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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 1, 2017.March 31, 2018.

OR

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

For the transition period from                                                 to                                                 

Commission file number 1-7685

AVERY DENNISON CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (626) 304-2000

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares of $1 par value common stock outstanding as of April 29, 2017: 88,557,57628, 2018: 88,030,887

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Safe Harbor Statement

The matters discussed in this Quarterly Report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements, which are not statements of historical fact, contain estimates, assumptions, projections and/or expectations regarding future events, which may or may not occur. Words such as “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “foresee,” “guidance,” “intend,” “may,” “might,” “objective,” “plan,” “potential,” “project,” “seek,” “shall,” “should,” “target,” “will,” “would,” or variations thereof, and other expressions that refer to future events and trends, identify forward-looking statements. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties, which could cause our actual results to differ materially from the expected results, performance or achievements expressed or implied by such forward-looking statements.

Certain risks and uncertainties are discussed in more detail under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 201630, 2017 and include, but are not limited to, risks and uncertainties relating to the following: fluctuations in demand affecting sales to customers; worldwide and local economic conditions; changes in political conditions; changes in governmental laws and regulations; fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in 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;acquisitions; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates; changes in tax laws and regulations, including the Tax Cuts and Jobs Act, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; fluctuations in pension, insurance, and employee benefit costs; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety; protection and infringement of intellectual property; the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other factors.

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

Our forward-looking statements are made only as of the date hereof.  We assume no duty to update these forward-looking statements to reflect new, changed or unanticipated events or circumstances, other than as may be required by law.

Avery Dennison Corporation

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

See Notes to Unaudited Condensed Consolidated Financial Statements

Avery Dennison Corporation

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See Notes to Unaudited Condensed Consolidated Financial Statements

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

See Notes to Unaudited Condensed Consolidated Financial Statements

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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 20162017 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 first quarters of 20172018 and 20162017 consisted of thirteen-week periods ending March 31, 2018 and April 1, 2017, and April 2, 2016, respectively.

Reclassifications

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

Accounting Guidance UpdateUpdates

Revenue Recognition

In the first quarter of 2017,2018, we adopted an accounting guidance update that simplifies several aspectsprovides a single comprehensive model on accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. We adopted this guidance using the modified retrospective method, which means that reporting periods beginning in 2018 are presented under this guidance, while prior period amounts continue to be reported under the previous guidance. As allowed under this guidance, we began to apply this guidance for contracts with customers that were not completed as of the accounting for stock-based payment transactions.beginning of 2018. As a result of adoptingthe adoption of this update, beginningguidance, the allowance for customer returns, presented as a reduction of trade accounts receivable in prior years, is now presented as a returns liability in “Other current liabilities.”  As of March 31, 2018, the returns liability was $11.3 million.  Our adoption of this guidance did not have a material impact on our financial position, results of operations, or cash flows. The applicable disclosures related to this guidance are included in Note 2, “Revenue Recognition,” and Note 14, “Segment and Disaggregated Revenue Information.”

Presentation of Net Periodic Benefit Costs

In the first quarter of 2017, (i)2018, we adopted an accounting guidance update that requires certain employers with defined benefit plans to present the tax effects relatedservice 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 stock-based payments at settlement or expiration were recognized throughpresent the other components of the 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 are no longer eligible for capitalization in assets. Employers are required to apply the portion of this guidance on the presentation of the components of net periodic benefit cost in the income statement a change fromretrospectively, while the previous requirementportion of this guidance that certain tax effectslimits the capitalization of net periodic benefit cost in assets to the service cost component must be recognized in capital in excess of par value, and,applied prospectively.

Prior year results have been reclassified 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 statementsguidance. The effects of cash flows, a change from the previous requirement to present excess tax benefits as an inflow from financing activities and an outflow from operating activities, and, as permitted byour adoption of this guidance prior periods have not been retrospectively adjusted. Refer to Note 8, “Long-Term Incentive Compensation,” and Note 11, “Taxes Based on Income,” for further information.

Note 2.  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.Statements of Income for the prior year were as follows:

Classification of Certain Cash Payments

In February 2017,the first quarter of 2018, we announced our agreement to acquire Yongle Tape Company Ltd. (“Yongle Tape”), a manufacturer of specialty tapesadopted an accounting guidance update that reduces the diversity in the presentation and related products used in a variety of industrial markets based in China, from 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’ achievementclassification of certain performance targets overcash receipts and cash payments in the next two years.  We expect to complete this acquisition in mid-2017.statement of cash flows.

Note 3.  Inventories

Net inventories consisted of:

Avery Dennison Corporation

Prior year results have been reclassified, as required by this guidance. The effects of our adoption of this guidance, which primarily relate to the classification of corporate-owned life insurance cash flows, on our unaudited Condensed Consolidated Statements of Cash Flows for the prior year were as follows:

Intra-Entity Transfers of Assets Other Than Inventory

In the first quarter of 2018, we adopted an accounting guidance update that requires companies to recognize the income tax effects of intra-entity sales and transfers of assets other than inventory in the period in which they occur. Upon adoption, we derecognized tax-related deferred charges and recognized deferred tax assets related to certain intra-entity asset transfers as a $14 million net reduction to retained earnings.

Note 4.  Goodwill2.  Revenue Recognition

Sales are recognized when or as we satisfy a performance obligation by transferring control of a product or service to a customer, in an amount that reflects the consideration to which we expect to be entitled in exchange for the product or service. We consider a number of factors in determining when we have transferred control to a customer, including the following: (i) our present right to payment; (ii) the customer’s legal title to the asset; (iii) physical possession of the asset; (iv) the customer’s significant risks and Other Intangibles Resultingrewards of ownership of the asset; and (v) the customer’s acceptance of the asset.

Generally, payment terms with our customers are consistent with those used in our industries and the regions in which we operate.

Sales returns are accepted under certain limited circumstances. We record an estimate for return liabilities, with a corresponding reduction in sales, in the amount we expect to repay or credit customers, which we base on historical actual returns and outstanding customer claims. Changes in estimates are updated each reporting period.

Sales rebates, discounts, and other customer concessions are common practice in the industries in which we operate and are accounted for as a reduction in sales, based on estimates at the time products are sold.  These estimates are based on our historical experience, as well as current information such as sales forecasts.  We review estimates regularly and, as additional information becomes available, if necessary, adjust sales and the respective accruals accordingly.

Sales tax, value-added tax, and other taxes we collect from Business Acquisitionscustomers are excluded from sales.

Shipping and handling activities after control of a product is transferred to a customer are accounted for as a fulfillment cost and not a separate performance obligation.

We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of less than one year.

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Income Statements.

GoodwillDeferred Revenue

Deferred revenue primarily relates to constrained variable consideration on supply agreements for sales of products, as well as to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as or when we perform under the contract.

The following table shows the amounts and balance sheet locations of deferred revenue as of March 31, 2018 and December 30, 2017:

Avery Dennison Corporation

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

Note 3.  Goodwill

Changes in the net carrying amount of goodwill for the three months ended April 1, 2017,March 31, 2018 by reportable segment were as follows:

(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 April 1, 2017March 31, 2018 and December 31, 201630, 2017 were net of accumulated impairment losses of $820 million which were includedrecognized in fiscal year 2009 by our Retail Branding and Information Solutions (“RBIS”) reportable segment.

In connection with the acquisition of Hanita, which we expect to expand our product portfolio and provide new growth opportunities, we recognized goodwill 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 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:

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

Note 5.4.  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 estimated offering expenses, were $526.7 million (€495.6 million), a portion of which approximately $215 million (€200 million) waswe used during the three months ended April 1, 2017 to repay commercial paper borrowings that we used to finance a portion of our acquisition of the European business of Mactac in August 2016.Mactac.  We plan to use the remainder for general corporate purposes, including repaymentdesignate a portion of other indebtedness and other acquisitions. We designated thethese senior notes as a net investment hedge of our investment in foreign operations.  Refer to Note 10,8, “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 securities or euro government bond securities, as applicable, on notes with similar rates, credit ratings, and remaining maturities. The fair value of short-term borrowings, which includeincludes commercial paper issuances and short-term lines of credit, approximates the carrying value given the short duration of these obligations.  The fair value of our total debt was $1.73 billion at March 31, 2018 and $1.6 billion at April 1, 2017 and $1.31 billion at December 31, 2016.30, 2017. 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$800 million revolving credit facility (the “Revolver”) contains financial covenants requiring that we maintain specified ratios, ofincluding total debt and interest expense in relation to certain measures of income. No balance was outstanding under the Revolver as of March 31, 2018 or December 30, 2017.  As of April 1, 2017March 31, 2018 and December 31, 2016,30, 2017, we were in compliance with our financial covenants.

Note 6.5.  Pension and Other Postretirement Benefits

Defined Benefit Plans

We sponsor a number of defined benefit plans, the accrualaccruals of benefits under some of which hashave 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.

Avery Dennison Corporation

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

Note 7.  Research and Development(1)In 2018, settlements were related to lump-sum payments associated with a U.S. defined benefit pension plan.

ResearchService cost and development expense was $22.9 million and $22.3 million for the three months ended April 1, 2017 and April 2, 2016, respectively.  This expense wascomponents of net periodic benefit cost other than service cost were included in “Marketing, general and administrative expense” and “Other non-operating expense” in the unaudited Condensed Consolidated Statements of Income.Income, respectively.  Refer to Note 1, “General,” for more information.

Note 8.6.  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.

Stock-Based Awards

Stock-based compensation expense was $5.6$7.4 million and $7.5$5.6 million for the three months ended March 31, 2018 and April 1, 2017, and April 2, 2016, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income.

As of April 1, 2017,March 31, 2018, we had approximately $51$57 million of unrecognized compensation expense 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-Based Awards

The compensation expense related to long-term incentive units was $10.3$5.6 million and $9.5$10.3 million for the three months ended March 31, 2018 and April 1, 2017, and April 2, 2016, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income.

Note 9.7.  Cost Reduction Actions

2018 Plan

On April 19, 2018, we approved a restructuring plan (the “2018 Plan”) associated with the consolidation of the European footprint of our Label and Graphic Materials (“LGM”) reportable segment, which is expected to result in a headcount reduction of 350 to 400 positions related to the closure of a manufacturing facility. This reduction is expected to be partially offset by headcount additions in other locations, resulting in a net reduction of approximately 150 positions. We expect the 2018 Plan to be largely complete by the end of 2019.

During the three months ended March 31, 2018, we recorded $6.9 million in non-cash asset impairment charges related to the 2018 Plan. Total pretax restructuring charges associated with the 2018 Plan are estimated at approximately $70 million. The remaining charges relate to cash costs primarily for severance, most of which are expected to be recognized during the second quarter of 2018.

2015/2016 Actions

During the three months ended April 1, 2017,March 31, 2018, we recorded $5.8 million in restructuring charges, net of reversals, related to restructuring actions initiated during the third quarter of 2015 (“2015/2016 Actions”). These charges consisted of severance and related costs for the reduction of approximately 180 positions.200 positions, lease cancellation costs, and asset impairment charges.

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.

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During the three months ended April 1, 2017,March 31, 2018, restructuring charges and payments were as follows:

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

Note 10.8.  Financial Instruments

We enter into foreign exchange hedge contracts to reduce our risk from foreign exchange rate fluctuations associated with receivables, payables, loans and firm commitments denominated in certain foreign currencies that arise primarily as a result of our operations outside the U.S.  We enter into interest rate contracts to help manage our exposure to certain interest rate fluctuations.  We also enter into futures contracts to hedge certain price fluctuations for a portion of our anticipated domestic purchases of natural gas. The maximum length of time for which we hedge our exposure to the variability in future cash flows for forecasted transactions is 36 months.

As of April 1, 2017,March 31, 2018, the aggregate U.S. dollar equivalent notional value of our outstanding commodity contracts and foreign exchange contracts was $4$4.5 million and $1.74 billion,$974.3 million, respectively.

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

The following table shows the fair values and balance sheet itemslocations of cash flow hedges as fair value hedges.of March 31, 2018 and December 30, 2017:

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The following table shows the fair valuevalues and balance sheet locations of other derivatives as of April 1,March 31, 2018 and December 30, 2017:

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

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 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.

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,derivatives, representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings.

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

TheNeither the amount recognized in income related to the ineffective portion of, andnor the amount excluded from, effectiveness testing for cash flow hedges and derivatives not designated as hedging instruments was not material for the three months ended March 31, 2018 or April 1, 2017 and April 2, 2016, respectively.2017.

As of April 1, 2017,March 31, 2018, we expected a net gain of approximately $.3$.9 million to be reclassified from “Accumulated other comprehensive loss” to earnings within the next 12 months.

Other Derivatives

For other derivative instruments, which are not designated as hedging instruments, the gain or loss is recognized in current earnings.  These derivatives are intended to offset certain of our economic exposures.  The following table shows the components of the net gains (losses) recognized in income related to these derivative instruments.

Net Investment Hedge

In March 2017, we designated ourthe €500 million of our 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.  ReferIn January 2018, we reduced the amount we designate as a net investment hedge to Note 5, “Debt,” for further information about our euro-denominated debt.

Avery Dennison Corporation€255 million.

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

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We recorded no ineffectiveness from our net investment hedge in earnings during the three months ended March 31, 2018 and April 1, 2017.

Note 11.9.  Taxes Based on Income

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

TheOur effective tax rate for the three months ended April 1, 2017March 31, 2018 compared to the same period last year reflects a decrease in the U.S. federal statutory tax rate from 35% to 21%, offset by net tax charges related to certain U.S. international tax provisions, the loss of domestic manufacturing deductions and April 2, 2016limitations on the deductibility of our executive compensation, all as a result of the Tax Cuts and Jobs Act (“TCJA”) enacted in December 2017.

Our effective tax rate for the three months ended March 31, 2018 included $1.5$7.2 million of net tax charges related to the tax on global intangible low-taxed income of our foreign subsidiaries and $2.6the base-erosion anti-abuse tax on certain foreign earnings, partially offset by the benefit from foreign-derived intangible income; $2.8 million respectively, of tax charges resulting from recognizing foreign withholding taxes on current year earnings; and $4 million of tax benefit from the release of valuation allowances on certain state deferred tax assets primarily related to the impact of state conformity to certain TCJA provisions. These impacts were primarily a result of the TCJA. Additionally, the effective tax rate for the three months ended March 31, 2018 included a discrete tax benefit dueof $7.1 million related to excess tax benefits associated with stock-based payments and a discrete tax benefit of $7.1 million from decreases in certain tax reserves, including interest and penalties, as a result of closing tax years.  The

Our effective tax rate for the three months ended April 1, 2017 also included a net discrete benefittax benefits of $12.7 million corresponding to the adoption of an accounting guidance update related to excess tax benefits associated with stock-based payments and $1.5 million from decreases in the first quartercertain tax reserves, including interest and penalties, as a result of 2017, as described in Note 1, “General.”  Additionally, theclosing tax years.

Our effective tax rate for the three months ended April 2, 2016March 31, 2018 also included $1.6 million of a net benefit relatedcertain measurement period adjustments 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 cost2017 provisional amounts related to the exerciseenactment of nonqualified stock options and vestingthe TCJA in accordance with guidance provided under SEC Staff Accounting Bulletin No. 118 (“SAB 118”). SAB 118 provides for a measurement period up to one year from the enactment of other stock-based compensation awards recognizedthe TCJA within which we may complete our final assessment of the legislation’s impact. Measurement period adjustments determined during the first quarter of 2018 did not have a significant impact on our consolidated financial statements, either individually or in capital in excessthe aggregate. We did not finalize any aspects 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 reflectspreviously disclosed provisional amounts. Furthermore, we have not made a decrease in tax expensedetermination on our accounting policy choice related to favorable changes inour global intangible low-taxed income provision nor have we completed the geographic mixassessment of our income before taxesindefinite reinvestment assertions. We will continue to assess any future guidance and our adoptionaccounting interpretations on the effects of the accounting guidance update discussed above.TCJA and expect to complete our analysis within the measurement period afforded by SAB 118.

The amount of income taxes we pay is subject to ongoing audits by taxing jurisdictions around the world.  Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time.  We believe that we have adequately provided for reasonably foreseeable outcomes related to these matters.  However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate.  We and our U.S. subsidiaries anticipate closing the Internal Revenue Service’s Compliance Assurance Process Program through 2016 in the second quarter of 2018. With some exceptions, we and our foreign 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 $28$23 million, primarily as a result of audit settlements and closing tax years.

Avery Dennison Corporation

Note 12.10.  Net Income Per Common Share

Net income per common share was computed as follows:

(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 were not significant for the three months ended March 31, 2018. Stock-based compensation awards excluded from the computation totaled approximately .1 million shares and .5 million shares for the three months ended April 1, 2017 and April 2, 2016, respectively.2017.

Note 13.11.  Comprehensive Income

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

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

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