~~SAFE HARBOR STATEMENT~~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 ~~January 2,~~December 31, 2016 ~~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 currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in 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 and completion of potential dispositions; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; ~~integration of acquisitions and completion of potential dispositions;~~ 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, 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; ~~changes in governmental laws and regulations;~~ protection and infringement of intellectual property; ~~changes in political conditions;~~ 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) competitors’ actions, including pricing, expansion in key markets, and product offerings; ~~and~~ (3) 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.~~volume; 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.

Avery Dennison Corporation

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in millions, except per share amount)	July 2, 2016			January 2, 2016			April 1, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	216.1		$	158.8		$	294.9		$	195.1
Trade accounts receivable, less allowances of $34.2 and $31.5 at July 2, 2016 and January 2, 2016, respectively	1,028.3			964.7
Trade accounts receivable, less allowances of $51.9 and $47.8 at April 1, 2017 and December 31, 2016, respectively							1,099.5			1,001.0
Inventories, net	524.1			478.7			579.9			519.1
Assets held for sale	4.4			2.5			8.0			6.8
Other current assets	169.6			170.7			202.3			182.8
Total current assets	1,942.5			1,775.4			2,184.6			1,904.8
Property, plant and equipment	2,600.8			2,599.9			2,736.2			2,661.4
Accumulated depreciation	(1,762.1		)	(1,752.0		)	(1,795.9		)	(1,746.2		)
Property, plant and equipment, net	838.7			847.9			940.3			915.2
Goodwill	691.0			686.2			826.4			793.6
Other intangibles resulting from business acquisitions, net	36.4			45.8			83.4			66.7
Non-current deferred income taxes	390.4			372.2			317.8			313.2
Other assets	395.8			406.2			413.4			402.9
	$	4,294.8		$	4,133.7		$	4,765.9		$	4,396.4

Liabilities and Shareholders’ Equity
Current liabilities:
Short-term borrowings and current portion of long-term debt and capital leases	$	199.0		$	95.3		$	333.2		$	579.1
Accounts payable	867.9			814.6			906.1			841.9
Accrued payroll and employee benefits							168.2			217.4
Other current liabilities	525.3			549.2			351.8			365.9
Total current liabilities	1,592.2			1,459.1			1,759.3			2,004.3
Long-term debt and capital leases	962.9			963.6			1,250.2			713.4
Long-term retirement benefits and other liabilities	674.5			637.4			649.9			660.9
Non-current deferred and payable income taxes	108.7			107.9			91.9			92.3
Commitments and contingencies (see Note 15)
Shareholders’ equity:
Common stock, $1 par value per share, authorized — 400,000,000 shares at July 2, 2016 and January 2, 2016; issued — 124,126,624 shares at July 2, 2016 and January 2, 2016; outstanding — 88,927,397 shares and 89,967,697 shares at July 2, 2016 and January 2, 2016, respectively	124.1			124.1
Common stock, $1 par value per share, authorized – 400,000,000 shares at April 1, 2017 and December 31, 2016; issued – 124,126,624 shares at April 1, 2017 and December 31, 2016; outstanding – 88,714,837 shares and 88,308,860 shares at April 1, 2017 and December 31, 2016, respectively							124.1			124.1
Capital in excess of par value	834.4			834.0			839.2			852.0
Retained earnings	2,385.5			2,277.6			2,537.9			2,473.3
Treasury stock at cost, 35,199,227 shares and 34,158,927 shares at July 2, 2016 and January 2, 2016, respectively	(1,698.7		)	(1,587.0		)
Treasury stock at cost, 35,411,787 shares and 35,817,764 shares at April 1, 2017 and December 31, 2016, respectively							(1,774.1		)	(1,772.0		)
Accumulated other comprehensive loss	(688.8		)	(683.0		)	(712.5		)	(751.9		)
Total shareholders’ equity	956.5			965.7			1,014.6			925.5
	$	4,294.8		$	4,133.7		$	4,765.9		$	4,396.4

See Notes to Unaudited Condensed Consolidated Financial Statements

Avery Dennison Corporation

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended					Six Months Ended					Three Months Ended
(In millions, except per share amounts)	July 2, 2016		July 4, 2015			July 2, 2016		July 4, 2015			April 1, 2017		April 2, 2016
Net sales	$	1,541.5	$	1,516.0		$	3,027.0	$	3,044.0		$	1,572.1	$	1,485.5
Cost of products sold	1,107.4		1,098.4			2,170.3		2,196.4			1,129.7		1,062.9
Gross profit	434.1		417.6			856.7		847.6			442.4		422.6
Marketing, general and administrative expense	269.2		273.3			547.4		573.7			283.3		278.2
Interest expense	15.4		15.3			30.7		30.6			16.7		15.3
Other expense, net	50.2		27.7			55.8		42.0			6.5		5.6
Income from continuing operations before taxes	99.3		101.3			222.8		201.3
Income before taxes											135.9		123.5
Provision for income taxes	19.3		36.6			53.2		64.7			23.7		33.9
Income from continuing operations	80.0		64.7			169.6		136.6
Loss from discontinued operations	–		(1.0		)	–		(1.0		)
Net income	$	80.0	$	63.7		$	169.6	$	135.6		$	112.2	$	89.6

Per share amounts:
Net income (loss) per common share:
Continuing operations	$	.90	$	.71		$	1.90	$	1.50
Discontinued operations	–		(.01		)	–		(.01		)
Net income per common share	$	.90	$	.70		$	1.90	$	1.49		$	1.27	$	1.00
Net income (loss) per common share, assuming dilution:
Continuing operations	$	.88	$	.69		$	1.87	$	1.47
Discontinued operations	–		(.01		)	–		(.01		)
Net income per common share, assuming dilution	$	.88	$	.68		$	1.87	$	1.46		$	1.25	$	.98
Dividends per common share	$	.41	$	.37		$	.78	$	.72		$	.41	$	.37

Weighted average number of shares outstanding:
Common shares	89.1		91.2			89.3		90.9			88.4		89.4
Common shares, assuming dilution	90.7		93.0			90.9		92.8			90.0		91.1

See Notes to Unaudited Condensed Consolidated Financial Statements

Avery Dennison Corporation

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended					Six Months Ended						Three Months Ended
(In millions)	July 2, 2016			July 4, 2015		July 2, 2016			July 4, 2015
(In millions)												April 1, 2017			April 2, 2016
Net income	$	80.0		$	63.7	$	169.6		$	135.6		$	112.2		$	89.6
Other comprehensive (loss) income, net of tax:
Other comprehensive income (loss), net of tax:
Foreign currency translation	(13.3		)	2.9		5.6			(69.1		)	35.5			18.9
Pension and other postretirement benefits	(15.5		)	7.2		(11.3		)	12.6			4.7			4.2
Cash flow hedges	1.2			.1		(.1		)	(.6		)	(.8		)	(1.3		)
Other comprehensive (loss) income, net of tax	(27.6		)	10.2		(5.8		)	(57.1		)
Other comprehensive income, net of tax												39.4			21.8
Total comprehensive income, net of tax	$	52.4		$	73.9	$	163.8		$	78.5		$	151.6		$	111.4

See Notes to Unaudited Condensed Consolidated Financial Statements

Avery Dennison Corporation

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended						Three Months Ended
(In millions)	July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
Operating Activities
Net income	$	169.6		$	135.6		$	112.2		$	89.6
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	58.6			64.9			28.8			29.0
Amortization	30.8			31.8			15.8			15.3
Provision for doubtful accounts and sales returns	21.3			24.9			11.5			11.2
Net losses from asset impairments and sales/disposals of assets	3.2			11.1			.7			.6
Stock-based compensation	14.1			13.2			5.6			7.5
Loss from settlement of pension obligations	41.4			–
Other non-cash expense and loss	24.1			26.7			15.2			12.8
Changes in assets and liabilities and other adjustments	(147.1		)	(137.8		)	(174.5		)	(172.3		)
Net cash provided by operating activities	216.0			170.4
Net cash provided by (used in) operating activities							15.3			(6.3		)

Investing Activities
Purchases of property, plant and equipment	(61.3		)	(56.4		)	(30.3		)	(25.2		)
Purchases of software and other deferred charges	(6.1		)	(4.0		)	(6.9		)	(2.0		)
Proceeds from sales of property, plant and equipment	3.2			2.8			–			.1
Purchases of investments, net	–			(.3		)	(.2		)	(3.8		)
Other	–			1.5
Payments for acquisitions, net of cash acquired, and investments in businesses							(74.6		)	–
Net cash used in investing activities	(64.2		)	(56.4		)	(112.0		)	(30.9		)

Financing Activities
Net increase (decrease) in borrowings (maturities of 3 months or less)	104.6			(15.8		)
Payments of debt (maturities greater than 3 months)	(1.2		)	(5.5		)
Net (decrease) increase in borrowings (maturities of three months or less)							(256.8		)	169.4
Additional long-term borrowings							526.7			–
Repayments of long-term debt							(.8		)	(.5		)
Dividends paid	(69.6		)	(65.7		)	(36.4		)	(33.0		)
Share repurchases	(160.1		)	(61.5		)	(34.6		)	(95.6		)
Proceeds from exercises of stock options, net	41.4			61.3			16.4			16.0
Other	(8.4		)	(4.0		)
Net cash used in financing activities	(93.3		)	(91.2		)
Tax withholding for and excess tax benefit from stock-based compensation, net							(19.8		)	(9.2		)
Net cash provided by financing activities							194.7			47.1

Effect of foreign currency translation on cash balances	(1.2		)	(4.3		)	1.8			.9
Increase in cash and cash equivalents	57.3			18.5			99.8			10.8
Cash and cash equivalents, beginning of year	158.8			207.2			195.1			158.8
Cash and cash equivalents, end of period	$	216.1		$	225.7		$	294.9		$	169.6

See Notes to Unaudited Condensed Consolidated Financial Statements

Avery Dennison Corporation

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. General

The unaudited Condensed Consolidated Financial Statements and notes in this Quarterly Report on Form 10-Q are presented as permitted by Article 10 of Regulation S-X and do not contain certain information included in the audited Consolidated Financial Statements and notes thereto in our ~~2015~~2016 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 include normal recurring adjustments necessary for a fair statement of our interim results. Interim results of operations are not necessarily indicative of future results.

Fiscal Periods

The ~~second~~first quarters of ~~2016~~2017 and ~~2015~~2016 consisted of thirteen-week periods ending ~~July~~April 1, 2017 and April 2, 2016, ~~and July 4, 2015,~~ respectively. ~~The six months ended July 2, 2016 and July 4, 2015 each consisted of twenty-six-week periods.~~

~~Prior Period Financial Statement Revision~~Accounting Guidance Update

In 2015, we determined that certain of our benefit plans (that were frozen between 1994 and 2003) were not properly accounted for since their inception between 1984 and 1988. This resulted in an understatement of long-term retirement benefits and other liabilities and the cumulative historical expenses related to these benefit plans. Additionally, we identified certain liquid short-term bank drafts with maturities greater than three months that were improperly classified as cash and cash equivalents instead of other current assets, which resulted in an overstatement of operating cash flows, and tax effects related to certain foreign pension plans that were not properly accounted for on our consolidated financial statements.

We assessed the materiality of these errors on our financial statements for prior periods in accordance with United States Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 99, ~~Materiality~~~~, codified in Accounting Standards Codification (“ASC”) 250,~~ ~~Presentation of Financial Statements~~, and concluded that they were not material to any prior annual or interim periods. However, the aggregate amount of the prior period revisions of approximately $24 million would have been material to our Condensed Consolidated Statements of Income in the period that the errors were identified. Consequently, in accordance with ASC 250 (SAB No. 108, ~~Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements~~), we have corrected these errors for all prior periods presented by revising the unaudited Condensed Consolidated Financial Statements and other financial information included herein. We also corrected the timing of immaterial previously recorded out-of-period adjustments and reflected them in the revised prior period financial statements, where applicable. Periods not presented herein will be revised, as applicable, in future filings.

~~Avery Dennison Corporation~~

~~The effects of this revision on our unaudited Condensed Consolidated Statements of Income were as follows:~~

Three Months Ended

Six Months Ended

July 4, 2015

July 4, 2015

(In millions)

As
Previously
Reported

Adjustment

As
Revised

As
Previously
Reported

Adjustment

As
Revised

Marketing, general and administrative expense

$
273.8

$
(.5
)
$
273.3

$
574.7

$
(1.0
)
$
573.7

Income from continuing operations before taxes

100.8

.5

101.3

200.3

1.0

201.3

Provision for income taxes

36.5

.1

36.6

64.4

.3

64.7

Income from continuing operations

64.3

.4

64.7

135.9

.7

136.6

Loss from discontinued operations

(1.0
)
–

(1.0
)
(1.0
)
–

(1.0
)
Net income

63.3

.4

63.7

134.9

.7

135.6

Per share amounts:

Net income per common share:

Continuing operations

$
.70

$
.01

$
.71

$
1.49

$
.01

$
1.50

Discontinued operations

(.01
)
–

(.01
)
(.01
)
–

(.01
)
Net income per common share

$
.69

$
.01

$
.70

$
1.48

$
.01

$
1.49

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

Continuing operations

$
.69

$
–

$
.69

$
1.46

$
.01

$
1.47

Discontinued operations

(.01
)
–

(.01
)
(.01
)
–

(.01
)
Net income per common share, assuming dilution

$
.68

$
–

$
.68

$
1.45

$
.01

$
1.46

~~The effects of the revision on our unaudited Condensed Consolidated Statements of Comprehensive Income were as follows:~~

Three Months Ended

Six Months Ended

July 4, 2015

July 4, 2015

(In millions)

As
Previously
Reported

Adjustment

As
Revised

As
Previously
Reported

Adjustment

As
Revised

Net income

$
63.3

$
.4

$
63.7

$
134.9

$
.7

$
135.6

Foreign currency translation

3.0

(.1
)
2.9

(69.1
)
–

(69.1
)
Pension and other postretirement benefits

7.2

–

7.2

13.6

(1.0
)
12.6

Other comprehensive income (loss), net of tax

10.3

(.1
)
10.2

(56.1
)
(1.0
)
(57.1
)
Total comprehensive income, net of tax

73.6

.3

73.9

78.8

(.3
)
78.5

~~The effects of the revision on our unaudited Condensed Consolidated Statements of Cash Flows were as follows:~~

Six Months Ended July 4, 2015

(In millions)

As
Previously
Reported

Adjustment

As
Revised

Net cash provided by operating activities

$
170.9

$
(.5
)
$
170.4

Increase in cash and cash equivalents

19.0

(.5
)
18.5

Cash and cash equivalents, beginning of year

227.0

(19.8
)
207.2

Cash and cash equivalents, end of period

246.0

(20.3
)
225.7

~~Sale of Product Line~~

In May 2015, we sold certain assets and transferred certain liabilities associated with a product line in our Retail Branding and Information Solutions (“RBIS”) reportable segment for $1.5 million. The pre-tax loss from the sale, when combined with exit costs related to the sale, totaled $7.7 million in the second quarter of 2015. In the first quarter of ~~2015,~~2017, we ~~recorded~~adopted an ~~impairment charge~~accounting guidance update that simplifies several aspects of ~~approximately $2 million~~the accounting for stock-based payment transactions. As a result of adopting this update, beginning in the first quarter of 2017, (i) the tax effects related to ~~certain long-lived assets of this product line, as well as $.6 million of other costs related to this sale. This loss and these costs~~stock-based payments at settlement or expiration were ~~included in “Other expense, net” in~~recognized through the ~~unaudited Condensed Consolidated Statements of Income.~~

~~Avery Dennison Corporation~~

~~Discontinued Operations~~

~~Loss~~income statement, a change from ~~discontinued operations during~~ the ~~second quarter and six months ended July 4, 2015 included $1 million of tax expense related to the completion of~~previous requirement that certain tax ~~return filings related~~effects be recognized in capital in excess of par value, and, as required by this guidance, this change has been applied prospectively, and (ii) all tax-related cash flows resulting from stock-based payments were reported as operating activities on the statements of cash flows, a change from the previous requirement to ~~the sale of our former Office~~present excess tax benefits as an inflow from financing activities and ~~Consumer Products (“OCP”)~~an outflow from operating activities, and, ~~Designed~~as permitted by this guidance, prior periods have not been retrospectively adjusted. Refer to Note 8, “Long-Term Incentive Compensation,” and Engineered Solutions (“DES”) businesses. We continue to be subject to certain indemnification obligations under the terms of the purchase agreement. In addition, the tax liability associated with the sale is subject to completion of remaining tax return filings in certain foreign jurisdictions where we formerly operated the OCP and DES businesses.Note 11, “Taxes Based on Income,” for further information.

Note 2. ~~Acquisition~~Acquisitions

On March 1, 2017, we completed the net asset acquisition of Hanita Coatings Rural Cooperative Association Limited and stock acquisition of certain of its subsidiaries (“Hanita”), a pressure-sensitive manufacturer of specialty films and laminates based in Israel, from Kibbutz Hanita Coatings and Tene Investment Funds. Hanita develops and manufactures coated, laminated and metallized polyester films for a range of industrial and commercial applications, which we expect to expand our product portfolio and provide new growth opportunities. The total consideration for this acquisition was approximately $75 million, net of cash acquired, which we funded through cash and existing credit facilities. The consideration is subject to customary post-closing adjustments. Consistent with the allowable time to complete our assessment, the valuations of certain acquired assets and liabilities, including intangible assets and income taxes, are currently pending. This acquisition was not material to our unaudited Condensed Consolidated Financial Statements.

In ~~April 2016,~~February 2017, we ~~entered into an~~announced our agreement to acquire ~~the European business~~Yongle Tape Company Ltd. (“Yongle Tape”), a manufacturer of ~~MACtac (“Mactac”)~~specialty tapes and related products used in a variety of industrial markets based in China, from ~~Platinum Equity for a purchase price of €200 million, including assumed debt. Mactac manufactures pressure-sensitive materials that complement our existing graphics portfolio.~~Yongle Tape’s management and ShawKwei & Partners. The purchase price is $190 million, which is subject to customary adjustments, with an additional earn-out opportunity of up to $55 million to be paid based on the acquired business’ achievement of certain ~~adjustments in accordance with~~performance targets over the ~~terms of the agreement. On August 1, 2016, we completed~~next two years. We expect to complete this acquisition ~~which we funded with cash and through existing credit facilities.~~in mid-2017.

Note 3. Inventories

Net inventories consisted of:

(In millions)	July 2, 2016		January 2, 2016		April 1, 2017		December 31, 2016
Raw materials	$	197.4	$	180.5	$	209.2	$	185.0
Work-in-progress	162.0		143.0		172.2		156.8
Finished goods	164.7		155.2		198.5		177.3
Inventories, net	$	524.1	$	478.7	$	579.9	$	519.1

Avery Dennison Corporation

Note 4. Goodwill and Other Intangibles Resulting from Business Acquisitions

Goodwill

Changes in the net carrying amount of goodwill for the ~~six~~three months ended ~~July 2, 2016,~~April 1, 2017, by reportable segment, were as follows:

(In millions)	Pressure-sensitive Materials		Retail Branding and Information Solutions		Total		Label and Graphic Materials		Retail Branding and Information Solutions		Industrial and Healthcare Materials		Total
Goodwill as of January 2, 2016	$	277.9	$	408.3	$	686.2
Goodwill as of December 31, 2016							$	373.3	$	353.9	$	66.4	$	793.6
Acquired during the current period(1)							20.2		–		–		20.2
Acquisition adjustments(2)							.1		–		–		.1
Translation adjustments	3.2		1.6		4.8		11.3		1.2		–		12.5
Goodwill as of July 2, 2016	$	281.1	$	409.9	$	691.0
Goodwill as of April 1, 2017							$	404.9	$	355.1	$	66.4	$	826.4

(1)Goodwill acquired during the current period primarily related to the Hanita acquisition.

(2)Goodwill adjustments during the current period related to the Mactac acquisition completed in August 2016.

The carrying amounts of goodwill at ~~July 2, 2016~~April 1, 2017 and ~~January 2,~~December 31, 2016 were net of accumulated impairment losses of $820 million, which were included in our ~~RBIS~~Retail Branding and Information Solutions reportable segment.

~~There was no~~In connection with the acquisition of Hanita, which we expect to expand our product portfolio and provide new growth opportunities, we recognized goodwill ~~associated~~based on our expectation of synergies and other benefits from acquiring the business. We expect the majority of the recognized goodwill to be deductible for income tax purposes.

Finite-Lived Intangible Assets

In connection with ~~our Vancive Medical Technologies reportable segment.~~the acquisition of Hanita, we acquired approximately $21 million of identifiable intangible assets, which consist 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 acquired from Hanita, using primarily Level 3 inputs. The discount rates we used to value these assets were between 13% and 16%.

The table below summarizes the preliminary amounts of these intangible assets:

	Amount (in millions)
Customer relationships	$	3.1
Patents and other acquired technology	15.1
Trade names and trademarks	2.6

Refer to Note 2, “Acquisitions,” for more information.

Note 5. Debt

In March 2017, we issued €500 million of senior notes, due March 2025. The senior notes bear an interest rate of 1.25% per year, payable annually in arrears. The net proceeds from the offering, after deducting underwriting discounts and ~~Capital Leases~~estimated offering expenses, were $526.7 million (€495.6 million), of which approximately $215 million (€200 million) was used to repay commercial paper borrowings that we used to finance a portion of our acquisition of the European business of Mactac in August 2016. We plan to use the remainder for general corporate purposes, including repayment of other indebtedness and other acquisitions. We designated the senior notes as a net investment hedge of our investment in foreign operations. Refer to Note 10, “Financial Instruments,” for more information.

The estimated fair value of our long-term debt is primarily based on the credit spread above U.S. Treasury 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~~include commercial paper issuances and short-term lines of credit, approximates carrying value given the short duration of these obligations. The fair value of our total debt was ~~$1.22~~$1.6 billion at ~~July 2, 2016~~April 1, 2017 and ~~$1.08~~$1.31 billion at ~~January 2,~~December 31, 2016. 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.

Avery Dennison Corporation

Our $700 million revolving credit facility (the “Revolver”) contains financial covenants requiring that we maintain specified ratios of total debt and interest expense in relation to certain measures of income. As of ~~July 2, 2016~~April 1, 2017 and ~~January 2,~~December 31, 2016, we were in compliance with our financial covenants.

In March 2016, we entered into an agreement with three commercial paper dealers to establish a Euro-Commercial Paper Program pursuant to which we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding of $500 million. Proceeds from issuances under this program may be used for general corporate purposes. The maturities of the notes may vary, but may not exceed 364 days from the date of issuance. Our payment obligations with respect to any notes issued under this program would be backed by the Revolver. There are no financial covenants under this program. As of July 2, 2016, there were no balances outstanding under this program.

~~Avery Dennison Corporation~~

Note 6. Pension and Other Postretirement Benefits

Defined Benefit Plans

We sponsor a number of defined benefit plans, the accrual of benefits under some of which has been frozen, covering eligible employees in the U.S. and certain other countries. Benefits payable to an employee are based primarily on years of service and the employee’s compensation during the course of his or her employment with 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.

In December 2015, we offered eligible former employees who were vested participants in the Avery Dennison Pension Plan (“ADPP”), a U.S. pension plan, the opportunity to receive their benefits immediately as either a lump-sum payment or an annuity, rather than waiting until they are retirement eligible under the terms of the plan. In the second quarter of 2016, approximately $70 million of pension obligations related to this plan were settled out of existing plan assets and a non-cash pre-tax settlement charge of $41.4 million was recorded in “Other expense, net” in the unaudited Condensed Consolidated Statements of Income. This settlement required us to remeasure the remaining net pension obligations of the ADPP. As a result, approximately $72 million of additional net pension obligations with a corresponding increase in actuarial losses recorded in “Accumulated other comprehensive loss” was recognized primarily due to lower discount rates that were in effect when the plan was remeasured.

The following table sets forth the components of net periodic benefit cost (credit), which are recorded in income, ~~from continuing operations,~~ for our defined benefit plans:

Pension Benefits

Three Months Ended

Six Months Ended

July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015

(In millions)

U.S.

Int’l

U.S.

Int’l

U.S.

Int’l

U.S.

Int’l

Service cost

$
.1

$
3.5

$
.1

$
3.3

$
.2

$
6.9

$
.2

$
7.0

Interest cost

8.5

4.2

11.6

4.3

18.3

8.3

22.9

8.8

Actuarial loss

1.7

–

–

–

1.7

–

–

–

Expected return on plan assets

(10.5
)
(5.4
)
(12.9
)
(5.3
)

(21.9
)
(10.7
)
(25.8
)
(10.8
)
Recognized net actuarial loss

4.8

1.8

5.1

2.3

9.2

3.6

10.2

4.8

Amortization of prior service cost (credit)

.3

(.1
)
.3

–

.6

(.2
)
.6

(.1
)
Recognized loss on settlements(1)

41.4

–

–

3.8

41.4

–

–

3.8

Net periodic benefit cost

$
46.3

$
4.0

$
4.2

$
8.4

$
49.5

$
7.9

$
8.1

$
13.5

~~(1)~~In 2016, recognized loss on settlements related to our U.S. pension plan as a result of the lump-sum pension payments described above; in 2015, recognized loss on settlements related to pension plans in Germany and France as a result of the sale of a product line in our RBIS reportable segment. These losses on settlements were recorded in “Other expense, net” in the unaudited Condensed Consolidated Statements of Income.

U.S. Postretirement Health Benefits

Three Months Ended

Six Months Ended

(In millions)

July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015

Interest cost

$
–

$
–

$
.1

$
.1

Recognized net actuarial loss

.3

.5

.8

1.1

Amortization of prior service credit

(.8
)
(.8
)
(1.6
)
(1.6
)
Net periodic benefit credit

$
(.5
)
$
(.3
)
$
(.7
)
$
(.4
)

~~Avery Dennison Corporation~~

	Pension Benefits												U.S. Postretirement Health Benefits
	Three Months Ended												Three Months Ended
	April 1, 2017						April 2, 2016						April 1, 2017			April 2, 2016
(In millions)	U.S.			Int’l			U.S.			Int’l
Service cost	$	.1		$	4.3		$	.1		$	3.4		$	–		$	–
Interest cost	8.4			3.4			9.8			4.1			–			.1
Expected return on plan assets	(10.1		)	(5.0		)	(11.4		)	(5.3		)	–			–
Recognized net actuarial loss	4.6			2.6			4.4			1.8			.4			.5
Amortization of prior service cost (credit)	.2			(.1		)	.3			(.1		)	(.8		)	(.8		)
Net periodic benefit cost (credit)	$	3.2		$	5.2		$	3.2		$	3.9		$	(.4	)	$	(.2	)

Note 7. Research and Development

Research and development expense ~~from continuing operations~~ was ~~$22.7~~$22.9 million and ~~$45.0~~$22.3 million for the three ~~and six~~ months ended ~~July~~April 1, 2017 and April 2, 2016, ~~respectively, and $22.8 million and $48.4 million for the three and six months ended July 4, 2015,~~ respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income.

Note 8. Long-Term Incentive Compensation

As discussed in Note 1, “General,” we adopted an accounting guidance update in the first quarter of 2017 that, among other things, provides an accounting policy election to account for forfeitures of stock-based awards as they occur, rather than based on an estimate of expected forfeitures. We elected to continue our current practice of estimating forfeitures in determining the compensation cost to be recognized each period.

In April 2017, subsequent to the end of the first quarter of 2017, our shareholders approved our 2017 Incentive Award Plan (the “2017 Plan”) to replace our existing Amended and Restated Stock Option and Incentive Plan. The 2017 Plan, a long-term incentive plan for eligible employees and non-employees directors, allows us to grant stock-based compensation awards – including stock options, restricted stock units, performance units, and market-leveraged stock units – or a combination of these and other awards. Under the 2017 Plan, the aggregate number of shares available for issuance is 5.4 million shares and each full value award will be counted as 1.5 shares for purposes of the number of shares authorized for issuance. Full value awards include restricted stock units, performance units, and market-leveraged stock units.

~~Equity~~Stock-Based Awards

Stock-based compensation expense ~~from continuing operations~~ was ~~$6.6~~$5.6 million and ~~$14.1~~$7.5 million for the three ~~and six~~ months ended ~~July~~April 1, 2017 and April 2, 2016, ~~respectively, and $5.8 million and $13.2 million for the three and six months ended July 4, 2015,~~ respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income.

As of ~~July 2, 2016,~~April 1, 2017, we had approximately ~~$54~~$51 million of unrecognized compensation expense ~~from continuing operations~~ related to unvested stock-based awards, which is expected to be recognized over the remaining weighted-average requisite service period of approximately three years.

Avery Dennison Corporation

~~Cash~~Cash-Based Awards

~~Compensation~~The compensation expense ~~from continuing operations~~ related to long-term incentive units was ~~$5.2~~$10.3 million and ~~$14.7~~$9.5 million for the three ~~and six~~ months ended ~~July~~April 1, 2017 and April 2, 2016, ~~respectively, and $10.1 million and $15.3 million for the three and six months ended July 4, 2015,~~ respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income.

Note 9. Cost Reduction Actions

2015/2016 Actions

During the ~~six~~three months ended ~~July 2, 2016,~~April 1, 2017, we recorded ~~$12.4~~$5.8 million in restructuring charges, net of reversals, related to restructuring actions initiated during the third quarter of 2015 ~~that we expect to continue through 2016~~ (“2015/2016 Actions”). These charges consisted of severance and related costs for the reduction of approximately ~~230 positions, lease cancellation costs, and asset impairment charges.~~

During fiscal year 2015, we recorded $26.1 million in restructuring charges, net of reversals, related to our 2015/2016 Actions. These charges consisted of severance and related costs for the reduction of approximately 430 positions, lease cancellation costs, and asset impairment charges.

No employees impacted by our 2015/2016 Actions taken through July 2, 2016 remained employed with us as of such date. We expect charges and payments related to these actions to be substantially completed in 2016.

~~2014/2015 Actions~~

During fiscal year 2015, we recorded $33.4 million in restructuring charges, net of reversals, related to restructuring actions we initiated in 2014 that continued through the second quarter of 2015 (“2014/2015 Actions”). These charges consisted of severance and related costs for the reduction of approximately 605 positions, lease cancellation costs, and asset impairment charges.

Approximately 55 employees impacted by our 2014/2015 Actions remained employed with us as of July 2, 2016. We expect charges and payments related to these actions to be substantially completed in 2016.180 positions.

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 Income.

~~Avery Dennison Corporation~~

During the ~~six~~three months ended ~~July 2, 2016,~~April 1, 2017, restructuring charges and payments were as follows:

(In millions)	Accrual at January 2, 2016		Charges (Reversals), net			Cash Payments			Non-cash Impairment			Foreign Currency Translation		Accrual at July 2, 2016		Accrual at December 31, 2016		Charges (Reversals), net			Cash Payments			Non-cash Impairment		Foreign Currency Translation		Accrual at April 1, 2017
2015/2016 Actions
Severance and related costs	$	8.4	$	9.2		$	(17.0	)	$	–		$	.1	$	.7	$	3.3	$	5.8		$	(7.4	)	$	–	$	–	$	1.7
Asset impairment charges	–		2.4			–			(2.4		)	–		–
Lease cancellation costs	.2		.8			(.5		)	–			–		.5		.2		–			(.2		)	–		–		–

2014/2015 Actions
Severance and related costs	4.8		(.3		)	(2.3		)	–			–		2.2

Prior actions
Severance and related costs	.7		(.1		)	–			–			–		.6		1.3		(.1		)	–			–		–		1.2
Total	$	14.1	$	12.0		$	(19.8	)	$	(2.4	)	$	.1	$	4.0	$	4.8	$	5.7		$	(7.6	)	$	–	$	–	$	2.9

The table below shows the total amount of restructuring charges incurred by reportable segment and Corporate:

	Three Months Ended				Six Months Ended				Three Months Ended
(In millions)	July 2, 2016		July 4, 2015		July 2, 2016		July 4, 2015		April 1, 2017		April 2, 2016
Restructuring charges by reportable segment and Corporate
Pressure-sensitive Materials	$	4.7	$	7.1	$	6.8	$	14.4
Label and Graphic Materials									$	2.0	$	2.1
Retail Branding and Information Solutions	1.7		12.3		5.1		15.7		3.5		3.2
Vancive Medical Technologies	–		.6		.1		1.7
Industrial and Healthcare Materials									.2		.3
Corporate	–		–		–		2.1		–		–
	$	6.4	$	20.0	$	12.0	$	33.9
Total									$	5.7	$	5.6

Note 10. Financial Instruments

We enter into foreign exchange hedge contracts to reduce our risk from exchange rate fluctuations associated with receivables, payables, loans and firm commitments denominated in certain foreign currencies that arise primarily as a result of our operations outside the U.S. 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 ~~July 2, 2016,~~April 1, 2017, the aggregate U.S. dollar equivalent notional value of our outstanding commodity contracts and foreign exchange contracts was ~~$2.7~~$4 million and ~~$1.53~~$1.74 billion, respectively.

We recognize ~~all~~ 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 and designate foreign exchange contracts on existing balance sheet items as fair value hedges.

Avery Dennison Corporation

The following table ~~provides~~shows the fair value and balance sheet locations of derivatives as of ~~July 2, 2016:~~April 1, 2017:

Asset

Liability

(In millions)

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Foreign exchange contracts

Other current assets

$
2.6

Other current liabilities

$
5.0

Commodity contracts

Other current assets

.1

Other current liabilities

–

$
2.7

$
5.0

~~Avery Dennison Corporation~~

	Asset			Liability
(In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign exchange contracts	Other current assets	$	6.7	Other current liabilities	$	3.2
Commodity contracts	Other current assets	.3		Other current liabilities	–
		$	7.0		$	3.2

The following table ~~provides~~shows the fair value and balance sheet locations of derivatives as of ~~January 2,~~December 31, 2016:

	Asset			Liability			Asset			Liability
(In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign exchange contracts	Other current assets	$	5.6	Other current liabilities	$	4.5	Other current assets	$	4.6	Other current liabilities	$	7.8
Commodity contracts	Other current assets	–		Other current liabilities	.7		Other current assets	.5		Other current liabilities	–
Commodity contracts							Other assets	.1
		$	5.6		$	5.2		$	5.2		$	7.8

Fair Value Hedges

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings, resulting in no material net impact to income.

The following table ~~provides~~shows the components of net gains (losses), before taxes, recognized in income related to fair value hedge contracts. The corresponding gains or losses on the underlying hedged items approximated the net gains (losses) on these fair value hedge contracts.

	Location of Net Gains	Three Months Ended					Six Months Ended					Three Months Ended
(In millions)	(Losses) in Income	July 2, 2016		July 4, 2015			July 2, 2016		July 4, 2015		Location of Net Gains (Losses) in Income	April 1, 2017			April 2, 2016
Foreign exchange contracts	Cost of products sold	$	.7	$	(.4	)	$	1.7	$	1.0	Cost of products sold	$	(1.0	)	$	1.0
Foreign exchange contracts	Marketing, general and administrative expense	6.9		(7.7		)	2.4		4.0		Marketing, general and administrative expense	1.2			(4.5		)
		$	7.6	$	(8.1	)	$	4.1	$	5.0		$	.2		$	(3.5	)

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 derivative, 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						Three Months Ended
(In millions)	July 2, 2016			July 4, 2015			July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
Foreign exchange contracts	$	(.3	)	$	(1.8	)	$	(1.8	)	$	(1.5	)	$	(3.1	)	$	(1.5	)
Commodity contracts	.5			1.5			.3			1.2			(.2		)	(.2		)
	$	.2		$	(.3	)	$	(1.5	)	$	(.3	)	$	(3.3	)	$	(1.7	)

The amount ~~of gain or loss~~ 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 was not material for the three ~~and six~~ months ended ~~July~~April 1, 2017 and April 2, 2016, ~~and July 4, 2015,~~ respectively.

As of ~~July 2, 2016,~~April 1, 2017, we expected a net ~~loss~~gain of approximately $2$.3 million to be reclassified from “Accumulated other comprehensive loss” to earnings within the next 12 months. ~~See~~

Net Investment Hedge

In March 2017, we designated our €500 million of euro-denominated 1.25% senior notes due 2025 as a net investment hedge of our investment in foreign operations. The net assets from the investment in foreign operations were greater than the senior notes, and as such, the net investment hedge was effective. Refer to Note ~~13, “Comprehensive Income,~~5, “Debt,” for ~~more information.~~further information about our euro-denominated debt.

Avery Dennison Corporation

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

	Three Months Ended
(In millions)	April 1, 2017			April 2, 2016
Foreign currency denominated debt	$	(11.4	)		n/a

We recorded no ineffectiveness from our net investment hedge in earnings during the three months ended April 1, 2017.

Note 11. Taxes Based on Income

The following table summarizes our income ~~from continuing operations~~ before taxes, provision for income taxes, ~~from continuing operations,~~ and effective tax rate:

Three Months Ended

Six Months Ended

(In millions)

July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015

Income from continuing operations before taxes

$
99.3

$
101.3

$
222.8

$
201.3

Provision for income taxes

19.3

36.6

53.2

64.7

Effective tax rate

19.4
%
36.1
%
23.9
%
32.1
%

The effective tax rate for the three and six months ended July 2, 2016 included $6.7 million of tax benefit from the release of valuation allowances against certain deferred tax assets in a foreign jurisdiction associated with a structural simplification approved by the tax authority; $5 million and $6 million of tax benefits, respectively, from our change in judgment about tax filing positions in certain foreign jurisdictions as a result of ~~new information gained from our interactions with tax authorities; and $.7 million and $3.3 million of tax benefits, respectively, due to decreases in certain tax reserves as a result of closing tax years~~.

The effective tax rate for the six months ended July 2, 2016 compared to the effective tax rate for the six months ended July 4, 2015 was also favorably impacted by a change in the geographic mix of income before taxes.

	Three Months Ended
(In millions)	April 1, 2017			April 2, 2016
Income before taxes	$	135.9		$	123.5
Provision for income taxes	23.7			33.9
Effective tax rate	17.4		%	27.4		%

The effective tax rate for the three ~~and six~~ months ended ~~July 4, 2015~~April 1, 2017 and April 2, 2016 included $5.3 million of tax expense associated with the repatriation of non-permanently reinvested 2015 earnings of certain foreign subsidiaries; $.5 million of tax expense due to non-deductible employee-related expenses; and $.7$1.5 million and ~~$4.1~~$2.6 million, respectively, of a discrete tax ~~benefits, respectively,~~benefit due to decreases in certain tax reserves, including interest and penalties, as a result of closing tax years. The effective tax rate for the three months ended April 1, 2017 also included a net discrete benefit of $12.7 million corresponding to the adoption of an accounting guidance update related to stock-based payments in the first quarter of 2017, as described in Note 1, “General.” Additionally, the effective tax rate for the ~~six~~three months ended ~~July 4, 2015~~April 2, 2016 included $1.6 million of a net ~~tax~~ benefit related to changes in the effective tax rates in certain foreign municipalities.

The accounting guidance update related to stock-based payments requires that the effect of excess tax benefits associated with stock-based payments be recognized in the income statement instead of in capital in excess of par value as was the case prior to our adoption of this guidance. Excess tax benefits are the tax effects of tax deductions in excess of compensation expenses recognized for financial accounting purposes. These benefits related to stock-based awards are generally generated as a result of stock price appreciation during the vesting period or between the time of grant and the time of exercise. We expect future excess tax benefits pursuant to this guidance to vary depending on the stock-based payments in future reporting periods. These excess tax benefits may cause variability in our future effective tax rate as they can fluctuate based on vesting and exercise activity, as well as our future stock price. The tax effect of the tax deductions in excess of compensation cost related to the exercise of nonqualified stock options and vesting of other stock-based compensation awards recognized in capital in excess of par value was $6.9 million for the three months ended April 2, 2016.

In addition, the effective tax rate for the three months ended April 1, 2017 compared to the same period last year also reflects a decrease in tax expense related to favorable changes in the geographic mix of our income before taxes and our adoption of the accounting guidance update discussed above.

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. With some exceptions, we and our subsidiaries are no longer subject to income tax examinations by tax authorities for years prior to 2006.

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 ~~$12~~$28 million, primarily as a result of audit settlements and closing tax years.

Avery Dennison Corporation

Note 12. Net Income Per Common Share

Net income per common share was computed as follows:

Three Months Ended

Six Months Ended

(In millions, except per share amounts)

July 2,
2016

July 4,
2015

July 2,
2016

July 4,
2015

(A) Income from continuing operations

$
80.0

$
64.7

$
169.6

$
136.6

(B) Loss from discontinued operations

–

(1.0
)

–

(1.0
)
(C) Net income available to common shareholders

$
80.0

$
63.7

$
169.6

$
135.6

(D) Weighted average number of common shares outstanding

89.1

91.2

89.3

90.9

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

1.6

1.8

1.6

1.9

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

90.7

93.0

90.9

92.8

Net income (loss) per common share:

Continuing operations (A) ÷ (D)

$
.90

$
.71

$
1.90

$
1.50

Discontinued operations (B) ÷ (D)

–

(.01
)

–

(.01
)
Net income per common share (C) ÷ (D)

$
.90

$
.70

$
1.90

$
1.49

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

Continuing operations (A) ÷ (E)

$
.88

$
.69

$
1.87

$
1.47

Discontinued operations (B) ÷ (E)

–

(.01
)

–

(.01
)
Net income per common share, assuming dilution (C) ÷ (E)

$
.88

$
.68

$
1.87

$
1.46

	Three Months Ended
(In millions, except per share amounts)	April 1, 2017		April 2, 2016
(A) Net income available to common shareholders	$	112.2	$	89.6
(B) Weighted average number of common shares outstanding	88.4		89.4
Dilutive shares (additional common shares issuable under stock-based awards)(1)	1.6		1.7
(C) Weighted average number of common shares outstanding, assuming dilution	90.0		91.1
Net income per common share (A) ÷ (B)	$	1.27	$	1.00
Net income per common share, assuming dilution (A) ÷ (C)	$	1.25	$	.98

(1) For the first quarter of 2017, the dilutive shares calculation reflects the impact of our adoption of an accounting guidance update. Refer to Note 1, “General,” for more information.

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 totaled approximately .1 million shares and .2.5 million shares for the three ~~and six~~ months ended ~~July~~April 1, 2017 and April 2, 2016, ~~respectively, and approximately 1 million shares for both the three and six months ended July 4, 2015.~~respectively.

Note 13. Comprehensive Income

The changes in “Accumulated other comprehensive loss” (net of tax) for the ~~six-month~~three-month period ended ~~July 2, 2016~~April 1, 2017 were as follows:

(In millions)

Foreign
Currency
Translation

Pension and
Other
Postretirement
Benefits

Cash Flow
Hedges

Total

Balance as of January 2, 2016

$
(158.9
)
$
(521.6
)
$
(2.5
)
$
(683.0
)
Other comprehensive income (loss) before reclassifications, net of tax

5.6

(46.7
)
(1.2
)
(42.3
)
Reclassifications to net income, net of tax

–

35.4

1.1

36.5

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

5.6

(11.3
)
(.1
)
(5.8
)
Balance as of July 2, 2016

$
(153.3
)
$
(532.9
)
$
(2.6
)
$
(688.8
)

~~Avery Dennison Corporation~~

(In millions)	Foreign Currency Translation			Pension and Other Postretirement Benefits			Cash Flow Hedges			Total
Balance as of December 31, 2016	$	(212.6	)	$	(540.3	)	$	1.0		$	(751.9	)
Other comprehensive income (loss) before reclassifications, net of tax	35.5			–			(2.6		)	32.9
Reclassifications to net income, net of tax	–			4.7			1.8			6.5
Net current-period other comprehensive income (loss), net of tax	35.5			4.7			(.8		)	39.4
Balance as of April 1, 2017	$	(177.1	)	$	(535.6	)	$	.2		$	(712.5	)

The changes in “Accumulated other comprehensive loss” (net of tax) for the ~~six-month~~three-month period ended ~~July 4, 2015~~April 2, 2016 were as follows:

(In millions)

Foreign
Currency
Translation

Pension and
Other
Postretirement
Benefits

Cash Flow
Hedges

Total

Balance as of January 3, 2015

$
(19.9
)
$
(525.6
)
$
–

$
(545.5
)
Other comprehensive loss before reclassifications, net of tax

(69.1
)
(.5
)
(.2
)
(69.8
)
Reclassifications to net income, net of tax

–

13.1

(.4
)
12.7

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

(69.1
)
12.6

(.6
)
(57.1
)
Balance as of July 4, 2015

$
(89.0
)
$
(513.0
)
$
(.6
)
$
(602.6
)

(In millions)	Foreign Currency Translation			Pension and Other Postretirement Benefits			Cash Flow Hedges			Total
Balance as of January 2, 2016	$	(158.9	)	$	(521.6	)	$	(2.5	)	$	(683.0	)
Other comprehensive income (loss) before reclassifications, net of tax	18.9			–			(1.3		)	17.6
Reclassifications to net income, net of tax	–			4.2			–			4.2
Net current-period other comprehensive income (loss), net of tax	18.9			4.2			(1.3		)	21.8
Balance as of April 2, 2016	$	(140.0	)	$	(517.4	)	$	(3.8	)	$	(661.2	)

Avery Dennison Corporation

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

	Amounts Reclassified from Accumulated Other Comprehensive Loss
	Three Months Ended						Six Months Ended							Three Months Ended
(In millions)	July 2, 2016			July 4, 2015			July 2, 2016			July 4, 2015			Affected Line Item in the Statements Where Net Income is Presented	April 1, 2017			April 2, 2016			Affected Line Item in the Statements Where Net Income is Presented
Cash flow hedges:
Foreign exchange contracts	$	(1.2	)	$	(.2	)	$	(.9	)	$	1.3		Cost of products sold	$	(.9	)	$	.3		Cost of products sold
Commodity contracts	(.3		)	(.3		)	(.6		)	(.8		)	Cost of products sold	.1			(.3		)	Cost of products sold
Interest rate contracts														(1.8		)	–			Interest expense
	(1.5		)	(.5		)	(1.5		)	.5			Total before tax	(2.6		)	–			Total before tax
	.4			.2			.4			(.1		)	Provision for income taxes	.8			–			Provision for income taxes
	(1.1		)	(.3		)	(1.1		)	.4			Net of tax	(1.8		)	–			Net of tax
Pension and other postretirement benefits(1)	(47.7		)	(11.2		)	(53.8		)	(18.8		)		(6.9		)	(6.1		)
	16.5			4.5			18.4			5.7			Provision for income taxes	2.2			1.9			Provision for income taxes
	(31.2		)	(6.7		)	(35.4		)	(13.1		)	Net of tax	(4.7		)	(4.2		)	Net of tax
Total reclassifications for the period	$	(32.3	)	$	(7.0	)	$	(36.5	)	$	(12.7	)	Total, net of tax	$	(6.5	)	$	(4.2	)	Total, net of tax

(1)See Note 6, “Pension and Other Postretirement Benefits,” for more information.

~~Avery Dennison Corporation~~

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

Three Months Ended

Six Months Ended

(In millions)

July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015

Pension and other postretirement benefits

$
(8.6
)
$
4.5

$
(6.7
)
$
6.7

Cash flow hedges

.5

.2

.1

(.1
)
Income tax (benefit) expense related to components of other comprehensive (loss) income

$
(8.1
)
$
4.7

$
(6.6
)
$
6.6

Note 14. Fair Value Measurements

Recurring Fair Value Measurements

The following table ~~provides~~shows the assets and liabilities carried at fair value, measured on a recurring basis, as of ~~July 2, 2016:~~April 1, 2017:

			Fair Value Measurements Using								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)		Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets
Trading securities	$	18.3	$	11.4	$	6.9	$	–	$	18.2	$	11.9	$	6.3	$	–
Derivative assets	2.7		0.1		2.6		–		7.0		.3		6.7		–
Bank drafts	12.7		12.7		–		–		10.0		10.0		–		–

Liabilities
Derivative liabilities	$	5.0	$	–	$	5.0	$	–	$	3.2	$	–	$	3.2	$	–

The following table ~~provides~~shows the assets and liabilities carried at fair value, measured on a recurring basis, as of ~~January 2,~~December 31, 2016:

			Fair Value Measurements Using								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)		Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets
Trading securities	$	17.9	$	11.3	$	6.6	$	–	$	18.1	$	11.7	$	6.4	$	–
Derivative assets	5.6		–		5.6		–		5.2		.6		4.6		–
Bank drafts	24.8		24.8		–		–		14.3		14.3		–		–

Liabilities
Derivative liabilities	$	5.2	$	.7	$	4.5	$	–	$	7.8	$	–	$	7.8	$	–

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 ~~July 2, 2016,~~April 1, 2017, trading securities of ~~$.5~~$.3 million and ~~$17.8~~$17.9 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the unaudited Condensed Consolidated Balance Sheets. As of ~~January 2,~~December 31, 2016, trading securities of ~~$.3~~$.5 million and $17.6 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the unaudited Condensed Consolidated Balance Sheets. Derivatives that are exchange-traded are measured at fair value using quoted market prices and classified within Level 1 of the

Avery Dennison Corporation

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 ~~the~~their short-term nature ~~of these instruments~~ and were included in “Other current assets” in the unaudited Condensed Consolidated Balance Sheets.

Note 15. 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. ~~We have accrued liabilities for matters where~~When it is probable that a loss will be incurred and where a range of the ~~amount of~~ loss can be reasonably ~~estimated.~~ 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 these 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.

~~Avery Dennison Corporation~~

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 costs of compliance 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 these liabilities.

As of ~~July 2, 2016,~~April 1, 2017, we have been designated by the U.S. Environmental Protection Agency (“EPA”) and/or other responsible state agencies as a ~~potentially responsible party (“PRP”)~~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 ~~the~~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.

~~We have accrued liabilities for sites where it is probable that a loss or cost will be incurred and the amount of loss or cost can be reasonably estimated.~~ 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, 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.

The activity for the ~~six~~three months ended ~~July 2, 2016~~April 1, 2017 related to our environmental liabilities was as follows:

(In millions)
Balance at January 2, 2016	$	17.7
Balance at December 31, 2016				$	21.3
Charges (reversals), net	4.9			.6
Payments	(3.7		)	(1.7		)
Balance at July 2, 2016	$	18.9
Balance at April 1, 2017				$	20.2

~~As of July 2, 2016 and January 2, 2016, approximately $9~~Approximately $12 million and $7$8 million of the balance was classified as short-term and included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets as of April 1, 2017 and December 31, 2016, respectively.

Avery Dennison Corporation

Note 16. Segment Information

Financial information ~~from continuing operations~~ by reportable segment is set forth below:

	Three Months Ended						Six Months Ended						Three Months Ended
(In millions)	July 2, 2016			July 4, 2015			July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
Net sales to unaffiliated customers
Pressure-sensitive Materials	$	1,145.1		$	1,114.1		$	2,237.1		$	2,234.7
Label and Graphic Materials													$	1,089.6		$	1,012.6
Retail Branding and Information Solutions	378.0			383.8			756.1			771.9			366.8			359.5
Vancive Medical Technologies	18.4			18.1			33.8			37.4
Industrial and Healthcare Materials													115.7			113.4
Net sales to unaffiliated customers	$	1,541.5		$	1,516.0		$	3,027.0		$	3,044.0		$	1,572.1		$	1,485.5
Intersegment sales
Pressure-sensitive Materials	$	16.0		$	16.2		$	32.7		$	31.9
Label and Graphic Materials													$	15.2		$	16.8
Retail Branding and Information Solutions	.5			.6			1.1			1.2			.9			.9
Vancive Medical Technologies	.1			1.6			.3			3.2
Industrial and Healthcare Materials													1.6			2.5
Intersegment sales	$	16.6		$	18.4		$	34.1		$	36.3		$	17.7		$	20.2
Income from continuing operations before taxes
Pressure-sensitive Materials	$	148.4		$	129.8		$	286.9		$	252.7
Income before taxes
Label and Graphic Materials													$	135.8		$	126.6
Retail Branding and Information Solutions	28.3			10.0			54.4			29.2			26.6			21.5
Vancive Medical Technologies	1.6			(1.4		)	.7			(3.5		)
Industrial and Healthcare Materials													12.8			15.6
Corporate expense	(63.6		)	(21.8		)	(88.5		)	(46.5		)	(22.6		)	(24.9		)
Interest expense	(15.4		)	(15.3		)	(30.7		)	(30.6		)	(16.7		)	(15.3		)
Income from continuing operations before taxes	$	99.3		$	101.3		$	222.8		$	201.3
Income before taxes													$	135.9		$	123.5
Other expense, net by reportable segment
Pressure-sensitive Materials	$	6.4		$	7.1		$	8.5		$	12.7
Label and Graphic Materials													$	2.2		$	2.1
Retail Branding and Information Solutions	2.4			20.0			5.8			25.5			3.8			3.2
Vancive Medical Technologies	–			.6			.1			1.7
Corporate	41.4			–			41.4			2.1
Industrial and Healthcare Materials													.5			.3
Other expense, net	$	50.2		$	27.7		$	55.8		$	42.0		$	6.5		$	5.6
Other expense, net by type
Restructuring charges:
Severance and related costs	$	3.6		$	16.8		$	8.8		$	30.3		$	5.7		$	5.2
Asset impairment charges and lease cancellation costs	2.8			3.2			3.2			3.6			–			.4
Other items:
Loss from settlement of pension obligations	41.4			–			41.4			–
Transaction costs	1.7			–			1.7			–			.8			–
Loss (gain) on sale of assets	.3			–			.3			(1.7		)
Loss on sale of product line and related transaction and exit costs	.4			7.7			.4			10.3
Legal settlement	–			–			–			(.5		)
Other expense, net	$	50.2		$	27.7		$	55.8		$	42.0		$	6.5		$	5.6

Note 17. Recent Accounting Requirements

In March ~~2016,~~2017, the Financial Accounting Standards Board (“FASB”) issued guidance that requires employers to ~~simplify several aspects~~present only the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Employers are required to present the other components of the ~~accounting~~net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. Components other than the service cost component will not be eligible for ~~share-based payment transactions, including~~capitalization in assets. Employers are required to apply the guidance on the presentation of the components of net periodic benefit cost in the income ~~tax consequences, classification~~statement retrospectively, while the guidance that limits the capitalization of ~~awards as either equity or liabilities, and classification on~~net periodic benefit cost in assets to the ~~statement of cash flows. The~~service cost component must be applied prospectively. This guidance will be effective for ~~fiscal years~~interim and ~~interim~~annual periods beginning after December 15, ~~2016, and early~~2017. Early adoption is permitted. ~~Different components of the guidance require prospective, retrospective and/or modified retrospective adoption.~~ We are currently assessing ~~the timing of our adoption and~~ the impact of this guidance on our financial position, results of operations, cash flows, and disclosures.

In February 2017, the FASB issued amended guidance on how entities account for the derecognition of a nonfinancial asset. It requires entities to apply certain recognition and measurement principles consistent with revenue recognition guidance when they derecognize nonfinancial assets and the counterparty is not a customer. This guidance will be effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. We are currently assessing the impact of this guidance on our financial position, results of operations, cash flows, and disclosures.

Avery Dennison Corporation

In March 2016, the FASB issued guidance on accounting for leases that requires lessees to recognize ~~most leases on their balance sheets for~~ the rights and obligations created by ~~those leases.~~leases on their balance sheets. This guidance also requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective approach is required for adoption with respect to all leases that exist at or commence after the date of initial application with an option to use certain practical expedients. WeWhile we are currently assessing the impact of this guidance on our financial position, results of operations, cash flows, and ~~disclosures.~~

~~Avery Dennison Corporation~~

In July 2015, the FASB issued amended guidance to simplify the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. We elected to early adopt this amended guidance in the first quarter of 2016 prospectively. Thedisclosures, we currently expect adoption of this guidance ~~did not~~to have ana significant impact on our financial position ~~results of operations, cash flows, or disclosures.~~

In August 2014, the FASB issued a new standard that requires an entity to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. Under this new standard, substantial doubt exists when it is probable that the entity will be unable to meet its obligations as they become due within one year of the date the financial statements are issued. If applicable, certain disclosures are required, including management’s plans to mitigate those relevant conditions or events to alleviate the substantial doubt. This standard is effective for annual periods and interim periods within those annual periods ending after December 15, 2016. Early adoption is permitted. We do not expect that adoption of this standard will have an impact on our financial position, results of operations, cash flows, or disclosures.

In May 2014, and in subsequent updates, the FASB issued revised guidance on revenue recognition. This revised guidance provides a single comprehensive model for accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This revised guidance ~~will require~~requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ~~update~~revised guidance creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. This revised guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. This revised guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and can be applied retrospectively either to each prior reporting period presented (“full retrospective”) or with the cumulative effect of adoption recognized at the date of initial ~~application.~~application (“modified retrospective”). Early adoption is permitted for fiscal periods beginning after December 15, 2016. We ~~are currently evaluating which transition method to elect. We~~ expect to adopt ~~this guidance~~the new standard under the modified retrospective approach in the first quarter of 2018. Based on the information we have evaluated to date, we do not anticipate that the adoption of this revised guidance will have a significant impact on our financial position, results of operations, or cash flows.

Note 18. Subsequent Event

In April 2017, subsequent to the end of the first quarter of 2017, our Board of Directors (“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. This authorization will remain in effect until shares in the amount authorized have been repurchased.

Avery Dennison Corporation

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, should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and notes thereto, and includes the following sections:

Non-GAAP Financial Measures	2017
Overview and Outlook	2118
Analysis of Results of Operations for the ~~Second~~First Quarter	2319
Results of Operations by Reportable Segment for the ~~Second~~First Quarter	25
~~Analysis of Results of Operations for the Six Months Year-to-Date~~	27
~~Results of Operations by Reportable Segment for the Six Months Year-to-Date~~	2921
Financial Condition	3123
Recent Accounting Requirements	3427

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~~assessments of our performance and operating trends, as well as ~~our~~ liquidity.

Our non-GAAP financial measures exclude the impact of certain events, activities ~~and~~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 and negative, of certain items (e.g. restructuring charges, legal settlements, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains and losses from curtailment and 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~~to facilitate 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:

·Sales change (ex. currency) refers to the increase or decrease in sales excluding the estimated impact of foreign currency translation.

·Organic sales change refers to the increase or decrease in sales excluding the estimated impact of foreign currency translation, 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~~and sales change (ex. currency) assist investors in evaluating the sales growth from the ongoing activities of our businesses and ~~provides improved comparability of~~better enable them to evaluate our results from period to period.

·Free cash flow refers to cash flow from operations, 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 sales (purchases) of investments. We believe that free cash flow assists investors by ~~showing~~indicating the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions.

·Operational working capitalrefers 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 ~~held for sale.~~or liabilities held-for-sale. We believe that operational working capital 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 the underlying trends in our operations.

Avery Dennison Corporation

OVERVIEW AND OUTLOOK

~~Prior Period Financial Statement Revision~~

Certain prior period amounts have been revised to reflect the impact of certain adjustments. Refer to Note 1, “General,” to the unaudited Condensed Consolidated Financial Statements for more information.

Net Sales

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

Three Months Ended

Six Months Ended

July 2, 2016

July 2, 2016

Reported sales change

2
%
(1
) %
Foreign currency translation

2

4

Product line divestiture

1

1

Organic sales change(1)

4
%
4
%

~~(1)Totals may not sum due to rounding~~	Three Months Ended
	April 1, 2017
Reported sales change	6	%
Foreign currency translation	1
Sales change (ex. currency)	7	%
Acquisitions/divestitures	(3	)
Organic sales change	4	%

In the ~~three and six months ended July 2, 2016,~~first quarter of 2017, net sales increased on an organic basis primarily due to higher volume.

Net Income ~~from Continuing Operations~~

~~Income from continuing operations~~Net income increased approximately ~~$33~~$23 million in the first ~~six months~~quarter of ~~2016~~2017 compared to the same period last year. ~~The primary~~Major factors affecting net income ~~from continuing operations for~~in the first ~~six~~three months of ~~2016 were as follows:~~2017 included:

Positive factors:

· Higher volume

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

· ~~Higher volume~~

·Lower ~~restructuring charges~~

· ~~Lower provision for~~ income taxes

· ~~Loss on sale of a product line and related costs in our Retail Branding and Information Solutions (“RBIS”) reportable segment in 2015~~

Offsetting factors:

· ~~Loss from settlement of pension obligations~~

· ~~Higher employee-related costs~~

· ~~Net impact of pricing~~Negative product and ~~raw material input costs~~geographic mix

· Foreign currency translation

· ~~Unfavorable geographic mix~~Higher employee-related costs

Cost Reduction Actions

2015/2016 Actions

During the ~~first six~~three months ended ~~July 2, 2016,~~April 1, 2017, we recorded ~~$12.4~~$5.8 million in restructuring charges, net of reversals, related to restructuring actions initiated during the third quarter of 2015 ~~that we expect to continue through 2016~~ (“2015/2016 Actions”). These charges consisted of severance and related costs for the reduction of approximately ~~230 positions, lease cancellation costs, and asset impairment charges.~~

~~2014/2015 Actions~~

~~Avery Dennison Corporation~~180 positions.

Impact of Cost Reduction Actions

~~In 2016, we expect to realize approximately $75 million in~~We anticipate incremental savings, net of transition costs, from our 2015/2016 ~~Actions and 2014/2015 Actions.~~actions of approximately $40 million to $50 million in 2017. We ~~anticipate carryover savings from these actions~~estimate cash restructuring costs of approximately $35 million in 2017.

Restructuring charges ~~are~~were included in “Other expense, net” in the unaudited Condensed Consolidated Statements of Income. Refer to Note 9, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information.

~~Acquisition~~Acquisitions

In ~~April 2016,~~the first quarter of 2017, we ~~entered into an~~announced our agreement to acquire Yongle Tape Company Ltd. (“Yongle Tape”) and completed the ~~European business~~net asset acquisition of ~~MACtac~~Hanita Coatings Rural Cooperative Association Limited and stock acquisition of certain of its subsidiaries (“~~Mactac”~~Hanita”) ~~from Platinum Equity~~. Refer to Note 2, “Acquisitions,” to the unaudited Condensed Consolidated Financial Statements for ~~a purchase price~~more information.

Accounting Guidance Update

In the first quarter of ~~€200 million, including assumed debt. Mactac manufactures pressure-sensitive materials~~2017, we adopted an accounting guidance update that ~~complement our existing graphics portfolio. The purchase price is subject to certain adjustments in accordance with the terms~~simplifies several aspects of the ~~agreement. On August~~accounting for stock-based payment transactions. Refer to Note 1, ~~2016, we completed this acquisition, which we funded with cash and through existing credit facilities.~~“General,” to the unaudited Condensed Consolidated Financial Statements for more information.

Avery Dennison Corporation

Free Cash Flow

	Six Months Ended						Three Months Ended
(In millions)	July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
Net cash provided by operating activities	$	216.0		$	170.4
Net cash provided by (used in) operating activities							$	15.3		$	(6.3	)
Purchases of property, plant and equipment	(61.3		)	(56.4		)	(30.3		)	(25.2		)
Purchases of software and other deferred charges	(6.1		)	(4.0		)	(6.9		)	(2.0		)
Proceeds from sales of property, plant and equipment	3.2			2.8			–			.1
Purchases of investments, net	–			(.3		)	(.2		)	(3.8		)
Plus: free cash outflow from discontinued operations	–			1.0
Free cash flow	$	151.8		$	113.5		$	(22.1	)	$	(37.2	)

~~During~~Free cash flow in the first ~~six~~three months of ~~2016, both cash flow from operating activities and free cash flow increased~~2017 improved compared to the same period last year primarily due to higher net income and ~~lower income tax payments,~~improved operational working capital, partially offset by higher ~~incentive compensation~~capital and software expenditures and higher income tax payments, ~~and operational working capital.~~net of refunds. Free cash flow in the first three months of 2017 also reflected the impact of our adoption of the previously described accounting guidance update. Refer to “Accounting Guidance Update” above for more information.

Outlook

Certain factors that we believe may contribute to ~~our full year 2016~~ results for 2017 are described below:

· We expect our net sales ~~growth of 1%~~ to ~~2%, including organic sales growth of 3%~~increase by 4.5% to ~~4%, the impact of currency translation, and the effect of acquisitions net of divestitures.~~5.5%.

· ~~We expect earnings to increase.~~

· ~~Based on~~Assuming the continuation of foreign currency rates in effect during ~~July 2016,~~April 2017, we expect foreign currency translation to reduce ~~net sales by approximately 2.5% and reduce~~our pre-tax operating income by approximately ~~$18~~$10 million.

· ~~We expect the acquisition of Mactac to increase our full year reported net sales by approximately 1% and immaterially impact net income due to related transition costs.~~

· We expect our full year effective tax rate to be ~~in the low to mid-thirty percent range.~~approximately 30%.

· We anticipate our capital and software expenditures ofto be approximately ~~$200~~$215 million.

· We estimate cash restructuring ~~charges~~and certain acquisition-related transaction costs of approximately ~~$20~~$40 million.

~~Avery Dennison Corporation~~

ANALYSIS OF RESULTS OF OPERATIONS FOR THE ~~SECOND~~FIRST QUARTER

Income ~~from Continuing Operations~~ before Taxes

	Three Months Ended						Three Months Ended
(In millions, except percentages)	July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
Net sales	$	1,541.5		$	1,516.0		$	1,572.1		$	1,485.5
Cost of products sold	1,107.4			1,098.4			1,129.7			1,062.9
Gross profit	434.1			417.6			442.4			422.6
Marketing, general and administrative expense	269.2			273.3			283.3			278.2
Interest expense	15.4			15.3			16.7			15.3
Other expense, net	50.2			27.7			6.5			5.6
Income from continuing operations before taxes	$	99.3		$	101.3
Income before taxes							$	135.9		$	123.5

As a Percentage of Sales
Gross profit	28.2		%	27.5		%
Gross profit margin							28.1		%	28.4		%

Gross Profit Margin

Gross profit margin for the ~~second~~first quarter of ~~2016 increased~~2017 decreased compared to the same period last year reflecting negative mix, higher employee-related costs, and the impact of changes in currency rates, partially offset by higher volume, the net impact of pricing and raw material costs, and benefits from productivity initiatives, including savings from restructuring, net of transition ~~costs, and higher volume, partially offset by the net impact of pricing and raw material input costs, higher employee-related costs, and geographic mix.~~costs.

Marketing, General and Administrative Expense

Marketing, general and administrative expense ~~decreased~~increased in the ~~second~~first quarter of ~~2016~~2017 compared to the same period last year reflecting acquisitions, partially offset by benefits from productivity initiatives, including savings from restructuring, net of transition costs.

Avery Dennison Corporation

Other Expense, net

	Three Months Ended				Three Months Ended
(In millions)	July 2, 2016		July 4, 2015		April 1, 2017		April 2, 2016
Other expense, net by type
Restructuring charges:
Severance and related costs	$	3.6	$	16.8	$	5.7	$	5.2
Asset impairment charges and lease cancellation costs	2.8		3.2		–		.4
Other items:
Loss from settlement of pension obligations	41.4		–
Transaction costs	1.7		–		.8		–
Loss on sale of asset	.3		–
Loss on sale of product line and related transaction and exit costs	.4		7.7
Other expense, net	$	50.2	$	27.7	$	6.5	$	5.6

Refer to Note 9, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information regarding charges associated with restructuring.

Refer to Note 6, “Pension and Other Postretirement Benefits,” to the unaudited Condensed Consolidated Financial Statements for more information regarding loss from settlement of pension obligations.

Net Income and Earnings per Share

Three Months Ended

(In millions, except per share amounts)

July 2, 2016

July 4, 2015

Income from continuing operations before taxes

$
99.3

$
101.3

Provision for income taxes

19.3

36.6

Income from continuing operations

80.0

64.7

Loss from discontinued operations

–

(1.0
)
Net income

$
80.0

$
63.7

Net income per common share

$
.90

$
.70

Net income per common share, assuming dilution

.88

.68

Effective tax rate for continuing operations

19.4
%
36.1
%

~~Avery Dennison Corporation~~

	Three Months Ended
(Dollars in millions, except per share amounts)	April 1, 2017			April 2, 2016
Income before taxes	$	135.9		$	123.5
Provision for income taxes	23.7			33.9
Net income	$	112.2		$	89.6
Net income per common share	$	1.27		$	1.00
Net income per common share, assuming dilution	1.25			.98

Effective tax rate		17.4	%		27.4	%

Provision for Income Taxes

The effective tax rate for the three months ended July 2, 2016 included $6.7 million of tax benefit from the release of valuation allowances against certain deferred tax assets in a foreign jurisdiction associated with a structural simplification approved by the tax authority; $5 million of tax benefit from our change in judgment about tax filing positions in certain foreign jurisdictions as a result of new information gained from our interactions with tax authorities; and $.7 million of tax benefit due to decreases in certain tax reserves as a result of closing tax years.

The effective tax rate for the three months ended ~~July 4, 2015~~April 1, 2017 and April 2, 2016 included ~~$5.3~~$1.5 million and $2.6 million, respectively, of tax expense associated with the repatriation of non-permanently reinvested 2015 earnings of certain foreign subsidiaries; $.5 million of tax expense due to non-deductible employee-related expenses; and $.7 million ofa discrete tax benefit due to decreases in certain tax reserves, including interest and penalties, as a result of closing tax years. The effective tax rate for the three months ended April 1, 2017 also included a net discrete benefit of $12.7 million corresponding to the adoption of an accounting guidance update related to stock-based payments in the first quarter of 2017, as described in Note 1, “General.” Additionally, the effective tax rate for the three months ended April 2, 2016 included $1.6 million of a net benefit related to changes in the effective tax rates in certain foreign municipalities.

This accounting guidance update related to stock-based payments requires that the effect of excess tax benefits associated with stock-based payments be recognized in the income statement instead of in capital in excess of par value as was the case prior to our adoption of this guidance. Excess tax benefits are the tax effects of tax deductions in excess of compensation expenses recognized for financial accounting purposes. These benefits related to stock-based awards are generally generated as a result of stock price appreciation during the vesting period or between the time of grant and the time of exercise. We expect future excess tax benefits pursuant to this guidance to vary depending on the stock-based payments in future reporting periods. These excess tax benefits may cause variability in our future effective tax rate as they can fluctuate based on vesting and exercise activity, as well as our future stock price. The tax effect of the tax deductions in excess of compensation cost related to the exercise of nonqualified stock options and vesting of other stock-based compensation awards recognized in capital in excess of par value was $6.9 million for the three months ended April 2, 2016.

Our effective tax rate can vary widely from quarter to quarter due to interim reporting requirements, the recognition of discrete events, and the timing of repatriation of foreign earnings. Refer to Note 11, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for further information.

Avery Dennison Corporation

RESULTS OF OPERATIONS BY REPORTABLE SEGMENT FOR THE ~~SECOND~~FIRST QUARTER

Operating income refers to income before interest and taxes.

~~Pressure-sensitive~~Label and Graphic Materials

	Three Months Ended						Three Months Ended
(In millions)	July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
Net sales including intersegment sales	$	1,161.1		$	1,130.3		$	1,104.8		$	1,029.4
Less intersegment sales	(16.0		)	(16.2		)	(15.2		)	(16.8		)
Net sales	$	1,145.1		$	1,114.1		$	1,089.6		$	1,012.6
Operating income(1)	148.4			129.8			135.8			126.6
(1)Included costs associated with restructuring in both years and transaction costs in 2016.	$	6.4		$	7.1
(1) Included costs associated with restructuring in both quarters and transaction costs in 2017.							$	2.2		$	2.1

Net Sales

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

	Three Months Ended
	~~July 2, 2016~~April 1, 2017
Reported sales change	38	%
Foreign currency translation	21
Sales change (ex. currency)	9	%
Acquisitions	(4	)
Organic sales change	5	%

In the ~~second~~first quarter of ~~2016,~~2017, net sales increased on an organic basis primarily due to higher volume. ~~Net sales~~Sales increased on an organic basis at a ~~low-double digit~~low-teens rate in emerging markets and at a mid-single digit rate in Western ~~Europe, and~~Europe. Sales decreased on an organic basis at a low-single digit rate in North America.

In the second quarter of 2016, net sales increased on an organic basis at a mid-single digit rate for the Materials product group and decreased at a mid-single digit rate for the Performance Tapes product group.

Operating Income

Operating income increased in the ~~second~~first quarter of ~~2016~~2017 compared to the same period last year due to higher volume and benefits from productivity initiatives, including savings from restructuring actions, net of transition costs, ~~and higher volume,~~ partially offset by unfavorable geographic and product mix and higher employee-related ~~costs and the unfavorable impact of foreign currency translation.~~costs.

Retail Branding and Information Solutions

	Three Months Ended						Three Months Ended
(In millions)	July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
Net sales including intersegment sales	$	378.5		$	384.4		$	367.7		$	360.4
Less intersegment sales	(.5		)	(.6		)	(.9		)	(.9		)
Net sales	$	378.0		$	383.8		$	366.8		$	359.5
Operating income(1)	28.3			10.0			26.6			21.5
(1) Included costs associated with restructuring in both years, transaction costs in 2016, loss on sale of an asset in 2016, and loss on sale of a product line in 2015 with related costs in both years.	$	2.4		$	20.0
(1)Included costs associated with restructuring in both quarters and transaction costs in 2017.							$	3.8		$	3.2

Avery Dennison Corporation

Net Sales

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

	Three Months Ended
	~~July 2, 2016~~April 1, 2017
Reported sales change	(2	) %
Foreign currency translation	1
~~Product line divestiture~~Sales change (ex. currency)	23	%
Organic sales change~~(1)~~	23	%

~~(1)Total may not sum due to rounding~~

In the ~~second~~first quarter of ~~2016,~~2017, net sales increased on an organic basis due to higher volume ~~from sales of~~in both base apparel categories and radio-frequency identification products.

Operating Income

Operating income increased in the ~~second~~first quarter of ~~2016 compared to the same period last year~~2017 primarily reflecting benefits from productivity initiatives, including savings from restructuring actions, net of transition costs, ~~lower restructuring charges, the loss on sale of a product line and related costs in the prior year,~~ and higher volume, partially offset by ~~the impact of strategic pricing actions and~~ higher employee-related costs.

~~Vancive Medical Technologies~~Industrial and Healthcare Materials

	Three Months Ended						Three Months Ended
(In millions)	July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
Net sales including intersegment sales	$	18.5		$	19.7		$	117.3		$	115.9
Less intersegment sales	(.1		)	(1.6		)	(1.6		)	(2.5		)
Net sales	$	18.4		$	18.1		$	115.7		$	113.4
Operating income (loss)(1)	1.6			(1.4		)
(1)Included costs associated with restructuring in 2015.	$	–		$	.6
Operating income(1)							12.8			15.6
(1) Included costs associated with restructuring in both quarters and transaction costs in 2017.							$	.5		$	.3

Net Sales

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

	Three Months Ended
	~~July 2, 2016~~April 1, 2017
Reported sales change	2	%
Foreign currency translation	(1	)
~~Organic sales change(1)~~2	–	%

~~(1)Total may not sum due to rounding~~

~~In the second quarter of 2016, net sales were flat on an organic basis.~~

~~Operating Income (Loss)~~

~~Operating income increased in the second quarter of 2016 compared to the same period last year primarily due to a reduction in operating costs, lower restructuring charges, and higher volume.~~

~~Avery Dennison Corporation~~

~~ANALYSIS OF RESULTS OF OPERATIONS FOR THE SIX MONTHS YEAR-TO-DATE~~

~~Income from Continuing Operations before Taxes~~

Six Months Ended

(In millions, except percentages)

July 2, 2016

July 4, 2015

Net sales

$
3,027.0

$
3,044.0

Cost of products sold

2,170.3

2,196.4

Gross profit

856.7

847.6

Marketing, general and administrative expense

547.4

573.7

Interest expense

30.7

30.6

Other expense, net

55.8

42.0

Income from continuing operations before taxes

$
222.8

$
201.3

As a Percentage of Sales

Gross profit

28.3
%
27.8
%

~~Gross Profit Margin~~

Gross profit margin for the first six months of 2016 increased compared to the same period last year reflecting benefits from productivity initiatives, including savings from restructuring, net of transition costs, higher volume, and the impact of changes in currency rates, partially offset by higher employee-related costs, the net impact of pricing and raw material input costs, and geographic mix.

~~Marketing, General and Administrative Expense~~

Marketing, general and administrative expense decreased in the first six months of 2016 compared to the same period last year reflecting benefits from productivity initiatives, including savings from restructuring, net of transition costs, and the favorable impact of foreign currency translation, partially offset by higher employee-related costs.

~~Other Expense, net~~

Six Months Ended

(In millions)

July 2, 2016

July 4, 2015

Other expense, net by type

Restructuring charges:

Severance and related costs

$
8.8

$
30.3

Asset impairment charges and lease cancellation costs

3.2

3.6

Other items:

Loss from settlement of pension obligations

41.4

–

Transaction costs

1.7

–

Loss (gain) on sale of assets

.3

(1.7
)
Loss on sale of product line and related transaction and exit costs

.4

10.3

Legal settlement

–

(.5
)
Other expense, net

$
55.8

$
42.0

~~Refer to Note 9, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information regarding costs associated with restructuring.~~

~~Avery Dennison Corporation~~

~~Net Income and Earnings per Share~~

Six Months Ended

(In millions, except per share amounts)

July 2, 2016

July 4, 2015

Income from continuing operations before taxes

$
222.8

$
201.3

Provision for income taxes

53.2

64.7

Income from continuing operations

169.6

136.6

Loss from discontinued operations

–

(1.0
)
Net income

$
169.6

$
135.6

Net income per common share

$
1.90

$
1.49

Net income per common share, assuming dilution

1.87

1.46

Effective tax rate for continuing operations

23.9
%
32.1
%

~~Provision for Income Taxes~~

The effective tax rate for the six months ended July 2, 2016 included $6.7 million of tax benefit from the release of valuation allowances against certain deferred tax assets in a foreign jurisdiction associated with a structural simplification approved by the tax authority; $6 million of tax benefit from our change in judgment about tax filing positions in certain foreign jurisdictions as a result of new information gained from our interactions with tax authorities; and $3.3 million of tax benefit due to decreases in certain tax reserves as a result of closing tax years.

The effective tax rate for the six months ended July 4, 2015 included $5.3 million of tax expense associated with the repatriation of non-permanently reinvested 2015 earnings of certain foreign subsidiaries; $.5 million of tax expense due to non-deductible employee-related expenses; and $4.1 million of tax benefit due to decreases in certain tax reserves as a result of closing tax years. Additionally, the effective tax rate for the six months ended July 4, 2015 included $1.6 million of net tax benefit related to changes in the effective tax rates in certain foreign municipalities.

Our effective tax rate can vary widely from quarter to quarter due to interim reporting requirements, the recognition of discrete events and the timing of repatriation of foreign earnings. Refer to Note 11, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for further information.

~~Avery Dennison Corporation~~

~~RESULTS OF OPERATIONS BY REPORTABLE SEGMENT FOR THE SIX MONTHS YEAR-TO-DATE~~

~~Operating income refers to income from continuing operations before interest and taxes.~~

~~Pressure-sensitive Materials~~

Six Months Ended

(In millions)

July 2, 2016

July 4, 2015

Net sales including intersegment sales

$
2,269.8

$
2,266.6

Less intersegment sales

(32.7
)
(31.9
)
Net sales

$
2,237.1

$
2,234.7

Operating income(1)

286.9

252.7

(1) Included costs associated with restructuring in both years, transaction costs in 2016, and a gain on sale of an asset in 2015.

$
8.5

$
12.7

~~Net Sales~~

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

	~~Six Months Ended~~
	~~July 2, 2016~~
~~Reported sales~~Sales change	–	%
~~Foreign currency translation~~ (ex. currency)	4	%
Acquisition	(5	)
Organic sales change	4(1	)%

In the first ~~six months~~quarter of ~~2016,~~2017, net sales ~~increased~~decreased on an organic basis primarily due to ~~higher volume. Net sales increased on an organic basis at~~lower volume driven by the program loss in personal care tapes and a ~~high-single digit rate~~decline in ~~emerging markets and at a low-single digit rate in Western Europe. In North America, net sales were unchanged on an organic basis.~~

In the first six months of 2016, net sales on an organic basis increased at a mid-single digit rate for the Materials product group and decreased at a mid-single digit rate for the Performance Tapes product group.Vancive Medical Technologies.

Operating Income

Operating income ~~increased~~decreased in the first ~~six months~~quarter of ~~2016~~2017 compared to the same period last year ~~primarily reflecting benefits from productivity initiatives, including savings from restructuring, net of transition costs, and higher volume,~~largely due to the program loss in personal care tapes, partially offset by ~~higher employee-related costs, the unfavorable impact of currency translation, and geographic mix.~~

~~Retail Branding and Information Solutions~~

Six Months Ended

(In millions)

July 2, 2016

July 4, 2015

Net sales including intersegment sales

$
757.2

$
773.1

Less intersegment sales

(1.1
)
(1.2
)
Net sales

$
756.1

$
771.9

Operating income(1)

54.4

29.2

(1) Included costs associated with restructuring in both years, transaction costs in 2016, loss on sale of an asset in 2016, loss on sale of a product line in 2015 with related costs in both years, and a legal settlement in 2015.

$
5.8

$
25.5

~~Net Sales~~

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

	~~Six Months Ended~~
	~~July 2, 2016~~
~~Reported sales change~~	(2	~~) %~~
~~Foreign currency translation~~	2
~~Product line divestiture~~	3
~~Organic sales change~~	3	%

~~Avery Dennison Corporation~~

~~In the first six months of 2016, net sales increased on an organic basis due to higher volume from sales of radio-frequency identification products.~~

~~Operating Income~~

~~Operating income increased in the first six months of 2016 compared to the same period last year primarily reflecting~~ benefits from productivity initiatives, including savings from restructuring actions, net of transition costs, higher volume, lower restructuring charges, and the loss on sale of a product line and related costs in the prior year, partially offset by the impact of strategic pricing actions and higher employee-related costs.

~~Vancive Medical Technologies~~

Six Months Ended

(In millions)

July 2, 2016

July 4, 2015

Net sales including intersegment sales

$
34.1

$
40.6

Less intersegment sales

(.3
)
(3.2
)
Net sales

$
33.8

$
37.4

Operating income (loss)(1)

.7

(3.5
)
(1)Included costs associated with restructuring in both years.

$
.1

$
1.7

~~Net Sales~~

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

	~~Six Months Ended~~
	~~July 2, 2016~~
~~Reported sales change~~	(9	~~) %~~
~~Foreign currency translation~~	–
~~Organic sales change~~	(9	~~) %~~

~~In the first six months of 2016, net sales decreased on an organic basis primarily due to lower volume.~~

~~Operating Income (Loss)~~

~~Operating income increased in the first six months of 2016 compared to the same period last year reflecting lower operating costs and lower restructuring charges, partially offset by lower volume.~~

Avery Dennison Corporation

FINANCIAL CONDITION

Liquidity

Operating Activities

	Six Months Ended						Three Months Ended
(In millions)	July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
Net income	$	169.6		$	135.6		$	112.2		$	89.6
Depreciation and amortization	89.4			96.7			44.6			44.3
Provision for doubtful accounts and sales returns	21.3			24.9			11.5			11.2
Net losses from asset impairments and sales/disposals of assets	3.2			11.1			.7			.6
Stock-based compensation	14.1			13.2			5.6			7.5
Loss from settlement of pension obligations	41.4			–
Other non-cash expense and loss	24.1			26.7			15.2			12.8
Changes in assets and liabilities and other adjustments	(147.1		)	(137.8		)	(174.5		)	(172.3		)
Net cash provided by operating activities	$	216.0		$	170.4
Net cash provided by (used in) operating activities							$	15.3		$	(6.3	)

For cash flow purposes, changes in assets and liabilities and other adjustments exclude the impact of foreign currency translation (discussed below in “Analysis of Selected Balance Sheet Accounts”).

During the first ~~six~~three months of ~~2016,~~2017, cash flow from operating activities increased compared to the same period last year primarily due to higher net income and ~~lower income tax payments,~~improved operational working capital, partially offset by higher ~~incentive compensation~~income tax payments, ~~and operational working capital.~~net of refunds. In addition, in the first three months of 2017, operating activities reflected the impact of our adoption of the previously described accounting guidance update. Refer to “Accounting Guidance Update” above for more information.

Investing Activities

	Six Months Ended						Three Months Ended
(In millions)	July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
Purchases of property, plant and equipment	$	(61.3	)	$	(56.4	)	$	(30.3	)	$	(25.2	)
Purchases of software and other deferred charges	(6.1		)	(4.0		)	(6.9		)	(2.0		)
Proceeds from sales of property, plant and equipment	3.2			2.8			–			.1
Purchases of investments, net	–			(.3		)	(.2		)	(3.8		)
Other	–			1.5
Payments for acquisitions, net of cash acquired, and investments in businesses							(74.6		)	–
Net cash used in investing activities	$	(64.2	)	$	(56.4	)	$	(112.0	)	$	(30.9	)

Capital and Software Spending

During the first ~~six~~three months of ~~2016~~2017, we invested in new equipment to support growth in North America, Asia, and ~~2015,~~Europe, and to improve manufacturing productivity. During the first three months of 2016, we invested in new equipment to support growth, primarily in Asia, and to improve manufacturing productivity.

During the first three months of 2017 and 2016, we invested in information technology primarily associated with enterprise resource planning system implementations in North America and Asia.

~~Other~~Payments for Acquisitions

In ~~May 2015,~~connection with the Hanita acquisition, we ~~received $1.5~~paid consideration, net of cash acquired, of approximately $75 million, ~~from the sale of a product line in our RBIS reportable segment.~~ which we funded through cash and existing credit facilities.

Refer to Note ~~1, “General,~~2, “Acquisitions,” to the unaudited Condensed Consolidated Financial Statements for more information.

Avery Dennison Corporation

Financing Activities

	Three Months Ended
(In millions)	April 1, 2017			April 2, 2016
Net (decrease) increase in borrowings (maturities of three months or less)	$	(256.8	)	$	169.4
Additional long-term borrowings	526.7			–
Repayments of long-term debt	(.8		)	(.5		)
Dividends paid	(36.4		)	(33.0		)
Share repurchases	(34.6		)	(95.6		)
Proceeds from exercises of stock options, net	16.4			16.0
Tax withholding for and excess tax benefit from stock-based compensation, net	(19.8		)	(9.2		)
Net cash provided by financing activities	$	194.7		$	47.1

Borrowings and Repayment of Debt

During the first three months of 2017, our outstanding commercial paper borrowings were repaid using proceeds from the issuance of senior notes in March 2017 discussed below. In addition, given the seasonality of our cash flow, during the first three months of 2017 and 2016, our commercial paper borrowings were also used to fund share repurchase activity, dividend payments, and capital expenditures.

In March 2017, we issued €500 million of senior notes, due March 2025. The senior notes bear an interest rate of 1.25% per year, payable annually in arrears. The net proceeds from the offering, after deducting underwriting discounts and estimated offering expenses, were $526.7 million (€495.6 million), of which approximately $215 million (€200 million) was used to repay commercial paper borrowings that we used to finance a portion of our acquisition of the European business of Mactac in August 2016. We plan to use the remainder for general corporate purposes, including repayment of other indebtedness and other acquisitions.

Refer to Note 5, “Debt” to the unaudited Condensed Consolidated Financial Statements for more information.

~~Financing Activities~~

Six Months Ended

(In millions)

July 2, 2016

July 4, 2015

Net increase (decrease) in borrowings (maturities of 3 months or less)

$
104.6

$
(15.8
)
Payments of debt (maturities greater than 3 months)

(1.2
)
(5.5
)
Dividends paid

(69.6
)
(65.7
)
Share repurchases

(160.1
)
(61.5
)
Proceeds from exercises of stock options, net

41.4

61.3

Other

(8.4
)
(4.0
)
Net cash used in financing activities

$
(93.3
)
$
(91.2
)

~~Borrowings and Repayment of Debt~~

During the first six months of 2016 and 2015, our commercial paper borrowings were used mainly to fund share repurchase activity, dividend payments, and capital expenditures given the seasonality of our cash flow.

~~Avery Dennison Corporation~~

Dividend Payments

We paid dividends of ~~$.78~~$.41 per share in the first ~~six~~three months of ~~2016~~2017 compared to ~~$.72~~$.37 per share in the same period last year. In April ~~2016,~~2017, subsequent to the end of the first quarter of 2017, we increased our quarterly dividend to ~~$.41~~$.45 per share, representing an ~~11%~~ increase of approximately 10% from our previous dividend rate of ~~$.37~~$.41 per share.

Share Repurchases

During the first ~~six~~three months of ~~2016,~~2017, we repurchased approximately ~~2.4~~.5 million shares of our common stock at an aggregate cost of ~~$160.1~~$34.6 million. During the first ~~six~~three months of ~~2015,~~2016, we repurchased approximately ~~1.1~~1.5 million shares of our common stock at an aggregate cost of ~~$61.5~~$95.6 million.

As of ~~July 2, 2016,~~April 1, 2017, shares of our common stock in the aggregate amount of approximately ~~$207~~$70.3 million remained authorized for repurchase under our ~~current board authorization~~then-outstanding Board of ~~$500~~Directors (“Board”) authorization.

In April 2017, subsequent to the end of the first quarter of 2017, our Board authorized the repurchase of shares of our common stock with a fair market value of up to $650 million, ~~(exclusive~~exclusive of any fees, commissions or other expenses related to such ~~repurchases).~~purchases and in addition to any amount outstanding under our previous Board authorization. Each of the outstanding authorizations will remain in effect until shares in the respective amount authorized have been repurchased.

Tax Withholding for and Excess Tax Benefit from Stock-Based Compensation, Net

In the first quarter of 2017, tax withholding for and excess tax benefit from stock-based compensation, net reflected the impact of our adoption of the previously described accounting guidance update. Refer to “Accounting Guidance Update” above for more information.

Analysis of Selected Balance Sheet Accounts

Long-lived Assets

In the ~~six~~three months ended ~~July 2, 2016,~~April 1, 2017, goodwill increased by approximately $5$33 million to ~~$691~~$826 million, ~~as a result~~which primarily reflected the preliminary valuation of goodwill associated with the acquisition of Hanita and the impact of foreign currency translation.

In the three months ended April 1, 2017, other intangibles resulting from business acquisitions, net, increased by approximately $17 million to $83 million, which primarily reflected the preliminary valuation of other intangibles from the acquisition of Hanita, partially offset by current year amortization expense.

Avery Dennison Corporation

Refer to Note 4, “Goodwill and Other Intangibles Resulting from Business Acquisitions,” to the unaudited Condensed Consolidated Financial Statements for more information.

In the ~~six~~three months ended ~~July 2, 2016,~~April 1, 2017, other ~~intangibles resulting from business acquisitions, net, decreased~~assets increased by approximately $9$11 million to ~~$36~~$413 million, which ~~primarily~~ reflected ~~current year amortization expense.~~

In the six months ended July 2, 2016, other assets decreased by approximately $10 million to $396 million, which reflected amortization expense related to software and other deferred charges, net of purchases, partially offset by an increase in the cash surrender value of our corporate-owned life insurance ~~policies.~~policies, partially offset by amortization expense related to software and other deferred charges, net of purchases.

Shareholders’ Equity Accounts

In the ~~six~~three months ended ~~July 2, 2016,~~April 1, 2017, the balance of our shareholders’ equity ~~decreased~~increased by approximately $9$89 million to ~~$957 million,~~$1.01 billion, which primarily reflected ~~share repurchases, dividend payments, and a net increase in “Accumulated other comprehensive loss.” These decreases were largely offset by~~ net income, ~~as well as~~the favorable impact of foreign currency translation, and the use of treasury shares to settle ~~exercises of stock options and vesting of~~ stock-based awards and to fund contributions to our U.S. defined contribution plan.

~~Refer to Note 6, “Pension~~ These increases were partially offset by dividend payments and ~~Other Postretirement Benefits,” and Note 13, “Comprehensive Income,” to the unaudited Condensed Consolidated Financial Statements for more information.~~share repurchases.

Impact of Foreign Currency Translation

Six Months Ended

(In millions)

July 2, 2016

Change in net sales

$
(107
)
Change in net income

(8
)

	Three Months Ended
(In millions)	April 1, 2017
Change in net sales	$	(15)
Change in net income	(3)

International operations generated approximately ~~74%~~75% of our net sales during the ~~six~~three months ended ~~July 2, 2016.~~April 1, 2017. Our future results are subject to changes in political and economic conditions in the regions in which we operate and the impact of fluctuations in foreign currency exchange and interest rates.

The unfavorable impact of foreign currency translation on net sales in the first ~~six~~three months of ~~2016~~2017 compared to the same period last year was primarily related to euro-denominated sales and sales in ~~Brazil,~~ China, ~~and Argentina, as well as euro-denominated sales.~~partially offset by sales in Brazil.

Effect of Foreign Currency Transactions

The impact on net income from transactions denominated in foreign currencies is largely mitigated because the costs of our products are generally denominated in the same currencies in which they are sold. In addition, to reduce our income and cash flow exposure to transactions in foreign currencies, we enter into foreign exchange forward, option and swap contracts where available and appropriate. We also utilize certain foreign currency denominated debt to mitigate foreign currency exposure related to our investment in foreign operations.

Analysis of Selected Financial Ratios

We utilize the financial ratios discussed below to assess our financial condition and operating performance.

~~Avery Dennison Corporation~~

Working Capital and Operational Working Capital Ratios

Working capital (current assets minus current liabilities), as a percentage of annualized net sales, ~~improved~~was 6.8% in the first ~~six~~three months of 2017 compared to 4.9% in the first three months of 2016 ~~compared to the same period last year,~~ primarily due to the decrease in current deferred taxes as a result of the prospective adoption of accounting guidance to classify deferred taxes as non-current in the fourth quarter of 2015, as well as an increase in short-term and current portion of long-term debt. This decrease was partially offsetdriven by increases in cash and cash equivalents and trade accounts ~~receivable and inventories.~~receivable.

Avery Dennison Corporation

Operational working capital, as a percentage of annualized net sales, is reconciled with working capital below. Our objective is to minimize our investment in operational working capital, as a percentage of annualized net sales, to maximize ~~our~~ cash flow and return on investment.

	Six Months Ended						Three Months Ended
(Dollars in millions)	July 2, 2016			July 4, 2015			April 1, 2017			April 2, 2016
(A) Working capital	$	350.3		$	452.1		$	425.3		$	293.2
Reconciling items:
Cash and cash equivalents	(216.1		)	(225.7		)	(294.9		)	(169.6		)
Other current assets	(169.6		)	(246.9		)	(202.3		)	(176.7		)
Assets held for sale	(4.4		)	(2.0		)	(8.0		)	(2.5		)
Short-term borrowings and current portion of long-term debt and capital leases	199.0			182.2			333.2			264.9
Other current liabilities	525.3			507.8
Accrued payroll and employee benefits and other current liabilities							520.0			492.4
(B) Operational working capital	$	684.5		$	667.5		$	773.3		$	701.7
(C) Annualized net sales (year-to-date sales, multiplied by two)	$	6,054.0		$	6,088.0
(C) Annualized net sales (quarter sales, multiplied by four)							$	6,288.4		$	5,942.0
Working capital, as a percentage of annualized net sales (A) ÷ (C)	5.8		%	7.4		%	6.8		%	4.9		%
Operational working capital, as a percentage of annualized net sales (B) ÷ (C)	11.3		%	11.0		%	12.3		%	11.8		%

Accounts Receivable Ratio

The average number of days sales outstanding was 6264 days in the first ~~six~~three months of 2017 compared to 63 days in the first three months of 2016, ~~compared to 60 in the first six months of 2015. The average number of days outstanding was~~ calculated using the ~~two-quarter average~~ trade accounts receivable balance at quarter-end divided by the average daily sales for the ~~first six months of 2016 and 2015, respectively.~~quarter. The increase in the average number of days sales outstanding from the prior year primarily reflected the timing of collections and the impact of acquisitions, partially offset by the impact of foreign currency translation.

Inventory Ratio

Average inventory turnover decreased to ~~8.3~~7.8 in the first ~~six~~three months of ~~2016~~2017 from ~~8.6~~8.2 in the first ~~six~~three months of ~~2015. The average inventory turnover was~~2016, calculated using the annualized cost of sales ~~(cost~~(quarterly cost of sales, ~~for the first six months of 2016 and 2015, respectively,~~ multiplied by ~~two)~~four) divided by the ~~two-quarter average~~ inventory ~~balance.~~balance at quarter-end. The decrease in the current year average inventory turnover primarily reflected the ~~timing~~impact of ~~inventory purchases.~~acquisitions.

Accounts Payable Ratio

The average number of days ~~payables~~payable outstanding was 7273 days in the first ~~six~~three months of 2017 compared to 72 days in the first three months of 2016, ~~compared to 70 in the first six months of 2015. The average number of days payable outstanding was~~ calculated using the ~~two-quarter average~~ accounts payable balance at quarter-end divided by the average daily cost of products sold for the ~~first six months of 2016 and 2015, respectively.~~quarter. The increase in average number of days payable outstanding from the prior year primarily reflected the timing of vendor payments, partially offset by the impact of foreign currency translation.

Capital Resources

Capital resources include cash flows from operations, cash and cash equivalents and debt financing. At ~~July 2, 2016,~~April 1, 2017, we had cash and cash equivalents of ~~$216.1~~$294.9 million held in accounts at third-party financial institutions.

Our cash balances are held in numerous locations throughout the world. At ~~July 2, 2016,~~April 1, 2017, the majority of our cash and cash equivalents was held by our foreign subsidiaries.

To meet U.S. cash requirements, we have several cost-effective liquidity options available. These options include borrowing funds at reasonable rates, including borrowings from foreign subsidiaries, and repatriating foreign earnings. However, if we were to repatriate incremental foreign earnings, we may be subject to additional taxes in the U.S.

~~The Revolver is used as a back-up~~Our $700 million revolving credit facility ~~for~~(the “Revolver”) contains financial covenants requiring that we maintain specified ratios of total debt and interest expense in relation to certain measures of income. As of April 1, 2017 and December 31, 2016, we were in compliance with our commercial paper program and can be used to finance other corporate requirements. The Revolver matures on October 3, 2019. The maturity date may be extended for additional one-year periods under certain circumstances. The commitments under the Revolver may be increased by up to $325 million, subject to lender approval and other

~~Avery Dennison Corporation~~financial covenants.

~~customary requirements. As~~In March 2017, we issued €500 million of ~~July 2, 2016, there was no balance outstanding under the Revolver.~~senior notes, due March 2025. The senior notes bear an interest rate of 1.25% per year, payable annually in arrears. Refer to Note 5, “Debt, ~~and Capital Leases,~~” to the unaudited Condensed Consolidated Financial Statements for more information.

We are exposed to financial market risk resulting from changes in interest and foreign currency rates, and to possible liquidity and credit risks of our counterparties.

In April 2016, we entered into an agreement to acquire the European business of Mactac from Platinum Equity for a purchase price of €200 million, including assumed debt. The purchase price is subject to certain adjustments in accordance with the terms of the agreement. On August 1, 2016, we completed this acquisition, which we funded with cash and through existing credit facilities.Avery Dennison Corporation

Capital from Debt

Our total debt increased by approximately ~~$104~~$291 million in the first ~~six~~three months of ~~2016~~2017 to ~~$1.14~~$1.58 billion, primarily reflecting ~~an increase~~the issuance of senior notes in March 2017, which was partially used to repay commercial paper borrowings that we used to ~~fund share repurchase activity, dividend payments, and capital expenditures given the seasonality~~finance a portion of our ~~cash flow during~~acquisition of the ~~year, as well as an increase~~European business of Mactac in ~~short-term borrowings~~August 2016. Refer to ~~support operational requirements.~~“Financing Activities” above for more information.

Credit ratings are a significant factor in our ability to raise short- and long-term financing. The credit ratings assigned to us also impact the interest rates paid and our access to commercial paper, credit facilities, and other borrowings. A downgrade of our short-term credit ratings ~~below current levels~~ could impact our ability to access the commercial paper markets. If our access to commercial paper markets were to become limited, the Revolver and our other credit facilities would be available to meet our short-term funding requirements, if necessary. When determining a credit rating, we believe that rating agencies primarily consider our competitive position, business outlook, consistency of cash flows, debt level and liquidity, geographic dispersion and management team. We remain committed to maintaining an investment grade rating.

Off-Balance Sheet Arrangements, Contractual Obligations, and Other Matters

Refer to Note 15, “Commitments and Contingencies,” to the unaudited Condensed Consolidated Financial Statements.

RECENT ACCOUNTING REQUIREMENTS

Refer to Note 17, “Recent Accounting Requirements,” to the unaudited Condensed Consolidated Financial Statements.

Avery Dennison Corporation

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the information provided in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended ~~January 2,~~December 31, 2016.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(f)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure.

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgement in evaluating the cost-benefit relationship of possible controls and procedures.

Our disclosure controls system is based upon a global chain of financial and general business reporting lines that converge in our headquarters in Glendale, California. As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of such time to provide reasonable assurance that information was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure.

Changes in Internal Control Over Financial Reporting

We periodically assess our internal control environment. During 2014, we began a phased implementation of a new transactional system in our ~~RBIS~~Retail Branding and Information Solutions reportable segment that is expected to continue through ~~2018.~~2021. Processes affected by this implementation include ~~among other things,~~ order management, pricing, shipping, general accounting, manufacturing and planning. Where appropriate, we are reviewing related internal controls and making changes. Other than this implementation, there have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Avery Dennison Corporation

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to “Legal Proceedings” in Note 15, “Commitments and Contingencies,” to the unaudited Condensed Consolidated Financial Statements in Part 1, Item 1.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors included in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended ~~January 2,~~December 31, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Not Applicable

(b) Not Applicable

Repurchases by us or our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) of the Exchange Act) of registered equity securities in the three fiscal months of the ~~second~~first quarter of ~~2016~~2017 are listed in the ~~following table.~~

Period(1)

Total number
of shares
purchased(2)

Average
price paid
per share

Total number of shares
purchased as part of
publicly announced
plans(2)(3)

Approximate dollar
value of shares that may
yet be purchased under
the plans(4)

April 3, 2016 – April 30, 2016

161.8

$
72.46

161.8

May 1, 2016 – May 28, 2016

350.6

74.68

350.6

May 29, 2016 – July 2, 2016

351.4

75.62

351.4

Total

863.8

$
74.64

863.8

$
207.1

~~(1)~~ ~~The periods shown are our fiscal months during the thirteen-week quarter ended July 2, 2016.~~

~~(2)~~ ~~Shares in thousands.~~

~~(3)~~ On December 4, 2014, our Board of Directors authorized the repurchase of shares of our common stock in the aggregate amount of up to $500 million (exclusive of any fees, commissions or other expenses related to such purchases), in addition to any outstanding shares authorized under any previous Board authorization. This is the only authorization currently in effect and it will remain in effect until the shares authorized thereby have been repurchased.

~~(4)~~ ~~Dollars in millions.~~

table below. Repurchased shares may be reissued under our stock option and incentive plan or used for other corporate purposes.

Period(1)	Total number of shares purchased(2)	Average price paid per share		Total number of shares purchased as part of publicly announced plans(2)(3)	Approximate dollar value of shares that may yet be purchased under the plans(4)
January 1, 2017 – January 28, 2017	206.9	$	72.19	206.9
January 29, 2017 – February 25, 2017	111.5	76.22		111.5
February 26, 2017 – April 1, 2017	139.9	80.18		139.9
Total	458.3	$	75.61	458.3	$	70.3

(1)The periods shown are our fiscal periods during the thirteen-week quarter ended April 1, 2017.

(2)Shares in thousands.

(3)In April 2017, subsequent to the end of the first quarter of 2017, 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. Each of the outstanding authorizations will remain in effect until shares in the respective amount authorized have been repurchased.

(4)Dollars in millions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

~~Avery Dennison Corporation~~

ITEM 5. OTHER INFORMATION

Not Applicable

Avery Dennison Corporation

ITEM 6. EXHIBITS

Exhibit ~~10.1*†~~4.1		~~Localization Letter~~Fourth Supplemental Indenture between Avery Dennison Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, dated as of March 3, 2017 (incorporated by reference to ~~Georges Gravanis~~Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 3, 2017).
Exhibit 12*4.2		~~Computation~~Form of ~~Ratio of Earnings~~1.250% Senior Notes due 2025 (incorporated by reference to ~~Fixed Charges~~Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on March 3, 2017).
Exhibit 10.1*†		Offer Letter to Gregory S. Lovins
Exhibit 31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2**		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS		XBRL Instance Document
Exhibit 101.SCH		XBRL Extension Schema Document
Exhibit 101.CAL		XBRL Extension Calculation Linkbase Document
Exhibit 101.LAB		XBRL Extension Label Linkbase Document
Exhibit 101.PRE		XBRL Extension Presentation Linkbase Document
Exhibit 101.DEF		XBRL Extension Definition Linkbase Document

* Filed herewith.

** Furnished herewith.

† Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-Q pursuant to Part II, Item 6 of Form 10-Q.

Avery Dennison Corporation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AVERY DENNISON CORPORATION
	(Registrant)




	~~/s/ Anne L. Bramman~~
	~~Anne L. Bramman~~/s/ Gregory S. Lovins
	~~Senior~~ Gregory S. Lovins
	Vice President and Interim Chief Financial Officer
	(Principal Financial Officer)






	/s/ Lori J. Bondar
	Lori J. Bondar
	Vice President, Controller, and
	Chief Accounting Officer
	(Principal Accounting Officer)




	~~August~~May 2, ~~2016~~2017

3831

	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)

x Large accelerated filer	o Accelerated filer	o Non-accelerated filer	o Smaller reporting company	o Emerging growth company
		(Do not check if a smaller reporting company)

			Page
SAFE HARBOR STATEMENT		1

PART I. FINANCIAL INFORMATION (UNAUDITED)

Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets
	~~July 2, 2016~~ April 1, 2017 and ~~January 2,~~December 31, 2016	2
	Condensed Consolidated Statements of Income
	Three ~~and Six~~ Months ended ~~July~~April 1, 2017 and April 2, 2016 ~~and July 4, 2015~~	3
	Condensed Consolidated Statements of Comprehensive Income
	Three ~~and Six~~ Months ended ~~July~~April 1, 2017 and April 2, 2016 ~~and July 4, 2015~~	4
	Condensed Consolidated Statements of Cash Flows
	Three ~~and Six~~ Months ended ~~July~~April 1, 2017 and April 2, 2016 ~~and July 4, 2015~~	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2017
	Non-GAAP Financial Measures	2017
	Overview and Outlook	2118
	Analysis of Results of Operations for the ~~Second~~First Quarter	2319
	Results of Operations by Reportable Segment for the ~~Second~~First Quarter	25
	~~Analysis of Results of Operations for the Six Months Year-to-Date~~	27
	~~Results of Operations by Reportable Segment for the Six Months Year-to-Date~~	2921
	Financial Condition	3123
	Recent Accounting Requirements	3427
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3528
Item 4.	Controls and Procedures	3528

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3629
Item 1A.	Risk Factors	3629
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3629
Item 3.	Defaults Upon Senior Securities	3629
Item 4.	Mine Safety Disclosures	3629
Item 5.	Other Information	3729
Item 6.	Exhibits	3730
Signatures			3831
Exhibits

	Six Months Ended July 4, 2015
(In millions)	As Previously Reported		Adjustment			As Revised
Net cash provided by operating activities	$	170.9	$	(.5	)	$	170.4
Increase in cash and cash equivalents	19.0		(.5		)	18.5
Cash and cash equivalents, beginning of year	227.0		(19.8		)	207.2
Cash and cash equivalents, end of period	246.0		(20.3		)	225.7

	U.S. Postretirement Health Benefits
	Three Months Ended						Six Months Ended
(In millions)	July 2, 2016			July 4, 2015			July 2, 2016			July 4, 2015
Interest cost	$	–		$	–		$	.1		$	.1
Recognized net actuarial loss	.3			.5			.8			1.1
Amortization of prior service credit	(.8		)	(.8		)	(1.6		)	(1.6		)
Net periodic benefit credit	$	(.5	)	$	(.3	)	$	(.7	)	$	(.4	)

Period(1)	Total number of shares purchased(2)	Average price paid per share		Total number of shares purchased as part of publicly announced plans(2)(3)	Approximate dollar value of shares that may yet be purchased under the plans(4)
April 3, 2016 – April 30, 2016	161.8	$	72.46	161.8
May 1, 2016 – May 28, 2016	350.6	74.68		350.6
May 29, 2016 – July 2, 2016	351.4	75.62		351.4
Total	863.8	$	74.64	863.8	$	207.1