UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM

10-Q

(Mark One)

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

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

For the quarterly period ended ~~September 26, 2020.~~

April 3, 2021.

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

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

For the transition period from ________________________ to ________________________

Commission file number

1-7685

AVERY DENNISON CORPORATION

(Exact name of registrant as specified in its charter)

~~Delaware~~	~~95-1492269~~
Delaware		95-1492269
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)


207 Goode Avenue Glendale, California		91203
~~207 Goode Avenue~~
~~Glendale~~, ~~California~~	~~91203~~
(Address of Principal Executive Offices)		(Zip Code)

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

304-2000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $1 par value	AVY	New York Stock Exchange

1.25% Senior Notes due 2025	AVY25	~~New York~~Nasdaq Stock ~~Exchange~~ Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T (§

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.


☒ Large accelerated filer		☐ Accelerated filer		☐ Non-accelerated filer		☐ Smaller reporting company		☐ Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

Number of shares of $1 par value common stock outstanding as of ~~October 24, 2020: 83,417,722~~

May 1, 2021: 83,007,729

Table of Contents

AVERY DENNISON CORPORATION

FISCAL ~~THIRD~~FIRST QUARTER ~~2020~~2021 QUARTERLY REPORT ON FORM

10-Q

TABLE OF CONTENTS

	~~Page~~
				Page

SAFE HARBOR STATEMENT					1

PART I. FINANCIAL INFORMATION (UNAUDITED)

Item 1.		Financial ~~Statements~~Statements::
		Condensed Consolidated Balance Sheets ~~September 26, 2020~~April 3, 2021 and ~~December 28, 2019~~January 2, 2021			2
		Condensed Consolidated Statements of Income Three ~~and Nine~~ Months Ended ~~September 26,~~April 3, 2021 and March 28, 2020 ~~and September 28, 2019~~			3
		Condensed Consolidated Statements of Comprehensive Income Three ~~and Nine~~ Months Ended ~~September 26,~~April 3, 2021 and March 28, 2020 ~~and September 28, 2019~~			4
		Condensed Consolidated Statements of Cash Flows ~~Nine~~Three Months Ended ~~September 26,~~April 3, 2021 and March 28, 2020 ~~and September 28, 2019~~			5
		Notes to Unaudited Condensed Consolidated Financial Statements			6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
		Non-GAAP Financial Measures			18
		Overview and Outlook			19
		Analysis of Results of Operations for the ~~Third~~First Quarter	22		21
		Results of Operations by Reportable Segment for the ~~Third~~First Quarter	24		22
	~~Analysis of Results of Operations for the Nine Months Year-to-Date~~	26 Financial Condition			25
	~~Results of Operations by Reportable Segment for the Nine Months Year-to-Date~~	27
	~~Financial Condition~~	30
	~~Recent Accounting Requirements~~	34
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	34		29
Item 4.		Controls and Procedures	34		29

PART II. OTHER INFORMATION

Item 1.		Legal Proceedings	36		30
Item 1A.		Risk Factors	36		30
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	41		30
Item 3.		Defaults Upon Senior Securities	42		30
Item 4.		Mine Safety Disclosures	42		30
Item 5.		Other Information	42		30
Item 6.	~~Exhibits~~	42 Exhibits			31
Signatures	43				32
Exhibits

Table of Contents

Safe Harbor Statement

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

We believe that the most significant risk factors that could affect our financial performance in the near-term include: ~~(1)~~(i) the impacts to underlying demand for our ~~business~~products and/or foreign currency fluctuations from global economic conditions, political uncertainty, ~~and~~ changes in environmental standards and governmental regulations, including as a result of the

coronavirus/COVID-19 ~~pandemic; (2) competitors'~~

pandemic (“COVID-19”); (ii) competitors’ actions, including pricing, expansion in key markets, and product offerings; ~~(3)~~(iii) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; and ~~(4)~~(iv) the execution and integration of acquisitions.

The more significant risks and uncertainties that may impact us are discussed in more detail under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on Form

10-K ~~for the fiscal year ended December 28, 2019, and subsequent quarterly reports~~

filed on ~~Form 10-Q.~~February 25, 2021. These risks and uncertainties include, but are not limited to the following: the coronavirus/COVID-19 pandemic; fluctuations in demand affecting sales to customers; worldwide and local economic and market conditions; changes in political conditions; fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets; changes in our markets due to competitive conditions, technological developments, laws and regulations, and customer preferences; fluctuations in the cost and availability of raw materials and energy; changes in governmental laws and regulations; the impact of competitive products and pricing; the financial condition and inventory strategies of customers; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; execution and integration of acquisitions; product and service quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; amounts of future dividends and share repurchases; customer and supplier concentrations or consolidations; fluctuations in interest and tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; the realization of deferred tax assets; fluctuations in interest rates; compliance with our debt covenants; fluctuations in pension, insurance, and employee benefit costs; goodwill impairment; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety, anti-corruption and trade compliance; protection and infringement of intellectual property; the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other factors.

●

COVID-19

●

International Operations - worldwide and local economic and market conditions; changes in political conditions; and fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets

●

Our Business - changes in our markets due to competitive conditions, technological developments, environmental standards, laws and regulations, and customer preferences; fluctuations in demand affecting sales to customers; execution and integration of acquisitions; selling prices; fluctuations in the cost and availability of raw materials and energy; the impact of competitive products and pricing; customer and supplier concentrations or consolidations; the financial condition of distributors; outsourced manufacturers; product and service quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; successful implementation of new manufacturing technologies and installation of manufacturing equipment; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; and collection of receivables from customers

●

Income Taxes – fluctuations in tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of these laws and regulations; retention of tax incentives; outcome of tax audits; and the realization of deferred tax assets

●

Information Technology - disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; and data security breaches

●

Human Capital – recruitment and retention of employees; fluctuations in employee benefit costs; and collective labor arrangements

●

Our Indebtedness – credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; volatility in financial markets; fluctuations in interest rates; and compliance with our debt covenants

●

Ownership of Our Stock – potential significant variability of our stock price and amounts of future dividends and share repurchases

●

Legal and Regulatory Matters - protection and infringement of intellectual property and impact of legal and regulatory proceedings, including with respect to environmental, health and safety, anti-corruption and trade compliance

●

Other Financial Matters - fluctuations in pension costs and goodwill impairment

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.

Table of Contents

Avery Dennison Corporation

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

(~~Unaudited~~)

(Dollars in millions, except per share amount)

September 26, 2020

December 28, 2019
Assets

Current assets:

Cash and cash equivalents

$
284.7

$
253.7
Trade accounts receivable, less allowances of $45.8 and $27.1 at September 26, 2020 and December 28, 2019, respectively

1,212.7

1,212.2
Inventories, net

662.6

663.0
Other current assets

214.5

211.7
Total current assets

2,374.5

2,340.6
Property, plant and equipment, net

1,233.9

1,210.7
Goodwill

1,059.3

930.8
Other intangibles resulting from business acquisitions, net

194.1

126.5
Deferred tax assets

203.3

225.4
Other assets

655.7

654.8

$
5,720.8

$
5,488.8

Liabilities and Shareholders’ Equity

Current liabilities:

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

$
124.1

$
440.2
Accounts payable

932.8

1,066.1
Accrued payroll and employee benefits

218.7

220.4
Other current liabilities

540.4

527.1
Total current liabilities

1,816.0

2,253.8
Long-term debt and finance leases

2,020.0

1,499.3
Long-term retirement benefits and other liabilities

438.8

421.4
Deferred tax liabilities and income taxes payable

111.4

110.3
Commitments and contingencies (see Note 12)

Shareholders’ equity:

Common stock, $1 par value per share, authorized - 400,000,000 shares at September 26, 2020 and December 28, 2019; issued - 124,126,624 shares at September 26, 2020 and December 28, 2019; outstanding - 83,451,316 shares and 83,366,840 shares at September 26, 2020 and December 28, 2019, respectively

124.1

124.1
Capital in excess of par value

850.3

874.0
Retained earnings

3,205.5

2,979.1
Treasury stock at cost, 40,675,308 shares and 40,759,784 shares at September 26, 2020 and December 28, 2019, respectively

(2,451.4)

(2,425.1)
Accumulated other comprehensive loss

(393.9)

(348.1)
Total shareholders’ equity

1,334.6

1,204.0

$
5,720.8

$
5,488.8

~~See Notes to Unaudited Condensed Consolidated Financial Statements~~

CONDENSED CONSOLIDATED BALANCE SHEETS

(

Unaudited

)


(Dollars in millions, except per share amount)	April 3, 2021			January 2, 2021
Assets
Current assets:
Cash and cash equivalents	$	328.0		$	252.3
Trade accounts receivable, less allowances of $40.7 and $44.6 at April 3, 2021 and January 2, 2021, respectively		1,301.4			1,235.2
Inventories, net		786.7			717.2
Other current assets		216.3			211.5
Total current assets		2,632.4			2,416.2
Property, plant and equipment, net		1,329.0			1,343.7
Goodwill		1,141.6			1,136.4
Other intangibles resulting from business acquisitions, net		221.9			224.9
Deferred tax assets		201.4			197.7
Other assets		746.9			765.0
	$	6,273.2		$	6,083.9

Liabilities and Shareholders’ Equity
Current liabilities:
Short-term borrowings and current portion of long-term debt and finance leases	$	116.9		$	64.7
Accounts payable		1,178.0			1,050.9
Accrued payroll and employee benefits		214.0			239.0
Other current liabilities		549.6			571.4
Total current liabilities		2,058.5			1,926.0
Long-term debt and finance leases		2,025.9			2,052.1
Long-term retirement benefits and other liabilities		493.1			503.6
Deferred tax liabilities and income taxes payable		113.8			117.3
Commitments and contingencies (see Note 12)		0			0
Shareholders’ equity:
Common stock, $1 par value per share, authorized - 400,000,000 shares at April 3, 2021 and January 2, 2021; issued - 124,126,624 shares at April 3, 2021 and January 2, 2021; outstanding - 83,056,656 shares and 83,151,174 shares at April 3, 2021 and January 2, 2021, respectively		124.1			124.1
Capital in excess of par value		845.8			862.1
Retained earnings		3,504.4			3,349.3
Treasury stock at cost, 41,069,968 shares and 40,975,450 shares at April 3, 2021 and January 2, 2021, respectively		(2,546.3	)		(2,501.0	)
Accumulated other comprehensive loss		(346.1	)		(349.6	)
Total shareholders’ equity		1,581.9			1,484.9
	$	6,273.2		$	6,083.9

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Avery Dennison Corporation

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(

Unaudited

)


	Three Months Ended
(In millions, except per share amounts)	April 3, 2021			March 28, 2020
Net sales	$	2,051.3		$	1,723.0
Cost of products sold		1,454.3			1,237.9
Gross profit		597.0			485.1
Marketing, general and administrative expense		312.3			281.0
Other expense (income), net		.9			4.9
Interest expense		16.2			18.8
Other non-operating expense (income), net		(1.3	)		(.5	)
Income before taxes		268.9			180.9
Provision for (benefit from) income taxes		58.1			46.3
Equity method investment (losses) gains		(1.3	)		(.4	)
Net income	$	209.5		$	134.2

Per share amounts:
Net income per common share	$	2.52		$	1.61
Net income per common share, assuming dilution	$	2.50		$	1.60

Weighted average number of shares outstanding:
Common shares		83.1			83.3
Common shares, assuming dilution		83.9			84.1

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Avery Dennison Corporation

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(

Unaudited

)


	Three Months Ended
(In millions)	April 3, 2021			March 28, 2020
Net income	$	209.5		$	134.2
Other comprehensive income (loss), net of tax:
Foreign currency translation		7.6			(68.6	)
Pension and other postretirement benefits		1.2			.6
Cash flow hedges		(5.3	)		4.1
Other comprehensive income (loss), net of tax		3.5			(63.9	)
Total comprehensive income, net of tax	$	213.0		$	70.3

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Avery Dennison Corporation

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(

Unaudited

)


	Three Months Ended
(In millions)	April 3, 2021			March 28, 2020
Operating Activities
Net income	$	209.5		$	134.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		40.0			36.8
Amortization		14.4			10.7
Provision for credit losses and sales returns		8.9			31.2
Stock-based compensation		9.9			6.3
Pension plan settlement loss		.4			—
Deferred taxes and other non-cash taxes		1.5			6.4
Other non-cash expense and loss (income and gain), net		2.7			4.4
Changes in assets and liabilities and other adjustments		(78.0	)		(225.6	)
Net cash provided by operating activities		209.3			4.4

Investing Activities
Purchases of property, plant and equipment		(25.2	)		(33.2	)
Purchases of software and other deferred charges		(2.3	)		(6.2	)
Proceeds from sales of property, plant and equipment		.7			—
Proceeds from insurance and sales (purchases) of investments, net		(.5	)		(.3	)
Proceeds from sale of product line		6.7			—
Payments for acquisitions, net of cash acquired, and investments in businesses		(30.6	)		(245.9	)
Net cash used in investing activities		(51.2	)		(285.6	)

Financing Activities
Net increase (decrease) in borrowings (maturities of three months or less)		53.8			(106.0	)
Additional borrowings under revolving credit facility		—			500.0
Additional long-term borrowings		—			494.4
Repayments of long-term debt and finance leases		(1.5	)		(1.1	)
Dividends paid		(51.6	)		(48.4	)
Share repurchases		(55.6	)		(45.2	)
Net (tax withholding) proceeds related to stock-based compensation		(25.3	)		(20.0	)
Net cash (used in) provided by financing activities		(80.2	)		773.7

Effect of foreign currency translation on cash balances		(2.2	)		(4.2	)
Increase (decrease) in cash and cash equivalents		75.7			488.3
Cash and cash equivalents, beginning of year		252.3			253.7
Cash and cash equivalents, end of period	$	328.0		$	742.0

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Avery Dennison Corporation

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. General

The unaudited Condensed Consolidated Financial Statements and related 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 2020 Annual Report on Form

10-K,

which should be read in conjunction with this Quarterly Report on Form

10-Q.

These unaudited Condensed Consolidated Financial Statements contain all adjustments of a normal and recurring nature necessary for a fair statement of our interim results. Interim results of operations are not necessarily indicative of future results. These unaudited Condensed Consolidated Financial Statements reflect our current estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and the reported amounts of sales and expenses during the reporting periods presented.

Fiscal Periods

The three months ended April 3, 2021 and March 28, 2020 each consisted of a

thirteen-week

period.

Note 2. Acquisitions

On March 18, 2021, we completed our acquisition of the net assets of ZippyYum, LLC (“ZippyYum”), a California-based developer of software products used in the food service and food preparation industries. We believe this acquisition enhances our product portfolio in our Retail Branding and Information Solutions (“RBIS“) reportable segment.

On March 1, 2021, we completed our stock acquisition of JDC Solutions, Inc. (“JDC”), a Tennessee-based manufacturer of pressure-sensitive specialty tapes. We believe this acquisition expands the product portfolio in our Industrial and Healthcare Materials (“IHM“) reportable segment.

The acquisitions of ZippyYum and JDC are referred collectively as the “2021 Acquisitions.”

The aggregate purchase consideration for the 2021 Acquisitions, which is subject to customary post-closing adjustments, was approximately

$42

million. The 2021 Acquisitions were funded using cash and existing credit facilities. In addition to the cash paid at closing, the sellers in one of these acquisitions are eligible for earn-out payments of up to approximately

$13

million subject to their achievement of certain performance targets. Based on our estimates, we have accrued approximately

$12

million for these earn-out payments, which has been included in the $

million of aggregate purchase consideration.

Consistent with the allowable time to complete our assessment, the valuation of certain acquired assets and liabilities, including tangible and intangible assets, environmental liabilities and income taxes, are currently pending.

These acquisitions were not material, individually or in the aggregate, to the unaudited Condensed Consolidated Financial Statements.

~~Table of Contents~~

~~Avery Dennison Corporation~~

~~CONDENSED CONSOLIDATED STATEMENTS OF INCOME~~

(~~Unaudited~~)

Three Months Ended

Nine Months Ended
(In millions, except per share amounts)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019
Net sales

$
1,729.1

$
1,761.4

$
4,980.6

$
5,297.2
Cost of products sold

1,244.9

1,289.7

3,628.4

3,877.8
Gross profit

484.2

471.7

1,352.2

1,419.4
Marketing, general and administrative expense

258.3

265.3

758.7

807.3
Other expense (income), net

12.4

6.7

57.3

21.7
Interest expense

15.6

19.0

54.4

58.0
Other non-operating expense (income), net

.1

.8

(.2)

448.2
Income before taxes

197.8

179.9

482.0

84.2
Provision for (benefit from) income taxes

46.3

34.6

114.8

(58.9)
Equity method investment (losses) gains

(1.0)

(.7)

(2.8)

(2.0)
Net income

$
150.5

$
144.6

$
364.4

$
141.1

Per share amounts:

Net income per common share

$
1.80

$
1.72

$
4.37

$
1.68
Net income per common share, assuming dilution

$
1.79

$
1.71

$
4.34

$
1.66

Weighted average number of shares outstanding:

Common shares

83.5

84.0

83.4

84.2
Common shares, assuming dilution

84.0

84.8

84.0

85.1

~~See Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Table of Contents~~

~~Avery Dennison Corporation~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

(~~Unaudited~~)

Three Months Ended

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019
Net income

$
150.5

$
144.6

$
364.4

$
141.1
Other comprehensive income (loss), net of tax:

Foreign currency translation

9.5

(28.7)

(45.5)

(17.1)
Pension and other postretirement benefits

.6

.5

1.9

301.4
Cash flow hedges

(.8)

(1.3)

(2.2)

(1.6)
Other comprehensive income (loss), net of tax

9.3

(29.5)

(45.8)

282.7
Total comprehensive income, net of tax

$
159.8

$
115.1

$
318.6

$
423.8

~~See Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Table of Contents~~

~~Avery Dennison Corporation~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

(~~Unaudited~~)

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019
Operating Activities

Net income

$
364.4

$
141.1
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

113.7

105.3
Amortization

36.1

28.1
Provision for credit losses and sales returns

50.4

42.4
Stock-based compensation

12.1

25.5
Pension plan settlements and related charges

—

446.9
Deferred taxes and other non-cash taxes

17.1

(176.4)
Other non-cash expense and loss (income and gain), net

35.3

17.5
Changes in assets and liabilities and other adjustments

(187.3)

(163.4)
Net cash provided by operating activities

441.8

467.0

Investing Activities

Purchases of property, plant and equipment

(91.7)

(132.9)
Purchases of software and other deferred charges

(13.8)

(27.4)
Proceeds from sales of property, plant and equipment

.2

7.7
Proceeds from insurance and sales (purchases) of investments, net

5.2

3.5
Payments for acquisition, net of cash acquired, and investments in businesses

(262.8)

(6.5)
Net cash used in investing activities

(362.9)

(155.6)

Financing Activities

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

(57.1)

68.9
Additional borrowings under revolving credit facility

500.0

—
Repayments of revolving credit facility

(500.0)

—
Additional long-term borrowings

493.7

—
Repayments of long-term debt and finance leases

(268.9)

(17.7)
Dividends paid

(145.2)

(141.3)
Share repurchases

(52.2)

(204.3)
Net (tax withholding) proceeds related to stock-based compensation

(20.0)

(17.4)
Payments of contingent consideration

—

(1.6)
Net cash used in financing activities

(49.7)

(313.4)

Effect of foreign currency translation on cash balances

1.8

(5.8)
Increase (decrease) in cash and cash equivalents

31.0

(7.8)
Cash and cash equivalents, beginning of year

253.7

232.0
Cash and cash equivalents, end of period

$
284.7

$
224.2

~~See Notes to Unaudited Condensed Consolidated Financial Statements~~

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~~Avery Dennison Corporation~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Note 1. General~~

The unaudited Condensed Consolidated Financial Statements and notes thereto in this Quarterly Report on Form 10-Q are presented as permitted by Article 10 of Regulation S-X and do not contain certain information included in the audited Consolidated Financial Statements and notes thereto in our 2019 Annual Report on Form 10-K, which should be read in conjunction with this Quarterly Report on Form 10-Q. These unaudited Condensed Consolidated Financial Statements contain all adjustments of a normal and recurring nature necessary for a fair statement of our interim results. Interim results of operations are not necessarily indicative of future results.

We expect the effects of the coronavirus/COVID-19 pandemic (collectively referred to herein as "COVID-19") to negatively impact our financial position, results of operations, and cash flows in fiscal year 2020, most significantly in our Retail Branding and Information Solutions ("RBIS") and Industrial and Healthcare Materials reportable segments.

The unaudited Condensed Consolidated Financial Statements presented herein reflect our current estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and the reported amounts of sales and expenses during the reporting periods presented.

~~Fiscal Periods~~

~~The three and nine months ended September 26, 2020 and September 28, 2019 consisted of thirteen-week and thirty-nine week periods, respectively.~~

~~Accounting Guidance Update~~

~~Credit Losses~~

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

~~Note 2. Acquisitions~~

On February 28, 2020, we completed the acquisition of Smartrac’s Transponder (RFID Inlay) division ("Smartrac"), a manufacturer of radio-frequency identification (“RFID”) products, for consideration of approximately $255 million (€238 million). We believe this acquisition enhances our research and development capabilities, expands our product lines, and provides added manufacturing capacity. Consistent with the time allowed to complete our assessment, our valuation of certain acquired assets and liabilities, including environmental liabilities and income taxes, is preliminary. This acquisition was not material to our unaudited Condensed Consolidated Financial Statements.

Note 3. Goodwill and Other Intangibles Resulting from Business Acquisitions

Changes in the net carrying amount of goodwill for the ~~nine~~three months ended ~~September 26, 2020~~April 3, 2021 by reportable segment are shown below.

Label and

Retail Branding

Industrial and

Graphic

and Information

Healthcare

(In millions)

Materials

Solutions

Materials

Total
Goodwill as of December 28, 2019

$
407.8

$
349.3

$
173.7

$
930.8
Acquisition⁽¹⁾

–

109.6

–

109.6
Translation adjustments

9.3

5.4

4.2

18.9
Goodwill as of September 26, 2020

$
417.1

$
464.3

$
177.9

$
1,059.3

⁽¹⁾


(In millions)	Label and Graphic Materials			Retail Branding and Information Solutions			Industrial and Healthcare Materials			Total
Goodwill as of January 2, 2021	$	480.9		$	471.8		$	183.7		$	1,136.4
Acquisitions (1)		—			17.2			6.0			23.2
Acquisition adjustment (2)		1.2			—			—			1.2
Translation adjustments		(13.1	)		(3.8	)		(2.3	)		(19.2	)
Goodwill as of April 3, 2021	$	469.0		$	485.2		$	187.4		$	1,141.6

(1)	Goodwill acquired related to the acquisitions of JDC and ZippyYum. We expect the recognized goodwill related to the JDC acquisition not to be deductible for income tax purposes and the recognized goodwill related to the ZippyYum acquisition to be deductible for income tax purposes.

(2)	Measurement period adjustment related to the finalization of the purchase price allocation for the acquisition of ACPO, Ltd. completed in December 2020.

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Finite-Lived Intangible Assets

The intangibles assets from the 2021 Acquisitions were not material to the ~~acquisition of Smartrac. The amount of goodwill recognized is not expected to be deductible for income tax purposes.~~

The duration and severity of COVID-19 could result in future impairment charges to our reportable segments’ goodwill balances. While we have concluded that a triggering event did not occur during the nine months ended September 26, 2020, a prolonged pandemic could significantly impact our results of operations and result in changes to the assumptions we utilize in determining the estimated fair values of goodwill, which could trigger an impairment.

unaudited Condensed Consolidated Financial Statements.

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~~Avery Dennison Corporation~~

~~Finite-Lived Intangible Assets~~

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

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

Amortization

Amount

period

(in millions)

(in years)
Patents and other acquired technology

$
60.0

11
Customer relationships

16.0

6
Trade names and trademarks

2.0

5

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

Note 4. Debt

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

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

The estimated fair value of our long-term debt is primarily based on the credit spread above U.S. Treasury securities or euro government bond securities, as applicable, on notes with similar rates, credit ratings, and remaining maturities. The fair value of short-term borrowings, which include commercial paper issuances and short-term lines of credit, approximates their carrying value given the short duration of these obligations. The fair value of our total debt was ~~$2.37~~$2.30 billion at ~~September 26, 2020~~April 3, 2021 and ~~$2.05~~$2.34 billion at ~~December 28, 2019.~~January 2, 2021. Fair values were determined based primarily on Level 2 inputs, which are inputs other than quoted prices in active markets that are either directly or indirectly observable.

~~In February 2020, we amended and restated our~~

Our $800 million revolving credit facility (the “Revolver”)~~, eliminating one of the~~ contains a financial covenant ~~requirements~~requiring that we maintain a specified ratio of total debt in relation to a certain measure of income. As of both April 3, 2021 and extending the maturity date to February 13, 2025. The maturity date may be extended for a one-year period under certain circumstances. The commitments under the Revolver may be increased by up to $400 million, subject to lender approvals and customary requirements.January 2, 2021, we were in compliance with this financial covenant. NaN

balance was outstanding under the Revolver as of ~~September 26, 2020~~April 3, 2021 or ~~December 28, 2019. As of both September 26, 2020 and December 28, 2019, we were in compliance with our financial covenants under the Revolver.~~

January 2, 2021.

Note 5. Pension and Other Postretirement Benefits

Defined Benefit Plans

We sponsor a number of defined benefit plans, the accrual of benefits under some of which has been frozen, covering eligible employees in the U.S. and certain other countries. Benefits payable to an employee are based primarily on years of service and the employee’s compensation during his or her employment with us. For the three months ended April 3, 2021 and ~~nine months ended September 26,~~March 28, 2020, the net periodic benefit cost related to our U.S. and international plans was not material. For the three months and nine months ended September 28, 2019, the combined net periodic benefit cost related to our U.S. and international plans was $2.1 million and $3.2 million and $451.8 million and $9.7 million, respectively. Included in the net periodic benefit cost for our U.S. plans for the nine months ended September 28, 2019 was a loss on settlement of $446.9 million related to the termination of the Avery Dennison Pension Plan (the “ADPP”), a U.S. defined benefit plan. This loss was partially offset by related tax benefits of approximately $179 million. Refer to Note 8, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for more information.

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

Service cost and the components of net periodic benefit cost (credit) other than service cost were included in “Marketing, general and administrative expense” and “Other

non-operating

expense (income), net” in the unaudited Condensed Consolidated Statements of Income, respectively.

We are also obligated to pay unfunded termination indemnity benefits to certain employees outside of the U.S., which are subject to applicable agreements, laws and regulations. We did not incur significant costs related to these benefits in the ~~nine~~three months ended ~~September 26, 2020~~April 3, 2021 or ~~September~~March 28, ~~2019.~~

2020.

Note 6. Cost Reduction Actions

2019/2020 Actions

During the ~~nine~~three months ended ~~September 26, 2020,~~April 3, 2021, we recorded ~~$52.7~~ $2.7

million in restructuring charges related to our 2019/2020 actions.

These charges consisted of severance and related costs for the reduction of approximately ~~2,050~~ 100

positions at numerous locations across our company, which primarily included actions in our ~~Label and Graphic Materials (“LGM”) and~~ RBIS reportable ~~segments.~~ segment.

The actions ~~in LGM were primarily associated with the consolidation of our graphics business in Europe, in part in response to COVID-19. The actions in RBIS~~ were primarily related to global headcount and footprint ~~reduction,~~reductions, with some actions accelerated and expanded in response to ~~COVID-19.~~

the coronavirus/

COVID-19

pandemic (“COVID-19”).

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Avery Dennison Corporation

During the ~~nine~~three months ended ~~September 26, 2020,~~April 3, 2021, restructuring charges and payments were as follows:

Charges,

Foreign

Accrual at

Net of

Cash

Non-cash

Currency

Accrual at
(In millions)

December 28, 2019

Reversals

Payments

Impairment

Translation

September 26, 2020
2019/2020 Actions

Severance and related costs

$
21.9

$
46.4

$
(32.3)

$
—

$
1.6

$
37.6
Asset impairment

0

6.2

—

(6.2)

—

0

2018/2019 Actions

Severance and related costs

6.5

—

(6.4)

—

.1

.2
Lease cancellation costs

.3

—

—

—

—

.3
Total

$
28.7

$
52.6

$
(38.7)

$
(6.2)

$
1.7

$
38.1


(In millions)	Accrual at January 2, 2021		Charges, Net of Reversals		Cash Payments			Non-cash Impairment			Foreign Currency Translation			Accrual at April 3, 2021
2019/2020 Actions
Severance and related costs	$	28.3	$	2.4	$	(11.0	)	$	—		$	(.3	)	$	19.4
Asset impairment		—		.3		—			(.3	)		—			—
Total	$	28.3	$	2.7	$	(11.0	)	$	(.3	)	$	(.3	)	$	19.4

Accruals for severance and related costs, as well as 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 (income), net” in the unaudited Condensed Consolidated Statements of Income.

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

Three Months Ended

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019
Restructuring charges, net of reversals, by reportable segment and Corporate

Label and Graphic Materials

$
1.4

$
1.2

$
27.6

$
13.9
Retail Branding and Information Solutions

2.9

1.2

16.6

3.4
Industrial and Healthcare Materials

6.6

.9

8.6

4.2
Corporate

—

—

(.2)

—
Total

$
10.9

$
3.3

$
52.6

$
21.5


	Three Months Ended
(In millions)	April 3, 2021		March 28, 2020
Restructuring charges, net of reversals, by reportable segment and Corporate
Label and Graphic Materials	$	.7	$	.4
Retail Branding and Information Solutions		1.6		1.5
Industrial and Healthcare Materials		0		.5
Corporate		.6		0
Total	$	2.9	$	2.4

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~~Avery Dennison Corporation~~

Note 7. Financial Instruments

We enter into foreign exchange hedge contracts to reduce our risk from foreign exchange rate fluctuations associated with receivables, payables, loans and firm commitments denominated in certain foreign currencies that arise primarily as a result of our operations outside the U.S. We also enter into futures contracts to hedge certain price fluctuations for a portion of our anticipated domestic purchases of natural gas. The impact of these foreign exchange and commodities hedge activities on ~~our~~the unaudited Condensed Consolidated Financial Statements was not ~~significant.~~

~~Following our Smartrac acquisition and our issuance of senior notes in~~material.

In March 2020, we entered into U.S. dollar to euro cross-currency swap contracts with a total notional amount of $250 million to have the effect of converting the fixed-rate U.S. dollar-denominated debt to euro-denominated debt, including semiannual interest payments and the payment of principal at maturity. During the term of the contract, which ends on April 30, 2030, we pay fixed-rate interest in euros and receive fixed-rate interest in U.S. dollars. These contracts have been designated as cash flow hedges. The fair value of these contracts as of ~~September 26, 2020~~April 3, 2021 was ~~$(14.8)~~$(31.7) million and was included in “Long-term retirement benefits and other liabilities” in the unaudited Condensed Consolidated Balance Sheets. Refer to Note 11, “Fair Value Measurements,” to the unaudited Condensed Consolidated Financial Statements for more information.

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Avery Dennison Corporation

We recorded

ineffectiveness

from

our cross-currency swap to earnings during the three months ended April 3, 2021 or March 28, 2020.

Note 8. Taxes Based on Income

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

Three Months Ended

Nine Months Ended
(Dollars in millions)

September 26, 2020

September 28, 2019


September 26, 2020

September 28, 2019

Income before taxes

$
197.8

$
179.9

$
482.0

$
84.2

Provision for (benefit from) income taxes

46.3

34.6

114.8

(58.9)

Effective tax rate

23.4
%

19.2
%

23.8
%

(70.0)
%


	Three Months Ended
(Dollars in millions)	April 3, 2021			March 28, 2020
Income before taxes	$	268.9		$	180.9
Provision for (benefit from) income taxes		58.1			46.3
Effective tax rate		21.6	%		25.6	%

Our provision for (benefit from) income taxes for the three ~~and nine~~ months ended ~~September 26, 2020~~April

3, 2021 included ~~$4.5~~

$7 million ~~and $15 million, respectively,~~ of net tax charge related to the tax on global intangible low-taxed income (“GILTI”) of our foreign subsidiaries and the recognition of foreign withholding taxes on current year earnings, partially offset by the benefit from foreign-derived intangible income (“FDII”). Our provision for (benefit from) income taxes for the three ~~and nine~~ months ended ~~September 26, 2020~~April

3, 2021 also reflected a net discrete tax benefit resulting from adjustments for changes in our estimates upon the completion of the 2019 U.S. federal tax return. Our provision for (benefit from) income taxes for the nine months ended September 26, 2020 also reflected the following discrete items: (i) $13.9$14.1 million of net tax benefit primarily from decreases in certain tax reserves, including associated interest and penalties, as a result of closing tax years and effective settlements of certain foreign tax audits, partially offset by additional interest and penalty accruals and (ii) taxreturn-to-provision benefit related to an election made on our amended 2018 U.S. tax return, and excess tax benefits associated with stock-based ~~payments.~~

payments, partially offset by tax charges primarily from increases in certain tax reserves and additional interest and penalty accruals. Subsequent to the end of our first quarter of 2021, we filed our amended 2018 U.S. tax return prior to the statutory deadline.

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Avery Dennison Corporation

Our provision for (benefit from) income taxes for the three ~~and nine~~ months ended ~~September 26,~~March 28, 2020 was not materially affected by COVID-19. Moreover, our ability to generate sufficient taxable income was not adversely affected in certain jurisdictions where a significant portion of our net deferred tax assets is concentrated. Our provision for (benefit from) income taxes for the three and nine months ended September 26, 2020 was not materially impacted by the stimulus packages and subsequent interpretations enacted in the U.S. and other countries to provide economic relief to businesses in response to COVID-19.

~~Our provision for (benefit from) income taxes for the three and nine months ended September 28, 2019~~ included ~~$4.6~~

$7.2

million ~~and $15 million, respectively,~~

of net tax charge related to the tax on GILTI of our foreign subsidiaries and the recognition of foreign withholding taxes on current year earnings, partially offset by the benefit from FDII. Effective in 2019, we implemented certain structural changes to better align with our operational strategies, one benefit of which was to reduce our base erosion payments below the U.S. statutory minimum threshold. As a result, our provision for (benefit from) income taxes for the three and nine months ended September 28, 2019 did not include tax charges related to Base Erosion Anti-Abuse Tax. Our provision for (benefit from) income taxes for the three ~~and nine~~ months ended ~~September~~March 28, ~~2019~~2020 also reflected ~~$8.4 million~~tax benefits from decreases in reserves primarily as a result of ~~tax benefit due to the effective settlement of certain German tax audits for~~closing tax years, ~~2011-2014. Our provision for (benefit from) income taxes for the nine months ended September 28, 2019 also primarily reflected the following discrete items: (i) $8 million of tax benefit related to~~ excess tax benefits associated with stock-based payments, and ~~(ii) approximately $179 million of~~a change in a foreign withholding tax benefit related to the effective settlement of the ADPP, $102 million of which was the related tax effect on the pretax charge of $446.9 million and $77 million of which was related to the release of stranded tax effects in

rate.

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~~Avery Dennison Corporation~~

~~“Accumulated other comprehensive income” through the unaudited Condensed Consolidated Statements of Income. The tax effects were stranded primarily as a result of~~In fiscal year 2020, the U.S. ~~federal~~Department of Treasury issued final regulations that provide certain U.S. taxpayers with an annual election to exclude foreign income that is subject to a high effective tax rate ~~change under~~from their GILTI inclusions. This annual election included an option for retroactive application to tax years 2018 through 2020. We determined to make the election for tax years 2018 and 2019 and recognized tax benefits in the first quarter of 2021 and the fourth quarter of 2020, respectively. We have not yet determined whether to make the election for tax years 2020 and 2021. We continue to evaluate the impact of these regulations and currently anticipate that the benefit from making this election on our 2020 U.S. ~~Tax Cuts and Jobs Act. Refer to Note 5, “Pension and Other Postretirement Benefits,” to the unaudited Condensed Consolidated Financial Statements for more informationon the termination of the ADPP.~~

tax return may be significant.

The amount of income taxes we pay is subject to ongoing audits by taxing jurisdictions around the world. Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time. We believe that we have adequately provided for reasonably foreseeable outcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate. The final determination of tax audits and any related legal proceedings could materially differ from the amounts currently reflected in our tax provision and the related liabilities. To date, we and our U.S. subsidiaries have completed the IRS’ Compliance Assurance Process Program through 2017. With limited exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2010.

During the third quarter of 2020, we completed an analysis related to a foreign withholding tax regime that could be interpreted to subject us to withholding tax compliance requirements on certain cross-border intellectual property transactions for years remaining open under the applicable statutes of limitations. Our interpretation concluded that the application of the withholding tax regime would not have a material impact on our financial position, results of operations or cash flows.

On July 20, 2020, the U.S. Department of Treasury released final regulations that provide certain U.S. taxpayers with an annual election to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. These regulations apply beginning with our 2021 tax year with an option to retroactively apply them to our 2018 through 2020 tax years. During the third quarter of 2020, we did not reflect any impacts of this provision as we have not yet made our determination on whether to make the election for each of the applicable tax years. We continue to evaluate the impact of these regulations and currently anticipate that the benefits from electing these exclusions on our original or amended returns may be significant for certain years. We will reflect the impacts on our provision for (benefit from) income taxes upon the completion of our evaluation within the time allowed under applicable regulations.

Subsequent to the end of the third quarter of 2020, we met with tax authorities in a foreign jurisdiction on an audit for tax years 2016-2019 to discuss the application of incentive tax rates to our activities in the jurisdiction for those years. The response received during the meeting and in subsequent correspondence may lead to a change in our judgment with regard to our uncertain tax positions, which may have a significant adverse effect on our provision for (benefit from) income taxes in 2020.

It is reasonably possible that, during the next 12 months, we may realize a net decrease in our uncertain tax positions, including interest and penalties, of approximately $3

million, primarily as a result of ~~audit settlements, changes in our judgment, including the foreign audit matter described above, and~~ closing tax years.

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Avery Dennison Corporation

Note 9. Net Income Per Common Share

Net income per common share was computed as follows:

Three Months Ended

Nine Months Ended
(In millions, except per share amounts)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019
(A)
Net income available to common shareholders

$
150.5

$
144.6

$
364.4

$
141.1
(B)
Weighted average number of common shares outstanding

83.5

84.0

83.4

84.2

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

.5

.8

.6

.9
(C)
Weighted average number of common shares outstanding, assuming dilution

84.0

84.8

84.0

85.1
Net income per common share: (A) ÷ (B)

$
1.80

$
1.72

$
4.37

$
1.68
Net income per common share, assuming dilution: (A) ÷ (C)

$
1.79

$
1.71

$
4.34

$
1.66


	Three Months Ended
(In millions, except per share amounts)	April 3, 2021		March 28, 2020
(A) Net income	$	209.5	$	134.2
(B) Weighted average number of common shares outstanding		83.1		83.3
Dilutive shares (additional common shares issuable under stock-based awards)		.8		.8
(C) Weighted average number of common shares outstanding, assuming dilution		83.9		84.1
Net income per common share: (A) ÷ (B)	$	2.52	$	1.61
Net income per common share, assuming dilution: (A) ÷ (C)	$	2.50	$	1.60

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 ~~and nine~~ months ended ~~September 26, 2020~~April 3, 2021 or ~~September~~March 28, ~~2019.~~

2020.

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Note 10. Supplemental Equity and Comprehensive Income Information

Consolidated Changes in Shareholders’ Equity

Three Months Ended

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019
Common stock issued, $1 par value per share

$
124.1

$
124.1

$
124.1

$
124.1
Capital in excess of par value

Beginning balance

$
840.0

$
857.7

$
874.0

$
872.0
Issuance of shares under stock-based compensation plans⁽¹⁾

10.3

7.1

(23.7)

(7.2)
Ending balance

$
850.3

$
864.8

$
850.3

$
864.8
Retained earnings

Beginning balance

$
3,100.2

$
2,762.3

$
2,979.1

$
2,864.9
Net income

150.5

144.6

364.4

141.1
Issuance of shares under stock-based compensation plans⁽¹⁾

—

—

(3.3)

(13.4)
Contribution of shares to 401(k) Plan⁽¹⁾

3.2

3.4

10.5

10.4
Dividends

(48.4)

(48.6)

(145.2)

(141.3)
Ending balance

$
3,205.5

$
2,861.7

$
3,205.5

$
2,861.7
Treasury stock at cost

Beginning balance

$
(2,447.2)

$
(2,311.8)

$
(2,425.1)

$
(2,223.9)
Repurchase of shares for treasury

(7.0)

(87.7)

(52.2)

(204.3)
Issuance of shares under stock-based compensation plans⁽¹⁾

.9

3.5

19.5

27.6
Contribution of shares to 401(k) Plan⁽¹⁾

��
1.9

2.1

6.4

6.7
Ending balance

$
(2,451.4)

$
(2,393.9)

$
(2,451.4)

$
(2,393.9)
Accumulated other comprehensive loss

Beginning balance

$
(403.2)

$
(369.8)

$
(348.1)

$
(682.0)
Other comprehensive income (loss), net of tax⁽²⁾

9.3

(29.5)

(45.8)

282.7
Ending balance

$
(393.9)

$
(399.3)

$
(393.9)

$
(399.3)

⁽¹⁾We fund a portion of our employee-related expenses using shares of our common stock held in treasury. We reduce capital in excess of par value based on the grant date fair value of the awards vested and record net gains or losses associated with our use of treasury shares to retained earnings.

⁽²⁾In the first quarter of 2019, we effectively settled our remaining obligations under the ADPP. Refer to Note 5, “Pension and Other Postretirement Benefits,” to the unaudited Condensed Consolidated Financial Statements for more information.


	Three Months Ended
(In millions)	April 3, 2021			March 28, 2020
Common stock issued, $1 par value per share	$	124.1		$	124.1
Capital in excess of par value
Beginning balance	$	862.1		$	874.0
Issuance of shares under stock-based compensation plans (1)		(16.3	)		(21.5	)
Ending balance	$	845.8		$	852.5
Retained earnings
Beginning balance	$	3,349.3		$	2,979.1
Net income		209.5			134.2
Issuance of shares under stock-based compensation plans (1)		(7.7	)		(4.2	)
Contribution of shares to 401(k) Plan (1)		4.9			4.1
Dividends		(51.6	)		(48.4	)
Ending balance	$	3,504.4		$	3,064.8
Treasury stock at cost
Beginning balance	$	(2,501.0	)	$	(2,425.1	)
Repurchase of shares for treasury		(55.6	)		(45.2	)
Issuance of shares under stock-based compensation plans (1)		8.6			12.0
Contribution of shares to 401(k) Plan (1)		1.7			2.3
Ending balance	$	(2,546.3	)	$	(2,456.0	)
Accumulated other comprehensive loss
Beginning balance	$	(349.6	)	$	(348.1	)
Other comprehensive income (loss), net of tax		3.5			(63.9	)
Ending balance	$	(346.1	)	$	(412.0	)

(1)	We fund a portion of our employee-related expenses using shares of our common stock held in treasury. We reduce capital in excess of par value based on the grant date fair value of the awards vested and record net gains or losses associated with our use of treasury shares to retained earnings.

Dividends per common share were as follows:

Three Months Ended

Nine Months Ended


September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019
Dividends per common share

$
.58

$
.58

$
1.74

$
1.68


	Three Months Ended
	April 3, 2021		March 28, 2020
Dividends per common share	$	.62	$	.58

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Avery Dennison Corporation

Changes in Accumulated Other Comprehensive Loss

The changes in “Accumulated other comprehensive loss” (net of tax) for the ~~nine-month~~three-month period ended ~~September 26, 2020~~April 3, 2021 were as follows:

Pension and

Foreign

Other

Currency

Postretirement

Cash Flow

(In millions)

Translation

Benefits

Hedges

Total
Balance as of December 28, 2019

$
(245.1)

$
(101.8)

$
(1.2)

$
(348.1)
Other comprehensive income (loss) before reclassifications, net of tax

(45.5)

—

(2.3)

(47.8)
Reclassifications to net income, net of tax

—

1.9

.1

2.0
Net current-period other comprehensive income (loss), net of tax

(45.5)

1.9

(2.2)

(45.8)
Balance as of September 26, 2020

$
(290.6)

$
(99.9)

$
(3.4)

$
(393.9)


(In millions)	Foreign Currency Translation			Pension and Other Postretirement Benefits			Cash Flow Hedges			Total
Balance as of January 2, 2021	$	(248.1	)	$	(92.7	)	$	(8.8	)	$	(349.6	)
Other comprehensive income (loss) before reclassifications, net of tax		7.6			—			(4.8	)		2.8
Reclassifications to net income, net of tax		—			1.2			(.5	)		.7
Other comprehensive income (loss), net of tax		7.6			1.2			(5.3	)		3.5
Balance as of April 3, 2021	$	(240.5	)	$	(91.5	)	$	(14.1	)	$	(346.1	)

~~Table of Contents~~

~~Avery Dennison Corporation~~

The changes in “Accumulated other comprehensive loss” (net of tax) for the ~~nine-month~~three-month period ended ~~September~~March 28, ~~2019~~2020 were as follows:

Pension and

Foreign

Other

Currency

Postretirement

Cash Flow

(In millions)

Translation

Benefits

Hedges

Total
Balance as of December 29, 2018

$
(247.4)

$
(434.3)

$
(.3)

$
(682.0)
Other comprehensive income (loss) before reclassifications, net of tax⁽¹⁾

(17.1)

36.0

(.9)

18.0
Reclassifications to net income, net of tax⁽²⁾

—

265.4

(.7)

264.7
Net current-period other comprehensive income (loss), net of tax

(17.1)

301.4

(1.6)

282.7
Balance as of September 28, 2019

$
(264.5)

$
(132.9)

$
(1.9)

$
(399.3)

⁽¹⁾~~Other comprehensive income (loss) before reclassifications, net~~


(In millions)	Foreign Currency Translation			Pension and Other Postretirement Benefits			Cash Flow Hedges			Total
Balance as of December 28, 2019	$	(245.1	)	$	(101.8	)	$	(1.2	)	$	(348.1	)
Other comprehensive income (loss) before reclassifications, net of tax		(68.6	)		—			4.7			(63.9	)
Reclassifications to net income, net of tax		—			.6			(.6	)		0
Other comprehensive income (loss), net of tax		(68.6	)		.6			4.1			(63.9	)
Balance as of March 28, 2020	$	(313.7	)	$	(101.2	)	$	2.9		$	(412.0	)

Avery Dennison Corporation

Note 11. Fair Value Measurements

Recurring Fair Value Measurements

The assets and liabilities carried at fair value, measured on a recurring basis, as of ~~September 26, 2020~~April 3, 2021 were as follows:

Fair Value Measurements Using

Significant

Significant

Quoted Prices

Other

Other

in Active

Observable

Unobservable

Markets

Inputs

Inputs
(In millions)

Total

(Level 1)

(Level 2)

(Level 3)
Assets

Investments

$
33.0

$
27.1

$
5.9

$
—
Derivative assets

8.3

.2

8.1

—
Bank drafts

19.5

19.5

—

—
Liabilities

Derivative liabilities

$
24.1

$
—

$
24.1

$
—


			Fair Value Measurements Using
(In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets
Investments	$	33.4	$	27.5	$	5.9	$	—
Derivative assets		9.1		—		9.1		—
Bank drafts		11.9		11.9		—		—
Liabilities
Cross-currency swap	$	31.7	$	—	$	31.7	$	—
Derivative liabilities		5.8		0		5.8		—
Contingent consideration liabilities		11.6		—		—		11.6

The assets and liabilities carried at fair value, measured on a recurring basis, as of ~~December 28, 2019~~January 2, 2021 were as follows:

Fair Value Measurements Using

Significant

Significant

Quoted Prices

Other

Other

in Active

Observable

Unobservable

Markets

Inputs

Inputs
(In millions)

Total

(Level 1)

(Level 2)

(Level 3)
Assets

Investments

$
30.6

$
26.0

$
4.6

$
—
Derivative assets

5.2

—

5.2

—
Bank drafts

21.3

21.3

—

—
Liabilities

Derivative liabilities

$
6.0

$
.4

$
5.6

$
—


			Fair Value Measurements Using
(In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets
Investments	$	33.6	$	27.4	$	6.2	$	—
Derivative assets		5.2		.1		5.1		—
Bank drafts		12.8		12.8		—		—
Liabilities
Cross-currency swap	$	36.7	$	—	$	36.7	$	—
Derivative liabilities		9.5		.3		9.2		—

~~Table of Contents~~

~~Avery Dennison Corporation~~

Investments 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 ~~September 26, 2020,~~April 3, 2021, investments of ~~$.9~~$.4 million and ~~$32.1~~$33.0 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the unaudited Condensed Consolidated Balance Sheets. As of ~~December 28, 2019,~~January 2, 2021, investments of ~~$.4~~$1 million and ~~$30.2~~$32.6 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 valuation hierarchy. Derivatives measured based on foreign exchange rate inputs that are readily available in public markets are classified within Level 2 of the valuation hierarchy. Bank drafts (maturities greater than three months) are valued at face value due to their short-term nature and were included in “Other current assets” in the unaudited Condensed Consolidated Balance Sheets.

Contingent consideration liabilities relate to estimated earn-out payments associated with one of the 2021 Acquisitions. These payments are based on the achievement of certain performance targets based on the terms of the purchase agreement, and our estimates are based on the expected payments related to these targets. We have classified these liabilities as Level 3. As of April 3, 2021, contingent consideration liabilities of approximately

million and $

million were included in “Other current liabilities” and “Long-term retirement benefits and other liabilities,” respectively, in the unaudited Condensed Consolidated Balance Sheets.

Note 12. Commitments and Contingencies

Legal Proceedings

We are involved in various lawsuits, claims, inquiries, and other regulatory and compliance matters, most of which are routine to the nature of our business. When it is probable that a loss will be incurred and where a range of the loss can be reasonably estimated, the best estimate within the range is accrued. When the best estimate within the range cannot be determined, the low end of the range is accrued. The ultimate resolution of these claims could affect future results of operations should our exposure be materially different from our estimates or should liabilities be incurred that were not previously accrued. Potential insurance reimbursements are not offset against potential liabilities.

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Avery Dennison Corporation

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. We are currently party to a litigation in which certain of our radio-frequency identification (“RFID”) products are alleged to have infringed the patents of an unrelated third party. We assess the probability of a material unfavorable outcome to be remote. We continue to defend ourselves vigorously in this lawsuit and will appeal any adverse judgment.

Based upon current information, we believe that the impact of the resolution

of these matters would not be, individually or in the aggregate, material to our financial position, results of operations or cash flows.

Environmental Expenditures

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

As of ~~September 26, 2020,~~April 3, 2021, we have been designated by the U.S. Environmental Protection Agency (“EPA”) and/or other responsible state agencies as a PRP at 1112 waste disposal or waste recycling sites that are the subject of separate investigations or proceedings concerning alleged soil and/or groundwater contamination. No settlement of our liability related to any of these sites has been agreed upon. We are participating with other PRPs at these sites and anticipate that our share of remediation costs will be determined pursuant to agreements that we negotiate with the EPA or other governmental authorities.

These estimates could change as a result of changes in planned remedial actions, remediation technologies, site conditions, the estimated time to complete remediation, environmental laws and regulations, and other factors. Because of the uncertainties associated with environmental assessment and remediation activities, our future expenses to remediate these sites could be higher than the liabilities we have accrued; however, we are unable to reasonably estimate a range of potential expenses. If information were to become available that allowed us to reasonably estimate a range of potential expenses in an amount higher or lower than what we have accrued, we would adjust our environmental liabilities accordingly. In addition, we may be identified as a PRP at additional sites in the future. The range of expenses for remediation of any future-identified sites would be addressed as they arise; until then, a range of expenses for such remediation cannot be determined.

~~Table of Contents~~

~~Avery Dennison Corporation~~

The activity related to our environmental liabilities for the ~~nine~~three months ended ~~September 26, 2020 was as follows:~~

(In millions)

Balance at December 28, 2019

$
21.4
Charges, net of reversals

.8
Payments

(2.7)
Balance at September 26, 2020

$
19.5

April 3, 2021 is shown

below.


(In millions)
Balance at January 2, 2021	$	21.1
Charges, net of reversals		.2
Payments		(.6	)
Balance at April 3, 2021	$	20.7

Approximately $9$8 million and ~~$10~~

million ~~respectively,~~ of the balance was classified as short-term and included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets as of ~~September 26, 2020~~April 3, 2021 and ~~December 28, 2019.~~

January 2, 2021, respectively.

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Avery Dennison Corporation

Note 13. Segment and Disaggregated Revenue Information

Disaggregated Revenue Information

Disaggregated revenue information is shown below in the manner that best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Revenue from our ~~LGM~~Label and Graphic Materials (“LGM”) reportable segment is attributed to geographic areas based on the location from which products are shipped. Revenue from our RBIS reportable segment is shown by product group.

Three Months Ended

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019
Net sales to unaffiliated customers








Label and Graphic Materials:








U.S.

$
320.7

$
315.8

$
963.9

$
947.6
Europe

404.6

429.5

1,272.2

1,331.6
Asia

264.4

266.8

736.4

790.1
Latin America

84.1

99.0

245.2

284.0
Other international

71.6

74.0

202.7

216.4
Total Label and Graphic Materials

1,145.4

1,185.1

3,420.4

3,569.7
Retail Branding and Information Solutions:

Apparel

371.5

353.8

985.1

1,077.3
Printer Solutions

54.6

53.0

137.8

146.1
Total Retail Branding and Information Solutions

426.1

406.8

1,122.9

1,223.4
Industrial and Healthcare Materials

157.6

169.5

437.3

504.1
Net sales to unaffiliated customers

$
1,729.1

$
1,761.4

$
4,980.6

$
5,297.2


	Three Months Ended
(In millions)	April 3, 2021		March 28, 2020
Net sales to unaffiliated customers
Label and Graphic Materials:
U.S. (1)	$	364.9	$	328.1
Europe, Middle East and North Africa (1)		515.6		445.3
Asia (1)		323.1		241.3
Latin America		95.5		90.2
Other international		77.9		68.6
Total Label and Graphic Materials (1)		1,377.0		1,173.5
Retail Branding and Information Solutions:
Apparel (1)		428.4		358.6
Printer Solutions		54.3		43.3
Total Retail Branding and Information Solutions (1)		482.7		401.9
Industrial and Healthcare Materials		191.6		147.6
Net sales to unaffiliated customers	$	2,051.3	$	1,723.0

(1)

In the first quarter of 2020, an insignificant portion of the net sales and associated operating loss related to the acquisition of Smartrac’s Transponder (RFID Inlay) division (“Smartrac”) was reported in our LGM reportable segment’s results, reflecting sales through that segment’s channels. To better align the reporting with our current organizational structure, the results associated with the acquisition were reclassified and are now included solely in the results for our RBIS reportable segment in both periods presented above.

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Avery Dennison Corporation

Additional Segment Information

Additional financial information by reportable segment and Corporate is shown below.

Three Months Ended

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019
Intersegment sales

Label and Graphic Materials

$
19.8

$
18.2

$
55.1

$
59.5
Retail Branding and Information Solutions

7.3

5.6

19.4

14.8
Industrial and Healthcare Materials

2.0

1.5

4.8

7.0
Intersegment sales

$
29.1

$
25.3

$
79.3

$
81.3
Income before taxes

Label and Graphic Materials

$
173.1

$
159.0

$
483.1

$
460.6
Retail Branding and Information Solutions

47.0

45.7

67.2

147.5
Industrial and Healthcare Materials

12.5

17.7

34.9

47.8
Corporate expense

(19.1)

(22.7)

(49.0)

(65.5)
Interest expense

(15.6)

(19.0)

(54.4)

(58.0)
Other non-operating expense (income), net

(.1)

(.8)

.2

(448.2)
Income before taxes

$
197.8

$
179.9

$
482.0

$
84.2
Other expense (income), net, by reportable segment and Corporate

Label and Graphic Materials

$
1.4

$
1.2

$
28.3

$
13.2
Retail Branding and Information Solutions

4.4

1.2

20.6

.9
Industrial and Healthcare Materials

6.6

.9

8.6

4.2
Corporate

—

3.4

(.2)

3.4
Other expense (income), net

$
12.4

$
6.7

$
57.3

$
21.7
Other expense (income), net, by type

Restructuring charges:

Severance and related costs

$
6.5

$
3.3

$
46.4

$
19.8
Asset impairment charges and lease cancellation costs

4.4

—

6.2

1.7
Other items:

Loss on investment

1.5

—

1.5

—
Transaction and related costs

—

—

3.2

—
Legal settlement

—

3.4

—

3.4
Gain on sales of assets

—

—

—

(3.2)
Other expense (income), net

$
12.4

$
6.7

$
57.3

$
21.7


	Three Months Ended
(In millions)	April 3, 2021			March 28, 2020
Intersegment sales
Label and Graphic Materials	$	21.6		$	22.4
Retail Branding and Information Solutions		8.3			6.5
Industrial and Healthcare Materials		2.1			1.6
Intersegment sales	$	32.0		$	30.5
Income before taxes
Label and Graphic Materials (1)	$	226.2		$	172.5
Retail Branding and Information Solutions (1)		60.0			30.9
Industrial and Healthcare Materials		23.5			14.9
Corporate expense		(25.9	)		(19.1	)
Interest expense		(16.2	)		(18.8	)
Other non-operating expense (income), net		1.3			.5
Income before taxes	$	268.9		$	180.9
Other expense (income), net, by reportable segment and Corporate
Label and Graphic Materials (1)	$	(1.9	)	$	1.1
Retail Branding and Information Solutions (1)		2.1			3.3
Industrial and Healthcare Materials		.1			.5
Corporate		.6			0
Other expense (income), net	$	.9		$	4.9
Other expense (income), net, by type
Restructuring charges:
Severance and related costs	$	2.4		$	2.4
Asset impairment charges and lease cancellation costs		.5			0
Other items:
Outcome of legal proceedings		2.1			0
Transaction and related costs		.7			2.5
Gain on sale of product line		(4.8	)		0
Other expense (income), net	$	.9		$	4.9

(1)

In the first quarter of 2020, an insignificant portion of the net sales and associated operating loss related to the acquisition of Smartrac was reported in our LGM reportable segment’s results, reflecting sales through that segment’s channels. To better align the reporting with our current organizational structure, the results associated with the acquisition were reclassified and are now included solely in the results for our RBIS reportable segment in both periods presented above.

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Avery Dennison Corporation

Note 14. Supplemental Financial Information

Inventories

The table below summarizes the amounts in inventory, net.

(In millions)

September 26, 2020

December 28, 2019
Raw materials

$
249.4

$
231.6
Work-in-progress

190.1

201.0
Finished goods

223.1

230.4
Inventories, net

$
662.6

$
663.0


(In millions)	April 3, 2021		January 2, 2021
Raw materials	$	305.4	$	268.6
Work-in-progress		218.6		210.3
Finished goods		262.7		238.3
Inventories, net	$	786.7	$	717.2

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~~Avery Dennison Corporation~~

Property, Plant and Equipment

The table below summarizes the amounts in property, plant and equipment, net.

(In millions)

September 26, 2020

December 28, 2019
Property, plant and equipment

$
3,301.5

$
3,171.6
Accumulated depreciation

(2,067.6)

(1,960.9)
Property, plant and equipment, net

$
1,233.9

$
1,210.7


(In millions)	April 3, 2021			January 2, 2021
Property, plant and equipment	$	3,443.4		$	3,476.3
Accumulated depreciation		(2,114.4	)		(2,132.6	)
Property, plant and equipment, net	$	1,329.0		$	1,343.7

Allowance for Credit Losses

Given the short-term nature of trade receivables, our allowance for credit losses is based on the financial condition of customers, the aging of receivable balances, our historical collection experience, and current and expected future macroeconomic and market conditions, including as a result of COVID-19. Balances are written off in the period in which they are determined to be uncollectible.

The activity ~~for the nine months ended September 26, 2020~~ related to our allowance for credit losses ~~was as follows:~~

(In millions)

Balance at December 28, 2019

$
27.1
Provision for credit losses⁽¹⁾

20.0
Amounts written off

(2.3)
Other, including foreign currency translation

1.0
Balance at September 26, 2020

$
45.8

⁽¹⁾~~Primarily reflects estimated impacts on customers as a result of COVID-19.~~

is shown below.


	Three Months Ended
(In millions)	April 3, 2021			March 28, 2020
Balance at January 2, 2021	$	44.6		$	27.1
Provision for (reversal of) credit losses (1)		(1.9	)		20.3
Amounts written off		(1.1	)		(.5	)
Other, including foreign currency translation		(.9	)		(.6	)
Balance at April 3, 2021	$	40.7		$	46.3

(1)	For the three months ended March 28, 2020, our provision for credit losses reflected impacts on customers as a result of COVID-19.

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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 and should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and ~~notes thereto.~~

related notes.

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

Our

non-GAAP

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

We use these

non-GAAP

financial measures internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single ~~period.~~

period and full year, as applicable.

We use the following

non-GAAP

financial measures in this MD&A:

●

Sales change ex. currency

refers to the increase or decrease in net sales, excluding the estimated impact of foreign currency translation, and, where applicable, the calendar shift resulting from the extra week in the prior fiscal year and currency adjustment for transitional reporting of highly inflationary ~~economies (Argentina) and the reclassification of sales between segments.~~economies. 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 currency fluctuations.

●

Organic sales change

refers to sales change ex. currency, excluding the estimated impact of product line exits, acquisitions and ~~divestitures, and, where applicable, an extra week in our fiscal year.~~divestitures.

We believe that sales change ex. currency and organic sales change assist investors in evaluating the sales change from the ongoing activities of our businesses and enhance their ability to evaluate our results from period to period.

●

Free cash flow

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

●

Operational working capital as a percentage of annualized current quarter net sales

refersto trade accounts receivable and inventories, net of accounts payable, and excludes cash and cash equivalents, short-term borrowings, deferred taxes, other current assets and other current liabilities, as well as net current assets or liabilities

held-for-sale

divided by annualized current quarter net sales. We believe that operational working capital as a percentage of annualized current quarter net sales assists investors in assessing our working capital requirements because it excludes the impact of fluctuations attributable to our financing and other activities (which affect cash and cash equivalents, deferred taxes, other current assets, and other current liabilities) that tend to be disparate in amount, frequency, or timing, and that may increase the volatility of working capital as a percentage of sales from period to period. The items excluded from this measure are not significantly influenced by our

day-to-day

activities managed at the operating level and do not necessarily reflect the underlying trends in our operations.

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Avery Dennison Corporation

OVERVIEW AND OUTLOOK

COVID-19 ~~Pandemic~~

~~In March 2020,~~Update

Uncertainty surrounding the ~~World Health Organization declared~~global health crisis remains elevated as many parts of the ~~outbreak of~~world are experiencing a resurgence in cases related to the coronavirus/COVID-19 ~~(collectively referred to herein as “COVID-19”) a~~ pandemic which has continued spreading throughout the U.S. and the world, resulting in governmental authorities implementing numerous containment measures, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns.

(“COVID-19”). The safety and well-being of ~~our~~ employees has been and ~~will continue~~continues to be our top ~~priority during this global crisis, followed immediately by~~priority. We have taken steps to ensure employee safety, quickly implementing world-class safety protocols and continuing to deliver high quality products and service to our customers. We created global, regional, and local emergency response teams to manage immediate priorities, recognizing that some of our businesses serve a critical role in supply chains for essential goods suchadapt guidelines as food, hygiene, and pharmaceutical products, as well as e-commerce. To support the health and well-being of our employees, customers, partners and communities, the majority of our office-based employees continue to work remotely and some of our operations limited production or ceased operations for short periods of time. We leveraged learnings from our early experience in China to develop safety protocols for our manufacturing facilities to re-open and/or remain operational, and established work-from-home protocols for office workers. To support the well-being of our employees, we ensured that they continued to receive full pay during the initial weeks of facility closures, and, where closures were later extended in jurisdictions with weaker social safety nets, particularly in our Retail Branding and Information Solutions (“RBIS”) reportable segment, provided longer periods of salary continuation.

To meet our customer needs during periods of peak demand for label and packaging materials in North America and Europe, we took a number of steps to reduce backlogs, including leveraging our operational excellence to maximize production capacity, providing pay premiums for certain hourly employees, and temporarily allocating a portion of coating assets that normally support our graphics business to manufacture material for labels.

Overall, we have experienced negligible disruptions to our supply chain. As the largest customer for many of our suppliers, we have been able to secure continuity of material supply, while benefitting from our global footprint with dual sourcing for most commodities.

~~Overall,~~ the pandemic ~~has had a negative impact on our consolidated financial results year-to-date. Net sales for the second quarter of 2020 were down approximately 15% from the same period last year. However,~~evolves. Where appropriate, we experienced sequential improvement in the third quarter of 2020, with our net sales for the period down approximately 2% from the same period last year, which was significantly better than we anticipated at the start of the quarter. While our label and packaging materials largely serve essential categories and experienced higher demand as a result of the pandemic in mid-March through May, demand slowed late in the second quarter and moderated in the third quarter. Sales of graphics products as well as sales in our RBIS reportable segment declined significantly in April due to lower demand, though we experienced sequential improvement during the rest of the second quarter and the third quarter. Additionally, sales in our Industrial and Healthcare Materials (“IHM”) reportable segment declined significantly in the second quarter mainly due to reduced industrial demand, particularly in automotive end markets, although we experienced sequential improvement in the third quarter.

We expect that the pandemic will have a negative impact for the fourth quarter and full year 2020. While we experienced sequential improvements in the third quarter of 2020, demand is lower across our businesses. We are unable to predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures and the related macroeconomic impacts. We are actively managing this dynamic environment and have updated our scenario planning to reflect the unique aspects of the pandemic.

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We have continued to execute various long-term productivity and temporary cost saving actions to manage the downturn. These have included deferrals of planned compensation increases, hiring freezes, overtime and temporary labor reductions, shift reductions and furloughs, temporary production shutdowns, and travel and other discretionary spending reductions. While our balance sheet is strong and we have ample liquidity, during the first quarter of 2020, we drew down $500 million under our $800 million revolving credit facility (“Revolver”) because commercial paper markets were temporarily unavailable as a result of the pandemic. During the second quarter, we were able to access commercial paper markets and repaid the entire $500 million we had drawn down from our Revolver. Additionally, we have curtailed a portion of our planned capital spending for 2020, while protecting our long-term investments in high value product categories, and have heightened our focus on working capital management. We temporarily paused repurchasing shares during the second quarter of 2020 and resumed repurchases late in the third quarter of 2020. In the initial stages of the pandemic, we maintained our dividend rate; in October, we increased the rate by approximately 7%. We expect that our current cash and cash equivalents and the cash flows generated from operations will be sufficient to meet our operating requirements through this downturn.

~~We continue to actively monitor the COVID-19 situation and~~ may take further actions ~~that alter our business operations as may be~~ required by international, federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.

As supply chains remain tight, we continue to actively manage through a dynamic supply and demand environment. We are leveraging our global scale and working closely with customers and suppliers to continue delivering industry-leading products and services. We are mitigating risk to keep supply chain disruptions negligible and demonstrating agility and preparedness through robust scenario planning.

Net Sales

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

Three Months Ended

Nine Months Ended

September 26, 2020

September 26, 2020

Reported sales change

(2)
%
(6)
%
Foreign currency translation

1

2

Sales change ex. currency⁽¹⁾

(1)

(4)

Acquisitions

(2)

(2)

Organic sales change⁽¹⁾

(4)
%
(6)
%

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


	Three Months Ended April 3, 2021
Reported sales change		19	%
Foreign currency translation		(4	)
Extra week impact		(4	)
Sales change ex. currency (1)		11
Acquisitions and product line exit		(2	)
Organic sales change (1)		9	%

(1)	Totals may not sum due to rounding

In the three ~~and nine~~ months ended ~~September 26, 2020,~~April 3, 2021, net sales ~~decreased~~increased on an organic basis compared to the same period in the prior year primarily due to ~~the impact of COVID-19 on our markets and customers.~~

higher volume/mix.

Net Income

Net income increased from approximately ~~$141~~$134 million in the first ~~nine~~three months of ~~2019~~2020 to approximately ~~$364~~$210 million ~~for~~in the first ~~nine~~three months of ~~2020.~~2021. Major factors affecting the change in net income included the following:

●

~~Prior-year settlement loss from U.S. pension plan termination~~

Higher volume/mix

●

Lower allowances for credit losses

●

Benefits from productivity initiatives, , including ~~temporary cost reduction actions, and~~ savings from restructuring actions, net of transition costs

Offsetting factors:

●

Higher employee-related costs

●

Net impact of pricing and raw material input costs

~~Offsetting factors:~~

●

~~Lower sales primarily due to the impact of COVID-19~~

●

~~Higher restructuring charges~~

●

~~Increased allowance for credit losses primarily as a result of COVID-19~~

●

~~Impact of foreign currency translation~~

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~~Avery Dennison Corporation~~

Acquisitions

~~Acquisition~~

On ~~February 28, 2020,~~March 18, 2021, we completed ~~the~~our acquisition of ~~Smartrac’s Transponder (RFID Inlay) division~~the net assets of ZippyYum, LLC (“~~Smartrac”~~ZippyYum”), a ~~manufacturer~~California-based developer of ~~radio-frequency identification (“RFID”)~~software products ~~for consideration of approximately $255 million (€238 million).~~used in the food service and food preparation industries. We believe this acquisition enhances our ~~research~~product portfolio in our Retail Branding and ~~development capabilities,~~Information Solutions (“RBIS”) reportable segment.

On March 1, 2021, we completed our stock acquisition of JDC Solutions, Inc. (“JDC”), a Tennessee-based manufacturer of pressure sensitive specialty tapes. We believe this acquisition expands the product portfolio in our ~~product lines,~~Industrial and ~~provides added manufacturing capacity.~~ Healthcare Materials (“IHM”) reportable segment.

The acquisitions of ZippyYum and JDC are referred collectively as the “2021 Acquisitions.”

The aggregate purchase consideration for the 2021 Acquisitions, which is subject to customary post-closing adjustments, was approximately $42 million. The 2021 Acquisitions were funded using cash and existing credit facilities. In addition to the cash paid at closing, the sellers in one of these acquisitions are eligible for earn-out payments of up to approximately $13 million subject to their achievement of certain performance targets. Based on our estimates, we have accrued approximately $12 million for these earn-out payments, which has been included in the $42 million of aggregate purchase consideration.

Consistent with the allowable time ~~allowed~~ to complete our assessment, ~~our~~the valuation of certain acquired assets and liabilities, including tangible and intangible assets, environmental liabilities and income taxes, ~~is preliminary. This acquisition was~~are currently pending.

These acquisitions were not material, individually or in the aggregate, to ~~our~~the unaudited Condensed Consolidated Financial Statements.

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Avery Dennison Corporation

Cost Reduction Actions

2019/2020 Actions

During

the ~~nine~~three months ended ~~September 26, 2020,~~April 3, 2021, we recorded ~~$52.7~~$2.7 million in restructuring charges related to our 2019/2020 actions. These charges consisted of severance and related costs for the reduction of approximately ~~2,050~~100 positions at numerous locations across our company, which primarily included actions in our ~~Label and Graphic Materials (“LGM”) and~~ RBIS reportable ~~segments.~~segment. The actions ~~in LGM were primarily associated with the consolidation of our graphics business in Europe, in part in response to COVID-19. The actions in RBIS~~ were primarily related to global headcount and footprint ~~reduction,~~reductions, with some actions accelerated and expanded in response to COVID-19.

Restructuring charges were included in “Other expense (income), net” in the unaudited Condensed Consolidated Statements of Income. Refer to Note 6, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information.

~~U.S. Pension Plan Termination~~

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

~~Accounting Guidance Update~~

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

Cash Flow

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019
Net cash provided by operating activities

$
441.8

$
467.0
Purchases of property, plant and equipment

(91.7)

(132.9)
Purchases of software and other deferred charges

(13.8)

(27.4)
Proceeds from sales of property, plant and equipment

.2

7.7
Proceeds from insurance and sales (purchases) of investments, net

5.2

3.5
Contributions for U.S. pension plan termination

—

9.5
Free cash flow

$
341.7

$
327.4


	Three Months Ended
(In millions)	April 3, 2021			March 28, 2020
Net cash provided by operating activities	$	209.3		$	4.4
Purchases of property, plant and equipment		(25.2	)		(33.2	)
Purchases of software and other deferred charges		(2.3	)		(6.2	)
Proceeds from sales of property, plant and equipment		.7			—
Proceeds from insurance and sales (purchases) of investments, net		(.5	)		(.3	)
Free cash flow	$	182.0		$	(35.3	)

During the first ~~nine~~three months of ~~2020,~~2021, net cash provided by operating activities ~~decreased~~increased compared to the same period last year primarily due to changes in operational working capital ~~partially offset by lower payroll~~ and ~~incentive compensation payments, lower pension plan contributions, and lower severance payments related to restructuring actions.~~higher net income. During the first ~~nine~~three months of ~~2020,~~2021, free cash flow increased compared to the same period last year primarily due to an increase in net cash provided by operating activities and a decrease in purchases of property, plant and ~~equipment and reduced purchases of software and other deferred charges, partially offset by a decrease in net cash provided by operating activities and lower proceeds from sales of property, plant and~~ equipment.

Outlook

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~~Avery Dennison Corporation~~

~~Outlook~~

~~Certain~~In addition to the continued uncertain impact on COVID-19 on our businesses, certain factors that we believe may contribute to our ~~2020~~2021 results are described ~~below:~~

below.

●

We expect net sales to ~~decline as~~increase by approximately 10% to 12%, including an increase of 2% from the effect of foreign currency translation and a ~~result~~decrease of ~~COVID-19, although~~1% related to the ~~amount of~~calendar shift resulting from the ~~decline is uncertain at this time.~~extra week in 2020.

●

~~We anticipate partially offsetting the negative impact of COVID-19~~

Based on ~~volume with~~recent exchange rates, we expect foreign currency translation to increase our operating income by approximately ~~$150 million of net temporary cost savings.~~$25 million.

●

We ~~estimate restructuring charges of approximately $60 million, including asset impairment charges recognized during the first nine months of 2020.~~

●

~~We anticipate~~expect incremental savings from restructuring actions, net of transition costs, of ~~$60 million to~~approximately $70 million.

●

We expect our full year effective tax rate to be ~~approximately 24%.~~in the mid-twenty percent range.

●

~~Based on recent foreign currency exchange rates, we expect foreign currency translation to reduce our net sales by approximately 1% and our operating income by approximately $9 million.~~

●

~~We anticipate capital and software expenditures of $165 million to $175 million.~~

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Avery Dennison Corporation

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

Income Before Taxes

Three Months Ended

(In millions, except percentages)

September 26, 2020

September 28, 2019

Net sales

$
1,729.1

$
1,761.4

Cost of products sold

1,244.9

1,289.7

Gross profit

484.2

471.7

Marketing, general and administrative expense

258.3

265.3

Other expense (income), net

12.4

6.7

Interest expense

15.6

19.0

Other non-operating expense (income), net

.1

.8

Income before taxes

$
197.8

$
179.9

Gross profit margin

28.0
%

26.8
%

Three Months Ended

(In millions, except percentages)
April 3, 2021

March 28, 2020

Net sales
   $ 2,051.3 $ 1,723.0
Cost of products sold
   1,454.3 1,237.9
Gross profit
   597.0 485.1
Marketing, general and administrative expense
   312.3 281.0
Other expense (income), net
   .9 4.9
Interest expense
   16.2 18.8
Other non-operating expense (income), net
   (1.3 ) (.5 )
Income before taxes
   $ 268.9 $ 180.9

Gross profit margin
   29.1 % 28.2 %

Gross Profit Margin

Gross profit margin for the ~~third quarter~~first three months of ~~2020~~2021 increased ~~compared to~~from the same period last year primarily reflecting benefits from productivity initiatives, including temporary cost reduction actions, material re-engineering and savings from restructuring actions, net of transition costs, and the net benefit of pricing and raw material input costs,due to higher volume, partially offset by ~~the impact of lower volume and unfavorable product mix.~~

higher employee-related costs.

Marketing, General and Administrative Expense

Marketing, general and administrative expense ~~decreased~~increased in the ~~third quarter~~first three months of ~~2020~~2021 compared to the same period last year primarily due to higher employee-related costs, partially offset by lower allowances for credit losses and benefits from productivity initiatives, including ~~temporary cost reduction actions,and~~ savings from restructuring actions, net of transition ~~costs, partially offset by higher employee-related~~ costs.

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Other Expense (Income), Net

Three Months Ended
(In millions)

September 26, 2020

September 28, 2019
Other expense (income), net, by type




Restructuring charges:




Severance and related costs

$
6.5

$
3.3
Asset impairment charges

4.4

—
Other items:


Loss on investment

1.5

—
Legal settlement

—

3.4
Other expense (income), net

$
12.4

$
6.7


	Three Months Ended
(In millions)	April 3, 2021			March 28, 2020
Other expense (income), net, by type
Restructuring charges:
Severance and related costs	$	2.4		$	2.4
Asset impairment charges and lease cancellation costs		.5			—
Other items:
Outcome of legal proceedings		2.1			—
Transaction and related costs		.7			2.5
Gain on sale of product line		(4.8	)		—
Other expense (income), net	$	.9		$	4.9

Refer to Note 6, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information regarding restructuring charges.

Interest Expense

Interest expense decreased in the ~~third quarter~~first three months of ~~2020~~2021 compared to the same period last year ~~primarily~~ reflecting lower borrowing rates ~~from recently issued long-term debt.~~

~~Other Non-Operating Expense (Income), Net~~

~~Other non-operating expense decreased in the third quarter~~on outstanding indebtedness.

Table of ~~2020 compared to the same period last year primarily due to lower pension costs.~~

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Avery Dennison Corporation

Net Income and Earnings per Share

Three Months Ended

(In millions, except per share amounts and percentages)

September 26, 2020

September 28, 2019

Income before taxes

$
197.8

$
179.9

Provision for (benefit from) income taxes

46.3

34.6

Equity method investment (losses) gains

(1.0)

(.7)

Net income

$
150.5

$
144.6

Per share amounts:

Net income per common share

$
1.80

$
1.72

Net income per common share, assuming dilution

1.79

1.71

Effective tax rate

23.4
%

19.2
%

Three Months Ended

(In millions, except per share amounts and percentages)
April 3, 2021

March 28, 2020

Income before taxes
   $ 268.9 $ 180.9
Provision for (benefit from) income taxes
   58.1 46.3
Equity method investment (losses) gains
   (1.3 ) (.4 )
Net income
   $ 209.5 $ 134.2
Per share amounts:

Net income per common share
   $ 2.52 $ 1.61
Net income per common share, assuming dilution
   2.50 1.60

Effective tax rate
   21.6 % 25.6 %

Provision for (Benefit from) Income Taxes

Our effective tax rate for the three months ended ~~September 26, 2020~~April 3, 2021 was ~~23.4%~~21.6% compared to ~~19.2%~~25.6% in the same period last year. The tax rate ~~increase was~~for the three months ended April 3, 2021 primarily ~~due to higher discrete benefits~~reflected a return-to-provision benefit related to ~~effective settlements~~an election made on our amended 2018 U.S. tax return filed subsequent to the end of ~~certain foreign tax audits in 2019.~~our first quarter of 2021. Refer to Note 8, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for more information.

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~~RESULTS OF OPERATIONS BY REPORTABLE SEGMENT FOR THE THIRD QUARTER~~

~~Operating income refers to income before taxes, interest and other non-operating expense (income), net.~~

~~Label and Graphic Materials~~

Three Months Ended
(In millions)

September 26, 2020

September 28, 2019
Net sales including intersegment sales

$
1,165.2

$
1,203.3
Less intersegment sales

(19.8)

(18.2)
Net sales

$
1,145.4

$
1,185.1
Operating income⁽¹⁾

173.1

159.0

⁽¹⁾Included charges associated with restructuring actions in both years

$
1.4

$
1.2

~~Net Sales~~

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


	~~Three Months Ended~~
	~~September 26, 2020~~
~~Reported sales change~~	~~(3)~~	%
~~Foreign currency translation~~	1
~~Sales change ex. currency~~⁽¹⁾	~~(3)~~
~~Acquisitions~~	—
~~Organic sales change~~⁽¹⁾	~~(3)~~	%

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

In the third quarter of 2020, net sales decreased on an organic basis compared to the same period in the prior year primarily due to unfavorable volume/mix and raw material deflation-related price reductions. On an organic basis, net sales were comparable in emerging markets, increased by a low-single digit rate in North America and decreased by approximately 10% in Western Europe.

~~Operating Income~~

Operating income increased in the third quarter of 2020 compared to the same period last year primarily due to benefits from productivity initiatives, including temporary cost reduction actions, material re-engineering, and savings from restructuring actions, net of transition costs, as well as, benefits from raw material deflation, net of pricing, partially offset by higher employee-related costs and unfavorable volume/mix.

~~Retail Branding and Information Solutions~~

Three Months Ended
(In millions)

September 26, 2020

September 28, 2019
Net sales including intersegment sales

$
433.4

$
412.4
Less intersegment sales

(7.3)

(5.6)
Net sales

$
426.1

$
406.8
Operating income⁽¹⁾

47.0

45.7

⁽¹⁾Included charges associated with restructuring actions in both years and loss on investment in 2020

$
4.4

$
1.2

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~~Net Sales~~

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


	~~Three Months Ended~~
	~~September 26, 2020~~
~~Reported sales change~~	5	%
~~Foreign currency translation~~	1
~~Sales change ex. currency~~⁽¹⁾	5
~~Acquisitions~~	~~(10)~~
~~Organic sales change~~⁽¹⁾	~~(5)~~	%

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

In the third quarter of 2020, net sales increased ex. currency compared to the same period in the prior year due to approximately 65 % increase in sales of RFID solutions in the segment, including the benefit of the Smartrac acquisition, partially offset by an approximately 12% decline in the base business due to lower demand for apparel. The substantial majority of our sales of RFID solutions are reported within our RBIS reportable segment. On an organic basis, net sales in the segment related to RFID solutions increased by a high-teens rate. Company-wide, sales of RFID solutions increased on an organic basis by approximately 20%.

~~Operating Income~~

~~Industrial and Healthcare Materials~~

Three Months Ended
(In millions)

September 26, 2020

September 28, 2019
Net sales including intersegment sales

$
159.6

$
171.0
Less intersegment sales

(2.0)

(1.5)
Net sales

$
157.6

$
169.5
Operating income⁽¹⁾

12.5

17.7

⁽¹⁾Included charges associated with restructuring in both years

$
6.6

$
.9

~~Net Sales~~

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


	~~Three Months Ended~~
	~~September 26, 2020~~
~~Reported sales change~~	~~(7)~~	%
~~Foreign currency translation~~	~~(1)~~
~~Sales change ex. currency~~⁽¹⁾	~~(8)~~
~~Acquisitions~~	—
~~Organic sales change~~⁽¹⁾	~~(8)~~	%

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

In the third quarter of 2020, net sales decreased on an organic basis compared to the same period in the prior year primarily due to a mid-single digit decline in industrial categories and an approximately 11% decline in healthcare categories.

~~Operating Income~~

Operating income decreased in the third quarter of 2020 compared to the same period last year primarily due to lower volume and higher restructuring charges, partially offset by benefits from productivity initiatives, including temporary cost reduction actions and savings from restructuring actions, net of transition costs, as well as favorable product mix.

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

~~Income Before Taxes~~

Nine Months Ended

(In millions, except percentages)

September 26, 2020

September 28, 2019

Net sales

$
4,980.6

$
5,297.2

Cost of products sold

3,628.4

3,877.8

Gross profit

1,352.2

1,419.4

Marketing, general and administrative expense

758.7

807.3

Other expense (income), net

57.3

21.7

Interest expense

54.4

58.0

Other non-operating expense (income), net

(.2)

448.2

Income before taxes

$
482.0

$
84.2

Gross profit margin

27.1
%

26.8
%

~~Gross Profit Margin~~

Gross profit margin for the first nine months of 2020 increased from the same period last year primarily reflecting the benefit of pricing and raw material input costs and benefits from productivity initiatives, including temporary cost reduction actions, material re-engineering and savings from restructuring actions, net of transition costs, partially offset by reduced fixed cost leverage and unfavorable product mix.

~~Marketing, General and Administrative Expense~~

Marketing, general and administrative expense decreased in the first nine months of 2020 compared to the same period last year primarily due to benefits from productivity initiatives, including temporary cost reduction actions, and savings from restructuring actions, net of transition costs, as well as, favorable foreign currency translation, partially offset by the impact of the Smartrac acquisition and increased allowance for credit losses.

~~Other Expense (Income), Net~~

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019
Other expense (income), net, by type




Restructuring charges:




Severance and related costs

$
46.4

$
19.8
Asset impairment charges and lease cancellation costs

6.2

1.7
Other items:


Loss on investment

1.5

—
Transaction and related costs

3.2

—
Legal settlement

—

3.4
Gain on sales of assets

—

(3.2)
Other expense (income), net

$
57.3

$
21.7

~~Refer to Note 6, “Cost Reduction Actions,” to the unaudited Condensed Consolidated Financial Statements for more information regarding restructuring charges.~~

~~Interest Expense~~

Interest expense decreased in the first nine months of 2020 compared to the same period last year reflecting lower borrowing rates on our outstanding indebtedness, partially offset by fees paid for borrowings under the Revolver.

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~~Avery Dennison Corporation~~

~~Other Non-Operating Expense (Income), Net~~

~~Other non-operating expense decreased in the first nine months of 2020 compared to the same period last year primarily due to the prior year impact of the ADPP termination.~~

~~Net Income and Earnings per Share~~

Nine Months Ended

(In millions, except per share amounts and percentages)

September 26, 2020

September 28, 2019

Income before taxes

$
482.0

$
84.2

Provision for (benefit from) income taxes

114.8

(58.9)

Equity method investment (losses) gains

(2.8)

(2.0)

Net income

$
364.4

$
141.1

Per share amounts:

Net income per common share

$
4.37

$
1.68

Net income per common share, assuming dilution

4.34

1.66

Effective tax rate

23.8
%

(70.0)
%

~~Provision for (Benefit from) Income Taxes~~

Our effective tax rate for the nine months ended September 26, 2020 was 23.8% compared to (70.0)% in the same period last year. The change in tax rate was due to the tax benefits from the settlement charges associated with the termination of the ADPP in the nine months ended September 28, 2019. Refer to Note 8, “Taxes Based on Income,” to the unaudited Condensed Consolidated Financial Statements for more information.

We estimate our effective tax rate for fiscal year ~~2020~~2021 to be ~~approximately 24%.~~in the mid-twenty percent range. Our effective tax rate can vary from quarter to quarter due to a variety of factors, such as changes in the mix of earnings in countries with differing statutory tax rates, changes in tax reserves, settlements of income tax audits, changes in tax laws and regulations,

return-to-provision

adjustments, tax impacts related to stock-based payments and execution of tax planning strategies. We do not currently expect our effective tax rate to be significantly impacted by COVID-19. However, this expectation may change if the duration or severity of COVID-19 is longer or more detrimental than currently estimated.

We continue to pursue planning opportunities in certain foreign jurisdictions primarily to react to the loss of concessionary tax rates. We believe that we are on track to realize these opportunities. We continue to evaluate factors that may significantly influence the amount of benefit to be recognized in fiscal year 2020.

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

FIRST QUARTER

Operating income refers to income before taxes, interest and other

non-operating

expense (income), net.

Label and Graphic Materials

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019
Net sales including intersegment sales

$
3,475.5

$
3,629.2
Less intersegment sales

(55.1)

(59.5)
Net sales

$
3,420.4

$
3,569.7
Operating income⁽¹⁾

483.1

460.6

⁽¹⁾Included charges associated with restructuring actions in both years, transaction and related costs in 2020, and gain on sale of assets in 2019

$
28.3

$
13.2


	Three Months Ended
(In millions)	April 3, 2021			March 28, 2020
Net sales including intersegment sales	$	1,398.6		$	1,195.9
Less intersegment sales		(21.6	)		(22.4	)
Net sales	$	1,377.0		$	1,173.5
Operating income (1)		226.2			172.5

(1) Included charges associated with restructuring actions and transaction and related costs in both years, and outcome of legal proceedings and gain on sale of product line in 2021	$	(1.9	)	$	1.1

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Avery Dennison Corporation

Net Sales

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


	Three Months Ended April 3, 2021

	~~Nine Months Ended~~
	~~September 26, 2020~~
Reported sales change	~~(4)~~	17	%
Foreign currency translation	2	(5	)
Extra week impact		(4	)
Sales change ex. currency⁽¹⁾	~~(2)~~	8
Acquisitions and product line exit	—	(1	)
Organic sales change⁽¹⁾	~~(2)~~	8	%

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

(1)	Totals may not sum due to rounding

In the first ~~nine~~three months of ~~2020,~~2021, net sales ~~decreased~~increased on an organic basis compared to the same period in the prior year due to ~~the combined effects of lower~~higher volume/~~mix and raw material deflation-related price reductions.~~mix. On an organic basis, net sales ~~decreased~~increased by a ~~low-single digit~~mid-teens rate in emerging markets ~~increased by a~~ and

low-single

digit ~~rate~~rates in North America and ~~decreased by a mid-single digit rate in~~ Western Europe.

Operating Income

Operating income increased in the first ~~nine~~three months of ~~2020~~2021 compared to the same period last year primarily due to favorable volume/mix, lower allowances for credit losses, favorable foreign currency translation and benefits from productivity initiatives, including ~~temporary cost reduction actions, material re-engineering and~~ savings from restructuring actions, net of transition ~~costs, as well as, benefits from raw material deflation, net of pricing.~~costs. These benefits were partially offset by ~~unfavorable volume/mix, higher restructuring charges, unfavorable foreign currency translation, increased allowance for credit losses and~~ higher employee-related costs and the net impact of pricing and raw material costs.

Retail Branding and Information Solutions

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019
Net sales including intersegment sales

$
1,142.3

$
1,238.2
Less intersegment sales

(19.4)

(14.8)
Net sales

$
1,122.9

$
1,223.4
Operating income⁽¹⁾

67.2

147.5

⁽¹⁾Included charges associated with restructuring actions in both years, transaction and related costs and loss on investment in 2020, and gain on sale of assets in 2019

$
20.6

$
.9

Three Months Ended

(In millions)
April 3, 2021

March 28, 2020

Net sales including intersegment sales
   $ 491.0 $ 408.4
Less intersegment sales
   (8.3 ) (6.5 )
Net sales
   $ 482.7 $ 401.9
Operating income
(1)
   60.0 30.9

(1)
Included charges associated with restructuring actions and transaction and related costs in both years, and loss on sale of asset in 2021    $ 2.1 $ 3.3

Net Sales

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


	Three Months Ended April 3, 2021

	~~Nine Months Ended~~
	~~September 26, 2020~~
Reported sales change	~~(8)~~	20	%
Foreign currency translation	1	(2	)
Extra week impact		(3	)
Sales change ex. currency⁽¹⁾	~~(7)~~	15
Acquisitions	~~(7)~~	(6	)
Organic sales change⁽¹⁾	~~(14)~~	9	%

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

(1)	Totals may not sum due to rounding

In the first ~~nine~~three months of ~~2020, net~~2021, sales ~~decreased~~ ex. currency increased compared to the same period in the prior year due to an increase of approximately ~~20% decline in the base business driven by temporary closures~~40% of ~~apparel manufacturing sites and lower demand for apparel, partially offset by a nearly 30% increase in RFID~~our radio-frequency identification (“RFID”) solutions, ~~in the segment~~ including the benefit of the ~~Smartrac acquisition.~~acquisition of Smartrac’s Transponder (RFID Inlay) division (“Smartrac”), and a mid-single digit rate increase in the base business. The substantial majority of our sales of ~~RFID solutions~~Intelligent Labels are reported within our RBIS reportable segment. On an organic basis, net sales in the segment

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~~Avery Dennison Corporation~~

related to ~~RFID solutions~~Intelligent Labels increased by a ~~low-single digit~~high-teens rate. Company-wide, sales of ~~RFID~~Intelligent Labels solutions increased on an organic basis ~~at a mid-single digit rate.~~

by approximately 20%.

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Avery Dennison Corporation

Operating Income

Operating income ~~decreased~~increased in the first ~~nine~~three months of ~~2020~~2021 compared to the same period last year primarily due to higher volume, lower ~~volume, higher long-term growth-related investments, including costs associated with the Smartrac acquisition, higher restructuring charges and increased allowance~~allowances for credit losses ~~partially offset by~~and benefits from productivity initiatives, including ~~temporary cost reduction actions and~~ savings from restructuring actions, net of transition costs, ~~as well as lower raw material~~partially offset by higher employee-related costs and ~~lower employee-related costs.~~

growth investments.

Industrial and Healthcare Materials

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019
Net sales including intersegment sales

$
442.1

$
511.1
Less intersegment sales

(4.8)

(7.0)
Net sales

$
437.3

$
504.1
Operating income⁽¹⁾

34.9

47.8

⁽¹⁾Included charges associated with restructuring in both years

$
8.6

$
4.2

Three Months Ended

(In millions)
April 3, 2021

March 28, 2020

Net sales including intersegment sales
   $ 193.7 $ 149.2
Less intersegment sales
   (2.1 ) (1.6 )
Net sales
   $ 191.6 $ 147.6
Operating income
(1)
   23.5 14.9

(1)
Included transaction and related costs and gain on sale of assets in 2021 and charges associated with restructuring actions in 2020
   $ .1 $ .5

Net Sales

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


	Three Months Ended April 3, 2021

	~~Nine Months Ended~~
	~~September 26, 2020~~
Reported sales change	~~(13)~~	30	%
Foreign currency translation	1	(7	)
Extra week impact		(5	)
Sales change ex. currency⁽¹⁾	~~(12)~~	19
Acquisitions	—	(3	)
Organic sales change⁽¹⁾	~~(12)~~	16	%

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

(1)	Totals may not sum due to rounding

In the first ~~nine~~three months of ~~2020,~~2021, net sales ~~decreased~~increased on an organic basis compared to the same period in the prior year primarily due to an increase of approximately 20% in industrial categories, partially offset by a ~~mid-teens~~

low-single

digit rate decline in ~~industrial categories and a mid-single digit decline in~~ healthcare categories.

Operating Income

Operating income ~~decreased~~increased in the first ~~nine~~three months of ~~2020~~2021 compared to the same period last year primarily due to ~~lower volume and~~ higher ~~restructuring charges,~~volume/mix, partially offset by ~~benefits from productivity initiatives, including temporary cost reduction actions and savings from restructuring actions, net of transition~~higher employee-related costs.

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Avery Dennison Corporation

FINANCIAL CONDITION

Liquidity

Operating Activities

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019
Net income

$
364.4

$
141.1
Depreciation

113.7

105.3
Amortization

36.1

28.1
Provision for credit losses and sales returns

50.4

42.4
Stock-based compensation

12.1

25.5
Pension plan settlements and related charges

—

446.9
Deferred taxes and other non-cash taxes

17.1

(176.4)
Other non-cash expense and loss (income and gain), net

35.3

17.5
Changes in assets and liabilities and other adjustments

(187.3)

(163.4)
Net cash provided by operating activities

$
441.8

$
467.0


	Three Months Ended
(In millions)	April 3, 2021			March 28, 2020
Net income	$	209.5		$	134.2
Depreciation		40.0			36.8
Amortization		14.4			10.7
Provision for credit losses and sales returns		8.9			31.2
Stock-based compensation		9.9			6.3
Pension plan settlement loss		.4			—
Deferred taxes and other non-cash taxes		1.5			6.4
Other non-cash expense and loss (income and gain), net		2.7			4.4
Changes in assets and liabilities and other adjustments		(78.0	)		(225.6	)
Net cash provided by operating activities	$	209.3		$	4.4

higher net income.

Investing Activities

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019
Purchases of property, plant and equipment

$
(91.7)

$
(132.9)
Purchases of software and other deferred charges

(13.8)

(27.4)
Proceeds from sales of property, plant and equipment

.2

7.7
Proceeds from insurance and sales (purchases) of investments, net

5.2

3.5
Payments for acquisition, net of cash acquired, and investments in businesses

(262.8)

(6.5)
Net cash used in investing activities

$
(362.9)

$
(155.6)

Three Months Ended

(In millions)
April 3, 2021

March 28, 2020

Purchases of property, plant and equipment
   $ (25.2 ) $ (33.2 )
Purchases of software and other deferred charges
   (2.3 ) (6.2 )
Proceeds from sales of property, plant and equipment
   .7 —
Proceeds from insurance and sales (purchases) of investments, net
   (.5 ) (.3 )
Proceeds from sale of product line
   6.7 —
Payments for acquisitions, net of cash acquired, and investments in businesses
   (30.6 ) (245.9 )
Net cash used in investing activities
   $ (51.2 ) $ (285.6 )

Purchases of Property, Plant and Equipment

During the first ~~nine~~three months of ~~2020 and 2019,~~2021, we primarily invested in equipment to support growth in ~~North America,~~the U.S. for our Labels and Graphic Materials (“LGM”) and IHM reportable segments and in certain countries in Asia for our RBIS reportable segment. During the first three months of 2020, we primarily invested in equipment and ~~Europe~~expanded manufacturing facilities to support growth in the U.S. for our LGM reportable segment and ~~to improve manufacturing productivity.~~

in the U.S. and certain countries in Asia for our RBIS reportable segment.

Purchases of Software and Other Deferred Charges

During the first ~~nine~~three months of ~~2020 and 2019,~~2021, we invested in information technology upgrades ~~worldwide.~~in the U.S. During the first ~~nine months of 2019, we also invested in enterprise resource planning system implementations in North America.~~

~~Proceeds from Sales of Property, Plant and Equipment~~

~~During the first nine months of 2019, the majority of the proceeds from sales of property, plant and equipment was related to the sale of~~ three ~~properties in North America, Asia and Europe.~~

~~Proceeds from Insurance and Sales (Purchases) of Investments, Net~~

~~During the first nine~~ months of 2020, we ~~had lower net purchases~~invested in information technology upgrades worldwide.

Proceeds from Sale of ~~investments and lower~~Product Line

During the first three months of 2021, proceeds from ~~insurance associated with~~the sale of a product line were in our ~~corporate-owned life insurance policies compared to the same period last year.~~

LGM reportable segment.

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Payments for ~~Acquisition,~~Acquisitions, Net of Cash Acquired, and Investments in Businesses

During the first ~~nine~~three months of 2021, we paid consideration, net of cash acquired, of approximately $30 million for the 2021 Acquisitions, which we funded using cash and existing credit facilities. During the first three months of 2020, we paid consideration, net of cash acquired, of approximately ~~$255~~$246 million to acquire Smartrac, which we initially funded ~~through~~using commercial paper ~~borrowings, and we~~borrowings. We also invested in certain strategic unconsolidated ~~businesses. During the first nine months~~businesses in both 2021 and 2020.

Table of ~~2019, we made investments in certain strategic unconsolidated businesses.~~

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Avery Dennison Corporation

Financing Activities

Nine Months Ended
(In millions)

September 26, 2020

September 28, 2019
Net increase (decrease) in borrowings (maturities of three months or less)

$
(57.1)

$
68.9
Additional borrowings under revolving credit facility

500.0

—
Repayments of revolving credit facility

(500.0)

—
Additional long-term borrowings

493.7

—
Repayments of long-term debt and finance leases

(268.9)

(17.7)
Dividends paid

(145.2)

(141.3)
Share repurchases

(52.2)

(204.3)
Net (tax withholding) proceeds related to stock-based compensation

(20.0)

(17.4)
Payments of contingent consideration

—

(1.6)
Net cash used in financing activities

$
(49.7)

$
(313.4)

Three Months Ended

(In millions)
April 3, 2021

March 28, 2020

Net increase (decrease) in borrowings (maturities of three months or less)
   $ 53.8 $ (106.0 )
Additional borrowings under revolving credit facility
   — 500.0
Additional long-term borrowings
   — 494.4
Repayments of long-term debt and finance leases
   (1.5 ) (1.1 )
Dividends paid
   (51.6 ) (48.4 )
Share repurchases
   (55.6 ) (45.2 )
Net (tax withholding) proceeds related to stock-based compensation
   (25.3 ) (20.0 )
Net cash (used in) provided by financing activities
   $ (80.2 ) $ 773.7

Borrowings and Repayment of Debt

~~Given the seasonality of our cash flow from operating activities, during~~

During the first ~~nine~~three months of ~~2020~~2021 and ~~2019,~~2020, our commercial paper borrowings were used to fund dividend payments, share repurchases and capital expenditures, and for other general corporate purposes. During the first quarter of 2020, commercial paper borrowings were also used ~~to fund~~for the Smartrac acquisition, with those borrowings subsequently repaid using the net proceeds of ~~$493.7~~$494.4 million from the $500 million of senior notes we issued in March 2020. We used the remaining proceeds from these notes to repay ~~the~~our $250 million aggregate principal amount of senior notes that matured in April 2020. ~~In the second quarter of 2020, we also repaid $15 million of medium-term notes that matured in June 2020.~~

In the first quarter of 2020, in light of uncertainty as a result of

COVID-19

regarding the availability of commercial paper, which we typically rely upon to fund our

day-to-day

operational needs, and the relatively favorable terms under our ~~recently-extended~~ $800 million ~~Revolver,~~revolving credit facility (the “Revolver”), we borrowed $500 million from the Revolver with a

six-month

duration. This amount was repaid in June 2020.

~~Refer to Note 4, “Debt” to the unaudited Condensed Consolidated Financial Statements for more information.~~

Dividends Paid

We paid dividends of ~~$1.74~~$.62 per share in the first ~~nine~~three months of ~~2020~~2021 compared to ~~$1.68~~$.58 per share in the same period last year. In April ~~2019,~~2021, subsequent to the end of our first quarter of 2021, we increased our quarterly dividend rate to ~~$.58~~$.68 per share, representing an increase of approximately ~~12%~~10% from our previous dividend rate of ~~$.52~~$.62 per share. ~~In October 2020, we increased our quarterly dividend to $.62, representing an increase of approximately 7%.~~

Share Repurchases

During the first ~~nine~~three months of ~~2020~~2021 and ~~2019,~~2020, we repurchased approximately .4.3 million and 2.4 million shares of our common stock, respectively. In

Net (Tax Withholding) Proceeds Related to Stock-Based Compensation

During the first ~~quarter~~three months of ~~2020, we temporarily paused share repurchase activity~~2021, tax withholding for stock-based compensation increased compared to the same period last year primarily as a result of ~~COVID-19. We resumed the repurchase of shares late in the third quarter of 2020.~~

equity awards vesting at higher share prices.

Analysis of Selected Balance Sheet Accounts

Long-lived Assets

In the ~~nine~~three months ended ~~September 26, 2020,~~April 3, 2021, goodwill increased by approximately ~~$129~~$5 million to ~~$1.06~~$1.14 billion, which reflected the preliminary valuation of goodwill associated with the ~~Smartrac acquisition and~~2021 Acquisitions, partially offset by the impact of foreign currency translation.

In the ~~nine~~three months ended ~~September 26, 2020,~~April 3, 2021, other intangibles resulting from business acquisitions, net, ~~increased~~decreased by approximately ~~$68~~$3 million to ~~$194.1~~$221.9 million, which reflected ~~the valuation of other intangibles from the Smartrac acquisition~~current year amortization expense and the impact of foreign currency translation, partially offset by ~~current year amortization expense.~~

the valuation of other intangibles from the 2021 Acquisitions.

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Refer to Note 3, “Goodwill and Other Intangibles Resulting from Business Acquisitions,” to the unaudited Condensed Consolidated Financial Statements for more information.

Shareholders’ Equity Accounts

As of ~~September 26, 2020,~~April 3, 2021, the balance of our shareholders’ equity was ~~$1.33~~$1.58 billion. Refer to Note 10, “Supplemental Equity and Comprehensive Income Information,” to the unaudited Condensed Consolidated Financial Statements for more information.

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Avery Dennison Corporation

Impact of Foreign Currency Translation


(In millions)	Three Months Ended April 3, 2021
Change in net sales	$	66

~~Nine Months Ended~~

~~(In millions)~~

~~September 26, 2020~~

~~Change in net sales~~

~~(103)~~

International operations generated approximately ~~75%~~77% of our net sales during the ~~nine~~three months ended ~~September 26, 2020.~~April 3, 2021. 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~~favorable impact of foreign currency translation on net sales in the first ~~nine~~three months of ~~2020~~2021 compared to the same period last year was primarily related to ~~sales in Brazil and China,~~ euro-denominated sales and sales in ~~India.~~

China.

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. Refer to Note 7, “Financial Instruments,” to the unaudited Condensed Consolidated Financial Statements for more information.

Analysis of Selected Financial Ratios

We utilize the financial ratios discussed below to assess our financial condition and operating performance. We believe this information assists our investors in understanding the drivers of our cash flow other than net income and capital expenditures.

Operational Working Capital Ratio

Operational working capital, as a percentage of annualized current-quarter net sales, is reconciled to working capital below. Our objective is to minimize our investment in operational working capital, as a percentage of annualized current-quarter net sales, to maximize cash flow and return on investment. Operational working capital, as a percentage of annualized current-quarter net sales, in the ~~third~~first quarter of ~~2020,~~2021 was ~~higher~~lower compared to the ~~third~~first quarter of ~~2019.~~

(In millions, except percentages)

September 26, 2020

September 28, 2019

(A) Working capital

$
558.5

$
65.5

Reconciling items:

Cash and cash equivalents

(284.7)

(224.2)

Other current assets

(214.5)

(220.0)

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

124.1

514.2

Accrued payroll and employee benefits and other current liabilities

759.1

712.5

(B) Operational working capital

$
942.5

$
848.0

(C) Third-quarter net sales, annualized

$
6,916.4

$
7,045.6

Operational working capital, as a percentage of annualized current-quarter net sales: (B) ÷ (C)

13.6
%

12.0
%

2020.


(In millions, except percentages)		April 3, 2021			March 28, 2020
(A) Working capital		$	573.9		$	353.5
Reconciling items:
Cash and cash equivalents			(328.0	)		(742.0	)
Other current assets			(216.3	)		(225.8	)
Short-term borrowings and current portion of long-term debt and finance leases			116.9			832.3
Accrued payroll and employee benefits and other current liabilities			763.6			697.0
(B) Operational working capital		$	910.1		$	915.0
(C) First-quarter net sales, annualized		$	8,205.2		$	6,892.0
Operational working capital, as a percentage of annualized current-quarter net sales: (B) ÷ (C)	��		11.1	%		13.3	%

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Accounts Receivable Ratio

The average number of days sales outstanding was 58 days in the first quarter of 2021 compared to 65 days in the first ~~nine months~~quarter of 2020, ~~compared to 63 days in the first nine months of 2019,~~ calculated using the ~~average of the three quarter-end trade~~ accounts receivable ~~balances~~ balance at

quarter-end

divided by the average daily sales ~~for~~in the first ~~nine months.~~quarter of 2021 and 2020, respectively. The ~~increase~~decrease in the average number of days sales outstanding primarily reflected the impact of ~~COVID-19 on sales, partially offset by~~ focused collection ~~results.~~

efforts.

Inventory Ratio

Average inventory turnover was 7.4 in the first quarter of 2021 compared to 6.9 in the first ~~nine months~~quarter of 2020, ~~compared to 7.7 in the first nine months of 2019,~~ calculated using the annualized ~~cost of sales (year-to-date~~first-quarter cost of products sold ~~divided by three~~in 2021 and ~~multiplied by four)~~2020, respectively, and divided by the ~~three-quarter average~~ inventory balance at

quarter-end.

The ~~decrease~~increase in average inventory turnover primarily reflected ~~lower cost of products sold due to lower volume and~~planned inventory ~~build to meet unpredictable customer demands, both~~pre-build as a result of ~~COVID-19, partially offset by focused efforts to optimize inventory balances relative to demand.~~

increasing raw material prices.

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Accounts Payable Ratio

The average number of days payable outstanding was ~~73 days in the first nine months of 2020 compared to~~ 74 days in the first ~~nine months~~quarter of ~~2019,~~2021 compared to 76 days in the first quarter of 2020, calculated using the ~~three-quarter average~~ accounts payable balance at

quarter-end

divided by the ~~average daily~~annualized first-quarter cost of products sold ~~for the first nine months.~~in 2021 and 2020, respectively. The decrease in the average number of days payable outstanding from the prior year primarily reflected ~~lower purchase levels related to inventory optimization efforts, partially offset by longer payment terms and~~ the ~~impact~~timing of ~~foreign currency translation.~~

vendor payments.

Capital Resources

Capital resources include cash flows from operations, cash and cash equivalents, and debt financing, including access to commercial paper supported by our Revolver. We use these resources to fund our operational needs. ~~At September 26, 2020,~~

As of April 3, 2021, we had cash and cash equivalents of ~~$284.7~~$328 million held in accounts at third-party financial institutions.

Our cash balances are held in numerous locations throughout the world. ~~At September 26, 2020,~~As of April 3, 2021, the majority of our cash and cash equivalents was held by our foreign ~~subsidiaries.~~

subsidiaries, primarily in Europe and Asia Pacific.

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 and profits. However, if we were to repatriate ~~incremental~~ foreign earnings and profits, ~~we may~~a portion would be subject to cash payments of withholding taxes imposed by foreign tax ~~authorities and additional~~authorities. Additional U.S. taxes ~~due to~~may also result from the impact of foreign currency movements related to these earnings and profits.

The Revolver, which matures in February 2020, we amended and restated our $800 million Revolver, extending its maturity date to February 13, 2025. The maturity date may be extended for a one-year period under certain circumstances. The commitments under the Revolver may be increased by up to $400 million, subject to lender approvals and customary requirements. The Revolver2025, is used as a

back-up

facility for our commercial paper program and can be used for other corporate purposes. In the first quarter of 2020, in light of the uncertainty regarding the availability of commercial paper, which we typically rely upon to fund our day-to-day operational needs, and the relatively favorable terms under the Revolver, we drew down $500 million from the Revolver with a six-month duration. This amount was repaid in June 2020. No balance was outstanding under the Revolver as of ~~September 26, 2020~~April 3, 2021 or ~~December 28, 2019.~~

The Revolver contains a financial covenant that requires us to maintain a maximum leverage ratio (calculated as a ratio of consolidated debt to consolidated EBITDA as defined in the agreement) of not more than 3.50 to 1.00; provided that, in the event of an acquisition by us that exceeds $250 million, the maximum leverage ratio increases to 4.00 to 1.00 for the fiscal quarter in which the acquisition occurs and three consecutive fiscal quarters immediately following that fiscal quarter. As of September 26, 2020 and December 28, 2019, our ratio was substantially below the maximum ratio required by the Revolver.

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

January 2, 2021.

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Capital from Debt

The carrying value of our total debt increased by approximately ~~$205~~$26 million in the first ~~nine~~three months of ~~2020~~2021 to $2.14 billion, primarily reflecting ~~the issuance of senior notes in March 2020, partially offset by long- and medium-term debt repayments in the second quarter of 2020 and~~ a net ~~decrease~~increase in commercial paper borrowings.

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 we pay and our access to commercial paper, credit facilities, and other borrowings. A downgrade of our short-term credit ratings could impact our ability to access ~~the~~ commercial paper markets. If our access to commercial paper markets were to become limited, as it did in the first quarter of 2020 as a result of

COVID-19,

we believe that the Revolver and our other credit facilities would be available to meet our short-term funding requirements. 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. There has been no change to the credit ratings assigned to us as a result of

COVID-19.

We remain committed to maintaining an investment grade rating.

Off-Balance

Sheet Arrangements, Contractual Obligations, and Other Matters

Refer to Note 12, “Commitments and Contingencies,” to the unaudited Condensed Consolidated Financial Statements for this information. Except as indicated therein, we have no material

off-balance

sheet arrangements as described in Item ~~303 (a)(4)~~303(b) of Regulation

S-K.

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~~RECENT ACCOUNTING REQUIREMENTS~~

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

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 ~~December 28, 2019~~January 2, 2021 that have not been disclosed in our periodic filings with the SEC.

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 judgment 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.

~~Table of Contents~~

~~Avery Dennison Corporation~~

Changes in Internal Control Over Financial Reporting

There were 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.


	Three Months Ended				Nine Months Ended
(In millions, except per share amounts)	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Net sales	$	1,729.1	$	1,761.4	$	4,980.6	$	5,297.2
Cost of products sold		1,244.9		1,289.7		3,628.4		3,877.8
Gross profit		484.2		471.7		1,352.2		1,419.4
Marketing, general and administrative expense		258.3		265.3		758.7		807.3
Other expense (income), net		12.4		6.7		57.3		21.7
Interest expense		15.6		19.0		54.4		58.0
Other non-operating expense (income), net		.1		.8		(.2)		448.2
Income before taxes		197.8		179.9		482.0		84.2
Provision for (benefit from) income taxes		46.3		34.6		114.8		(58.9)
Equity method investment (losses) gains		(1.0)		(.7)		(2.8)		(2.0)
Net income	$	150.5	$	144.6	$	364.4	$	141.1

Per share amounts:
Net income per common share	$	1.80	$	1.72	$	4.37	$	1.68
Net income per common share, assuming dilution	$	1.79	$	1.71	$	4.34	$	1.66

Weighted average number of shares outstanding:
Common shares		83.5		84.0		83.4		84.2
Common shares, assuming dilution		84.0		84.8		84.0		85.1


	Label and		Retail Branding		Industrial and
	Graphic		and Information		Healthcare
(In millions)	Materials		Solutions		Materials		Total
Goodwill as of December 28, 2019	$	407.8	$	349.3	$	173.7	$	930.8
Acquisition⁽¹⁾		–		109.6		–		109.6
Translation adjustments		9.3		5.4		4.2		18.9
Goodwill as of September 26, 2020	$	417.1	$	464.3	$	177.9	$	1,059.3


			Amortization
	Amount		period
	(in millions)		(in years)
Patents and other acquired technology	$	60.0	11
Customer relationships		16.0	6
Trade names and trademarks		2.0	5


			Charges,						Foreign
	Accrual at		Net of		Cash		Non-cash		Currency		Accrual at
(In millions)	December 28, 2019		Reversals		Payments		Impairment		Translation		September 26, 2020
2019/2020 Actions
Severance and related costs	$	21.9	$	46.4	$	(32.3)	$	—	$	1.6	$	37.6
Asset impairment		0		6.2		—		(6.2)		—		0

2018/2019 Actions
Severance and related costs		6.5		—		(6.4)		—		.1		.2
Lease cancellation costs		.3		—		—		—		—		.3
Total	$	28.7	$	52.6	$	(38.7)	$	(6.2)	$	1.7	$	38.1


			Pension and
	Foreign		Other
	Currency		Postretirement		Cash Flow
(In millions)	Translation		Benefits		Hedges		Total
Balance as of December 28, 2019	$	(245.1)	$	(101.8)	$	(1.2)	$	(348.1)
Other comprehensive income (loss) before reclassifications, net of tax		(45.5)		—		(2.3)		(47.8)
Reclassifications to net income, net of tax		—		1.9		.1		2.0
Net current-period other comprehensive income (loss), net of tax		(45.5)		1.9		(2.2)		(45.8)
Balance as of September 26, 2020	$	(290.6)	$	(99.9)	$	(3.4)	$	(393.9)


			Fair Value Measurements Using
					Significant		Significant
			Quoted Prices		Other		Other
			in Active		Observable		Unobservable
			Markets		Inputs		Inputs
(In millions)	Total		(Level 1)		(Level 2)		(Level 3)
Assets
Investments	$	33.0	$	27.1	$	5.9	$	—
Derivative assets		8.3		.2		8.1		—
Bank drafts		19.5		19.5		—		—
Liabilities
Derivative liabilities	$	24.1	$	—	$	24.1	$	—


(In millions)
Balance at December 28, 2019	$	21.4
Charges, net of reversals		.8
Payments		(2.7)
Balance at September 26, 2020	$	19.5


	Three Months Ended
(In millions, except per share amounts and percentages)	September 26, 2020			September 28, 2019
Income before taxes	$	197.8		$	179.9
Provision for (benefit from) income taxes		46.3			34.6
Equity method investment (losses) gains		(1.0)			(.7)
Net income	$	150.5		$	144.6
Per share amounts:
Net income per common share	$	1.80		$	1.72
Net income per common share, assuming dilution		1.79			1.71

Effective tax rate		23.4	%		19.2	%


				Total number of shares	Approximate dollar
	Total number	Average		purchased as part of	value of shares that may
	of shares	price paid		publicly announced	yet be purchased under
Period⁽¹⁾	purchased⁽²⁾	per share		plans⁽²⁾⁽³⁾	the plans⁽⁴⁾
June 28, 2020 – July 25, 2020	—	$	—	—	$	599.5
July 26, 2020 – August 22, 2020	—		—	—		599.5
August 23, 2020 – September 26, 2020	58.0		120.28	58.0		592.5
Total	58.0	$	120.28	58.0	$	592.5


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 3, 2021 - January 30, 2021		115.0	$	157.94		115.0	$	522.2
January 31, 2021 - February 27, 2021		40.3		158.94		40.3		515.8
January 28, 2021 - April 3, 2021		171.9		180.23		171.9		484.8
Total		327.2	$	169.78		327.2	$	484.8


Exhibit 3.1(i)		Amended and Restated Certificate of Incorporation, as filed on April 28, 2011 with the Office of Delaware Secretary of State (incorporated by reference to Exhibit 3.1 on Current Report on Form 8-K, filed April 29, 2011)
Exhibit 3.1(ii)		Amended and Restated Bylaws, effective as of December 7, 2017 (incorporated by reference to Exhibit 3.1(ii) on Current Report on Form 8-K, filed December 8, 2017)
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***		Inline XBRL Instance Document ‒– the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH***		Inline XBRL Extension Schema Document
Exhibit 101.CAL***		Inline XBRL Extension Calculation Linkbase Document
Exhibit 101.LAB***		Inline XBRL Extension Label Linkbase Document
Exhibit 101.PRE***		Inline XBRL Extension Presentation Linkbase Document
Exhibit 101.DEF***		Inline XBRL Extension Definition Linkbase Document
Exhibit 104***		Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included as part of this Exhibit 101 inline XBRL document set


	AVERY DENNISON CORPORATION
	(Registrant)






	/s/ Gregory S. Lovins
	Gregory S. Lovins
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)






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



	~~October 27, 2020~~ May 4, 2021