Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Apr. 01, 2017 | Apr. 29, 2017 | |
Document and Entity Information | ||
Entity Registrant Name | Avery Dennison Corp | |
Entity Central Index Key | 8,818 | |
Document Type | 10-Q | |
Document Period End Date | Apr. 1, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-30 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 88,557,576 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions | Apr. 01, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 294.9 | $ 195.1 |
Trade accounts receivable, less allowances of $51.9 and $47.8 at April 1, 2017 and December 31, 2016, respectively | 1,099.5 | 1,001 |
Inventories, net | 579.9 | 519.1 |
Assets held for sale | 8 | 6.8 |
Other current assets | 202.3 | 182.8 |
Total current assets | 2,184.6 | 1,904.8 |
Property, plant and equipment | 2,736.2 | 2,661.4 |
Accumulated depreciation | (1,795.9) | (1,746.2) |
Property, plant and equipment, net | 940.3 | 915.2 |
Goodwill | 826.4 | 793.6 |
Other intangibles resulting from business acquisitions, net | 83.4 | 66.7 |
Non-current deferred income taxes | 317.8 | 313.2 |
Other assets | 413.4 | 402.9 |
Total assets | 4,765.9 | 4,396.4 |
Current liabilities: | ||
Short-term borrowings and current portion of long-term debt and capital leases | 333.2 | 579.1 |
Accounts payable | 906.1 | 841.9 |
Accrued payroll and employee benefits | 168.2 | 217.4 |
Other current liabilities | 351.8 | 365.9 |
Total current liabilities | 1,759.3 | 2,004.3 |
Long-term debt and capital leases | 1,250.2 | 713.4 |
Long-term retirement benefits and other liabilities | 649.9 | 660.9 |
Non-current deferred and payable income taxes | 91.9 | 92.3 |
Commitments and contingencies (see Note 15) | ||
Shareholders' equity: | ||
Common stock, $1 par value per share, authorized - 400,000,000 shares at April 1, 2017 and December 31, 2016; issued - 124,126,624 shares at April 1, 2017 and December 31, 2016; outstanding - 88,714,837 shares and 88,308,860 shares at April 1, 2017 and December 31, 2016, respectively | 124.1 | 124.1 |
Capital in excess of par value | 839.2 | 852 |
Retained earnings | 2,537.9 | 2,473.3 |
Treasury stock at cost, 35,411,787 shares and 35,817,764 shares at April 1, 2017 and December 31, 2016, respectively | (1,774.1) | (1,772) |
Accumulated other comprehensive loss | (712.5) | (751.9) |
Total shareholders' equity | 1,014.6 | 925.5 |
Total liabilities and shareholders' equity | $ 4,765.9 | $ 4,396.4 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions | Apr. 01, 2017 | Dec. 31, 2016 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Trade accounts receivable, allowances (in dollars) | $ 51.9 | $ 47.8 |
Common stock, par value (in dollars per share) | $ 1 | $ 1 |
Common stock, authorized shares | 400,000,000 | 400,000,000 |
Common stock, issued shares | 124,126,624 | 124,126,624 |
Common stock, outstanding shares | 88,714,837 | 88,308,860 |
Treasury stock, shares | 35,411,787 | 35,817,764 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Millions, $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||
Net sales | $ 1,572.1 | $ 1,485.5 |
Cost of products sold | 1,129.7 | 1,062.9 |
Gross profit | 442.4 | 422.6 |
Marketing, general and administrative expense | 283.3 | 278.2 |
Interest expense | 16.7 | 15.3 |
Other expense, net | 6.5 | 5.6 |
Income before taxes | 135.9 | 123.5 |
Provision for income taxes | 23.7 | 33.9 |
Net income | $ 112.2 | $ 89.6 |
Per share amounts: | ||
Net income per common share (in dollars per share) | $ 1.27 | $ 1 |
Net income per common share, assuming dilution (in dollars per share) | 1.25 | 0.98 |
Dividends per common share (in dollars per share) | $ 0.41 | $ 0.37 |
Weighted average number of shares outstanding: | ||
Common shares (in shares) | 88.4 | 89.4 |
Common shares, assuming dilution (in shares) | 90 | 91.1 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||
Net income | $ 112.2 | $ 89.6 |
Other comprehensive income (loss), net of tax: | ||
Foreign currency translation | 35.5 | 18.9 |
Pension and other postretirement benefits | 4.7 | 4.2 |
Cash flow hedges | (0.8) | (1.3) |
Other comprehensive income, net of tax | 39.4 | 21.8 |
Total comprehensive income, net of tax | $ 151.6 | $ 111.4 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Operating Activities | ||
Net income | $ 112.2 | $ 89.6 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||
Depreciation | 28.8 | 29 |
Amortization | 15.8 | 15.3 |
Provision for doubtful accounts and sales returns | 11.5 | 11.2 |
Net losses from asset impairments and sales/disposals of assets | 0.7 | 0.6 |
Stock-based compensation | 5.6 | 7.5 |
Other non-cash expense and loss | 15.2 | 12.8 |
Changes in assets and liabilities and other adjustments | (174.5) | (172.3) |
Net cash provided by (used in) operating activities | 15.3 | (6.3) |
Investing Activities | ||
Purchases of property, plant and equipment | (30.3) | (25.2) |
Purchases of software and other deferred charges | (6.9) | (2) |
Proceeds from sales of property, plant and equipment | 0.1 | |
Purchases of investments, net | (0.2) | (3.8) |
Payments for acquisitions and equity method investments, net of cash acquired | (74.6) | |
Net cash used in investing activities | (112) | (30.9) |
Financing Activities | ||
Net (decrease) increase in borrowings (maturities of three months or less) | (256.8) | 169.4 |
Additional long-term borrowings | 526.7 | |
Repayments of long-term debt | (0.8) | (0.5) |
Dividends paid | (36.4) | (33) |
Share repurchases | (34.6) | (95.6) |
Proceeds from exercises of stock options, net | 16.4 | 16 |
Tax withholding for and excess tax benefit from stock-based compensation, net | (19.8) | (9.2) |
Net cash provided by financing activities | 194.7 | 47.1 |
Effect of foreign currency translation on cash balances | 1.8 | 0.9 |
Increase in cash and cash equivalents | 99.8 | 10.8 |
Cash and cash equivalents, beginning of year | 195.1 | 158.8 |
Cash and cash equivalents, end of period | $ 294.9 | $ 169.6 |
General
General | 3 Months Ended |
Apr. 01, 2017 | |
General | |
General | Note 1. General The unaudited Condensed Consolidated Financial Statements and notes in this Quarterly Report on Form 10-Q are presented as permitted by Article 10 of Regulation S-X and do not contain certain information included in the audited Consolidated Financial Statements and notes thereto in our 2016 Annual Report on Form 10-K, which should be read in conjunction with this Quarterly Report on Form 10-Q. The accompanying unaudited Condensed Consolidated Financial Statements include normal recurring adjustments necessary for a fair statement of our interim results. Interim results of operations are not necessarily indicative of future results. Fiscal Periods The first quarters of 2017 and 2016 consisted of thirteen-week periods ending April 1, 2017 and April 2, 2016, respectively. Accounting Guidance Update In the first quarter of 2017, we adopted an accounting guidance update that simplifies several aspects of the accounting for stock-based payment transactions. As a result of adopting this update, beginning in the first quarter of 2017, (i) the tax effects related to stock-based payments at settlement or expiration were recognized through the income statement, a change from the previous requirement that certain tax effects be recognized in capital in excess of par value, and, as required by this guidance, this change has been applied prospectively, and (ii) all tax-related cash flows resulting from stock-based payments were reported as operating activities on the statements of cash flows, a change from the previous requirement to present excess tax benefits as an inflow from financing activities and an outflow from operating activities, and, as permitted by this guidance, prior periods have not been retrospectively adjusted. Refer to Note 8, “Long-Term Incentive Compensation,” and Note 11, “Taxes Based on Income,” for further information. |
Acquisitions
Acquisitions | 3 Months Ended |
Apr. 01, 2017 | |
Acquisitions | |
Acquisitions | Note 2. Acquisitions On March 1, 2017, we completed the net asset acquisition of Hanita Coatings Rural Cooperative Association Limited and stock acquisition of certain of its subsidiaries (“Hanita”), a pressure-sensitive manufacturer of specialty films and laminates based in Israel, from Kibbutz Hanita Coatings and Tene Investment Funds. Hanita develops and manufactures coated, laminated and metallized polyester films for a range of industrial and commercial applications, which we expect to expand our product portfolio and provide new growth opportunities. The total consideration for this acquisition was approximately $75 million, net of cash acquired, which we funded through cash and existing credit facilities. The consideration is subject to customary post-closing adjustments. Consistent with the allowable time to complete our assessment, the valuations of certain acquired assets and liabilities, including intangible assets and income taxes, are currently pending. This acquisition was not material to our unaudited Condensed Consolidated Financial Statements. In February 2017, we announced our agreement to acquire Yongle Tape Company Ltd. (“Yongle Tape”), a manufacturer of specialty tapes and related products used in a variety of industrial markets based in China, from Yongle Tape’s management and ShawKwei & Partners. The purchase price is $190 million, which is subject to customary adjustments, with an additional earn-out opportunity of up to $55 million to be paid based on the acquired business’ achievement of certain performance targets over the next two years. We expect to complete this acquisition in mid-2017. |
Inventories
Inventories | 3 Months Ended |
Apr. 01, 2017 | |
Inventories | |
Inventories | Note 3. Inventories Net inventories consisted of: (In millions) April 1, 2017 December 31, 2016 Raw materials $ $ Work-in-progress Finished goods Inventories, net $ $ |
Goodwill and Other Intangibles
Goodwill and Other Intangibles Resulting from Business Acquisitions | 3 Months Ended |
Apr. 01, 2017 | |
Goodwill and Other Intangibles Resulting from Business Acquisitions | |
Goodwill and Other Intangibles Resulting from Business Acquisitions | Note 4. Goodwill and Other Intangibles Resulting from Business Acquisitions Goodwill Changes in the net carrying amount of goodwill for the three months ended April 1, 2017, by reportable segment, were as follows: (In millions) Label and Retail Branding Industrial and Total Goodwill as of December 31, 2016 $ $ $ $ Acquired during the current period (1) – – Acquisition adjustments (2) .1 – – .1 Translation adjustments – Goodwill as of April 1, 2017 $ $ $ $ (1) Goodwill acquired during the current period primarily related to the Hanita acquisition. (2) Goodwill adjustments during the current period related to the Mactac acquisition completed in August 2016. The carrying amounts of goodwill at April 1, 2017 and December 31, 2016 were net of accumulated impairment losses of $820 million, which were included in our Retail Branding and Information Solutions reportable segment. In connection with the acquisition of Hanita, which we expect to expand our product portfolio and provide new growth opportunities, we recognized goodwill based on our expectation of synergies and other benefits from acquiring the business. We expect the majority of the recognized goodwill to be deductible for income tax purposes. Finite-Lived Intangible Assets In connection with the acquisition of Hanita, we acquired approximately $21 million of identifiable intangible assets, which consist of customer relationships, trade names and trademarks, and patents and other acquired technology. We utilized the income approach to estimate the fair values of the identifiable intangibles acquired from Hanita, using primarily Level 3 inputs. The discount rates we used to value these assets were between 13% and 16%. The table below summarizes the preliminary amounts of these intangible assets: Amount Customer relationships $ Patents and other acquired technology Trade names and trademarks Refer to Note 2, “Acquisitions,” for more information. |
Debt
Debt | 3 Months Ended |
Apr. 01, 2017 | |
Debt | |
Debt | Note 5. Debt In March 2017, we issued €500 million of senior notes, due March 2025. The senior notes bear an interest rate of 1.25% per year, payable annually in arrears. The net proceeds from the offering, after deducting underwriting discounts and estimated offering expenses, were $526.7 million (€495.6 million), of which approximately $215 million (€200 million) was used to repay commercial paper borrowings that we used to finance a portion of our acquisition of the European business of Mactac in August 2016. We plan to use the remainder for general corporate purposes, including repayment of other indebtedness and other acquisitions. We designated the senior notes as a net investment hedge of our investment in foreign operations. Refer to Note 10, “Financial Instruments,” for more information. The estimated fair value of our long-term debt is primarily based on the credit spread above U.S. Treasury or euro government bond securities, as applicable, on notes with similar rates, credit ratings, and remaining maturities. The fair value of short-term borrowings, which include commercial paper issuances and short-term lines of credit, approximates carrying value given the short duration of these obligations. The fair value of our total debt was $1.6 billion at April 1, 2017 and $1.31 billion at December 31, 2016. Fair value amounts were determined based primarily on Level 2 inputs, which are inputs other than quoted prices in active markets that are either directly or indirectly observable. Our $700 million revolving credit facility (the “Revolver”) contains financial covenants requiring that we maintain specified ratios of total debt and interest expense in relation to certain measures of income. As of April 1, 2017 and December 31, 2016, we were in compliance with our financial covenants. |
Pension and Other Postretiremen
Pension and Other Postretirement Benefits | 3 Months Ended |
Apr. 01, 2017 | |
Pension and Other Postretirement Benefits | |
Pension and Other Postretirement Benefits | Note 6. Pension and Other Postretirement Benefits Defined Benefit Plans We sponsor a number of defined benefit plans, the accrual of benefits under some of which has been frozen, covering eligible employees in the U.S. and certain other countries. Benefits payable to an employee are based primarily on years of service and the employee’s compensation during the course of his or her employment with us. We are also obligated to pay unfunded termination indemnity benefits to certain employees outside of the U.S., which are subject to applicable agreements, laws and regulations. We have not incurred significant costs related to these benefits, and, therefore, no related costs are included in the disclosures below. The following table sets forth the components of net periodic benefit cost (credit), which are recorded in income, for our defined benefit plans: Pension Benefits U.S. Postretirement Three Months Ended Three Months Ended April 1, 2017 April 2, 2016 April 1, 2017 April 2, 2016 (In millions) U.S. Int’l U.S. Int’l Service cost $ .1 $ $ .1 $ $ – $ – Interest cost – .1 Expected return on plan assets ) ) ) ) – – Recognized net actuarial loss .4 .5 Amortization of prior service cost (credit) .2 (.1 ) .3 (.1 ) (.8 ) (.8 ) Net periodic benefit cost (credit) $ $ $ $ $ (.4 ) $ (.2 ) |
Research and Development
Research and Development | 3 Months Ended |
Apr. 01, 2017 | |
Research and Development | |
Research and Development | Note 7. Research and Development Research and development expense was $22.9 million and $22.3 million for the three months ended April 1, 2017 and April 2, 2016, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income. |
Long-Term Incentive Compensatio
Long-Term Incentive Compensation | 3 Months Ended |
Apr. 01, 2017 | |
Long-Term Incentive Compensation | |
Long-Term Incentive Compensation | Note 8. Long-Term Incentive Compensation As discussed in Note 1, “General,” we adopted an accounting guidance update in the first quarter of 2017 that, among other things, provides an accounting policy election to account for forfeitures of stock-based awards as they occur, rather than based on an estimate of expected forfeitures. We elected to continue our current practice of estimating forfeitures in determining the compensation cost to be recognized each period. In April 2017, subsequent to the end of the first quarter of 2017, our shareholders approved our 2017 Incentive Award Plan (the “2017 Plan”) to replace our existing Amended and Restated Stock Option and Incentive Plan. The 2017 Plan, a long-term incentive plan for eligible employees and non-employees directors, allows us to grant stock-based compensation awards – including stock options, restricted stock units, performance units, and market-leveraged stock units – or a combination of these and other awards. Under the 2017 Plan, the aggregate number of shares available for issuance is 5.4 million shares and each full value award will be counted as 1.5 shares for purposes of the number of shares authorized for issuance. Full value awards include restricted stock units, performance units, and market-leveraged stock units. Stock-Based Awards Stock-based compensation expense was $5.6 million and $7.5 million for the three months ended April 1, 2017 and April 2, 2016, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income. As of April 1, 2017, we had approximately $51 million of unrecognized compensation expense related to unvested stock-based awards, which is expected to be recognized over the remaining weighted-average requisite service period of approximately three years. Cash-Based Awards The compensation expense related to long-term incentive units was $10.3 million and $9.5 million for the three months ended April 1, 2017 and April 2, 2016, respectively. This expense was included in “Marketing, general and administrative expense” in the unaudited Condensed Consolidated Statements of Income. |
Cost Reduction Actions
Cost Reduction Actions | 3 Months Ended |
Apr. 01, 2017 | |
Cost Reduction Actions | |
Cost Reduction Actions | Note 9. Cost Reduction Actions 2015/2016 Actions During the three months ended April 1, 2017, we recorded $5.8 million in restructuring charges, net of reversals, related to restructuring actions initiated during the third quarter of 2015 (“2015/2016 Actions”). These charges consisted of severance and related costs for the reduction of approximately 180 positions. Accruals for severance and related costs and lease cancellation costs were included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets. Asset impairment charges were based on the estimated market value of the assets, less selling costs, if applicable. Restructuring charges were included in “Other expense, net” in the unaudited Condensed Consolidated Statements of Income. During the three months ended April 1, 2017, restructuring charges and payments were as follows: (In millions) Accrual at Charges Cash Non-cash Foreign Accrual at 2015/2016 Actions Severance and related costs $ $ $ ) $ – $ – $ Lease cancellation costs .2 – (.2 ) – – – Prior actions Severance and related costs (.1 ) – – – Total $ $ $ ) $ – $ – $ The table below shows the total amount of restructuring charges incurred by reportable segment and Corporate: Three Months Ended (In millions) April 1, 2017 April 2, 2016 Restructuring charges by reportable segment and Corporate Label and Graphic Materials $ $ Retail Branding and Information Solutions Industrial and Healthcare Materials .2 .3 Corporate – – Total $ $ |
Financial Instruments
Financial Instruments | 3 Months Ended |
Apr. 01, 2017 | |
Financial Instruments | |
Financial Instruments | Note 10. Financial Instruments We enter into foreign exchange hedge contracts to reduce our risk from exchange rate fluctuations associated with receivables, payables, loans and firm commitments denominated in certain foreign currencies that arise primarily as a result of our operations outside the U.S. We enter into interest rate contracts to help manage our exposure to certain interest rate fluctuations. We also enter into futures contracts to hedge certain price fluctuations for a portion of our anticipated domestic purchases of natural gas. The maximum length of time for which we hedge our exposure to the variability in future cash flows for forecasted transactions is 36 months. As of April 1, 2017, the aggregate U.S. dollar equivalent notional value of our outstanding commodity contracts and foreign exchange contracts was $4 million and $1.74 billion, respectively. We recognize derivative instruments as either assets or liabilities at fair value in the unaudited Condensed Consolidated Balance Sheets. We designate commodity forward contracts on forecasted purchases of commodities and foreign exchange contracts on forecasted transactions as cash flow hedges and designate foreign exchange contracts on existing balance sheet items as fair value hedges. The following table shows the fair value and balance sheet locations of derivatives as of April 1, 2017: Asset Liability (In millions) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Foreign exchange contracts Other current assets $ Other current liabilities $ Commodity contracts Other current assets .3 Other current liabilities – $ $ The following table shows the fair value and balance sheet locations of derivatives as of December 31, 2016: Asset Liability (In millions) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Foreign exchange contracts Other current assets $ Other current liabilities $ Commodity contracts Other current assets .5 Other current liabilities – Commodity contracts Other assets .1 $ $ Fair Value Hedges For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings, resulting in no material net impact to income. The following table shows the components of net gains (losses), before taxes, recognized in income related to fair value hedge contracts. The corresponding gains or losses on the underlying hedged items approximated the net gains (losses) on these fair value hedge contracts. Three Months Ended (In millions) Location of Net Gains (Losses) in Income April 1, 2017 April 2, 2016 Foreign exchange contracts Cost of products sold $ ) $ Foreign exchange contracts Marketing, general and administrative expense ) $ .2 $ ) Cash Flow Hedges For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of “Accumulated other comprehensive loss” and reclassified into earnings in the same period(s) during which the hedged transaction impacts earnings. Gains and losses on the derivative, representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings. Gains (losses), before taxes, recognized in “Accumulated other comprehensive loss” (effective portion) on derivatives related to cash flow hedge contracts were as follows: Three Months Ended (In millions) April 1, 2017 April 2, 2016 Foreign exchange contracts $ ) $ ) Commodity contracts (.2 ) (.2 ) $ ) $ ) The amount recognized in income related to the ineffective portion of, and the amount excluded from, effectiveness testing for cash flow hedges and derivatives not designated as hedging instruments was not material for the three months ended April 1, 2017 and April 2, 2016, respectively. As of April 1, 2017, we expected a net gain of approximately $.3 million to be reclassified from “Accumulated other comprehensive loss” to earnings within the next 12 months. Net Investment Hedge In March 2017, we designated our €500 million of euro-denominated 1.25% senior notes due 2025 as a net investment hedge of our investment in foreign operations. The net assets from the investment in foreign operations were greater than the senior notes, and as such, the net investment hedge was effective. Refer to Note 5, “Debt,” for further information about our euro-denominated debt. Gain (loss), before tax, recognized in “Accumulated other comprehensive loss” (effective portion) related to the net investment hedge was as follows: Three Months Ended (In millions) April 1, 2017 April 2, 2016 Foreign currency denominated debt $ ) n/a We recorded no ineffectiveness from our net investment hedge in earnings during the three months ended April 1, 2017. |
Taxes Based on Income
Taxes Based on Income | 3 Months Ended |
Apr. 01, 2017 | |
Taxes Based on Income | |
Taxes Based on Income | Note 11. Taxes Based on Income The following table summarizes our income before taxes, provision for income taxes, and effective tax rate: Three Months Ended (In millions) April 1, 2017 April 2, 2016 Income before taxes $ $ Provision for income taxes Effective tax rate % % The effective tax rate for the three months ended April 1, 2017 and April 2, 2016 included $1.5 million and $2.6 million, respectively, of a discrete tax benefit due to decreases in certain tax reserves, including interest and penalties, as a result of closing tax years. The effective tax rate for the three months ended April 1, 2017 also included a net discrete benefit of $12.7 million corresponding to the adoption of an accounting guidance update related to stock-based payments in the first quarter of 2017, as described in Note 1, “General.” Additionally, the effective tax rate for the three months ended April 2, 2016 included $1.6 million of a net benefit related to changes in the effective tax rates in certain foreign municipalities. The accounting guidance update related to stock-based payments requires that the effect of excess tax benefits associated with stock-based payments be recognized in the income statement instead of in capital in excess of par value as was the case prior to our adoption of this guidance. Excess tax benefits are the tax effects of tax deductions in excess of compensation expenses recognized for financial accounting purposes. These benefits related to stock-based awards are generally generated as a result of stock price appreciation during the vesting period or between the time of grant and the time of exercise. We expect future excess tax benefits pursuant to this guidance to vary depending on the stock-based payments in future reporting periods. These excess tax benefits may cause variability in our future effective tax rate as they can fluctuate based on vesting and exercise activity, as well as our future stock price. The tax effect of the tax deductions in excess of compensation cost related to the exercise of nonqualified stock options and vesting of other stock-based compensation awards recognized in capital in excess of par value was $6.9 million for the three months ended April 2, 2016. In addition, the effective tax rate for the three months ended April 1, 2017 compared to the same period last year also reflects a decrease in tax expense related to favorable changes in the geographic mix of our income before taxes and our adoption of the accounting guidance update discussed above. The amount of income taxes we pay is subject to ongoing audits by taxing jurisdictions around the world. Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time. We believe that we have adequately provided for reasonably foreseeable outcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate. With some exceptions, we and our subsidiaries are no longer subject to income tax examinations by tax authorities for years prior to 2006. It is reasonably possible that, during the next 12 months, we may realize a decrease in our uncertain tax positions, including interest and penalties, of approximately $28 million, primarily as a result of audit settlements and closing tax years. |
Net Income Per Common Share
Net Income Per Common Share | 3 Months Ended |
Apr. 01, 2017 | |
Net Income Per Common Share | |
Net Income Per Common Share | Note 12. Net Income Per Common Share Net income per common share was computed as follows: Three Months Ended (In millions, except per share amounts) April 1, 2017 April 2, 2016 (A) Net income available to common shareholders $ $ (B) Weighted average number of common shares outstanding Dilutive shares (additional common shares issuable under stock-based awards) (1) (C) Weighted average number of common shares outstanding, assuming dilution Net income per common share (A) ÷ (B) $ $ Net income per common share, assuming dilution (A) ÷ (C) $ $ .98 (1) For the first quarter of 2017, the dilutive shares calculation reflects the impact of our adoption of an accounting guidance update. Refer to Note 1, “General,” for more information. Certain stock-based compensation awards were not included in the computation of net income per common share, assuming dilution, because they would not have had a dilutive effect. Stock-based compensation awards excluded from the computation totaled approximately .1 million shares and .5 million shares for the three months ended April 1, 2017 and April 2, 2016, respectively. |
Comprehensive Income
Comprehensive Income | 3 Months Ended |
Apr. 01, 2017 | |
Comprehensive Income | |
Comprehensive Income | Note 13. Comprehensive Income The changes in “Accumulated other comprehensive loss” (net of tax) for the three-month period ended April 1, 2017 were as follows: (In millions) Foreign Pension and Cash Flow Total Balance as of December 31, 2016 $ ) $ ) $ $ ) Other comprehensive income (loss) before reclassifications, net of tax – ) Reclassifications to net income, net of tax – Net current-period other comprehensive income (loss), net of tax (.8 ) Balance as of April 1, 2017 $ ) $ ) $ .2 $ ) The changes in “Accumulated other comprehensive loss” (net of tax) for the three-month period ended April 2, 2016 were as follows: (In millions) Foreign Pension and Cash Flow Total Balance as of January 2, 2016 $ ) $ ) $ ) $ ) Other comprehensive income (loss) before reclassifications, net of tax – ) Reclassifications to net income, net of tax – – Net current-period other comprehensive income (loss), net of tax ) Balance as of April 2, 2016 $ ) $ ) $ ) $ ) The amounts reclassified from “Accumulated other comprehensive loss” to increase (decrease) net income were as follows: Three Months Ended (In millions) April 1, 2017 April 2, 2016 Affected Line Item in the Cash flow hedges: Foreign exchange contracts $ (.9 ) $ .3 Cost of products sold Commodity contracts .1 (.3 ) Cost of products sold Interest rate contracts ) – Interest expense ) – Total before tax .8 – Provision for income taxes ) – Net of tax Pension and other postretirement benefits (1) ) ) Provision for income taxes ) ) Net of tax Total reclassifications for the period $ ) $ ) Total, net of tax (1) See Note 6, “Pension and Other Postretirement Benefits,” for more information . |
Fair Value Measurements
Fair Value Measurements | 3 Months Ended |
Apr. 01, 2017 | |
Fair Value Measurements | |
Fair Value Measurements | Note 14. Fair Value Measurements Recurring Fair Value Measurements The following table shows the assets and liabilities carried at fair value, measured on a recurring basis, as of April 1, 2017: Fair Value Measurements Using (In millions) Total Quoted Prices in Significant Other Significant Other Assets Trading securities $ $ $ $ – Derivative assets .3 – Bank drafts – – Liabilities Derivative liabilities $ $ – $ $ – The following table shows the assets and liabilities carried at fair value, measured on a recurring basis, as of December 31, 2016: Fair Value Measurements Using (In millions) Total Quoted Prices in Significant Other Significant Other Assets Trading securities $ $ $ $ – Derivative assets .6 – Bank drafts – – Liabilities Derivative liabilities $ $ – $ $ – Trading securities include fixed income securities (primarily U.S. government and corporate debt securities) measured at fair value using quoted prices/bids and a money market fund measured at fair value using net asset value. As of April 1, 2017, trading securities of $.3 million and $17.9 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the unaudited Condensed Consolidated Balance Sheets. As of December 31, 2016, trading securities of $.5 million and $17.6 million were included in “Cash and cash equivalents” and “Other current assets,” respectively, in the unaudited Condensed Consolidated Balance Sheets. Derivatives that are exchange-traded are measured at fair value using quoted market prices and classified within Level 1 of the 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. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Apr. 01, 2017 | |
Commitments and Contingencies | |
Commitments and Contingencies | Note 15. Commitments and Contingencies Legal Proceedings We are involved in various lawsuits, claims, inquiries, and other regulatory and compliance matters, most of which are routine to the nature of our business. 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 these liabilities. Because of the uncertainties associated with claims resolution and litigation, future expenses to resolve these matters could be higher than the liabilities we have accrued; however, we are unable to reasonably estimate a range of potential expenses. If information were to become available that allowed us to reasonably estimate a range of potential expenses in an amount higher or lower than what we have accrued, we would adjust our accrued liabilities accordingly. Additional lawsuits, claims, inquiries, and other regulatory and compliance matters could arise in the future. The range of expenses for resolving any future matters would be assessed as they arise; until then, a range of potential expenses for such resolution cannot be determined. Based upon current information, we believe that the impact of the resolution of these matters would not be, individually or in the aggregate, material to our financial position, results of operations or cash flows. Environmental Expenditures Environmental expenditures are generally expensed. However, environmental expenditures for newly acquired assets and those which extend or improve the economic useful life of existing assets are capitalized and amortized over the shorter of the estimated useful life of the acquired asset or the remaining life of the existing asset. We review our estimates of costs of compliance with environmental laws related to remediation and cleanup of various sites, including sites in which governmental agencies have designated us as a potentially responsible party (“PRP”). When it is probable that a loss will be incurred and where a range of the loss can be reasonably estimated, the best estimate within the range is accrued. When the best estimate within the range cannot be determined, the low end of the range is accrued. Potential insurance reimbursements are not offset against these liabilities. As of April 1, 2017, we have been designated by the U.S. Environmental Protection Agency (“EPA”) and/or other responsible state agencies as a PRP at thirteen waste disposal or waste recycling sites that are the subject of separate investigations or proceedings concerning alleged soil and/or groundwater contamination. No settlement of our liability related to any of 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, future expenses to remediate these sites could be higher than the liabilities we have accrued; however, we are unable to reasonably estimate a range of potential expenses. If information were to become available that allowed us to reasonably estimate a range of potential expenses in an amount higher or lower than what we have accrued, we would adjust our environmental liabilities accordingly. In addition, we may be identified as a PRP at additional sites in the future. The range of expenses for remediation of any future-identified sites would be addressed as they arise; until then, a range of expenses for such remediation cannot be determined. The activity for the three months ended April 1, 2017 related to our environmental liabilities was as follows: (In millions) Balance at December 31, 2016 $ Charges (reversals), net .6 Payments ) Balance at April 1, 2017 $ Approximately $12 million and $8 million of the balance was classified as short-term and included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets as of April 1, 2017 and December 31, 2016, respectively. |
Segment Information
Segment Information | 3 Months Ended |
Apr. 01, 2017 | |
Segment Information | |
Segment Information | Note 16. Segment Information Financial information by reportable segment is set forth below: Three Months Ended (In millions) April 1, 2017 April 2, 2016 Net sales to unaffiliated customers Label and Graphic Materials $ $ Retail Branding and Information Solutions Industrial and Healthcare Materials Net sales to unaffiliated customers $ $ Intersegment sales Label and Graphic Materials $ $ Retail Branding and Information Solutions .9 .9 Industrial and Healthcare Materials Intersegment sales $ $ Income before taxes Label and Graphic Materials $ $ Retail Branding and Information Solutions Industrial and Healthcare Materials Corporate expense ) ) Interest expense ) ) Income before taxes $ $ Other expense, net by reportable segment Label and Graphic Materials $ $ Retail Branding and Information Solutions Industrial and Healthcare Materials .5 .3 Other expense, net $ $ Other expense, net by type Restructuring charges: Severance and related costs $ $ Asset impairment charges and lease cancellation costs – .4 Other items: Transaction costs .8 – Other expense, net $ $ |
Recent Accounting Requirements
Recent Accounting Requirements | 3 Months Ended |
Apr. 01, 2017 | |
Recent Accounting Requirements | |
Recent Accounting Requirements | Note 17. Recent Accounting Requirements In March 2017, the Financial Accounting Standards Board (“FASB”) issued guidance that requires employers to present only the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Employers are required to present the other components of the net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. Components other than the service cost component will not be eligible for capitalization in assets. Employers are required to apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively, while the guidance that limits the capitalization of net periodic benefit cost in assets to the service cost component must be applied prospectively. This guidance will be effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. We are currently assessing the impact of this guidance on our financial position, results of operations, cash flows, and disclosures. In February 2017, the FASB issued amended guidance on how entities account for the derecognition of a nonfinancial asset. It requires entities to apply certain recognition and measurement principles consistent with revenue recognition guidance when they derecognize nonfinancial assets and the counterparty is not a customer. This guidance will be effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. We are currently assessing the impact of this guidance on our financial position, results of operations, cash flows, and disclosures. In March 2016, the FASB issued guidance on accounting for leases that requires lessees to recognize the rights and obligations created by leases on their balance sheets. This guidance also requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective approach is required for adoption with respect to all leases that exist at or commence after the date of initial application with an option to use certain practical expedients. While we are currently assessing the impact of this guidance on our financial position, results of operations, cash flows, and disclosures, we currently expect adoption of this guidance to have a significant impact on our financial position and disclosures. In May 2014, and in subsequent updates, the FASB issued revised guidance on revenue recognition. This revised guidance provides a single comprehensive model for accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This revised guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This revised guidance creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. This revised guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. This revised guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and can be applied retrospectively either to each prior reporting period presented (“full retrospective”) or with the cumulative effect of adoption recognized at the date of initial application (“modified retrospective”). Early adoption is permitted for fiscal periods beginning after December 15, 2016. We expect to adopt the new standard under the modified retrospective approach in the first quarter of 2018. Based on the information we have evaluated to date, we do not anticipate that the adoption of this revised guidance will have a significant impact on our financial position, results of operations, or cash flows. |
Subsequent Event
Subsequent Event | 3 Months Ended |
Apr. 01, 2017 | |
Subsequent Event | |
Subsequent Event | Note 18. Subsequent Event In April 2017, subsequent to the end of the first quarter of 2017, our Board of Directors (“Board”) authorized the repurchase of shares of our common stock with a fair market value of up to $650 million, exclusive of any fees, commissions or other expenses related to such purchases and in addition to the amount outstanding under our previous Board authorization. This authorization will remain in effect until shares in the amount authorized have been repurchased. |
General (Policies)
General (Policies) | 3 Months Ended |
Apr. 01, 2017 | |
General | |
Fiscal Periods | Fiscal Periods The first quarters of 2017 and 2016 consisted of thirteen-week periods ending April 1, 2017 and April 2, 2016, respectively. |
Accounting Guidance Update | Accounting Guidance Update In the first quarter of 2017, we adopted an accounting guidance update that simplifies several aspects of the accounting for stock-based payment transactions. As a result of adopting this update, beginning in the first quarter of 2017, (i) the tax effects related to stock-based payments at settlement or expiration were recognized through the income statement, a change from the previous requirement that certain tax effects be recognized in capital in excess of par value, and, as required by this guidance, this change has been applied prospectively, and (ii) all tax-related cash flows resulting from stock-based payments were reported as operating activities on the statements of cash flows, a change from the previous requirement to present excess tax benefits as an inflow from financing activities and an outflow from operating activities, and, as permitted by this guidance, prior periods have not been retrospectively adjusted. Refer to Note 8, “Long-Term Incentive Compensation,” and Note 11, “Taxes Based on Income,” for further information. |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Inventories | |
Net inventories | (In millions) April 1, 2017 December 31, 2016 Raw materials $ $ Work-in-progress Finished goods Inventories, net $ $ |
Goodwill and Other Intangible27
Goodwill and Other Intangibles Resulting from Business Acquisitions (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Goodwill and Other Intangibles Resulting from Business Acquisitions | |
Changes in net carrying amount of goodwill | (In millions) Label and Retail Branding Industrial and Total Goodwill as of December 31, 2016 $ $ $ $ Acquired during the current period (1) – – Acquisition adjustments (2) .1 – – .1 Translation adjustments – Goodwill as of April 1, 2017 $ $ $ $ (1) Goodwill acquired during the current period primarily related to the Hanita acquisition. (2) Goodwill adjustments during the current period related to the Mactac acquisition completed in August 2016. |
Summary of the preliminary amounts of finite-lived intangible assets | Amount Customer relationships $ Patents and other acquired technology Trade names and trademarks |
Pension and Other Postretirem28
Pension and Other Postretirement Benefits (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Pension and Other Postretirement Benefits | |
Schedule of components of net periodic benefit cost (credit) | Pension Benefits U.S. Postretirement Three Months Ended Three Months Ended April 1, 2017 April 2, 2016 April 1, 2017 April 2, 2016 (In millions) U.S. Int’l U.S. Int’l Service cost $ .1 $ $ .1 $ $ – $ – Interest cost – .1 Expected return on plan assets ) ) ) ) – – Recognized net actuarial loss .4 .5 Amortization of prior service cost (credit) .2 (.1 ) .3 (.1 ) (.8 ) (.8 ) Net periodic benefit cost (credit) $ $ $ $ $ (.4 ) $ (.2 ) |
Cost Reduction Actions (Tables)
Cost Reduction Actions (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Cost Reduction Actions | |
Restructuring charges and payments | (In millions) Accrual at Charges Cash Non-cash Foreign Accrual at 2015/2016 Actions Severance and related costs $ $ $ ) $ – $ – $ Lease cancellation costs .2 – (.2 ) – – – Prior actions Severance and related costs (.1 ) – – – Total $ $ $ ) $ – $ – $ |
Total amount of restructuring charges incurred by reportable segment and Corporate | Three Months Ended (In millions) April 1, 2017 April 2, 2016 Restructuring charges by reportable segment and Corporate Label and Graphic Materials $ $ Retail Branding and Information Solutions Industrial and Healthcare Materials .2 .3 Corporate – – Total $ $ |
Financial Instruments (Tables)
Financial Instruments (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Financial Instruments | |
Fair value and balance sheet locations of derivatives | The following table shows the fair value and balance sheet locations of derivatives as of April 1, 2017: Asset Liability (In millions) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Foreign exchange contracts Other current assets $ Other current liabilities $ Commodity contracts Other current assets .3 Other current liabilities – $ $ The following table shows the fair value and balance sheet locations of derivatives as of December 31, 2016: Asset Liability (In millions) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Foreign exchange contracts Other current assets $ Other current liabilities $ Commodity contracts Other current assets .5 Other current liabilities – Commodity contracts Other assets .1 $ $ |
Components of net gains (losses), before taxes, recognized in income related to fair value hedge contracts | Three Months Ended (In millions) Location of Net Gains (Losses) in Income April 1, 2017 April 2, 2016 Foreign exchange contracts Cost of products sold $ ) $ Foreign exchange contracts Marketing, general and administrative expense ) $ .2 $ ) |
Components of the gains (losses), before taxes, recognized in Accumulated other comprehensive loss related to cash flow hedge contracts | Three Months Ended (In millions) April 1, 2017 April 2, 2016 Foreign exchange contracts $ ) $ ) Commodity contracts (.2 ) (.2 ) $ ) $ ) |
Components of gain (loss), before tax, recognized in Accumulated other comprehensive loss related to the net investment hedge | Three Months Ended (In millions) April 1, 2017 April 2, 2016 Foreign currency denominated debt $ ) n/a |
Taxes Based on Income (Tables)
Taxes Based on Income (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Taxes Based on Income | |
Income before taxes, provision for income taxes, and effective tax rate from continuing operations | Three Months Ended (In millions) April 1, 2017 April 2, 2016 Income before taxes $ $ Provision for income taxes Effective tax rate % % |
Net Income Per Common Share (Ta
Net Income Per Common Share (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Net Income Per Common Share | |
Schedule of net income per common share | Three Months Ended (In millions, except per share amounts) April 1, 2017 April 2, 2016 (A) Net income available to common shareholders $ $ (B) Weighted average number of common shares outstanding Dilutive shares (additional common shares issuable under stock-based awards) (1) (C) Weighted average number of common shares outstanding, assuming dilution Net income per common share (A) ÷ (B) $ $ Net income per common share, assuming dilution (A) ÷ (C) $ $ .98 (1) For the first quarter of 2017, the dilutive shares calculation reflects the impact of our adoption of an accounting guidance update. Refer to Note 1, “General,” for more information. |
Comprehensive Income (Tables)
Comprehensive Income (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Comprehensive Income | |
Schedule of changes in "Accumulated other comprehensive loss" (net of tax) | (In millions) Foreign Pension and Cash Flow Total Balance as of December 31, 2016 $ ) $ ) $ $ ) Other comprehensive income (loss) before reclassifications, net of tax – ) Reclassifications to net income, net of tax – Net current-period other comprehensive income (loss), net of tax (.8 ) Balance as of April 1, 2017 $ ) $ ) $ .2 $ ) (In millions) Foreign Pension and Cash Flow Total Balance as of January 2, 2016 $ ) $ ) $ ) $ ) Other comprehensive income (loss) before reclassifications, net of tax – ) Reclassifications to net income, net of tax – – Net current-period other comprehensive income (loss), net of tax ) Balance as of April 2, 2016 $ ) $ ) $ ) $ ) |
Schedule of amounts reclassified from "Accumulated other comprehensive loss" to increase (decrease) net income | Three Months Ended (In millions) April 1, 2017 April 2, 2016 Affected Line Item in the Cash flow hedges: Foreign exchange contracts $ (.9 ) $ .3 Cost of products sold Commodity contracts .1 (.3 ) Cost of products sold Interest rate contracts ) – Interest expense ) – Total before tax .8 – Provision for income taxes ) – Net of tax Pension and other postretirement benefits (1) ) ) Provision for income taxes ) ) Net of tax Total reclassifications for the period $ ) $ ) Total, net of tax (1) See Note 6, “Pension and Other Postretirement Benefits,” for more information . |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Fair Value Measurements | |
Assets and liabilities carried at fair value, measured on a recurring basis | The following table shows the assets and liabilities carried at fair value, measured on a recurring basis, as of April 1, 2017: Fair Value Measurements Using (In millions) Total Quoted Prices in Significant Other Significant Other Assets Trading securities $ $ $ $ – Derivative assets .3 – Bank drafts – – Liabilities Derivative liabilities $ $ – $ $ – The following table shows the assets and liabilities carried at fair value, measured on a recurring basis, as of December 31, 2016: Fair Value Measurements Using (In millions) Total Quoted Prices in Significant Other Significant Other Assets Trading securities $ $ $ $ – Derivative assets .6 – Bank drafts – – Liabilities Derivative liabilities $ $ – $ $ – |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Commitments and Contingencies | |
Costs of environmental liabilities with remediation | (In millions) Balance at December 31, 2016 $ Charges (reversals), net .6 Payments ) Balance at April 1, 2017 $ |
Segment Information (Tables)
Segment Information (Tables) | 3 Months Ended |
Apr. 01, 2017 | |
Segment Information | |
Summary of Financial information by reportable segment | Three Months Ended (In millions) April 1, 2017 April 2, 2016 Net sales to unaffiliated customers Label and Graphic Materials $ $ Retail Branding and Information Solutions Industrial and Healthcare Materials Net sales to unaffiliated customers $ $ Intersegment sales Label and Graphic Materials $ $ Retail Branding and Information Solutions .9 .9 Industrial and Healthcare Materials Intersegment sales $ $ Income before taxes Label and Graphic Materials $ $ Retail Branding and Information Solutions Industrial and Healthcare Materials Corporate expense ) ) Interest expense ) ) Income before taxes $ $ Other expense, net by reportable segment Label and Graphic Materials $ $ Retail Branding and Information Solutions Industrial and Healthcare Materials .5 .3 Other expense, net $ $ Other expense, net by type Restructuring charges: Severance and related costs $ $ Asset impairment charges and lease cancellation costs – .4 Other items: Transaction costs .8 – Other expense, net $ $ |
General (Details)
General (Details) | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
General | ||
Length of fiscal period | 91 days | 91 days |
Acquisitions (Details)
Acquisitions (Details) - USD ($) $ in Millions | Mar. 01, 2017 | Feb. 28, 2017 |
Hanita Acquisition | ||
Acquisitions | ||
Purchase price | $ 75 | |
Yongle Tape Acquisition | ||
Acquisitions | ||
Purchase price | $ 190 | |
Additional earn-out opportunity to be paid | $ 55 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Millions | Apr. 01, 2017 | Dec. 31, 2016 |
Inventories | ||
Raw materials | $ 209.2 | $ 185 |
Work-in-progress | 172.2 | 156.8 |
Finished goods | 198.5 | 177.3 |
Inventories, net | $ 579.9 | $ 519.1 |
Goodwill and Other Intangible40
Goodwill and Other Intangibles Resulting from Business Acquisitions (Details) - USD ($) $ in Millions | Apr. 01, 2017 | Apr. 01, 2017 | Dec. 31, 2016 |
Changes in the net carrying amount of goodwill | |||
Goodwill, Beginning Balance | $ 793.6 | ||
Acquired during the current period | 20.2 | ||
Acquisition adjustments | 0.1 | ||
Translation adjustments | 12.5 | ||
Goodwill, Ending Balance | $ 826.4 | 826.4 | |
Hanita Acquisition | |||
Finite Lived Intangible Assets Acquired | |||
Intangible assets acquired | 21 | $ 21 | |
Hanita Acquisition | Significant Other Unobservable Inputs (Level 3) | Minimum | |||
Finite Lived Intangible Assets Acquired | |||
Discount rate used to value the intangibles | 13.00% | ||
Hanita Acquisition | Significant Other Unobservable Inputs (Level 3) | Maximum | |||
Finite Lived Intangible Assets Acquired | |||
Discount rate used to value the intangibles | 16.00% | ||
Customer relationships | |||
Acquired Finite-Lived Intangible Assets | |||
Intangible assets acquired | 3.1 | ||
Patents and other acquired technology | |||
Acquired Finite-Lived Intangible Assets | |||
Intangible assets acquired | 15.1 | ||
Trade names and trademarks | |||
Acquired Finite-Lived Intangible Assets | |||
Intangible assets acquired | 2.6 | ||
Label and Graphic Materials | |||
Changes in the net carrying amount of goodwill | |||
Goodwill, Beginning Balance | $ 373.3 | ||
Acquired during the current period | 20.2 | ||
Acquisition adjustments | 0.1 | ||
Translation adjustments | 11.3 | ||
Goodwill, Ending Balance | 404.9 | 404.9 | |
Retail Branding and Information Solutions | |||
Changes in the net carrying amount of goodwill | |||
Goodwill, Beginning Balance | 353.9 | ||
Translation adjustments | 1.2 | ||
Goodwill, Ending Balance | 355.1 | 355.1 | |
Accumulated impairment losses | 820 | 820 | $ 820 |
Industrial and Healthcare Materials | |||
Changes in the net carrying amount of goodwill | |||
Goodwill, Beginning Balance | 66.4 | ||
Goodwill, Ending Balance | $ 66.4 | $ 66.4 |
Debt (Details)
Debt (Details) € in Millions, $ in Millions | 1 Months Ended | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2017EUR (€) | Mar. 31, 2017USD ($) | Apr. 01, 2017USD ($) | Dec. 31, 2016USD ($) | |
Debt and Capital Leases | ||||
Fair value of debt | $ 1,600 | $ 1,310 | ||
Revolving credit facility | ||||
Debt and Capital Leases | ||||
Maximum borrowing capacity | $ 700 | |||
Covenants compliance | we were in compliance with our financial covenants. | we were in compliance with our financial covenants. | ||
Senior notes due March 2025 at 1.25% | ||||
Debt and Capital Leases | ||||
Senior notes issued | € | € 500 | |||
Interest rate of senior notes (as a percent) | 1.25% | |||
Proceeds, net of underwriting discounts and offering expenses | € 495.6 | $ 526.7 | ||
Repayments of debt using proceeds from issuance of senior notes due March 2025 at 1.25% | € 200 | $ 215 |
Pension and Other Postretirem42
Pension and Other Postretirement Benefits (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
U.S. | ||
Components of net periodic benefit cost (credit) | ||
Service cost | $ 0.1 | $ 0.1 |
Interest cost | 8.4 | 9.8 |
Expected return on plan assets | (10.1) | (11.4) |
Recognized net actuarial loss | 4.6 | 4.4 |
Amortization of prior service cost (credit) | 0.2 | 0.3 |
Net periodic benefit cost (credit) | 3.2 | 3.2 |
Int'l | ||
Components of net periodic benefit cost (credit) | ||
Service cost | 4.3 | 3.4 |
Interest cost | 3.4 | 4.1 |
Expected return on plan assets | (5) | (5.3) |
Recognized net actuarial loss | 2.6 | 1.8 |
Amortization of prior service cost (credit) | (0.1) | (0.1) |
Net periodic benefit cost (credit) | 5.2 | 3.9 |
U.S. Postretirement Health Benefits | ||
Components of net periodic benefit cost (credit) | ||
Interest cost | 0.1 | |
Recognized net actuarial loss | 0.4 | 0.5 |
Amortization of prior service cost (credit) | (0.8) | (0.8) |
Net periodic benefit cost (credit) | $ (0.4) | $ (0.2) |
Research and Development (Detai
Research and Development (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Marketing, general and administrative expense | ||
Research and development expense | $ 22.9 | $ 22.3 |
Long-Term Incentive Compensat44
Long-Term Incentive Compensation (Details) - USD ($) $ in Millions | 1 Months Ended | 3 Months Ended | |
Apr. 30, 2017 | Apr. 01, 2017 | Apr. 02, 2016 | |
Marketing, general and administrative expense | |||
Long-Term Incentive Compensation | |||
Stock-based compensation expense | $ 5.6 | $ 7.5 | |
Cash-Based LTI Compensation | |||
Cash-based LTI awards compensation expense | 10.3 | $ 9.5 | |
Stock-based awards | |||
Long-Term Incentive Compensation | |||
Unrecognized compensation cost related to share based compensation cost | $ 51 | ||
Unrecognized compensation cost weighted average recognition period | 3 years | ||
2017 Plan | Subsequent Event | |||
Long-Term Incentive Compensation | |||
Aggregate number of shares available under the plan | 5,400,000 | ||
Fungible share ratio | 1.5 |
Cost Reduction Actions (Details
Cost Reduction Actions (Details) $ in Millions | 3 Months Ended |
Apr. 01, 2017USD ($)item | |
Restructuring charges | |
Charges (Reversals), net | $ 5.7 |
2015/2016 Actions | |
Restructuring charges | |
Charges (Reversals), net | $ 5.8 |
Number of positions reduced as a result of Cost Reduction Actions | item | 180 |
Cost Reduction Actions - Restru
Cost Reduction Actions - Restructuring Charges and Payments (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Cost Reduction Actions | ||
Beginning Balance | $ 4.8 | |
Charges (Reversals), net | 5.7 | |
Cash Payments | (7.6) | |
Ending Balance | 2.9 | |
Severance and related costs | ||
Cost Reduction Actions | ||
Charges (Reversals), net | 5.7 | $ 5.2 |
2015/2016 Actions | ||
Cost Reduction Actions | ||
Charges (Reversals), net | 5.8 | |
2015/2016 Actions | Severance and related costs | ||
Cost Reduction Actions | ||
Beginning Balance | 3.3 | |
Charges (Reversals), net | 5.8 | |
Cash Payments | (7.4) | |
Ending Balance | 1.7 | |
2015/2016 Actions | Lease cancellation costs | ||
Cost Reduction Actions | ||
Beginning Balance | 0.2 | |
Cash Payments | (0.2) | |
Prior actions | Severance and related costs | ||
Cost Reduction Actions | ||
Beginning Balance | 1.3 | |
Charges (Reversals), net | (0.1) | |
Ending Balance | $ 1.2 |
Cost Reduction Actions - Report
Cost Reduction Actions - Reportable Segment and Corporate (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Restructuring charges | ||
Restructuring charges | $ 5.7 | |
Other expense, net | ||
Restructuring charges | ||
Restructuring charges | 5.7 | $ 5.6 |
Label and Graphic Materials | Other expense, net | ||
Restructuring charges | ||
Restructuring charges | 2 | 2.1 |
Retail Branding and Information Solutions | Other expense, net | ||
Restructuring charges | ||
Restructuring charges | 3.5 | 3.2 |
Industrial and Healthcare Materials | Other expense, net | ||
Restructuring charges | ||
Restructuring charges | $ 0.2 | $ 0.3 |
Financial Instruments (Details)
Financial Instruments (Details) - Cash Flow Hedging $ in Millions | 3 Months Ended |
Apr. 01, 2017USD ($) | |
Financial Instruments | |
Maximum length of time hedged in cash flow hedge | 36 months |
Cash flow net gain to be reclassified within the next 12 months | $ 0.3 |
Commodity contracts | |
Financial Instruments | |
Notional amount | 4 |
Foreign exchange contracts | |
Financial Instruments | |
Notional amount | $ 1,740 |
Financial Instruments - Fair Va
Financial Instruments - Fair Value (Details) - USD ($) $ in Millions | Apr. 01, 2017 | Dec. 31, 2016 |
Derivatives, Fair Value | ||
Asset | $ 7 | $ 5.2 |
Liability | 3.2 | 7.8 |
Foreign exchange contracts | Other current assets | ||
Derivatives, Fair Value | ||
Asset | 6.7 | 4.6 |
Foreign exchange contracts | Other current liabilities | ||
Derivatives, Fair Value | ||
Liability | 3.2 | 7.8 |
Commodity contracts | Other current assets | ||
Derivatives, Fair Value | ||
Asset | $ 0.3 | 0.5 |
Commodity contracts | Other assets | ||
Derivatives, Fair Value | ||
Asset | $ 0.1 |
Financial Instruments - Net Gai
Financial Instruments - Net Gain (Loss) Recognized in Income (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Fair Value Hedges | ||
Gain (loss) in income | $ 0.2 | $ (3.5) |
Foreign exchange contracts | Cost of products sold | ||
Fair Value Hedges | ||
Gain (loss) in income | (1) | 1 |
Foreign exchange contracts | Marketing, general and administrative expense | ||
Fair Value Hedges | ||
Gain (loss) in income | $ 1.2 | $ (4.5) |
Financial Instruments - Gains (
Financial Instruments - Gains (Losses), before Taxes, Recognized in AOCI (Details) - Cash Flow Hedging - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Derivative Instruments, Gains (Losses) | ||
Gains (losses) recognized in accumulated other comprehensive loss | $ (3.3) | $ (1.7) |
Foreign exchange contracts | ||
Derivative Instruments, Gains (Losses) | ||
Gains (losses) recognized in accumulated other comprehensive loss | (3.1) | (1.5) |
Commodity contracts | ||
Derivative Instruments, Gains (Losses) | ||
Gains (losses) recognized in accumulated other comprehensive loss | $ (0.2) | $ (0.2) |
Financial Instruments - Net Inv
Financial Instruments - Net Investment Hedge (Details) € in Millions, $ in Millions | 3 Months Ended | |
Apr. 01, 2017USD ($) | Mar. 31, 2017EUR (€) | |
Derivative Instruments, Gains (Losses) | ||
Amount of ineffectiveness from net investment hedge in earnings | $ | $ 0 | |
Senior notes due March 2025 at 1.25% | ||
Derivative Instruments, Gains (Losses) | ||
Senior notes issued | € | € 500 | |
Interest rate of senior notes (as a percent) | 1.25% | |
Net Investment Hedge | Designated | ||
Derivative Instruments, Gains (Losses) | ||
Foreign currency denominated debt | $ | $ (11.4) | |
Net Investment Hedge | Designated | Senior notes due March 2025 at 1.25% | ||
Derivative Instruments, Gains (Losses) | ||
Senior notes issued | € | € 500 | |
Interest rate of senior notes (as a percent) | 1.25% |
Taxes Based on Income (Details)
Taxes Based on Income (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Taxes Based on Income | ||
Income before taxes | $ 135.9 | $ 123.5 |
Provision for income taxes | $ 23.7 | $ 33.9 |
Effective tax rate (as a percent) | 17.40% | 27.40% |
Tax benefits due to decreases in certain tax reserves as a result of closing tax years | $ 1.5 | $ 2.6 |
Net tax discrete benefit corresponding to the adoption of an accounting guidance related to stock-based payments | 12.7 | |
Net tax benefit related to changes in the effective tax rates in certain foreign municipalities | 1.6 | |
Tax effect of the tax deductions in excess of compensation cost related to the exercise of nonqualified stock options and vesting of other stock-based compensation awards recognized in capital in excess of par value | $ 6.9 | |
Reasonably possible decrease in unrecognized tax benefits from continuing operations during next 12 months | $ 28 |
Net Income Per Common Share (De
Net Income Per Common Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Net Income Per Common Share | ||
Net income available to common shareholders | $ 112.2 | $ 89.6 |
Weighted average number of common shares outstanding | 88.4 | 89.4 |
Dilutive shares (additional common shares issuable under stock-based awards) | 1.6 | 1.7 |
Weighted average number of common shares outstanding, assuming dilution | 90 | 91.1 |
Net income per common share (in dollars per share) | $ 1.27 | $ 1 |
Net income per common share, assuming dilution (in dollars per share) | $ 1.25 | $ 0.98 |
Stock-based compensation awards excluded from the computation of net income per common share, assuming dilution | 0.1 | 0.5 |
Comprehensive Income - Changes
Comprehensive Income - Changes in AOCI (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Changes in Accumulated other comprehensive loss (net of tax) | ||
Balance at beginning of the period | $ (751.9) | $ (683) |
Other comprehensive income (loss) before reclassifications, net of tax | 32.9 | 17.6 |
Reclassifications to net income, net of tax | 6.5 | 4.2 |
Net current-period other comprehensive income (loss), net of tax | 39.4 | 21.8 |
Balance at end of the period | (712.5) | (661.2) |
Foreign Currency Translation | ||
Changes in Accumulated other comprehensive loss (net of tax) | ||
Balance at beginning of the period | (212.6) | (158.9) |
Other comprehensive income (loss) before reclassifications, net of tax | 35.5 | 18.9 |
Net current-period other comprehensive income (loss), net of tax | 35.5 | 18.9 |
Balance at end of the period | (177.1) | (140) |
Pension and Other Postretirement Benefits | ||
Changes in Accumulated other comprehensive loss (net of tax) | ||
Balance at beginning of the period | (540.3) | (521.6) |
Reclassifications to net income, net of tax | 4.7 | 4.2 |
Net current-period other comprehensive income (loss), net of tax | 4.7 | 4.2 |
Balance at end of the period | (535.6) | (517.4) |
Cash Flow Hedges | ||
Changes in Accumulated other comprehensive loss (net of tax) | ||
Balance at beginning of the period | 1 | (2.5) |
Other comprehensive income (loss) before reclassifications, net of tax | (2.6) | (1.3) |
Reclassifications to net income, net of tax | 1.8 | |
Net current-period other comprehensive income (loss), net of tax | (0.8) | (1.3) |
Balance at end of the period | $ 0.2 | $ (3.8) |
Comprehensive Income - Reclassi
Comprehensive Income - Reclassified from AOCI (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Amounts reclassified from Accumulated other comprehensive loss | ||
Cost of products sold | $ (1,129.7) | $ (1,062.9) |
Interest expense | (16.7) | (15.3) |
Income before taxes | 135.9 | 123.5 |
Provision for income taxes | (23.7) | (33.9) |
Net income | 112.2 | 89.6 |
Amounts Reclassified from Accumulated other comprehensive loss | ||
Amounts reclassified from Accumulated other comprehensive loss | ||
Net income | (6.5) | (4.2) |
Cash Flow Hedges | Amounts Reclassified from Accumulated other comprehensive loss | ||
Amounts reclassified from Accumulated other comprehensive loss | ||
Income before taxes | (2.6) | |
Provision for income taxes | 0.8 | |
Net income | (1.8) | |
Cash Flow Hedges | Amounts Reclassified from Accumulated other comprehensive loss | Foreign exchange contracts | ||
Amounts reclassified from Accumulated other comprehensive loss | ||
Cost of products sold | (0.9) | 0.3 |
Cash Flow Hedges | Amounts Reclassified from Accumulated other comprehensive loss | Commodity contracts | ||
Amounts reclassified from Accumulated other comprehensive loss | ||
Cost of products sold | 0.1 | (0.3) |
Cash Flow Hedges | Amounts Reclassified from Accumulated other comprehensive loss | Interest rate contracts | ||
Amounts reclassified from Accumulated other comprehensive loss | ||
Interest expense | (1.8) | |
Pension and Other Postretirement Benefits | Amounts Reclassified from Accumulated other comprehensive loss | ||
Amounts reclassified from Accumulated other comprehensive loss | ||
Pension and other postretirement benefits | (6.9) | (6.1) |
Provision for income taxes | 2.2 | 1.9 |
Net income | $ (4.7) | $ (4.2) |
Fair Value Measurements (Detail
Fair Value Measurements (Details) - USD ($) $ in Millions | Apr. 01, 2017 | Dec. 31, 2016 |
Assets | ||
Derivative assets | $ 7 | $ 5.2 |
Liabilities | ||
Derivative liabilities | 3.2 | 7.8 |
Recurring | ||
Assets | ||
Trading securities | 18.2 | 18.1 |
Derivative assets | 7 | 5.2 |
Bank drafts | 10 | 14.3 |
Liabilities | ||
Derivative liabilities | 3.2 | 7.8 |
Recurring | Cash and Cash Equivalents | ||
Assets | ||
Trading securities | 0.3 | 0.5 |
Recurring | Other current assets | ||
Assets | ||
Trading securities | 17.9 | 17.6 |
Quoted Prices in Active Markets (Level 1) | Recurring | ||
Assets | ||
Trading securities | 11.9 | 11.7 |
Derivative assets | 0.3 | 0.6 |
Bank drafts | 10 | 14.3 |
Significant Other Observable Inputs (Level 2) | Recurring | ||
Assets | ||
Trading securities | 6.3 | 6.4 |
Derivative assets | 6.7 | 4.6 |
Liabilities | ||
Derivative liabilities | $ 3.2 | $ 7.8 |
Commitments and Contingencies58
Commitments and Contingencies (Details) $ in Millions | 3 Months Ended | |
Apr. 01, 2017USD ($)item | Dec. 31, 2016USD ($) | |
Environmental | ||
Environmental site contingency number of sites | item | 13 | |
Activity related to environmental liabilities | ||
Balance at beginning of year | $ 21.3 | |
Charges (reversals), net | 0.6 | |
Payments | (1.7) | |
Balance at end of year | 20.2 | |
Short term environmental liabilities | $ 12 | $ 8 |
Segment Information - Sales (De
Segment Information - Sales (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Segment Information | ||
Net sales | $ 1,572.1 | $ 1,485.5 |
Interest expense | (16.7) | (15.3) |
Income before taxes | 135.9 | 123.5 |
Other expense, net | 6.5 | 5.6 |
Intersegment | ||
Segment Information | ||
Net sales | 17.7 | 20.2 |
Label and Graphic Materials | Operating segments | ||
Segment Information | ||
Net sales | 1,089.6 | 1,012.6 |
Income before taxes | 135.8 | 126.6 |
Other expense, net | 2.2 | 2.1 |
Label and Graphic Materials | Intersegment | ||
Segment Information | ||
Net sales | 15.2 | 16.8 |
Retail Branding and Information Solutions | Operating segments | ||
Segment Information | ||
Net sales | 366.8 | 359.5 |
Income before taxes | 26.6 | 21.5 |
Other expense, net | 3.8 | 3.2 |
Retail Branding and Information Solutions | Intersegment | ||
Segment Information | ||
Net sales | 0.9 | 0.9 |
Industrial and Healthcare Materials | Operating segments | ||
Segment Information | ||
Net sales | 115.7 | 113.4 |
Income before taxes | 12.8 | 15.6 |
Other expense, net | 0.5 | 0.3 |
Industrial and Healthcare Materials | Intersegment | ||
Segment Information | ||
Net sales | 1.6 | 2.5 |
Corporate | ||
Segment Information | ||
Income before taxes | $ (22.6) | $ (24.9) |
Segment Information - Expense (
Segment Information - Expense (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 01, 2017 | Apr. 02, 2016 | |
Restructuring charges | ||
Restructuring charges | $ 5.7 | |
Other items: | ||
Transaction costs | 0.8 | |
Other expense, net | 6.5 | $ 5.6 |
Severance and related costs | ||
Restructuring charges | ||
Restructuring charges | $ 5.7 | 5.2 |
Asset impairment charges and lease cancellation costs | ||
Restructuring charges | ||
Restructuring charges | $ 0.4 |
Subsequent Event (Details)
Subsequent Event (Details) $ in Millions | Apr. 30, 2017USD ($) |
Common stock | Subsequent Event | |
Subsequent Event | |
Share repurchase authorized amount | $ 650 |