 

1,313.4

 

1,352.8

 

2,588.1

 

2,645.8

Gross profit

 

482.3

 

501.4

 

947.7

 

984.8

Marketing, general and administrative expense

 

265.7

 

287.5

 

542.0

 

582.5

Other expense, net

 

7.5

 

57.1

 

15.0

 

69.9

Interest expense

19.5

14.3

39.0

27.5

Other non-operating expense

.9

2.6

447.4

5.9

Income (loss) before taxes

 

188.7

 

139.9

 

(95.7)

 

299.0

Provision for (benefit from) income taxes

 

44.9

 

43.9

 

(93.5)

 

77.2

Equity method investment losses

(.4)

(.4)

(1.3)

(1.0)

Net income (loss)

$

143.4

$

95.6

$

(3.5)

$

220.8

Per share amounts:

Net income (loss) per common share

$

1.70

$

1.09

$

(.04)

$

2.51

Net income (loss) per common share, assuming dilution

$

1.69

$

1.07

$

(.04)

$

2.47

Weighted average number of shares outstanding:

 

 

 

Common shares

84.3

87.9

84.3

87.9

Common shares, assuming dilution

85.1

89.0

84.3

89.4

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 29, 2019

    

June 30, 2018

    

June 29, 2019

    

June 30, 2018

Net income (loss)

$

143.4

$

95.6

$

(3.5)

$

220.8

Other comprehensive (loss) income, net of tax:

Foreign currency translation

 

(10.5)

 

(85.9)

 

11.6

 

(51.6)

Pension and other postretirement benefits

 

.2

 

6.0

 

300.9

 

11.7

Cash flow hedges

 

(.1)

 

(.2)

 

(.3)

 

.7

Other comprehensive (loss) income, net of tax

 

(10.4)

 

(80.1)

 

312.2

 

(39.2)

Total comprehensive income, net of tax

$

133.0

$

15.5

$

308.7

$

181.6

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 29, 2019

    

June 30, 2018

Operating Activities

Net (loss) income

$

(3.5)

$

220.8

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

Depreciation

 

70.4

 

69.1

Amortization

 

19.0

 

20.2

Provision for doubtful accounts and sales returns

26.8

23.1

Stock-based compensation

 

16.5

 

16.4

Pension plan settlements and related charges

 

446.9

 

.7

Deferred income taxes and other non-cash taxes

(166.6)

(7.1)

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

 

10.3

 

36.5

Changes in assets and liabilities and other adjustments

 

(181.0)

 

(170.2)

Net cash provided by operating activities

 

238.8

 

209.5

Investing Activities

Purchases of property, plant and equipment

 

(79.8)

 

(79.5)

Purchases of software and other deferred charges

 

(13.0)

 

(13.9)

Proceeds from sales of property, plant and equipment

 

7.4

 

9.3

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

 

4.3

 

2.2

Payments for investments in businesses

 

(6.5)

 

(.2)

Net cash used in investing activities

 

(87.6)

 

(82.1)

Financing Activities

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

 

112.9

 

108.3

Repayments of long-term debt and finance leases

 

(16.5)

 

(2.7)

Dividends paid

 

(92.7)

 

(85.3)

Share repurchases

 

(116.6)

 

(102.9)

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

 

(20.4)

 

(32.4)

Payments of contingent consideration

(1.6)

(16.8)

Net cash used in financing activities

 

(134.9)

 

(131.8)

Effect of foreign currency translation on cash balances

 

(1.0)

 

(4.2)

Increase (decrease) in cash and cash equivalents

 

15.3

 

(8.6)

Cash and cash equivalents, beginning of year

 

232.0

 

224.4

Cash and cash equivalents, end of period

$

247.3

$

215.8

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 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 three and six months ended June 29, 2019 and June 30, 2018 consisted of thirteen-week and twenty-six week periods, 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 on their balance sheets the rights and obligations created by leases. This guidance also requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows from leases. As allowed by this guidance, we elected to apply it using a modified retrospective approach. This approach applies to all leases that existed at or commenced 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 by better reflecting the economic results of an entity’s risk management activities in its financial statements and simplifying the application of hedge accounting.  As a result of adopting this guidance, our reclassification of gains and losses from cash flow hedges to earnings is 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. We have options to renew or terminate some of our leases. 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.

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As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the 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.

Supplemental cost information related to leases is shown below.

    

Three Months Ended

    

Six Months Ended

(In millions)

June 29, 2019

June 29, 2019

Operating lease cost

$

16.0

$

32.5

Lease costs related to finance leases were immaterial for the three and six months ended June 29, 2019.

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

(In millions)

    

Balance Sheet Location

    

June 29, 2019

Assets

 

  

 

  

Operating

 

Other assets

$

147.1

Finance

 

Property, plant and equipment, net(1)

 

26.3

Total leased assets

$

173.4

(1)Finance lease assets are net of accumulated amortization of $5.8 million as of June 29, 2019.

Liabilities

 

  

 

  

Current:

 

  

 

  

Operating

 

Other current liabilities

$

40.6

Finance

 

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

 

3.6

Non-current:

 

  

 

Operating

 

Long-term retirement benefits and other liabilities

 

112.6

Finance

 

Long-term debt and finance leases

 

15.9

Total lease liabilities

$

172.7

Supplemental cash flow information related to leases is shown below.

    

Six Months Ended

(In millions)

June 29, 2019

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

 

$

24.6

Lease assets obtained in exchange for lease liabilities — operating leases

14.9

Cash flows related to finance leases were immaterial for the six months ended June 29, 2019.

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

    

June 29, 2019

 

Weighted average remaining lease term (in years):

 

  

Operating

 

6.1

Finance

 

5.5

Weighted average discount rate (%):

 

  

Operating

 

4.9

%

Finance

 

3.4

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Operating and finance lease liabilities by maturity date from June 29, 2019 are shown below.

(In millions)

    

Operating Leases

    

Finance Leases

2019 (remainder of year)

$

23.5

 

$

2.3

2020

 

42.8

 

4.2

2021

 

32.2

 

4.1

2022

 

20.6

 

3.7

2023

 

14.0

 

3.5

2024 and thereafter

 

43.5

 

4.3

Total lease payments

 

176.6

 

22.1

Less: imputed interest

 

(23.4)

 

(2.6)

Present value of lease liabilities

$

153.2

 

$

19.5

As of June 29, 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 in 2024 and thereafter.

Note 3.  Goodwill

Changes in the net carrying amount of goodwill for the six months ended June 29, 2019 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 29, 2018

$

415.5

$

349.7

$

176.6

$

941.8

Translation adjustments

 

(1.1)

 

.5

(.4)

 

(1.0)

Goodwill as of June 29, 2019

$

414.4

$

350.2

$

176.2

$

940.8

The carrying amounts of goodwill at June 29, 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

In the second quarter of 2019, we reclassified approximately $265 million of notes due in the second quarter of 2020 from long-term debt to current portion of long-term 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 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 $2.16 billion at June 29, 2019 and $2 billion at December 29, 2018. Fair values were determined based primarily on Level 2 inputs, which are inputs other than quoted prices in active markets that are either directly or indirectly observable.

Our $800 million revolving credit facility (the “Revolver”) contains financial covenants requiring us to 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 June 29, 2019 or December 29, 2018. As of both June 29, 2019 and December 29, 2018, we were in compliance with our financial covenants.

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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.

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, these costs are not included in the disclosures below.

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

Pension Benefits

Three Months Ended

Six Months Ended

June 29, 2019

June 30, 2018

June 29, 2019

June 30, 2018

(In millions)

    

U.S.

    

Int’l

    

U.S.

    

Int’l

    

U.S.

Int’l

U.S.

Int’l

Service cost

$

$

3.9

$

$

4.9

$

$

7.9

$

$

9.8

Interest cost

 

.7

 

3.7

8.7

4.1

1.4

7.4

17.3

8.0

Actuarial (gain) loss

(.7)

(.7)

Expected return on plan assets

 

 

(5.3)

(10.7)

(6.1)

(10.6)

(21.3)

(12.2)

Recognized net actuarial loss

 

1.3

 

1.0

5.5

2.1

1.4

2.0

10.7

4.2

Amortization of prior service (credit) cost

 

 

(.1)

.2

(.2)

(.2)

.4

(.3)

Recognized loss on settlements

 

 

.2

446.9

.7

Net periodic benefit cost

$

2.0

$

3.2

$

3.2

$

4.8

$

449.7

$

6.5

$

7.1

$

9.5

U.S. Postretirement Health Benefits

Three Months Ended

Six Months Ended

(In millions)

    

June 29, 2019

    

June 30, 2018

    

June 29, 2019

    

June 30, 2018

Interest cost

$

$

$

$

Recognized net actuarial loss

.3

.3

.6

.7

Amortization of prior service credit

(.8)

(.8)

(1.6)

(1.6)

Net periodic benefit credit

$

(.5)

$

(.5)

$

(1.0)

$

(.9)

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.

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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 $8.9 million and $16.5 million for the three and six months ended June 29, 2019, respectively, and $9 million and $16.4 million for the three and six months ended June 30, 2018, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations.

As of June 29, 2019, we had approximately $56 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 $2.8 million and $11.2 million for the three and six months ended June 29, 2019, respectively, and $3.2 million and $8.8 million for the three and six months ended June 30, 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 Label and Graphic Materials (“LGM”) reportable segment, which is expected to reduce headcount by approximately 400 positions from 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 second quarter of 2019 consisted of severance and related costs for the reduction of approximately 345 positions, as well as asset impairment charges. During the six months ended June 29, 2019, we recorded a net $.9 million in restructuring reversals related to the 2018 Plan. The activities for the 2018 Plan were substantially complete as of the end of the second quarter of 2019.

In addition to the net restructuring reversals recorded under the 2018 Plan, we recorded $19.8 million in restructuring charges during the six months ended June 29, 2019 related to other 2018/2019 Actions. These charges consisted of severance and related costs for the reduction of approximately 330 positions, as well as lease cancellation costs.

During the six months ended June 29, 2019, restructuring charges and payments were as follows:

Accrual at

Charges,

Foreign

Accrual at

December 29,

Net of

Cash

Non-cash

Currency

June 29,

(In millions)

    

2018

    

Reversals

    

Payments

    

Impairment

    

Translation

    

2019

2018/2019 Actions

Severance and related costs

$

40.7

$

17.1

$

(31.6)

$

$

(.6)

$

25.6

Asset impairment charges

1.5

(1.5)

Lease cancellation costs

.3

.3

Total

$

40.7

$

18.9

$

(31.6)

$

(1.5)

$

(.6)

$

25.9

2015/2016 Actions

During the six months ended June 29, 2019, we recorded $.7 million in restructuring reversals related to restructuring actions initiated during the third quarter of 2015.

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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

Six Months Ended

(In millions)

    

June 29, 2019

    

June 30, 2018

    

June 29, 2019

    

June 30, 2018

Restructuring charges, net of reversals, by reportable segment

Label and Graphic Materials

$

4.4

$

57.8

$

12.7

$

65.3

Retail Branding and Information Solutions

 

1.7

 

1.4

 

2.2

 

6.6

Industrial and Healthcare Materials

 

1.4

 

.2

 

3.3

 

.2

Total

$

7.5

$

59.4

$

18.2

$

72.1

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 June 29, 2019, the aggregate U.S. dollar equivalent notional value of our outstanding commodity contracts and foreign exchange contracts was $3.6 million and $1.1 billion, respectively.

We recognize derivative instruments as either assets or liabilities at fair value in the unaudited Condensed Consolidated Balance Sheets.

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

Asset

(In millions)

    

Balance Sheet Location

    

June 29, 2019

    

December 29, 2018

Foreign exchange contracts

Other current assets

$

1.2

$

.5

Commodity contracts

 

Other current assets

.1

$

1.2

$

.6

Liability

(In millions)

    

Balance Sheet Location

    

June 29, 2019

    

December 29, 2018

Foreign exchange contracts

Other current liabilities

$

1.3

$

.8

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

Asset

(In millions)

    

Balance Sheet Location

    

June 29, 2019

    

December 29, 2018

Foreign exchange contracts

Other current assets

$

6.8

$

3.0

Liability

(In millions)

    

Balance Sheet Location

    

June 29, 2019

    

December 29, 2018

Foreign exchange contracts

Other current liabilities

$

7.3

$

7.9

Cash Flow Hedges

We designate commodity forward contracts on forecasted purchases of commodities and foreign exchange contracts on forecasted transactions as 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

Six Months Ended

(In millions)

    

June 29, 2019

    

June 30, 2018

    

June 29, 2019

    

June 30, 2018

Foreign exchange contracts

$

.7

$

(.4)

$

.9

$

.5

Commodity contracts

 

(.4)

 

 

(.5)

 

Total

$

.3

$

(.4)

$

.4

$

.5

Neither the amount recognized in income related to the ineffective portion of, nor the amount excluded from effectiveness testing for, cash flow hedges was material for the three and six months ended June 29, 2019 or June 30, 2018.

As of June 29, 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 that 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 arising from foreign exchange rate fluctuations.

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

Three Months Ended

    

Six Months Ended

(In millions)

    

Statements of Operations Location

    

June 29, 2019

    

June 30, 2018

June 29, 2019

    

June 30, 2018

Foreign exchange contracts

 

Cost of products sold

$

(.1)

$

2.1

$

(.6)

$

1.3

Foreign exchange contracts

 

Marketing, general and administrative expense

 

(.6)

 

(6.6)

 

1.7

 

(16.1)

Total

$

(.7)

$

(4.5)

$

1.1

$

(14.8)

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Avery Dennison Corporation

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 €