Avery Dennison Corporation
207 Goode Avenue
Glendale, California 91203
www.averydennison.com
Avery
Dennison
Corporation
2015
Annual
Report
Accelerating
our momentum
Table of
Contents
Financial Highlights
Letter to Shareholders
Businesses at a Glance
Directors and Officers
Financial Information
1
2
7
9
10
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sustainable value by developing solutions
for all of our stakeholders.
Financial
Highlights
$1.46
DIvIDenDS per COMMOn SHAre
Dividends per common share paid in
2015 totaled $1.46, an increase of 9%
over 2014. We distributed a total of
$365 million to shareholders in 2015
through dividends and the repurchase of
3.9 million shares of our common stock.
$274.3
2015
$245.1
2014**
$213.2
2013**
Other†
5%
Latin
America
8%
U.S.
26%
$6.3
2014
$6.1
2013
$6.0
2015
Asia
32%
Western
Europe
24%
Eastern
Europe
and MENA
6%
revenUe BY GeOGrApHY
†Canada, South Africa and Australia
Net sales in emerging markets (Latin America, Asia, Eastern Europe and
the Middle East/North Africa) totaled approximately $2.7 billion in 2015,
representing 46% of our annual revenues.
$329.8
2013**
$329.4
2015
$184.7
2014**
$274.3
$329.4
neT InCOMe
In MILLIOnS
Free CASH FLOw*
In MILLIOnS
$6.0
neT SALeS
In BILLIOnS
Net income was $274.3 million in 2015.
Net
income per common share,
assuming dilution, was $2.95.
Free cash flow of $329.4 million in 2015 allowed us to reduce debt,
increase our quarterly dividend, and repurchase 3.9 million shares of our
common stock. Free cash flow in 2015 increased compared to 2014 due
primarily to the impact of actions we took in 2014 to reduce the volatility
associated with year-end changes to our working capital.
Net sales in 2015 decreased approximately 6%
compared to 2014 on a reported basis due
primarily to the impact of currency. Net sales
increased approximately 5% on an organic basis.*
Chart scales are approximate.
* Free cash flow and organic sales change are non-GAAP financial measures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for
definitions of and qualifications for these measures, as well as reconciliations to the most directly comparable GAAP financial measures.
**Certain prior period amounts have been revised to reflect the impact of certain adjustments. Refer to Note 1, “Summary of Significant Accounting Policies,” to the Consolidated
Financial Statements for information.
1
Avery Dennison Corporation 2015 Annual Report
Letter to
Shareholders
Fellow shareholders,
Avery Dennison continued building momentum in 2015, posting
results that were excellent by virtually every measure. we achieved
strong organic sales growth as well as double-digit growth in
earnings per share, remaining on track to meet our long-term
targets. In market segments where we have long been successful,
we captured new growth; in segments where we believe sales
could be stronger, we adjusted our approach. we continued
pursuing sustainability, meeting or surpassing all of our initial
goals and starting work toward ambitious new ones. And
throughout the year, we followed our disciplined capital allocation
strategy which resulted in a substantial return of cash to
shareholders. In short, the already strong Avery Dennison story
continued to get better in 2015. It is my pleasure to share some of
the highlights from our year.
Another year of above-average returns
This year, we increased earnings per share by over 10 percent, increased sales on
an organic basis by nearly 5 percent, and expanded our operating margin by more
than a full percentage point. We paid $133 million in dividends and repurchased
3.9 million shares of our stock for $232 million. We achieved all of this despite currency
translation headwinds.
Our 2015 results are the product of our ongoing strategy, which calls for us to grow
through innovation and differentiated quality and service; to expand margins by
increasing productivity and leveraging scale; and to drive capital efficiency. We are
executing our strategy in a competitive landscape where we have several strong
advantages, including a global footprint, economies of scale, and a superior capacity for
innovation. Our two primary businesses lead their industries and, in many market
segments, we command above industry-average margins.
2
Letter to Shareholders
Achieving our 2015 goals
In addition to being a strong year, 2015 marked an important milestone: the final year of the
four-year financial targets we announced in 2012. I am pleased to report that we met all of
those goals this year. In 2014, we announced a new set of more ambitious targets for 2018,
raising the bar for organic sales growth, operating margin, and return on capital. This year we
made good progress toward those goals, and we are on track to meet them.
Growth and record margins in pSM
Pressure-sensitive Materials (PSM) continues to lead worldwide, improving product mix and
increasing growth through innovation and differentiation. In 2015, PSM delivered its fourth
consecutive year of strong volume growth, while significantly improving its profitability and
return on capital. Sales on an organic basis increased by about 5 percent, with growth in
developed and emerging markets alike. PSM’s growth, combined with our ongoing productivity
improvements and a favorable raw materials environment, drove a record operating margin
that exceeded our long-term target.
Within PSM, we continued to benefit from growth in the higher-value market segments where
we have placed a strategic focus, including labels for durable goods and other specialty
applications, as well as graphics and performance tapes. We completed the recapitalization
of our European footprint for Graphics Solutions, which we began in 2014, enabling it to
compete more effectively. Already, those efforts are paying off. Our graphics product line
continues to grow, with especially strong performance in our Avery Dennison Supreme
Wrapping™ Film for automobiles.
Performance Tapes also delivered another year of above-average growth. In 2015, we invested
in a new custom coating line in China, designed specifically to capture opportunities in the
industrial side of the business, where demand for tapes used for electronics, automotive
and general industrial applications continues to expand. Due to the loss of a large personal
care program driven by a customer’s technology change, our overall sales of performance
tapes are expected to decline in 2016. Nonetheless, we continue to expect high single-digit
growth in the industrial side of our business. This reflects the progress we have made executing
our share gain strategy in this high-value market segment, where adhesive-based tape
solutions are used to create thinner, lighter products that replace traditional, mechanical
fastening systems.
We drove much of PSM’s growth with innovations that improve productivity, shelf appeal and
sustainability for our customers. Our advances in 2015 included TrueCut™ adhesive for paper,
which enables converters to work more quickly and efficiently; Aqua Opaque™ technology,
which enables winemakers to employ premium labels that stay beautiful even when wet;
3
Avery Dennison Corporation 2015 Annual Report
Letter to Shareholders
and Bio-based PE Film, a filmic facestock made entirely from sugarcane ethanol that is a
recyclable, less carbon-intensive alternative to petroleum-based films.
Building a more competitive rBIS
Retail Branding and Information Solutions (RBIS), while still the leader in the growing industry
for apparel labels, tags and tickets, has experienced volatile sales growth in recent years. We
consistently perform well in market segments where customers value our innovation, design
capabilities, and global reach. But in market segments where products are less differentiated,
or where customers may not sufficiently value the premium features and capabilities we offer,
we have lost market share. Since such segments make up roughly 60 percent of the apparel
market, it is crucial that we serve them better.
In 2015, we began transforming RBIS to do just that, by developing a simpler, faster and more
competitive business model. For customers who prefer to use locally sourced raw materials
instead of the global standard, we are localizing sourcing. To respond more quickly to
customers who prioritize fast service, we have decentralized decision-making. And in
segments where cost drives purchasing decisions, we are managing pricing to be more
competitive. Our new approach is already delivering results. In the second half of 2015, RBIS
made solid progress toward its 2018 goals, delivering both top-line growth and margin
improvement.
As we make these changes, we continue to leverage our industry leadership, unrivaled
innovation capability, and core competencies in printing, weaving and data management.
RBIS’ leadership in radio-frequency identification (RFID) and external embellishments
continues to catalyze growth, as do our ongoing investments in the business. We are targeting
RFID, in particular, to have a compound annual growth rate through 2018 of between 15 and
20-plus percent. Sales of RFID products increased by more than 20 percent this year, and we
expect that momentum to continue through 2016 as more retailers adopt this technology to
improve experiences for both consumers and retail associates.
We recently expanded RBIS’ capabilities in Vietnam to capture opportunities associated with
that country’s burgeoning apparel- and footwear-manufacturing industry. We are also investing
to support the rapid growth of our RFID and heat-transfer technologies. I am confident these
investments, along with our transformation of RBIS’ business model, will put us back on track
toward accelerating growth and achieving our 2018 targets.
progress and promise for vancive
Vancive Medical Technologies, the smallest of our three segments, is now profitable and
continues to show promise for creating long-term value. In 2015, we launched our BeneHold™
line of antimicrobial dressings, which we believe will drive significant growth once sales begin
4
Letter to Shareholders
to gain traction in 2017. In coming months, we expect to accelerate growth in Vancive’s core
product lines while continuing to expand margins. Vancive remains an excellent opportunity to
gain share in a fragmented space that offers above-average growth with attractive margins.
returning capital to shareholders
Our capital allocation strategy is simple: We deploy capital wherever we can generate the
highest return for shareholders, whether through capital expenditures in our businesses,
increasing cash dividends, repurchasing stock, or pursuing acquisitions.
In 2015, our profitability and capital efficiency delivered free cash flow of $329 million. We
distributed $365 million to shareholders through share buybacks and dividends. However, our
highest priority has been to invest in our business in a way that accelerates profitable growth
in high-value segments. We anticipate a large increase in capital spending in 2016, partly due
to carryover from projects we began in 2015, but also in support of our growth strategy. In
addition to the investments we are making in RBIS, we are investing to support the growth of
Graphics Solutions and of our PSM manufacturing footprint—particularly in Asia, where we
expect market demand to continue outpacing that in the developed markets. We are also
investing in information technology upgrades to drive productivity in our PSM supply chain in
North America.
Going forward, we are committed to continuing our disciplined approach to returning excess
cash to shareholders over the long term. Our solid free cash flow, combined with a strong
balance sheet, gives us ample capacity to invest in our existing businesses while continuing
to grow our dividend, repurchase shares, and pursue value-enhancing, bolt-on acquisitions.
Striving to be a force for good
Momentum is most meaningful when it lasts. In 2015, we continued working to ensure the
long-term viability of our company by aligning it with the social and environmental imperatives
of the 21st century and creating solutions that enable our customers and suppliers to do the
same. After meeting or exceeding all of our initial sustainability goals, we began working
toward new, more ambitious goals for 2025, including targets for reducing absolute greenhouse
gas emissions, increasing our use of responsibly produced paper, and improving the
environmental impact of the films and chemicals we use. We joined World Wildlife Fund’s
Climate Savers program and signed the American Businesses Act on Climate Change pledge,
voicing support for a strong outcome at the 21st summit of the U.N.’s Conference of the
Parties in Paris and demonstrating our commitment to climate action.
In our ongoing effort to maintain a workforce that mirrors the world we serve, we launched
an initiative to increase the number of women who hold leadership positions in our company.
Our commitment: 40 percent female representation at the manager level and above by
5
Avery Dennison Corporation 2015 Annual Report
Letter to Shareholders
the end of 2018. We are already seeing steady progress toward that target. I encourage you
to read more about our sustainability efforts in our latest biennial sustainability report, at
averydennison.com/sustainability.
Transition
As announced, I will serve as CEO through April 30, 2016, and will remain on the Avery
Dennison Board of Directors as Executive Chairman. Mitchell R. Butier, Avery Dennison’s
president and chief operating offi cer since 2014, will succeed me as CEO, and has been
nominated for election to the board.
Since joining Avery Dennison in 2000, Mitch has worked in various businesses and regions
across the company and in roles of increasing responsibility. He has been a close partner of
mine and has been at the center of our most successful business strategies; most recently, he
was the driver behind our focus on the high-value market segments of our portfolio, while
making the investments necessary to be competitive across all product segments. Just as
important, Mitch is a champion of the values, integrity and high ethical standards that defi ne
Avery Dennison. I will hand off my CEO duties to Mitch with complete confi dence in his ability
to guide Avery Dennison toward an increasingly prosperous future.
Looking ahead
As this year’s results attest, the strategy that has driven Avery Dennison’s momentum in recent
years is still working well. In the coming year, we intend to stay the course. PSM and RBIS, our
industry-leading core businesses, are well-positioned for profi table growth. We expect our
expanding margin to fuel further value creation as we continue improving productivity. Capital
discipline will remain at the heart of our decision-making; we will continue to invest for value-
enhancing growth, while continuing to pay a sustainable cash dividend and repurchasing our
stock. We will also continue innovating and forging new partnerships in pursuit of our
sustainability goals. In all, we expect Avery Dennison’s future to look very much like its recent,
successful past.
The credit for our momentum goes to our team members worldwide, whose loyalty and
ingenuity continue to be the indispensable engines that push us forward. I thank all of them for
their hard work and contributions. I also thank you, our shareholders, for joining us on our
journey, and for your continued belief and investment in Avery Dennison.
Dean A. Scarborough
Chairman and Chief Executive Officer
MARCH 1, 2016
6
Businesses
at a Glance
SeGMenT
Pressure-sensitive Materials
BUSIneSSeS
Materials Group
performance Tapes
2015 SALeS In MILLIOnS
$4,374
% OF SALeS
73%
GLOBAL BrAnD
Avery Dennison®
DeSCrIpTIOn
The technologies and materials of our Pressure-
sensitive Materials businesses enhance brands’
shelf, store and street appeal; inform shoppers of
ingredients; protect brand security; improve
operational efficiency and customer product
performance; and provide visual information that
enhances safety.
prODUCTS/SOLUTIOnS
Pressure-sensitive labeling materials; packaging
materials and solutions; roll-fed sleeves;
SeGMenT
Retail Branding and Information Solutions
BUSIneSSeS
retail Branding and
Information Solutions
printer and Fastener Solutions
2015 SALeS In MILLIOnS
$1,520
% OF SALeS
26%
GLOBAL BrAnDS
Avery Dennison®
Monarch®
DeSCrIpTIOn
RBIS provides intelligent, creative and
sustainable solutions that elevate brands and
accelerate performance through the global retail
supply chain.
prODUCTS/SOLUTIOnS
Creative services; brand embellishments; graphic
tickets; tags and labels; sustainable packaging;
inventory visibility and loss prevention solutions;
SeGMenT
Vancive Medical Technologies
BUSIneSS
2015 SALeS In MILLIOnS
% OF SALeS
vancive Medical Technologies
$73
1%
GLOBAL BrAnD
vancive Medical Technologies™
DeSCrIpTIOn
Vancive Medical Technologies addresses
the unmet needs of medical device
manufacturers, clinicians and patients worldwide
through its focus on critical skin contact
applications including wound care, ostomy and
surgical products.
7
Avery Dennison Corporation 2015 Annual Report
performance polymer adhesives and engineered
films; graphic imaging media; reflective materials;
pressure-sensitive tapes for automotive, building
and construction, electronics, general industrial,
diaper tapes and closures
MArkeT SeGMenTS
Food; beverage; wine and spirits; home and
personal care; pharmaceuticals; durables; fleet
vehicle/automotive; architectural/retail; promo-
tional/advertising; traffic; safety; transportation;
electronics; building and construction
CUSTOMerS
Label converters; package designers; packaging
engineers and manufacturers; industrial
manufacturers; printers; distributors; designers;
advertising agencies; government agencies; sign
manufacturers; graphic vendors; tape converters;
original equipment manufacturers; original design
manufacturers; construction firms; personal care
product manufacturers
weBSITeS
www.label.averydennison.com
www.graphics.averydennison.com
www.reflectives.averydennison.com
www.tapes.averydennison.com
LeADerS
Georges Gravanis
President Materials Group
Michael Johansen
Vice President and General Manager
Performance Tapes
data management services; price tickets;
printers and scanners; radio-frequency
identification (RFID) inlays; fasteners; brand
protection and security solutions
MArkeT SeGMenTS
Apparel manufacturing and retail supply chain;
food service and supply chain; hard goods and
supply chain; pharmaceutical and supply chain;
logistics
CUSTOMerS
Apparel and footwear brands, manufacturers
and retailers; food service, grocery and
pharmaceutical supply chains; consumer goods
brands; automotive manufacturers;
transportation companies
LeADerS
Deon Stander
Vice President and General Manager
Retail Branding and Information Solutions
erik Shafer
Global Vice President
Printer and Fastener Solutions
weBSITeS
www.rbis.averydennison.com
www.rfid.averydennison.com
prODUCTS/SOLUTIOnS
Skin-contact adhesives; surgical, wound care,
ostomy and securement products; medical
barrier films
CUSTOMerS
Medical device manufacturers
weBSITe
www.vancive.averydennison.com
LeADer
Howard kelly
Vice President and General Manager
Vancive Medical Technologies
MArkeT SeGMenT
Medical
8
cOMPANY LEAdErSHiP
Dean A. Scarborough
Chairman and
Chief Executive Officer
Mitchell r. Butier
President and
Chief Operating Officer
Georges Gravanis
President
Materials Group
Anne Hill
Senior Vice President and
Chief Human Resources Officer
Anne L. Bramman
Senior Vice President and
Chief Financial Officer
Susan C. Miller
Senior Vice President,
General Counsel and Secretary
Lori J. Bondar
Vice President, Controller and
Chief Accounting Officer
David e. I. pyott LID, 1, 3
Retired Chairman
and Chief Executive Officer,
Allergan, Inc.,
a global health care company
patrick T. Siewert 2
Managing Director and Partner,
The Carlyle Group,
a global alternative investment firm
Julia A. Stewart 1, 3
Chairman and
Chief Executive Officer,
DineEquity, Inc.,
a full-service restaurant company
Martha n. Sullivan1
President and
Chief Executive Officer,
Sensata Technologies Holding N.V.,
a sensors and controls company
Directors
and Officers
BOArd Of dirEctOrS
Dean A. Scarborough
Chairman and
Chief Executive Officer,
Avery Dennison Corporation
Bradley A. Alford 1, 3
Retired Chairman and
Chief Executive Officer,
Nestlé USA,
a food and beverage company
Anthony k. Anderson 2
Retired Vice Chair,
Managing Partner and Member
of the Executive Board,
Ernst & Young LLP,
a global assurance, tax, transaction
and advisory services firm
peter k. Barker 2
Retired Chairman of California,
JP Morgan Chase & Co.,
a global financial services firm
ken C. Hicks 2, 3
Retired Chairman,
Foot Locker, Inc.,
a specialty athletic retailer
LID – Lead Independent Director
1 – Member of Compensation and
Executive Personnel Committee
2 – Member of Audit and Finance Committee
3 – Member of Governance and
Social Responsibility Committee
9
Avery Dennison Corporation 2015 Annual Report
Financial
Information
Five-year Summary
Management’s
Discussion and Analysis
of Financial Condition and
results of Operations
Consolidated Financial
Statements
notes to Consolidated
Financial Statements
Corporate Information
12
14
27
32
62
10
Safe Harbor Statement
The matters discussed in this Annual Report contain ‘‘forward-looking statements’’ within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements, which are not statements of historical fact, contain estimates, assumptions, projections and/or expectations regarding
future events, which may or may not occur. Words such as ‘‘aim,’’ ‘‘anticipate,’’ ‘‘assume,’’ ‘‘believe,’’ ‘‘continue,’’ ‘‘could,’’ ‘‘estimate,’’ ‘‘expect,’’
‘‘foresee,’’ ‘‘guidance,’’ ‘‘intend,’’ ‘‘may,’’ ‘‘might,’’ ‘‘objective,’’ ‘‘plan,’’ ‘‘potential,’’ ‘‘project,’’ ‘‘seek,’’ ‘‘shall,’’ ‘‘should,’’ ‘‘target,’’ ‘‘will,’’ ‘‘would,’’ or
variations thereof, and other expressions that refer to future events and trends, identify forward-looking statements. These forward-looking
statements, and financial or other business targets, are subject to certain risks and uncertainties, which could cause our actual results to differ
materially from the expected results, performance or achievements expressed or implied by such forward-looking statements.
Certain risks and uncertainties are discussed in more detail under ‘‘Risk Factors’’ and ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations’’ in our Annual Report on Form 10-K for the fiscal year ended January 2, 2016 and include, but are not limited to,
risks and uncertainties relating to the following: fluctuations in demand affecting sales to customers; worldwide and local economic conditions;
fluctuations in currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and
inventory strategies of customers; changes in customer preferences; fluctuations in cost and availability of raw materials; our ability to generate
sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; the impact of competitive products and pricing; loss
of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; timely development and market
acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production
facilities; integration of acquisitions and completion of potential dispositions; amounts of future dividends and share repurchases; customer and
supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in
information technology systems including cyber-attacks or other intrusions to network security; successful installation of new or upgraded
information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other
intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates;
changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits;
fluctuations in pension, insurance, and employee benefit costs; impact of legal and regulatory proceedings, including with respect to environmental,
health and safety; changes in governmental laws and regulations; protection and infringement of intellectual property; changes in political conditions;
the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other
factors.
We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impacts of economic
conditions on underlying demand for our products and foreign currency fluctuations; (2) competitors’ actions, including pricing, expansion in key
markets, and product offerings; and (3) the degree to which higher costs can be offset with productivity measures and/or passed on to customers
through selling price increases, without a significant loss of volume.
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.
11
Avery Dennison Corporation
2015 Annual Report
Five-Year Summary
(Dollars in millions, except percentages
and per share amounts)
2015
2014 (1)(2)
2013 (2)
2012 (2)
2011 (2)
Dollars
%
Dollars
%
Dollars
%
Dollars
%
Dollars
%
For the Year
Net sales
Gross profit
Marketing, general and administrative expense
Interest expense
Other expense, net (3)
Income from continuing operations before taxes
Provision for income taxes
Income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Per Share Information
Income per common share from continuing operations
Income per common share from continuing operations,
assuming dilution
(Loss) income per common share from discontinued
operations
(Loss) income per common share from discontinued
operations, assuming dilution
Net income per common share
Net income per common share, assuming dilution
Dividends per common share
Weighted average number of common shares
outstanding (in millions)
Weighted average number of common shares
outstanding, assuming dilution (in millions)
Market price per share at fiscal year-end
Market price per share range
At End of Year
Property, plant and equipment, net (4)
Total assets (5)
Long-term debt and capital leases (4)(6)
Total debt (4)(6)
Shareholders’ equity (5)
Other Information
Depreciation and amortization expense (4)
Research and development expense (4)
1,645.8
1,108.1
60.5
68.3
408.9
134.5
274.4
$5,966.9 100.0 $6,330.3 100.0 $6,140.0 100.0 $5,863.5 100.0 $5,844.9 100.0
25.2
19.5
1.2
.9
3.6
1.1
2.4
48.4 N/A
3.3
26.7
1,637.7
19.1
1,174.2
1.0
60.9
.6
36.6
6.0
366.0
2.0
124.3
241.7
3.9
(28.5) N/A
3.5
213.2
26.1
18.3
1.0
1.1
5.7
1.8
3.9
(2.2) N/A
3.9
27.6
18.6
1.0
1.1
6.9
2.3
4.6
(.1) N/A
4.6
1,529.5
1,152.6
72.5
68.8
235.6
76.1
159.5
57.8
217.3
1,474.0
1,142.5
70.7
51.6
209.2
66.1
143.1
1,651.2
1,158.9
63.3
68.2
360.8
113.5
247.3
26.1
19.7
1.2
1.2
4.0
1.3
2.7
N/A
3.7
274.3
245.1
191.5
2015
2014
2013
2012
2011
$
3.01
$
2.64
$
2.46
$
1.56
$
1.35
2.95
–
–
3.01
2.95
1.46
91.0
92.9
$ 62.66
51.07 to
66.18
$ 847.9
4,133.7
963.6
1,058.9
965.7
$ 188.3
91.9
2.58
(.03)
(.02)
2.61
2.56
1.34
93.8
95.7
$ 51.79
41.28 to
52.67
$ 875.3
4,356.9
940.1
1,144.4
1,047.7
$ 201.6
102.5
2.41
(.29)
(.28)
2.17
2.13
1.14
98.4
100.1
$ 50.48
34.92 to
50.65
$ 922.5
4,608.3
944.6
1,021.5
1,468.1
$ 204.3
96.0
1.54
.56
.56
2.12
2.10
1.08
1.34
.46
.45
1.81
1.79
1.00
102.6
105.8
103.5
$ 34.40
26.38 to
34.97
$1,015.5
5,113.2
697.6
1,217.8
1,536.6
$ 211.0
98.6
106.8
$ 28.68
23.97 to
43.11
$1,079.4
4,989.7
948.7
1,175.8
1,614.7
$ 220.0
93.8
Effective tax rate (4)
32.9%
31.5%
34.0%
32.3%
31.6%
(1) Results for 2014 reflected a 53-week period.
(2) Certain prior period amounts have been revised to reflect the impact of certain adjustments and to correct the timing of previously recorded out-of-period adjustments.
(3) Included pre-tax charges for severance and related costs, asset impairment, lease and other contract cancellation charges, and other items.
(4) Amounts are for continuing operations only.
(5) Amounts are for continuing and discontinued operations.
(6) In the fourth quarter of 2015, we elected to adopt the revised guidance on the presentation of debt issuance costs earlier than required. This revised guidance requires that debt issuance costs
related to a recognized debt liability be classified as a direct deduction from the carrying amount of that debt liability instead of being recorded separately in other assets. The new guidance was
applied on a retrospective basis and prior period amounts have been reclassified to conform to the current year presentation.
12
STOCKHOLDER RETURN PERFORMANCE
The following graph compares the cumulative stockholder return on our common stock, including the reinvestment of dividends, with the return on
the S&P 500(cid:2) Stock Index, the average return (weighted by market capitalization) of the S&P 500(cid:2) Materials and Industrials subsets (the ‘‘Market
Basket’’), and the median return of the Market Basket, in each case for the five-year period ending December 31, 2015.
Comparison of Five-Year Cumulative Total Return as of December 31, 2015
Avery Dennison Corporation
S&P 500 Index
Industrials and Materials (Weighted Average)
Industrials and Materials (Median)
$265
$240
$215
$190
$165
$140
$115
$90
$65
$40
12/31/2010
Total Return Analysis (1)
12/31/2011
12/31/2012
12/31/2013
12/31/2014
18FEB201623554140
12/31/2015
Avery Dennison Corporation
S&P 500 Index
Market Basket (Weighted Average) (2)
Market Basket (Median)
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
$100.00
100.00
100.00
100.00
$ 64.10
102.09
97.10
96.73
$ 79.00
117.25
126.68
113.90
$109.71
150.14
203.74
153.00
$116.32
169.40
248.02
169.72
$141.12
171.73
240.43
156.24
(1) Assumes $100 invested on December 31, 2010 and the reinvestment of dividends.
(2) Average weighted by market capitalization.
Historical stock price performance is not necessarily indicative of future stock price performance.
13
Avery Dennison Corporation
2015 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
ORGANIZATION OF INFORMATION
Management’s Discussion and Analysis of Financial Condition and
Results of Operations, or MD&A, provides management’s views on our
financial condition and results of operations, should be read in
conjunction with the accompanying Consolidated Financial Statements
and notes thereto, and includes the following sections:
Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . .
Overview and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . .
Analysis of Results of Operations . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
Results of Operations by Reportable Segment
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical Accounting Estimates . . . . . . . . . . . . . . . . . . . . . .
Recent Accounting Requirements . . . . . . . . . . . . . . . . . . .
. . . . . . .
Market-Sensitive Instruments and Risk Management
14
14
16
18
19
23
26
26
NON-GAAP FINANCIAL MEASURES
investors using certain non-GAAP
We report financial results in conformity with accounting principles
generally accepted in the United States of America, or GAAP, and also
communicate with
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 presentation of our financial results that are prepared in
accordance with GAAP. Based upon feedback from our investors and
financial analysts, we believe that supplemental non-GAAP financial
measures provide information that is useful to the assessment of our
performance and operating trends, as well as liquidity. The measures
we use may not be comparable to similarly named non-GAAP measures
used by other companies.
Our non-GAAP financial measures exclude the impact of certain
events, activities or strategic decisions. By excluding certain accounting
effects, both positive and negative, of certain items, we believe that we
are providing meaningful supplemental information to facilitate an
understanding of our core operating results and liquidity measures.
These non-GAAP financial measures are used internally to evaluate
trends in our underlying performance, as well as to facilitate comparison
to the results of competitors for a single period. While some of the items
we exclude from GAAP financial measures recur, they tend to be
disparate in amount, frequency, or timing.
We use the following non-GAAP financial measures in this MD&A:
(cid:129) Organic sales change refers to the increase or decrease in
sales excluding the estimated impact of currency translation,
product line exits, acquisitions and divestitures, and, where
applicable, the extra week in the fiscal year. The estimated
impact of 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. We believe organic sales change assists
investors in evaluating the underlying sales growth from the
ongoing activities of our businesses and provides improved
comparability of results period to period.
(cid:129) Free cash flow refers to cash flow from operations, less
payments for property, plant and equipment, software and
other deferred charges, plus proceeds from sales of property,
plant and equipment, plus (minus) net proceeds from sales
(purchases) of investments, plus discretionary contributions to
pension plans and charitable contribution to Avery Dennison
Foundation utilizing proceeds from divestitures. Free cash flow
excludes uses of cash that do not directly or immediately
support the underlying business, such as discretionary debt
reductions, dividends, share repurchases, and certain effects
of acquisitions and divestitures (e.g., cash
from
flow
discontinued operations, taxes, and transaction costs).
(cid:129) Operational working capital refers to trade accounts receivable
and inventories, net of accounts payable, and excludes cash
and cash equivalents, short-term borrowings, deferred taxes,
other current assets and other current liabilities, as well as
current assets and current
liabilities of held-for-sale
businesses. We use this non-GAAP financial measure to
assess 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. Additionally, the
excluded items 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.
(cid:129) Net debt to EBITDA ratio refers to total debt less cash and cash
equivalents, divided by EBITDA, which refers to net income
before interest, taxes, depreciation and amortization. We
believe the net debt to EBITDA ratio is meaningful because
investors view it as a useful measurement of our leverage
position.
OVERVIEW AND OUTLOOK
Fiscal Year
Normally, our fiscal years consist of 52 weeks, but every fifth or sixth
fiscal year consists of 53 weeks. Our 2015 and 2013 fiscal years
consisted of 52-week periods ending January 2, 2016 and
December 28, 2013, respectively. Our 2014 fiscal year consisted of a
53-week period ending January 3, 2015.
Prior Period Financial Statement Revision
Certain prior period amounts have been revised to reflect the
impact of certain adjustments. Refer to Note 1, ‘‘Summary of Significant
Accounting Policies,’’ to the Consolidated Financial Statements for
more information.
14
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Net Sales
Estimated change in sales due to
Organic sales change
Foreign currency translation
Extra week in 2014 fiscal year
Product line divestiture
Reported sales change
2015
2014
and payments related to these actions to be substantially completed in
2016.
3%
(1)
1
–
5%
(9)
(1)
(1)
(6)%
Impact of Cost Reduction Actions
In 2015, we realized approximately $70 million in savings, net of
transition costs, from our 2015/2016 Actions and 2014/2015 Actions. We
anticipate incremental savings of approximately $75 million in 2016.
Restructuring charges were included in ‘‘Other expense, net’’ in the
3% Consolidated Statements of Income. Refer to Note 13, ‘‘Cost Reduction
for more
the Consolidated Financial Statements
to
In both years, sales increased on an organic basis primarily due to
higher volume.
Actions,’’
information.
Income from Continuing Operations
Income from continuing operations increased from approximately
$247 million in 2014 to approximately $274 million in 2015. Major factors
affecting the change in income from continuing operations in 2015
compared to 2014 included:
Positive factors:
Free Cash Flow
(In millions)
Net cash provided by operating
2015
2014
2013
activities
$ 473.7
$ 354.9
$ 319.6
Purchases of property, plant and
equipment
(135.8)
(147.9)
(129.2)
Purchases of software and other
(cid:129) Benefits from productivity initiatives, including savings from
deferred charges
(15.7)
(27.1)
(52.2)
restructuring actions, net of transition costs
(cid:129) Higher volume
(cid:129) Net impact of pricing and raw material input costs
Offsetting factors:
(cid:129) Higher employee-related costs
(cid:129) Foreign currency translation
(cid:129) Higher income taxes
(cid:129) Loss on the sale of a product line and related exit costs in our
Retail Branding and Information Solutions (‘‘RBIS’’) reportable
segment
Cost Reduction Actions
2015/2016 Actions
In 2015, we recorded $26.1 million in restructuring charges, net of
reversals, related to restructuring actions initiated during the third
quarter of 2015 (‘‘2015/2016 Actions’’), which we expect to continue
through 2016. These charges consisted of severance and related costs
for the reduction of approximately 430 positions, lease cancellation
costs, and asset impairment charges.
No employees impacted by our 2015/2016 Actions taken through
January 2, 2016 remained employed with us as of such date. We expect
charges and payments related to these actions to be substantially
completed in 2016.
2014/2015 Actions
In 2015, we recorded $33.4 million in restructuring charges, net of
reversals, related to restructuring actions we initiated in 2014 that
continued through the second quarter of 2015 (‘‘2014/2015 Actions’’).
These charges consisted of severance and related costs for the
reduction of approximately 605 positions, lease cancellation costs, and
asset impairment charges.
In 2014, we recorded $66.5 million in restructuring charges, net of
reversals, related to our 2014/2015 Actions. These charges consisted of
severance and related costs for the reduction of approximately 1,420
positions, lease cancellation costs, and asset impairment charges.
Approximately 125 employees impacted by our 2014/2015 Actions
remained employed with us as of January 2, 2016. We expect charges
15
Avery Dennison Corporation
2015 Annual Report
Proceeds from sales of property,
plant and equipment
7.6
4.3
38.7
(Purchases) sales of investments,
net
(.5)
.3
.1
Plus: charitable contribution to Avery
Dennison Foundation utilizing
proceeds from divestitures
Plus: discretionary contributions to
pension plans utilizing proceeds
from divestitures
Plus: divestiture-related payments
and free cash outflow from
discontinued operations
–
–
–
–
10.0
50.1
.1
.2
92.7
Free cash flow
$ 329.4
$ 184.7
$ 329.8
Free cash flow in 2015 increased compared to 2014 primarily due
to the timing of vendor payments, higher operating income, lower
incentive compensation paid in 2015 for the 2014 performance year,
and lower capital and software expenditures, partially offset by the
timing of collections from customers and higher payments for taxes.
Free cash flow in 2014 decreased compared to 2013 primarily due
to higher working capital requirements (including larger than usual
differences in the year-end timing of vendor payments and customer
receipts), the impact of currency fluctuations, higher bank draft
balances, and higher incentive compensation paid in 2014 for the 2013
performance year, partially offset by lower income tax payments and
lower pension contributions (excluding discretionary pension plan
contributions utilizing proceeds from divestitures).
In 2013, we completed the sale of our former Office and Consumer
Products (‘‘OCP’’) and Designed and Engineered Solutions (‘‘DES’’)
businesses. Refer to Note 2, ‘‘Discontinued Operations, Sale of Product
Line, and Sale of Assets,’’ to the Consolidated Financial Statements for
more information.
See ‘‘Analysis of Results of Operations’’ and ‘‘Liquidity’’ for more
information.
Outlook
Certain factors that we believe may contribute to results for 2016
are described below:
(cid:129) We expect organic sales growth of 3% to 4.5% and increased
earnings.
(cid:129) Assuming the continuation of currency rates in effect during
January 2016, we expect currency translation to reduce net
sales by approximately 3.5% and reduce pre-tax operating
income by approximately $25 million.
(cid:129) We expect our full year effective tax rate to be in the low to
mid-thirty percent range.
(cid:129) We anticipate capital and software expenditures of
approximately $200 million.
(cid:129) We estimate cash restructuring costs of approximately
$25 million.
(cid:129) We anticipate a one-time non-cash pre-tax charge of
approximately $40 million to settle certain U.S. pension
obligations, subject to pension asset and liability valuations on
the settlement date.
ANALYSIS OF RESULTS OF OPERATIONS
Income from Continuing Operations Before Taxes
(In millions, except percentages)
2015
2014
2013
Net sales
Cost of products sold
Gross profit
Marketing, general and
administrative expense
Interest expense
Other expense, net
Income from continuing
$5,966.9
4,321.1
$6,330.3
4,679.1
$6,140.0
4,502.3
1,645.8
1,651.2
1,637.7
1,108.1
60.5
68.3
1,158.9
63.3
68.2
1,174.2
60.9
36.6
operations before taxes
$ 408.9
$ 360.8
$ 366.0
As a Percentage of Sales
Gross profit
Gross Profit Margin
27.6%
26.1%
26.7%
Gross profit margin in 2015 improved compared to 2014 primarily
reflecting benefits from productivity initiatives, including savings from
restructuring, net of transition costs, higher volume, the impact of
changes in foreign currency rates, and the net impact of pricing and raw
material input costs, partially offset by higher employee-related costs
and changes in product mix in our RBIS reportable segment.
Gross profit margin in 2014 declined compared to 2013 primarily
reflecting changes in segment and product mix, the impact of pricing
and raw material input costs, and higher employee-related costs,
partially offset by benefits from productivity initiatives, including savings
from restructuring, and higher volume.
Marketing, General and Administrative Expense
Marketing, general and administrative expense decreased in 2015
compared to 2014 reflecting the impact of currency and benefits from
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
productivity initiatives, including savings from restructuring, net of
transition costs, partially offset by higher employee-related costs.
Marketing, general and administrative expense decreased in 2014
compared to 2013 due to benefits from productivity initiatives, including
savings from restructuring, partially offset by higher employee-related
costs.
Interest Expense
Interest expense decreased approximately $3 million in 2015
compared to 2014 reflecting a decrease in foreign short-term debt, the
extra week in our 2014 fiscal year, and maturation of a medium-term
note, partially offset by an increase in commercial paper borrowings.
Interest expense increased approximately $2 million in 2014
compared to 2013 reflecting the impact of timing between maturation
and issuance of senior notes in the prior year, as well as the extra week
in our 2014 fiscal year.
Other Expense, net
(In millions)
Other expense, net by type
Restructuring charges:
Severance and related costs
Asset impairment charges and lease
and other contract cancellation
costs
Other items:
Charitable contribution to Avery
2015
2014
2013
$52.5
$54.7
$ 27.2
7.0
11.4
13.1
Dennison Foundation
–
–
10.0
Indefinite-lived intangible asset
impairment charge
Gains on sales of assets
Net loss (gain) from curtailment and
settlement of pension obligations
Legal settlements
Loss on sale of a product line and
related exit costs
Divestiture-related costs (1)
–
(1.7)
.3
(.3)
10.5
–
3.0
(2.5)
–
(17.8)
1.6
–
–
–
(1.6)
2.5
–
3.2
Other expense, net
$68.3
$68.2
$ 36.6
(1) Represents only the portion allocated to continuing operations.
Refer to Note 13, ‘‘Cost Reduction Actions,’’ to the Consolidated
regarding charges
information
for more
Financial Statements
associated with restructuring.
Refer to Note 6, ‘‘Pension and Other Postretirement Benefits,’’ to
the Consolidated Financial Statements for more information regarding
losses (gains) from curtailment and settlement of pension obligations.
Refer to Note 2, ‘‘Discontinued Operations, Sale of Product Line,
and Sale of Assets,’’ to the Consolidated Financial Statements for more
information regarding the loss on sale of a product line and related exit
costs.
16
repatriation tax benefit of $9.8 million related to certain foreign losses;
tax expense of $9.1 million from the taxable inclusion of a net foreign
currency gain related to the revaluation of certain intercompany loans;
tax expense of $10.6 million related to our change in estimate of the
potential outcome of uncertain tax issues in China and Germany; and
state tax expense of $2.5 million primarily related to gains arising as a
result of certain foreign reorganizations.
The 2013 effective tax rate for continuing operations reflected
$11 million of benefit from adjustments to federal income tax, primarily
due to the enactment of the American Taxpayer Relief Act of 2012
(‘‘ATRA’’), and $24.9 million of net expense related to changes in certain
tax reserves and valuation allowances. Additionally, the effective tax rate
for 2013 reflected a benefit of $11.2 million from favorable tax rates on
jurisdictions
certain earnings
throughout the world, offset by $12.1 million of expense related to the
accrual of U.S. taxes on certain foreign earnings.
from our operations
lower-tax
in
On December 18, 2015, the Protecting Americans from Tax Hikes
Act of 2015 (‘‘PATH Act’’) was enacted, which included a provision
making permanent the federal research and development tax credit for
tax years 2015 and beyond. The PATH Act also retroactively extended
the controlled foreign corporation (‘‘CFC’’) look-through rule that had
expired on December 31, 2014. For periods in which the look-though
rule was effective, U.S. federal income tax on certain dividends, interest,
rents, and royalties received or accrued by a CFC of a U.S. multinational
enterprise from a related CFC are deferred. The retroactive effects of the
extension of the CFC look-through rule did not have a material impact
on our effective tax rate or operating results. The extension of the CFC
look-through rule is currently scheduled to expire on December 31,
2019.
Refer to Note 14, ‘‘Taxes Based on Income,’’ to the Consolidated
Financial Statements for more information.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Net Income and Earnings per Share
(In millions, except percentages and per
share amounts)
Income from continuing operations
before taxes
Provision for income taxes
Income from continuing operations
Loss from discontinued operations, net
of tax
Net income
Net income per common share
Net income per common share,
2015
2014
2013
$408.9
134.5
$360.8
113.5
$366.0
124.3
274.4
247.3
241.7
(.1)
(2.2)
(28.5)
$274.3
$245.1
$213.2
$ 3.01
$ 2.61
$ 2.17
assuming dilution
2.95
2.56
2.13
Effective tax rate for continuing
operations
32.9%
31.5%
34.0%
Provision for Income Taxes
The 2015 effective tax rate for continuing operations included the
following: tax expense of $20 million associated with the tax cost to
repatriate non-permanently reinvested 2015 earnings of certain foreign
subsidiaries; tax benefits for changes in certain tax reserves, including
interest and penalties, of $5.8 million resulting from settlements of audits
and $8.2 million resulting from lapses and statute expirations; and a tax
benefit of $2.6 million from the extension of the federal research and
development credit.
The 2014 effective tax rate for continuing operations included the
following: tax benefits for changes in certain tax reserves, including
interest and penalties, of $10.2 million resulting from settlements of
audits and $18.1 million resulting from lapses and statute expirations; a
17
Avery Dennison Corporation
2015 Annual Report
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS BY REPORTABLE SEGMENT
Retail Branding and Information Solutions
(In millions)
2015
2014
2013
Operating income (loss) refers to income (loss) from continuing
Net sales including intersegment
operations before interest and taxes.
Pressure-sensitive Materials
(In millions)
Net sales including intersegment
sales
Less intersegment sales
Net sales
Operating income (1)
(1) Included charges associated with
restructuring in all years, gain on sale of
asset in 2015, and losses from curtailment
and settlement of pension obligations in
2015 and 2014.
Net Sales
Estimated change in sales due to
Organic sales change
Foreign currency translation
Extra week in 2014 fiscal year
2015
2014
2013
$4,434.6
(60.9)
$4,721.3
(63.2)
$4,519.6
(64.6)
$4,373.7
496.6
$4,658.1
434.4
$4,455.0
442.8
sales
Less intersegment sales
Net sales
Operating income (1)
$1,522.2
(1.9)
$1,594.0
(2.4)
$1,613.5
(2.4)
$1,520.3
70.0
$1,591.6
87.9
$1,611.1
81.7
(1) Included charges associated with
restructuring in all years, loss on sale of a
product line and related exit costs in 2015,
legal settlement in 2015, indefinite-lived
intangible asset impairment charge in
2014, gains on sales of assets in 2014
and 2013, and gains and losses from
curtailment and settlement of pension
obligations in 2014 and 2013.
$
45.9
$
22.0
$
20.0
$
16.3
$
41.6
$
10.8
Net Sales
2015
2014
5%
(10)
(1)
5%
(1)
1
Estimated change in sales due to
Organic sales change
Foreign currency translation
Extra week in 2014 fiscal year
Product line divestiture
Reported sales change (1)
2015
2014
3%
(4)
(1)
(2)
(2)%
(1)
1
–
(4)% (1)%
Reported sales change
(6)%
5%
(1) Totals may not sum due to rounding.
In both years, sales increased on an organic basis primarily due to
higher volume.
In 2015, sales increased on an organic basis at mid-single digit
rates in both emerging markets and Western Europe and at a low-single
digit rate in North America. Sales increased on an organic basis at
mid-single digit rates for both the Materials and Performance Tapes
product groups.
In 2014, sales increased on an organic basis at a high-single digit
rate in emerging markets, at a mid-single digit rate in Western Europe,
and at a low-single digit rate in North America. Sales increased on an
organic basis at a mid-single digit rate and at a mid-teens rate for the
Materials and Performance Tapes product groups, respectively.
Operating Income
from productivity
Operating income increased in 2015 compared to 2014 due to
benefits
from
initiatives,
restructuring, net of transition costs, higher volume, the net impact of
pricing and changes in raw material input costs, and lower restructuring
charges, partially offset by higher employee-related costs and the
unfavorable impact of foreign currency translation.
including savings
Operating income decreased in 2014 due to higher restructuring
charges and transition costs, the impact of pricing and changes in raw
material input costs, and higher employee-related costs, partially offset
by higher volume and benefits from productivity initiatives, including
savings from restructuring.
In 2015, sales increased on an organic basis primarily due to higher
volume. In 2014, sales decreased on an organic basis primarily due to
lower volume.
Operating Income
Operating income decreased in 2015 compared to 2014 due to
higher employee-related costs, the impact of unfavorable product mix
and pricing, higher restructuring charges, and the loss on sale of a
product line and related exit costs, partially offset by benefits from
productivity initiatives, including savings from restructuring, net of
transition costs, as well as higher volume.
Operating income increased in 2014 primarily reflecting benefits
from productivity initiatives, including savings from restructuring as well
as lower restructuring charges, partially offset by lower volume and
higher employee-related costs.
Vancive Medical Technologies
(In millions)
Net sales including intersegment sales
Less intersegment sales
Net sales
Operating loss (1)
(1) Included charges associated with restructuring in all
years.
2015
2014
2013
$77.8
(4.9)
$72.9
(4.5)
$ 90.2
(9.6)
$ 80.6
(11.7)
$77.5
(3.6)
$73.9
(8.3)
$ 3.6
$ 4.2
$
.1
18
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Net Sales
Estimated change in sales due to
Organic sales change
Foreign currency translation
Extra week in 2014 fiscal year
Reported sales change (1)
(1) Totals may not sum due to rounding.
2015
2014
(1)%
(8)
(1)
(10)%
8%
–
–
9%
In 2015, sales decreased on an organic basis primarily due to lower
volume. In 2014, sales increased on an organic basis primarily due to
higher volume.
Operating Loss
Operating loss decreased in 2015 compared to 2014 primarily due
to a reduction in operating costs, including reduced spending
associated with a discontinued product platform.
Operating loss increased in 2014 compared to 2013 primarily due
to higher restructuring charges related to an asset impairment and
lower payments from a business partner for development of a new
product, partially offset by higher volume.
operating income and lower incentive compensation paid in 2015 for
the 2014 performance year, partially offset by the timing of collections
from customers and higher payments for taxes.
In 2014, cash flow provided by operating activities improved
compared to 2013 due to the impact of cash outflows related to our
former OCP and DES businesses, higher pension contributions,
including discretionary pension plan contributions utilizing the net
proceeds from divestitures, and a charitable contribution to the Avery
Dennison Foundation, all in 2013, as well as lower income tax payments
in 2014. These factors were partially offset by higher working capital
requirements (including larger than usual differences in year-end timing
of vendor payments and customer receipts), the effect of currency
fluctuations, higher bank draft balances, and higher
incentive
compensation paid in 2014 for the 2013 performance year.
Cash Flow from Investing Activities
(In millions)
Purchases of property, plant and
2015
2014
2013
equipment
$(135.8) $(147.9) $(129.2)
Purchases of software and other
deferred charges
(15.7)
(27.1)
(52.2)
Proceeds from sales of property, plant
and equipment
(Purchases) sales of investments, net
Proceeds from sale of businesses, net
of cash provided
2015
2014
2013
Other
7.6
(.5)
–
1.5
4.3
.3
–
–
38.7
.1
481.2
.8
FINANCIAL CONDITION
Liquidity
Cash Flow from Operating Activities
(In millions)
Net income
Depreciation and amortization
Provision for doubtful accounts and
sales returns
Loss (gain) on sale of businesses
Indefinite-lived intangible asset
impairment charge
Net losses (gains) from long-lived asset
impairments and sales/disposals of
assets
Stock-based compensation
Other non-cash expense and loss
Other non-cash income and gain
Trade accounts receivable
Inventories
Other current assets
Accounts payable
Accrued liabilities
Income taxes (deferred and accrued)
Other assets
Long-term retirement benefits and
$ 274.3
188.3
$245.1
201.6
$ 213.2
204.6
46.5
–
45.2
3.4
41.5
(49.3)
–
3.0
–
12.2
26.3
50.1
–
(135.9)
(34.4)
3.9
65.5
7.0
(10.8)
(.3)
10.2
28.3
44.2
–
(65.4)
(33.0)
(33.7)
(62.8)
(18.2)
(2.6)
(3.5)
(5.8)
34.0
50.1
(11.8)
(136.0)
(75.9)
3.0
108.2
(19.3)
47.4
(5.4)
other liabilities
(19.0)
(6.9)
(78.9)
Net cash provided by operating
activities
$ 473.7
$354.9
$ 319.6
For cash flow purposes, changes in assets and liabilities and other
adjustments exclude the impact of foreign currency translation
(discussed below in ‘‘Analysis of Selected Balance Sheet Accounts’’).
In 2015, cash flow provided by operating activities increased
compared to 2014 due to the timing of vendor payments, higher
19
Avery Dennison Corporation
2015 Annual Report
Net cash (used in) provided by
investing activities
$(142.9) $(170.4) $ 339.4
Capital and Software Spending
In 2015, 2014 and 2013, we invested in new equipment to support
growth, primarily in Asia and Europe, and to improve manufacturing
productivity.
Information technology investments in 2015, 2014 and 2013 were
primarily associated with standardization initiatives.
Proceeds from Sales of Property, Plant and Equipment
In September 2014, we sold properties
in Framingham,
Massachusetts used primarily as the former headquarters of our RBIS
business for $3.3 million, recognizing a pre-tax gain of $1.9 million.
In April 2013, we sold the property and equipment of our former
corporate headquarters in Pasadena, California for approximately
$20 million, recognizing a pre-tax gain of $10.9 million. In 2013,
proceeds from sales of property, plant and equipment also included
approximately $11 million from the sale of assets in China, as well as
$5 million from the sale of a research facility located in Pasadena,
California.
These gains were recorded in ‘‘Other expense, net’’ in the
Consolidated Statements of Income.
Proceeds from Sale of Businesses, Net of Cash Provided
In July 2013, we completed the sale of our former OCP and DES
businesses and received $481.2 million, net of cash provided.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Other
In May 2015, we received $1.5 million from the sale of a product line
in our RBIS reportable segment.
Cash Flow from Financing Activities
(In millions)
2015
2014
2013
Net change in borrowings and
payments of debt
Dividends paid
Share repurchases
Proceeds from exercises of stock
options, net
Other
$(105.8)
(133.1)
(232.3)
$ 124.9
(125.1)
(355.5)
$(187.2)
(112.0)
(283.5)
104.0
(.1)
34.2
(2.0)
44.8
(8.3)
Net cash used in financing activities
$(367.3)
$(323.5)
$(546.2)
approximately 3.9 million shares of our common stock at an aggregate
cost of $232.3 million. In 2014, we repurchased approximately
7.4 million shares of our common stock at an aggregate cost of
$355.5 million.
On December 4, 2014, our Board authorized the repurchase of
shares of our common stock in the aggregate amount of up to
$500 million (exclusive of any fees, commissions or other expenses
related to such purchases), in addition to any outstanding shares
authorized under any previous Board authorization. This authorization is
the only one currently in effect and will remain in effect until the shares
authorized thereby have been repurchased.
As of January 2, 2016, shares of our common stock in the
aggregate amount of approximately $367 million remained authorized
for repurchase under this Board authorization.
Borrowings and Repayment of Debt
We had $28 million and $87 million of borrowings from commercial
paper issuances outstanding (weighted-average interest rate of .7% and
.4%, respectively) at year-end 2015 and 2014, respectively.
Short-term borrowings outstanding under uncommitted lines of
credit were $65 million (weighted-average interest rate of 8.7%) at
year-end 2015 compared to $111.6 million (weighted-average interest
rate of 9.4%) at year-end 2014.
In 2015 and 2014, given the seasonality of our cash flow during the
year, our commercial paper borrowings were used mainly to fund share
repurchase activity, dividends, and capital and software expenditures.
We had medium-term notes of $45 million and $50 million
outstanding at year-end 2015 and 2014, respectively. During the second
quarter of 2015, we repaid a $5 million medium-term note.
No balances were outstanding under our revolving credit facility
(the ‘‘Revolver’’) as of year-end 2015 or 2014. Commitment fees
associated with the Revolver in 2015, 2014, and 2013 were $1.9 million,
$1.3 million, and $1.4 million, respectively.
In April 2013, we issued $250 million of senior notes due April 2023.
The notes bear an interest rate of 3.35% per year, payable semiannually
in arrears. Net proceeds from the offering, after deducting underwriting
discounts and offering expenses, of approximately $247.5 million were
used to repay a portion of the indebtedness outstanding under our
commercial paper program during the second quarter of 2013.
In January 2013, we repaid $250 million of senior notes at maturity
using commercial paper borrowings.
Refer to Note 4, ‘‘Debt and Capital Leases,’’ to the Consolidated
Financial Statements for more information.
Refer to ‘‘Capital Resources’’ below for further information on 2015
and 2014 borrowings and repayment of debt.
Dividend Payments
We paid dividends of $1.46 per share in 2015 compared to $1.34
per share in 2014. In April 2015, we increased our quarterly dividend to
$.37 per share, representing a 6% increase from our previous dividend
rate of $.35 per share.
Share Repurchases
From time to time, our Board of Directors (‘‘Board’’) authorizes the
repurchase of shares of our outstanding common stock. Repurchased
shares may be reissued under our stock option and incentive plan or
In 2015, we repurchased
used
for other corporate purposes.
Analysis of Selected Balance Sheet Accounts
Long-lived Assets
Goodwill decreased by approximately $35 million to $686 million at
year-end 2015 mainly as a result of the impact of foreign currency
translation.
Other
from business acquisitions, net,
decreased by approximately $22 million to $46 million at year-end 2015
as a result of current year amortization expense and the impact of
foreign currency translation.
intangibles resulting
Refer to Note 3, ‘‘Goodwill and Other Intangibles Resulting from
Business Acquisitions,’’ to the Consolidated Financial Statements for
more information.
Other assets decreased by approximately $52 million
to
$406 million at year-end 2015, which primarily reflected amortization
expense related to software and other deferred charges, net of
purchases, a decrease in long-term pension assets, and the impact of
foreign currency translation.
Shareholders’ Equity Accounts
The balance of our shareholders’ equity decreased by
approximately $82 million to $966 million at year-end 2015, which
reflected the effect of share repurchases, an increase in ‘‘Accumulated
other comprehensive loss’’ due to the unfavorable impacts of foreign
currency translation, and dividend payments. These decreases were
partially offset by net income and the use of treasury shares to settle
exercises of stock options and vesting of stock-based awards and fund
contributions to our U.S. defined contribution plan.
The balance of our treasury stock increased by approximately
$116 million to $1.59 billion at year-end 2015, which primarily reflected
share repurchase activity, partially offset by the use of treasury shares to
settle exercises of stock options and vesting of stock-based awards and
fund contributions to our U.S. defined contribution plan.
Accumulated other
increased by
approximately $138 million to $683 million at year-end 2015 primarily
due to the unfavorable impact of foreign currency translation.
comprehensive
loss
Impact of Foreign Currency Translation
(In millions)
Change in net sales
Change in net income from continuing
operations
2015
2014
2013
$(528) $(67)
$8
(34)
(5)
4
20
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
In 2015, international operations generated approximately 74% of
our net sales. Our future results are subject to changes in political and
economic conditions in the regions in which we operate and the impact
of fluctuations in foreign currency exchange and interest rates.
The unfavorable impact of foreign currency translation on net sales
in 2015 compared to 2014 was primarily related to euro-denominated
sales.
Operations are treated as being in a hyperinflationary economy
based on the cumulative inflation rate over the past three years. We had
no operations in hyperinflationary economies in fiscal years 2015, 2014,
or 2013.
Accounts Receivable Ratio
The average number of days sales outstanding was 60 days in
2015 compared to 62 days in 2014, calculated using the four-quarter
average accounts receivable balance divided by the average daily sales
for the year. The decrease in the current year average number of days
sales outstanding reflected the timing of collections.
Inventory Ratio
Average inventory turnover, calculated using the annual cost of
sales divided by the four-quarter average inventory balance, was 8.6 in
both 2015 and 2014.
Effect of Foreign Currency Transactions
Accounts Payable Ratio
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.
The average number of days payable outstanding was 70 days in
2015 compared to 68 days in 2014, calculated using the four-quarter
average accounts payable balance divided by the average daily cost of
products sold for the year. The increase in the current year average
number of days payable outstanding primarily reflected the timing of
vendor payments and longer payment terms with certain suppliers.
Analysis of Selected Financial Ratios
We utilize the financial ratios discussed below to assess our
financial condition and operating performance.
Working Capital and Operational Working Capital Ratios
Working capital (current assets minus current liabilities and net
assets held for sale), as a percentage of net sales, increased in 2015
compared to 2014 primarily due to decreases in short-term borrowings
and current portion of long-term debt and capital leases and accrued
liabilities, largely offset by decreases in current deferred taxes and cash
and cash equivalents. The decrease in current deferred taxes was a
result of the prospective adoption of accounting guidance to classify
deferred taxes as non-current in 2015.
Operational working capital, as a percentage of net sales, is
reconciled with working capital below. Our objective is to minimize our
investment in operational working capital, as a percentage of sales, to
maximize cash flow and return on investment.
(In millions, except percentages)
(A) Working capital
Reconciling items:
Cash and cash equivalents
Current deferred and refundable income
2015
2014
$ 313.8
$ 327.5
(158.8)
(207.2)
taxes and other current assets
(170.7)
(263.4)
Short-term borrowings and current portion
of long-term debt and capital leases
Current deferred and payable income taxes
95.3
204.3
and other current accrued liabilities
549.2
590.9
(B) Operational working capital
$ 628.8
$ 652.1
(C) Net sales
$5,966.9
Working capital, as a percentage of net sales
(A) (cid:3) (C)
Operational working capital, as a percentage
of net sales (B) (cid:3) (C)
5.3%
10.5%
$6,330.3
Net Debt to EBITDA Ratio
(In millions)
Net income
Reconciling items:
Interest expense
Provision for income taxes
Depreciation
Amortization
2015
2014
2013
$ 274.3
$ 245.1
$ 213.2
60.5
134.5
125.2
62.9
63.3
113.5
135.5
65.9
60.9
124.3
135.2
69.1
EBITDA
$ 657.4
$ 623.3
$ 602.7
Total debt
Less cash and cash equivalents
$1,058.9
(158.8)
$1,144.4
(207.2)
$1,021.5
(351.1)
Net debt
$ 900.1
$ 937.2
$ 670.4
Net debt to EBITDA ratio
1.4
1.5
1.1
The net debt to EBITDA ratio was lower in 2015 compared to 2014
primarily due to higher net income and lower net debt as a result of
lower commercial paper borrowings.
The net debt to EBITDA ratio was higher in 2014 compared to 2013
primarily due to higher total debt and a decrease in cash and cash
equivalents as a result of funding share repurchase activity and
supporting operational requirements and capital expenditures.
Financial Covenants
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 January 2, 2016 and January 3, 2015,
we were in compliance with our financial covenants.
Fair Value of Debt
The estimated fair value of our long-term debt is primarily based on
the credit spread above U.S. Treasury securities on notes with similar
5.2% rates, credit rating, 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 $1.08 billion at
January 2, 2016 and $1.22 billion at January 3, 2015. Fair value amounts
10.3%
21
Avery Dennison Corporation
2015 Annual Report
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Capital from Debt
Our total debt decreased by approximately $86 million to
$1.06 billion at year-end 2015 compared to $1.15 billion at year-end
2014, primarily reflecting a decrease in commercial paper borrowings
and the seasonality of our cash flow during the year. Refer to
‘‘Borrowings and Repayment of Debt’’ above for more information.
In April 2013, we issued $250 million of senior notes due April 2023.
The notes bear an interest rate of 3.35% per year, payable semiannually
in arrears. Net proceeds from the offering, after deducting underwriting
discounts and offering expenses, of approximately $247.5 million were
used to repay a portion of the indebtedness outstanding under our
commercial paper program during the second quarter of 2013.
In January 2013, we repaid $250 million of senior notes at maturity
using commercial paper borrowings.
Uncommitted lines of credit were approximately $300 million at
year-end 2015. These lines may be cancelled at any time by us or the
issuing banks.
Credit ratings are a significant factor in our ability to raise short-term
and long-term financing. The credit ratings assigned to us also impact
the interest rates paid and our access to commercial paper, credit
facilities, and other borrowings. A downgrade of our short-term credit
ratings below current levels could impact our ability to access the
commercial paper markets. If our access to commercial paper markets
were to become limited, the Revolver and our other credit facilities
would be available to meet our short-term funding requirements, if
necessary. When determining a credit rating, we believe that rating
agencies primarily consider our competitive position, business outlook,
consistency of cash flows, debt level and liquidity, geographic
dispersion and management
to
maintaining an investment grade rating.
team. We remain committed
were determined primarily based on Level 2 inputs. Refer to Note 1,
‘‘Summary of Significant Accounting Policies,’’ to the Consolidated
Financial Statements for more information.
Capital Resources
Capital resources include cash flows from operations, cash and
cash equivalents and debt financing. At year-end 2015, we had cash
and cash equivalents of $158.8 million held in accounts at third-party
financial institutions.
Our cash balances are held in numerous locations throughout the
world. At January 2, 2016, the majority of our cash and cash equivalents
was held by our foreign subsidiaries.
To meet U.S. cash requirements, we have several cost-effective
liquidity options available. These options include borrowing funds at
reasonable rates, including borrowings from foreign subsidiaries, and
repatriating foreign earnings. However, if we were to repatriate
incremental foreign earnings, we may be subject to additional taxes in
the U.S.
In October 2014, we amended and restated the Revolver with
certain domestic and foreign banks, increasing the amount available
thereunder from $675 million to $700 million. The amendment also
extended the Revolver’s maturity date from December 22, 2016 to
October 3, 2019 and adjusted pricing to reflect favorable market
conditions. The maturity date may be extended for additional one-year
periods under certain circumstances. The commitments under the
Revolver may be increased by up to $325 million, subject to lender
approval and customary requirements. The Revolver is used as a
back-up facility for our commercial paper program and can be used to
finance other corporate requirements. No balances were outstanding
under the Revolver as of January 2, 2016 or January 3, 2015.
Refer to Note 4, ‘‘Debt and Capital Leases,’’ to the Consolidated
Financial Statements for more information.
We are exposed to financial market risk resulting from changes in
interest and foreign currency rates, and to possible liquidity and credit
risks of our counterparties.
22
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Contractual Obligations at End of Year 2015
(In millions)
Short-term borrowings
Long-term debt
Long-term capital leases
Interest on long-term debt
Operating leases
Pension and postretirement benefit payments (unfunded plans)
Total contractual obligations
Payments Due by Period
Total
2016
2017
2018
2019
2020 Thereafter
$
92.8 $ 92.8 $
– $
945.0
44.5
327.4
143.0
131.2
–
5.0
50.8
43.1
16.5
250.0
5.0
46.6
27.9
16.4
– $
–
5.0
34.2
19.0
33.7
– $
–
4.9
34.2
13.9
10.5
–
265.0
4.7
24.0
9.9
9.3
$
–
430.0
19.9
137.6
29.2
44.8
$1,683.9 $208.2 $345.9 $91.9 $63.5 $312.9
$661.5
We enter into operating leases primarily for office and warehouse
space and equipment for information technology, machinery, and
transportation. The table above includes minimum annual rental
commitments on operating
initial or remaining
non-cancelable lease terms of one year or more.
leases having
The table above does not include:
(cid:129) Unrecognized tax benefit reserves of $107.3 million – The
resolution of the balance, including the timing of payments, is
contingent upon various unknown factors and cannot be
reasonably estimated. Refer to Note 14, ‘‘Taxes Based on
Income,’’ to the Consolidated Financial Statements for further
information on unrecognized tax benefits.
(cid:129) Purchase obligations or open purchase orders at year-end – It
is impracticable for us to obtain this information or provide a
reasonable estimate thereof due to the decentralized nature of
our purchasing systems. In addition, purchase orders are
generally at fair value and cancelable without penalty.
(cid:129) Cash funding requirements for pension benefits payable to
certain eligible current and future retirees under our funded
plans – Benefits under our funded pension plans are paid
through a trust or trust equivalent. Cash funding requirements
for our funded plans, which can be significantly impacted by
earnings on investments, the discount rate, changes in the
plans, and funding laws and regulations, are not included as
we are not able to estimate required contributions to the trust
or trust equivalent. Refer to Note 6, ‘‘Pension and Other
Postretirement Benefits,’’
the Consolidated Financial
Statements for information regarding expected contributions
to our plans.
to
It
(cid:129) Deferred compensation plan benefit payments –
is
impracticable for us to obtain a reasonable estimate for 2016
and beyond due to the volatility of the payment amounts and
certain events that could trigger immediate payment of
benefits to participants. In addition, participant account
balances are marked-to-market monthly and benefit payments
are adjusted annually. Refer to Note 6, ‘‘Pension and Other
Postretirement Benefits,’’
the Consolidated Financial
Statements for more information.
to
(cid:129) Cash awards to employees under incentive compensation
plans – The amounts to be paid to employees under these
awards are based on our stock price and, if applicable,
achievement of certain performance objectives as of the
vesting dates, and, therefore, we cannot reasonably estimate
the amounts to be paid on these vesting dates. Refer to
Note 12,
the
Consolidated Financial Statements for further information on
cash awards.
Incentive Compensation,’’
‘‘Long-term
to
(cid:129) Unfunded termination indemnity benefits to certain employees
outside of the U.S. – These benefits are subject to applicable
agreements, local laws and regulations. We have not incurred
significant costs related to these arrangements.
23
Avery Dennison Corporation
2015 Annual Report
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions for the
reporting period and as of the financial statement date. These estimates
and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent liabilities and the reported amounts of
revenue and expense. Actual results could differ from those estimates.
Critical accounting estimates are those that are important to our
financial condition and results, and which require us to make difficult,
subjective and/or complex judgments. Critical accounting estimates
cover accounting matters that are inherently uncertain because their
future resolution is unknown. We believe our critical accounting
estimates include accounting for goodwill, pension and postretirement
benefits, taxes based on income, long-term incentive compensation,
litigation matters, and environmental expenditures.
Goodwill
Our reporting units are composed of either a discrete business or
an aggregation of businesses with similar economic characteristics. We
have the following reporting units: materials; retail branding and
information solutions; reflective solutions; performance tapes; and
medical solutions. Goodwill relates to our materials, retail branding and
information solutions, and reflective solutions reporting units. In
performing the required impairment tests, we primarily apply a present
value (discounted cash flow) method to determine the fair value of the
reporting units with goodwill. We perform our annual impairment test of
goodwill during the fourth quarter.
Certain factors may result in the need to perform an impairment test
prior to the fourth quarter, including significant underperformance of a
business relative to expected operating results, significant adverse
economic and industry trends, significant decline in our market
capitalization for an extended period of time relative to net book value,
or a decision to divest a portion of a reporting unit.
We determine goodwill impairment using a two-step process. The
first step is to identify if a potential impairment exists by comparing the
fair value of a reporting unit with its carrying amount, including goodwill.
If the fair value of a reporting unit exceeds its carrying amount, goodwill
of the reporting unit is not considered to have a potential impairment
and the second step of the impairment test is not necessary. However, if
the carrying amount of a reporting unit exceeds its fair value, the second
step is performed to determine if goodwill is impaired and to measure
the amount of impairment loss to recognize, if any.
The second step, if necessary, compares the implied fair value of
goodwill with the carrying amount of goodwill. If the implied fair value of
goodwill exceeds the carrying amount, then goodwill is not considered
impaired. However, if the carrying amount of goodwill exceeds the
implied fair value, an impairment loss is recognized in an amount equal
to that excess.
In consultation with outside specialists, we estimate the fair value of
our reporting units using various valuation techniques, with the primary
technique being a discounted cash flow analysis. A discounted cash
flow analysis requires us to make various assumptions about the
reporting units, including sales, operating margins, growth rates, and
discount rates. Assumptions about discount rates are based on a
for comparable companies.
weighted-average cost of capital
Assumptions about sales, operating margins, and growth rates are
based on our forecasts, business plans, economic projections,
anticipated future cash flows and marketplace data. Assumptions are
also made for varying perpetual growth rates for periods beyond the
long-term business plan period. We base our fair value estimates on
projected financial information and assumptions that we believe are
reasonable. However, actual future results may differ from those
estimates and projections, and those differences may be material. The
valuation methodology used to estimate the fair value of reporting units
requires inputs and assumptions that reflect current market conditions,
as well as the impact of planned business and operational strategies
that require management judgment. The estimated fair value could
increase or decrease depending on changes in the inputs and
assumptions. Our annual first step impairment analysis in the fourth
quarter of 2015 indicated that the fair values of our reporting units
exceeded their respective carrying amounts, including goodwill. The fair
value of the reporting units tested exceeded their carrying amounts by
80% to 461%.
Pension and Postretirement Benefits
Assumptions used in determining projected benefit obligations and
the fair value of plan assets for our defined benefit pension plans and
other postretirement benefit plans are evaluated by management in
consultation with outside actuaries. In the event that we determine that
changes are warranted in the assumptions used, such as the discount
rate, expected long-term rate of return, or health care costs, future
pension and postretirement benefit expenses could increase or
decrease. Due to changes in market conditions or participant
population, the actuarial assumptions that we use may differ from actual
results, which could have a significant impact on our pension and
postretirement liability and related cost.
Discount Rate
In consultation with our actuaries, we annually review and
determine the discount rates to be used in connection with valuing our
postretirement obligations. The assumed discount rate for each
pension plan reflects market rates for high quality corporate bonds
currently available. In the U.S., our discount rate is determined by
evaluating yield curves consisting of large populations of high quality
corporate bonds. The projected pension benefit payment streams are
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
then matched with the bond portfolios to determine a rate that reflects
the liability duration unique to our plans. As of January 2, 2016, a .25%
increase in the discount rate in the U.S. would have decreased our
year-end projected benefit obligation by approximately $32 million and
would have increased expected periodic benefit cost for the coming
year by approximately $.2 million. Similarly, a .25% decrease in the
discount rate in the U.S. would have increased our year-end projected
benefit obligation by approximately $34 million and would have
decreased expected periodic benefit cost for the coming year by
approximately $.3 million.
Beginning in 2016, we will use a full yield curve approach to
estimate the service and interest cost components of net periodic
benefit cost for our pension and other postretirement benefit plans.
Under this approach, we will apply multiple discount rates from a yield
curve composed of the rates of return on several hundred high-quality,
fixed income corporate bonds available at the measurement date. We
believe the new approach will provide a more precise measurement of
service and interest cost by aligning the timing of the plans’ liability cash
flows to the corresponding rates on the yield curve. Historically, we
estimated the service and interest cost components using a single
weighted-average discount rate derived from the yield curve used to
measure the benefit obligation at the beginning of the period.
Long-term Return on Assets
We determine the long-term rate of return assumption for plan
assets by reviewing the historical and expected returns of both the
equity and fixed income markets, taking into account our asset
allocation, the correlation between returns in our asset classes, and the
mix of active and passive investments. Additionally, current market
conditions, including interest rates, are evaluated and market data is
reviewed for reasonableness and appropriateness. An increase or
decrease of .25% on the long-term return on assets in the U.S. would
have decreased or increased, respectively, our 2016 periodic benefit
cost by approximately $2 million.
Taxes Based on Income
Deferred income tax assets represent amounts available to reduce
income taxes payable on taxable income in future years. These assets
arise because of temporary differences between the financial reporting
and tax bases of assets and liabilities, as well as from net operating loss
and tax credit carryforwards. These amounts are adjusted, as
appropriate, to reflect changes in tax rates expected to be in effect when
the temporary differences reverse. We evaluate the recoverability of
these future tax deductions and credits by assessing the adequacy of
future expected taxable income from all sources, including reversal of
taxable temporary differences, forecasted operating earnings and
available tax planning strategies. Our assessment of these sources of
income relies heavily on estimates. We use historical experience along
with operating forecasts in evaluating expected taxable income for the
future. To the extent we do not consider it more likely than not that a
deferred tax asset will be recovered, a valuation allowance is
established in the period we make such a determination. A tax planning
strategy is defined as ‘‘an action that: is prudent and feasible; an
enterprise ordinarily might not take, but would take to prevent an
operating loss or tax credit carryforward from expiring unused; and
would result in realization of deferred tax assets.’’ We also acquired
certain net deferred tax assets with existing valuation allowances in prior
years. If, based on our estimates of future taxable income, it is later
24
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
determined that it is more likely than not that a deferred tax asset will be
realized, we would release the valuation allowance to current earnings
or adjust purchase price allocation.
Our income tax rate is significantly affected by the different tax rates
applicable to our operations in the jurisdictions in which we do
business. In addition to local country tax law and regulations, this rate
depends on the extent earnings are indefinitely reinvested outside the
United States. Indefinite reinvestment is determined in accordance with
the Accounting Standards Codification (‘‘ASC’’) 740-30-25-17 using
management’s judgment about and intentions concerning estimates of
our future financial results, cash flows, capital investment plans and our
discretionary actions to return cash to shareholders.
We calculate our current and deferred tax provision based on
estimates and assumptions that could differ from the actual results
reflected in income tax returns filed in subsequent years. Adjustments
based on filed returns are recorded when identified.
the balance sheet date,
Tax laws are complex and subject to different interpretations by
taxpayers and respective governmental taxing authorities. We review
our tax positions quarterly and adjust the balances as new information
becomes available. Significant judgment is required in determining our
tax expense and in evaluating our tax positions, including evaluating
uncertainties. Our estimate of the potential outcome of any uncertain tax
issue is subject to management’s assessment of relevant facts and
circumstances existing at
into
consideration existing
laws, regulations and practices of any
governmental authorities exercising jurisdiction over our operations. For
example, in June 2014, the European Commission opened a formal
investigation of various European countries to examine whether the
corporate income taxes paid within such jurisdictions comply with the
European Union rules on state aid. The European Commission’s formal
investigation of
including The
Netherlands and Luxembourg was concluded in September 2015, and
required The Netherlands and Luxembourg to recover past taxes
covering multiple years from various taxpayers as disallowed state aid.
We continue to monitor the state aid developments, since it involves
jurisdictions in which we have significant operations, and it is
considered in the determination of our uncertain tax positions.
issued by countries
tax rulings
taking
Further information is available in Note 14, ‘‘Taxes Based on
Income,’’ to the Consolidated Financial Statements.
Long-Term Incentive Compensation
We have not capitalized expense associated with our long-term
incentive compensation.
Changes in estimated forfeiture rates are recorded as cumulative
adjustments in the period estimates are revised.
Valuation of Stock-Based Awards
Our stock-based compensation expense is based on the fair value
of awards, adjusted for estimated forfeitures, and amortized on a
straight-line basis over the requisite service period for stock options,
restricted stock units (‘‘RSUs’’), and performance units (‘‘PUs’’). The
compensation expense related
to market-leveraged stock units
(‘‘MSUs’’) is based on the fair value of awards, adjusted for estimated
forfeitures, and amortized on a graded-vesting basis over their
respective performance periods.
Compensation expense for awards with a market condition as a
performance objective, which includes PUs and MSUs, is not adjusted if
the condition is not met, as long as the requisite service period is met.
25
Avery Dennison Corporation
2015 Annual Report
The fair value of stock options is estimated as of the date of grant
using the Black-Scholes option-pricing model. This model requires
input assumptions for our expected dividend yield, expected stock price
volatility, risk-free interest rate and the expected option term.
The following assumptions are used in estimating the fair value of
granted stock options:
Risk-free interest rate is based on the 52-week average of the
Treasury-Bond rate that has a term corresponding to the expected
option term.
Expected stock price volatility represents an average of implied and
historical volatility.
Expected dividend yield is based on the current annual dividend
divided by the 12-month average of our monthly stock price prior to the
date of grant.
Expected option term is determined based on historical experience
under our stock option and incentive plans.
The fair value of RSUs and certain PUs that are subject to
achievement of performance objectives based on a performance
condition is determined based on the fair market value of our common
stock as of the date of grant, adjusted for foregone dividends.
The fair value of stock-based awards that are subject to
achievement of performance objectives based on a market condition,
which includes MSUs and certain PUs, is determined using the Monte-
Carlo simulation model, which utilizes multiple input variables, including
expected stock price volatility and other assumptions appropriate for
determining fair value, to estimate the probability of satisfying the target
performance objectives established for the award.
Certain of these assumptions are based on management’s
estimates, in consultation with outside specialists. Significant changes
in assumptions for future awards and actual forfeiture rates could
materially impact stock-based compensation expense and our results of
operations.
Valuation of Cash-Based Awards
Cash-based awards consist of long-term incentive units (‘‘LTI
Units’’) granted to eligible employees. Cash-based awards are
classified as liability awards and remeasured at each quarter-end over
the applicable vesting or performance period. In addition to LTI Units
with terms and conditions that mirror those of RSUs, we also grant
certain employees LTI Units with terms and conditions that mirror those
of PUs and MSUs.
Accounting for Income Taxes for Stock-Based Compensation
We elected to use the short-cut method to calculate the historical
pool of windfall tax benefits related to employee and non-employee
director stock-based compensation awards. In addition, we elected to
follow the tax law ordering approach to determine the sequence in
which deductions and net operating loss carryforwards are utilized, as
well as the direct-only approach to calculate the amount of windfall or
shortfall tax benefits.
Litigation Matters
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, and such liabilities are not discounted.
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. 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, and such
liabilities are not discounted.
RECENT ACCOUNTING REQUIREMENTS
Refer to Note 1, ‘‘Summary of Significant Accounting Policies,’’ to
the Consolidated Financial Statements for this information.
MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
Risk Management
We are exposed to the impact of changes in interest rates and
foreign currency exchange rates.
We generally do not purchase or hold foreign currency or interest
rate or commodity contracts for trading purposes.
Our objective in managing our exposure to foreign currency
changes is to reduce the risk to our earnings and cash flow associated
with foreign exchange rate changes. As a result, we enter into foreign
exchange forward, option and swap contracts to reduce risks
associated with the value of our existing foreign currency assets,
liabilities, firm commitments and anticipated foreign revenues and
costs, when available and appropriate. The gains and losses on these
contracts are intended to offset changes in the related exposures. We
do not hedge our foreign currency exposure in a manner that would
entirely eliminate the effects of changes in foreign exchange rates on
our net income.
Our objective in managing our exposure to interest rate changes is
to reduce the impact of interest rate changes on earnings and cash
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
flows. To achieve our objectives, we may periodically use interest rate
contracts to manage our exposure to interest rate changes.
Additionally, we enter into certain natural gas futures contracts to
reduce the risks associated with domestic natural gas anticipated to be
used in manufacturing and operations. These amounts are not material
to our financial statements.
In the normal course of operations, we also face other risks that are
either non-financial or non-quantifiable. These risks principally include
changes in economic or political conditions, other risks associated with
foreign operations, commodity price risk and litigation risk, which are
not reflected in the analyses that follow.
Foreign Exchange Value-At-Risk
We use a Value-At-Risk (‘‘VAR’’) model to determine the estimated
maximum potential one-day loss in earnings associated with our foreign
exchange positions and contracts. This approach assumes that market
rates or prices for foreign exchange positions and contracts are
normally distributed. VAR model estimates were made assuming
normal market conditions. The model includes all of our debt as well as
all interest rate and foreign exchange derivative contracts and market
sensitive equity
firm
investments. Forecasted
commitments, and accounts receivable and accounts payable
denominated in foreign currencies, which certain of these instruments
are intended to hedge, were excluded from the model.
transactions,
In both 2015 and 2014, the VAR was estimated using a variance-
covariance methodology. The currency correlation was based on
one-year historical data obtained from one of our domestic banks. A
95% confidence level was used for a one-day time horizon.
The estimated maximum potential one-day loss in earnings for our
foreign exchange positions and contracts was $1 million at both
years-end 2015 and 2014.
The VAR model is a risk analysis tool and does not purport to
represent actual losses in fair value that we could incur, nor does it
consider the potential effect of favorable changes in market factors.
Interest Rate Sensitivity
In 2015, an assumed 40 basis point move in interest rates affecting
our variable-rate borrowings (10% of our weighted-average interest rate
on floating rate debt) would have increased interest expense by
approximately $.7 million.
In 2014, an assumed 50 basis point move in interest rates affecting
our variable-rate borrowings (10% of our weighted-average interest rate
on floating rate debt) would have increased interest expense by
approximately $1 million.
26
Consolidated Balance Sheets
(Dollars in millions)
Assets
Current assets:
Cash and cash equivalents
Trade accounts receivable, less allowances of $31.5 and $30.5 at year-end 2015 and 2014, respectively
Inventories, net
Current deferred and refundable income taxes
Assets held for sale
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Other intangibles resulting from business acquisitions, net
Non-current deferred income taxes
Other assets
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term borrowings and current portion of long-term debt and capital leases
Accounts payable
Accrued payroll and employee benefits
Accrued trade rebates
Current deferred and payable income taxes
Other accrued liabilities
Total current liabilities
Long-term debt and capital leases
Long-term retirement benefits and other liabilities
Non-current deferred and payable income taxes
Commitments and contingencies (see Notes 7 and 8)
Shareholders’ equity:
Common stock, $1 par value per share, authorized – 400,000,000 shares at year-end 2015 and 2014;
issued – 124,126,624 shares at year-end 2015 and 2014; outstanding – 89,967,697 shares and 90,458,956 shares
at year-end 2015 and 2014, respectively
Capital in excess of par value
Retained earnings
Treasury stock at cost, 34,158,927 shares and 33,667,668 shares at year-end 2015 and 2014, respectively
Accumulated other comprehensive loss
Total shareholders’ equity
See Notes to Consolidated Financial Statements
January 2,
2016
January 3,
2015
$
158.8
964.7
478.7
30.9
2.5
139.8
1,775.4
847.9
686.2
45.8
372.2
406.2
$
207.2
958.1
491.8
107.5
.8
155.9
1,921.3
875.3
721.6
67.4
312.9
458.4
$ 4,133.7
$ 4,356.9
$
95.3
814.6
194.6
85.4
45.1
224.1
1,459.1
963.6
637.4
107.9
$
204.3
797.8
173.7
90.5
60.1
266.6
1,593.0
940.1
648.3
127.8
124.1
834.0
2,277.6
(1,587.0)
(683.0)
124.1
823.9
2,116.5
(1,471.3)
(545.5)
965.7
1,047.7
$ 4,133.7
$ 4,356.9
27
Avery Dennison Corporation
2015 Annual Report
Consolidated Statements of Income
(In millions, except per share amounts)
Net sales
Cost of products sold
Gross profit
Marketing, general and administrative expense
Interest expense
Other expense, net
Income from continuing operations before taxes
Provision for income taxes
Income from continuing operations
Loss from discontinued operations, net of tax
Net income
Per share amounts:
Net income (loss) per common share:
Continuing operations
Discontinued operations
Net income per common share
Net income (loss) per common share, assuming dilution:
Continuing operations
Discontinued operations
Net income per common share, assuming dilution
Dividends per common share
Weighted average number of shares outstanding:
Common shares
Common shares, assuming dilution
See Notes to Consolidated Financial Statements
2015
2014
2013
$5,966.9
4,321.1
1,645.8
1,108.1
60.5
68.3
408.9
134.5
274.4
(.1)
$6,330.3
4,679.1
1,651.2
1,158.9
63.3
68.2
360.8
113.5
247.3
(2.2)
$6,140.0
4,502.3
1,637.7
1,174.2
60.9
36.6
366.0
124.3
241.7
(28.5)
$ 274.3
$ 245.1
$ 213.2
$
$
$
$
$
3.01
–
3.01
2.95
–
2.95
1.46
91.0
92.9
$
$
$
$
$
2.64
(.03)
2.61
2.58
(.02)
2.56
1.34
93.8
95.7
$
$
$
$
$
2.46
(.29)
2.17
2.41
(.28)
2.13
1.14
98.4
100.1
28
Consolidated Statements of Comprehensive Income
(In millions)
Net income
Other comprehensive (loss) income, net tax:
Foreign currency translation:
Translation loss
Reclassifications to net income
Pension and other postretirement benefits:
Net (loss) gain recognized from actuarial gain/loss and prior service cost/credit
Reclassifications to net income
Cash flow hedges:
(Losses) gains recognized on cash flow hedges
Reclassifications to net income
Other comprehensive (loss) income, net of tax
Total comprehensive income (loss), net of tax
See Notes to Consolidated Financial Statements
2015
2014
2013
$ 274.3
$ 245.1
$213.2
(139.0)
–
(149.8)
–
(50.2)
10.8
(18.9)
22.9
(125.2)
16.9
48.1
10.0
(.5)
(2.0)
.1
.9
.8
.2
(137.5)
(257.1)
19.7
$ 136.8
$ (12.0)
$232.9
29
Avery Dennison Corporation
2015 Annual Report
Consolidated Statements of Shareholders’ Equity
(Dollars in millions, except per share amounts)
Balance as of December 29, 2012
Net income
Other comprehensive income, net of tax
Repurchase of 6,555,672 shares for treasury
Issuance of 2,240,185 shares under stock-based compensation plans,
including tax of $1.7
Contribution of 578,441 shares to 401(k) Plan
Dividends: $1.14 per share
Balance as of December 28, 2013
Net income
Other comprehensive loss, net of tax
Repurchase of 7,416,167 shares for treasury
Issuance of 1,299,931 shares under stock-based compensation plans,
including tax of $(4.1)
Contribution of 396,781 shares to 401(k) Plan
Dividends: $1.34 per share
Balance as of January 3, 2015
Net income
Other comprehensive loss, net of tax
Repurchase of 3,858,376 shares for treasury
Issuance of 3,019,001 shares under stock-based compensation plans,
including tax of $10.6
Contribution of 348,116 shares to 401(k) Plan
Dividends: $1.46 per share
Common Capital in
excess of
stock, $1
par value
par value
Retained
earnings
Treasury
stock
Accumulated
other
comprehensive
loss
Total
$124.1
–
–
–
$801.8 $1,896.6 $ (977.8)
–
213.2
–
–
(283.5)
–
–
–
–
$(308.1) $1,536.6
213.2
19.7
(283.5)
–
19.7
–
–
–
–
10.5
–
–
(11.6)
6.1
(112.0)
70.7
18.4
–
–
–
–
69.6
24.5
(112.0)
$124.1
–
–
–
$812.3 $1,992.3 $(1,172.2)
–
245.1
–
–
(355.5)
–
–
–
–
$(288.4) $1,468.1
245.1
(257.1)
(355.5)
–
(257.1)
–
–
–
–
11.6
–
–
(2.0)
6.2
(125.1)
43.2
13.2
–
–
–
–
52.8
19.4
(125.1)
$124.1
–
–
–
$823.9 $2,116.5 $(1,471.3)
–
274.3
–
–
(232.3)
–
–
–
–
$(545.5) $1,047.7
274.3
(137.5)
(232.3)
–
(137.5)
–
–
–
–
10.1
–
–
11.8
8.1
(133.1)
104.5
12.1
–
–
–
–
126.4
20.2
(133.1)
Balance as of January 2, 2016
$124.1
$834.0 $2,277.6 $(1,587.0)
$(683.0) $ 965.7
See Notes to Consolidated Financial Statements
30
Consolidated Statements of Cash Flows
(In millions)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Amortization
Provision for doubtful accounts and sales returns
Loss (gain) on sale of businesses
Indefinite-lived intangible asset impairment charge
Net losses (gains) from asset impairments and sales/disposals of assets
Stock-based compensation
Other non-cash expense and loss
Other non-cash income and gain
Changes in assets and liabilities and other adjustments:
Trade accounts receivable
Inventories
Other current assets
Accounts payable
Accrued liabilities
Taxes on income
Deferred taxes
Other assets
Long-term retirement benefits and other liabilities
Net cash provided by operating activities
Investing Activities
Purchases of property, plant and equipment
Purchases of software and other deferred charges
Proceeds from sales of property, plant and equipment
(Purchases) sales of investments, net
Proceeds from sale of businesses, net of cash provided
Other
Net cash (used in) provided by investing activities
Financing Activities
Net (decrease) increase in borrowings (maturities of 90 days or less)
Additional borrowings (maturities longer than 90 days)
Payments of debt (maturities longer than 90 days)
Dividends paid
Share repurchases
Proceeds from exercises of stock options, net
Other
Net cash used in financing activities
Effect of foreign currency translation on cash balances
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See Notes to Consolidated Financial Statements
31
Avery Dennison Corporation
2015 Annual Report
2015
2014
2013
$ 274.3
$ 245.1
$ 213.2
125.2
63.1
46.5
–
–
12.2
26.3
50.1
–
(135.9)
(34.4)
3.9
65.5
7.0
(23.7)
12.9
(.3)
(19.0)
473.7
(135.8)
(15.7)
7.6
(.5)
–
1.5
(142.9)
(98.4)
–
(7.4)
(133.1)
(232.3)
104.0
(.1)
(367.3)
(11.9)
(48.4)
207.2
135.5
66.1
45.2
3.4
3.0
10.2
28.3
44.2
–
(65.4)
(33.0)
(33.7)
(62.8)
(18.2)
15.3
(17.9)
(3.5)
(6.9)
354.9
(147.9)
(27.1)
4.3
.3
–
–
(170.4)
126.5
–
(1.6)
(125.1)
(355.5)
34.2
(2.0)
(323.5)
(4.9)
(143.9)
351.1
135.6
69.0
41.5
(49.3)
–
(5.8)
34.0
50.1
(11.8)
(136.0)
(75.9)
3.0
108.2
(19.3)
(5.0)
52.4
(5.4)
(78.9)
319.6
(129.2)
(52.2)
38.7
.1
481.2
.8
339.4
(435.3)
250.0
(1.9)
(112.0)
(283.5)
44.8
(8.3)
(546.2)
2.9
115.7
235.4
$ 158.8
$ 207.2
$ 351.1
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
We develop identification and decorative solutions primarily for
include pressure-sensitive
businesses worldwide. Our products
labeling technology and materials; films for graphic and reflective
applications; performance tapes; brand and price tickets, tags and
labels (including radio-frequency identification (‘‘RFID’’) inlays); and
pressure-sensitive adhesive products for surgical, wound care, ostomy,
and electromedical applications.
Principles of Consolidation
The consolidated financial statements include the accounts of
majority-owned subsidiaries. Intercompany accounts, transactions and
profits are eliminated in consolidation.
Fiscal Year
Normally, our fiscal years consist of 52 weeks, but every fifth or sixth
fiscal year consists of 53 weeks. Our 2015 and 2013 fiscal years
consisted of 52-week periods ending January 2, 2016 and
December 28, 2013, respectively. Our 2014 fiscal year consisted of a
53-week period ending January 3, 2015.
Financial Presentation
As further discussed in Note 2, ‘‘Discontinued Operations, Sale of
Product Line, and Sale of Assets,’’ we have classified the operating
results of our Office and Consumer Products (‘‘OCP’’) and Designed
and Engineered Solutions (‘‘DES’’) businesses, together with certain
costs associated with their divestiture, as discontinued operations in the
Consolidated Statements of Income for all periods presented. Unless
otherwise noted, the results and financial condition of discontinued
operations have been excluded from the notes to our Consolidated
Financial Statements.
Prior Period Financial Statement Revision, Reclassifications, and
Accounting Changes
In 2015, we determined that certain of our benefit plans (that were
frozen between 1994 and 2003) were not properly accounted for since
their
in an
inception between 1984 and 1988. This resulted
understatement of long-term retirement benefits and other liabilities and
the cumulative historical expenses related to these benefit plans.
Additionally, we identified certain liquid short-term bank drafts with
maturities greater than 90 days that were improperly classified as cash
and cash equivalents instead of other current assets, which resulted in
an overstatement of operating cash flows, and tax effects related to
certain foreign pension plans that were not properly accounted for on
our consolidated financial statements.
We assessed the materiality of these errors on our financial
statements for prior periods in accordance with United States Securities
and Exchange Commission (‘‘SEC’’) Staff Accounting Bulletin (‘‘SAB’’)
No. 99, Materiality, codified in Accounting Standards Codification
(‘‘ASC’’) 250, Presentation of Financial Statements, and concluded that
they were not material to any prior annual or interim periods. However,
the aggregate amount of the prior period revisions of approximately
$24 million would have been material to our current Consolidated
Statements of Income. Consequently, in accordance with ASC 250
(SAB No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements), we
have corrected these errors for all prior years presented by revising the
consolidated financial statements and other financial information
included herein. We also corrected the timing of immaterial previously
recorded out-of-period adjustments and reflected them in the revised
prior period financial statements, where applicable. Periods not
presented herein will be revised, as applicable, in future filings.
in
Additionally, as
further discussed
‘‘Recent Accounting
Requirements’’ below, we adopted the provisions of an accounting
standard amendment earlier than required, resulting in the retrospective
reclassification of debt issuance costs from other assets to a reduction
of long-term debt. The effects on the Consolidated Balance Sheets are
included in the information below.
Certain prior year amounts have been reclassified to conform to the
current year presentation. The Consolidated Statements of
Comprehensive
the
Income have been reclassified
components of comprehensive income, net of tax.
to present
The effects of the revision and adoption of accounting standard on our Consolidated Balance Sheets were as follows:
(In millions)
Cash and cash equivalents
Other current assets
Non-current deferred income taxes
Other assets
Total assets
Current deferred and payable income taxes
Total current liabilities
Long-term debt and capital leases
Long-term retirement benefits and other liabilities
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
As Previously
Reported
January 3, 2015
Debt Issuance
Cost
Reclassification
Adjustment
As Revised
January 3, 2015
$ 227.0
136.1
311.0
463.6
4,360.2
64.9
1,597.8
945.3
622.8
2,137.1
(547.3)
1,066.5
4,360.2
$
–
–
–
(5.2)
(5.2)
–
–
(5.2)
–
–
–
–
(5.2)
$(19.8)
19.8
1.9
–
1.9
(4.8)
(4.8)
–
25.5
(20.6)
1.8
(18.8)
1.9
$ 207.2
155.9
312.9
458.4
4,356.9
60.1
1,593.0
940.1
648.3
2,116.5
(545.5)
1,047.7
4,356.9
32
Notes to Consolidated Financial Statements
The effects of the revision on our Consolidated Statements of Income were as follows:
(In millions)
Marketing, general and administrative expense
Interest expense
Income from continuing operations before taxes
Provision for income taxes
Income from continuing operations
Loss from discontinued operations, net of tax
Net income
Per share amounts:
Net income (loss) per common share:
Continuing operations
Discontinued operations
Net income per common share
Net income (loss) per common share, assuming dilution:
Continuing operations
Discontinued operations
Net income per common share, assuming dilution
As
Previously
Reported
$1,155.3
63.3
364.4
113.3
251.1
(2.2)
248.9
$
$
$
$
2.68
(.03)
2.65
2.62
(.02)
2.60
2014
2013
As
Revised
$1,158.9
63.3
360.8
113.5
As
Previously
Reported
$1,179.0
59.0
363.1
118.8
247.3
(2.2)
245.1
244.3
(28.5)
215.8
Adjustment
$ 3.6
–
(3.6)
.2
(3.8)
–
(3.8)
Adjustment
$(4.8)
1.9
2.9
5.5
(2.6)
–
(2.6)
As
Revised
$1,174.2
60.9
366.0
124.3
241.7
(28.5)
213.2
$
$(.04)
–
2.64
(.03)
$(.04)
$
2.61
$
$(.04)
–
2.58
(.02)
$(.04)
$
2.56
$
$
$
$
2.48
(.29)
2.19
2.44
(.28)
2.16
$
$(.02)
–
2.46
(.29)
$(.02)
$
2.17
$
$(.03)
–
2.41
(.28)
$(.03)
$
2.13
The effects of the revision on our Consolidated Statements of Comprehensive Income were as follows:
(In millions)
Net income
Translation loss
Pension and other postretirement benefits:
Net (loss) gain recognized from actuarial gain/loss and prior service
cost/credit
Reclassifications to net income
Other comprehensive (loss) income, net of tax
Total comprehensive (loss) income, net of tax
As
Previously
Reported
$ 248.9
(154.7)
(129.4)
16.9
(266.2)
(17.3)
2014
2013
As
Revised
As
Previously
Reported
Adjustment
As
Revised
Adjustment
$(3.8)
4.9
$ 245.1
(149.8)
$215.8
(53.3)
$ (2.6)
3.1
$213.2
(50.2)
4.2
–
9.1
5.3
(125.2)
16.9
(257.1)
(12.0)
29.4
9.0
(3.1)
212.7
18.7
1.0
22.8
20.2
48.1
10.0
19.7
232.9
The effects of the revision on our Consolidated Statements of Cash Flows were as follows:
(In millions)
Net cash provided by operating activities
(Decrease) increase in cash and cash equivalents
As
Previously
Reported
$ 374.2
(124.6)
2014
2013
As
Revised
As
Previously
Reported
Adjustment
Adjustment
$(19.3)
(19.3)
$ 354.9
(143.9)
$320.1
116.2
$(.5)
(.5)
As
Revised
$319.6
115.7
Use of Estimates
Cash and Cash Equivalents
The preparation of
financial statements
in conformity with
accounting principles generally accepted in the United States of
America, or GAAP, requires management to make estimates and
assumptions for the reporting period and as of the date of the financial
statements. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent liabilities
and the reported amounts of revenue and expense. Actual results could
differ from these estimates.
33
Avery Dennison Corporation
2015 Annual Report
Cash and cash equivalents generally consist of cash on hand,
deposits in banks, as well as bank drafts and short-term investments
with maturities of three months or less when purchased or received. The
carrying value of these assets approximates fair value due to the short
maturity of the instruments.
Accounts Receivable
Impairment of Long-lived Assets
Notes to Consolidated Financial Statements
We record trade accounts receivable at the invoiced amount. The
allowance for doubtful account reserve represents allowances for
customer trade accounts receivable that are estimated to be partially or
entirely uncollectible. The customer complaint reserve represents
estimated sales returns and allowances. These allowances are used to
reduce gross trade receivables to their net realizable values. We record
these allowances based on estimates related to:
(cid:129) Customer-specific allowances;
(cid:129) Amounts based upon an aging schedule; and
(cid:129) An amount based on our historical experience.
No single customer represented 10% or more of our net sales in, or
trade accounts receivable at, year-end 2015 or 2014. However, during
2015, 2014, and 2013 our ten largest customers by net sales
represented approximately 15%, 13%, and 12% of our net sales,
respectively. As of January 2, 2016 and January 3, 2015, our ten largest
customers by trade accounts receivable represented approximately
14% and 15% of our trade accounts receivable, respectively. These
customers were concentrated primarily in our Pressure-sensitive
Materials reportable segment. We do not generally require our
customers to provide collateral.
Inventories
Inventories are stated at the lower-of-cost-or-market value and are
categorized as raw materials, work-in-progress or finished goods. Cost
is determined using the first-in, first-out method. Inventory reserves are
recorded to cost of products sold for damaged, obsolete, excess and
slow-moving inventory and we establish a lower cost basis for the
inventory. We use estimates to record these reserves. Slow-moving
inventory is reviewed by category and may be partially or fully reserved
for depending on the type of product, level of usage, and the length of
time the product has been included in inventory.
Property, Plant and Equipment
Depreciation is generally computed using the straight-line method
over the estimated useful lives of the assets, ranging from ten to
forty-five years for buildings and improvements and three to fifteen
years for machinery and equipment. Leasehold improvements are
depreciated over the shorter of the useful life of the asset or the term of
the associated leases. Maintenance and repair costs are expensed as
incurred; renewals and betterments are capitalized. Upon the sale or
retirement of assets, the accounts are relieved of the cost and the
related accumulated depreciation, with any resulting gain or loss
included in net income.
Software
We capitalize internal and external software costs that are incurred
during the application development stage of software development,
including costs incurred for the design, coding, installation to hardware,
testing, and upgrades and enhancements that provide the software or
hardware with additional functionalities and capabilities. Internal and
external software costs during the preliminary project stage are
expensed, as are those costs during the post-implementation and/or
operation stage, including internal and external training costs and
maintenance costs. Capitalized software, which is included in ‘‘Other
assets’’ in the Consolidated Balance Sheets, is amortized on a
straight-line basis over the estimated useful life of the software, which is
generally between five and ten years.
Impairment charges are recorded when the carrying amounts of
long-lived assets are determined not to be recoverable. Recoverability is
measured by comparing the undiscounted cash flows expected from
their use and eventual disposition to the carrying value of the related
asset or asset group. The amount of impairment loss is calculated as the
excess of the carrying value over the fair value. Historically, changes in
market conditions and management strategy have caused us to
reassess the carrying amount of our long-lived assets.
Goodwill and Other Intangibles Resulting from Business
Acquisitions
Business combinations are accounted for by the acquisition
method, with the excess of the acquisition cost over the fair value of net
tangible assets and identified intangible assets acquired considered
goodwill. As a result, we disclose goodwill separately from other
intangible assets. Other identifiable intangibles include customer
relationships, patents and other acquired technology, trade names and
trademarks, and other intangibles.
We have the following reporting units: materials; retail branding and
information solutions; reflective solutions; performance tapes; and
medical solutions. In performing the required impairment tests, we
primarily apply a present value (discounted cash flow) method to
determine the fair value of the reporting units with goodwill. We perform
our annual impairment test of goodwill during the fourth quarter.
Certain factors may result in the need to perform an impairment test
prior to the fourth quarter, including significant underperformance of a
business relative to expected operating results, significant adverse
economic and industry trends, significant decline in our market
capitalization for an extended period of time relative to net book value,
or a decision to divest a portion of a reporting unit.
We determine goodwill impairment using a two-step process. The
first step is to identify if a potential impairment exists by comparing the
fair value of a reporting unit with its carrying amount, including goodwill.
If the fair value of a reporting unit exceeds its carrying amount, goodwill
of the reporting unit is not considered to have a potential impairment
and the second step of the impairment test is not necessary. However, if
the carrying amount of a reporting unit exceeds its fair value, the second
step is performed to determine if goodwill is impaired and to measure
the amount of impairment loss to recognize, if any.
The second step, if necessary, compares the implied fair value of
goodwill with the carrying amount of goodwill. If the implied fair value of
goodwill exceeds the carrying amount, then goodwill is not considered
impaired. However, if the carrying amount of goodwill exceeds the
implied fair value, an impairment loss is recognized in an amount equal
to that excess.
In consultation with outside specialists, we estimate the fair value of
our reporting units using various valuation techniques, with the primary
technique being a discounted cash flow analysis. A discounted cash
flow analysis requires us to make various assumptions about the
reporting units, including sales, operating margins, growth rates, and
discount rates. Assumptions about discount rates are based on a
weighted-average cost of capital
for comparable companies.
Assumptions about sales, operating margins, and growth rates are
based on our forecasts, business plans, economic projections,
anticipated future cash flows and marketplace data. Assumptions are
also made for varying perpetual growth rates for periods beyond the
long-term business plan period. We base our fair value estimates on
projected financial information and assumptions that we believe are
34
Notes to Consolidated Financial Statements
reasonable. However, actual future results may differ from those
estimates and projections, and those differences may be material. The
valuation methodology used to estimate the fair value of reporting units
requires inputs and assumptions that reflect current market conditions,
as well as the impact of planned business and operational strategies
that require management judgment. The estimated fair value could
increase or decrease depending on changes in the inputs and
assumptions.
in
the
We test indefinite-lived intangible assets, consisting of trademarks,
for
fourth quarter or whenever events or
impairment
circumstances indicate that it is more likely than not that their carrying
amounts exceed their fair values. Fair value is estimated as the
discounted value of future revenues using a royalty rate that a third party
would pay for use of the asset. Variation in the royalty rates could impact
the estimate of fair value. If the carrying amount of an asset exceeds its
fair value, an impairment loss is recognized in an amount equal to that
excess.
See also Note 3, ‘‘Goodwill and Other Intangibles Resulting from
Business Acquisitions.’’
Foreign Currency
Asset and liability accounts of international operations are
translated into U.S. dollars at current rates. Revenues and expenses are
translated at the weighted-average currency rate for the fiscal year.
Gains and losses resulting from hedging the value of investments in
certain international operations and from translation of balance sheet
accounts are recorded directly as a component of other comprehensive
income.
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.
On the date we enter into a derivative contract, we determine
whether the derivative will be designated as a hedge. Those derivatives
not designated as hedges are recorded on the balance sheets at fair
value, with changes in the fair value recognized in earnings. Those
derivatives designated as hedges are classified as either (1) hedges of
the fair value of a recognized asset or liability or an unrecognized firm
commitment (‘‘fair value’’ hedges); or (2) hedges of a forecasted
transaction or the variability of cash flows that are to be received or paid
in connection with a recognized asset or liability (‘‘cash flow’’ hedges).
Our policy is not to purchase or hold any foreign currency, interest rate
or commodity contracts for trading purposes.
We assess, both at the inception of the hedge and on an ongoing
basis, whether hedges are highly effective. If it is determined that a
hedge is not highly effective, we prospectively discontinue hedge
accounting. For cash flow hedges, the effective portion of the related
gains and losses is recorded as a component of other comprehensive
income, and the ineffective portion is reported in earnings. Amounts in
35
Avery Dennison Corporation
2015 Annual Report
accumulated other comprehensive income (loss) are reclassified into
earnings in the same period during which the hedged transaction
affects earnings. In the event the anticipated transaction is no longer
likely to occur, we recognize the change in fair value of the instrument in
current period earnings. Changes in fair value hedges are recognized in
current period earnings. Changes in the fair value of underlying hedged
items (such as recognized assets or liabilities) are also recognized in
current period earnings and offset the changes in the fair value of the
derivative.
In the Consolidated Statements of Cash Flows, hedges are
classified in the same category as the item hedged, primarily in
operating activities.
See also Note 5, ‘‘Financial Instruments.’’
Fair Value Measurements
We define fair value as the price that would be received from selling
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair
value measurements for assets and liabilities which are required to be
recorded at fair value, we consider the principal or most advantageous
market in which we would transact and the market-based risk
measurements or assumptions that market participants would use in
pricing the asset or liability.
We determine fair value based on a three-tier fair value hierarchy,
which we use to prioritize the inputs used in measuring fair value. These
tiers consist of Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly observable;
and Level 3, defined as unobservable inputs in which little or no market
data exists, therefore requiring us to develop our own assumptions to
determine the best estimate of fair value.
Revenue Recognition
Sales are recognized when persuasive evidence of an arrangement
exists, pricing is determinable, delivery has occurred based on
applicable sales terms, and collection is reasonably assured. Sale terms
are free on board (f.o.b.) shipping point or f.o.b. destination, depending
upon local business customs. For most regions in which we operate,
f.o.b. shipping point terms are utilized and sales are recorded at the time
of shipment, because this is when title and risk of loss are transferred. In
certain regions, notably in Europe and China, f.o.b. destination terms
are generally utilized and sales are recorded when the products are
delivered to the customer’s delivery site, because this is when title and
risk of loss are transferred. Furthermore, sales, provisions for estimated
returns, and the cost of products sold are recorded at the time title
transfers to customers and when the customers assume the risks and
rewards of ownership. Actual product returns are charged against
estimated sales return allowances.
Sales rebates and discounts are common practices in the
industries in which we operate. Volume, promotional, price, cash and
other discounts and customer incentives are accounted for as a
reduction to gross sales. Rebates and discounts are recorded based
upon estimates at the time products are sold. These estimates are
based on our historical experience for similar programs and products.
We review these rebates and discounts on an ongoing basis and
accruals for rebates and discounts are adjusted, if necessary, as
additional information becomes available.
Notes to Consolidated Financial Statements
Research and Development
Research and development costs are related to research, design
and testing of new products and applications and are expensed as
incurred.
Long-Term Incentive Compensation
No long-term incentive compensation expense was capitalized in
director stock-based compensation awards. In addition, we elected to
follow the tax law ordering approach to determine the sequence in
which deductions and net operating loss carryforwards are utilized, as
well as the direct-only approach to calculate the amount of windfall or
shortfall tax benefits.
See also Note 12, ‘‘Long-term Incentive Compensation.’’
2015, 2014, or 2013.
Taxes Based on Income
Changes in estimated forfeiture rates are recorded as cumulative
adjustments in the period estimates are revised.
Valuation of Stock-Based Awards
(‘‘RSUs’’). Compensation expense
Our stock-based compensation expense is based on the fair value
of awards, adjusted for estimated forfeitures, and amortized on a
straight-line basis over the requisite service period for stock options and
restricted stock units
for
performance units (‘‘PUs’’) is based on the fair value of awards,
adjusted for estimated forfeitures, and amortized on a straight-line basis
as these awards cliff-vest at the end of the requisite service period. The
compensation expense related
to market-leveraged stock units
(‘‘MSUs’’) is based on the fair value of awards, adjusted for estimated
forfeitures, and amortized on a graded-vesting basis over their
respective performance periods.
Compensation expense for awards with a market condition as a
performance objective, which includes PUs and MSUs, is not adjusted if
the condition is not met, as long as the requisite service period is met.
The fair value of stock options is estimated as of the date of grant
using the Black-Scholes option-pricing model. This model requires
input assumptions for our expected dividend yield, expected stock price
volatility, risk-free interest rate and the expected option term.
The fair value of RSUs and certain PUs that are subject to
achievement of performance objectives based on a performance
condition is determined based on the fair market value of our common
stock as of the date of grant, adjusted for foregone dividends.
The fair value of stock-based awards that are subject to
achievement of performance objectives based on a market condition,
which includes MSUs and certain PUs, is determined using the Monte-
Carlo simulation model, which utilizes multiple input variables, including
expected stock price volatility and other assumptions appropriate for
determining fair value, to estimate the probability of satisfying the target
performance objectives established for the award.
Certain of these assumptions are based on management’s
estimates, in consultation with outside specialists. Significant changes
in assumptions for future awards and actual forfeiture rates could
materially impact stock-based compensation expense and our results of
operations.
Valuation of Cash-Based Awards
Cash-based awards consist of long-term incentive units (‘‘LTI
Units’’) granted to eligible employees. Cash-based awards are
classified as liability awards and remeasured at each quarter-end over
the applicable vesting or performance period. In addition to LTI Units
with terms and conditions that mirror those of RSUs, we also grant
certain employees LTI Units with terms and conditions that mirror those
of PUs and MSUs.
Accounting for Income Taxes for Stock-Based Compensation
We elected to use the short-cut method to calculate the historical
pool of windfall tax benefits related to employee and non-employee
Our provision for income taxes is determined using the asset and
liability approach following the provisions of ASC 740, Accounting for
Income Taxes. Under this approach, deferred income taxes represent
the expected future tax consequences of temporary differences
between the carrying amounts and tax basis of assets and liabilities. We
record a valuation allowance to reduce our deferred tax assets when
uncertainty regarding their realizability exists. We recognize and
measure our uncertain tax positions following the more-likely-than-not
threshold for financial statement recognition and measurement for tax
positions taken or expected to be taken in a tax return.
See also Note 14, ‘‘Taxes Based on Income.’’
Recent Accounting Requirements
In January 2016, the Financial Accounting Standards Board
(‘‘FASB’’) amended guidance to require all equity investments to be
measured at fair value, with changes in the fair value recognized
through net income (other than those accounted for under the equity
method of accounting or those that result in consolidation of the
investee). In addition, the amendments eliminate certain requirements
regarding equity investments. This guidance is effective for annual
periods beginning after December 15, 2017, including interim periods
within those fiscal years. We do not anticipate that adoption of this
amended guidance will have a significant impact on our financial
position, results of operations, cash flows, or disclosures.
tax
to all deferred
In November 2015, the FASB amended guidance to simplify the
presentation of deferred income taxes by requiring that deferred tax
liabilities and assets be classified as noncurrent in a classified statement
of financial position. The amendments are effective for financial
statements issued for annual periods beginning after December 15,
2016, and interim periods within those annual periods, with early
application permitted for all entities as of the beginning of an interim or
annual reporting period. The amendments can be applied either
liabilities and assets or
(i) prospectively
(ii) retrospectively to all periods presented. We elected to early adopt
this standard for our fiscal year 2015 prospectively. The amendments
had no impact on our results of operations, cash flows, or disclosures.
In July 2015, the FASB amended guidance to simplify the
subsequent measurement of inventory by requiring inventory to be
measured at the lower of cost and net realizable value. Net realizable
value is the estimated selling price in the ordinary course of business,
less reasonably predictable costs of completion, disposal and
transportation. This guidance is effective for annual periods beginning
after December 15, 2016, and interim periods within those fiscal years.
We do not anticipate that adoption of this amended guidance will have a
significant impact on our results of operations, cash flows, or
disclosures.
In May 2015, the FASB amended guidance to remove the
requirement to categorize within the fair value hierarchy all investments
for which fair value is measured using the net asset value (‘‘NAV’’) per
share (or its equivalent) practical expedient. Additionally, the amended
guidance removes the requirement to make certain disclosures for all
36
Notes to Consolidated Financial Statements
investments that are eligible to be measured at fair value using the NAV
per share practical expedient. We elected to early adopt this standard
for our fiscal year 2015, which eliminated the requirement for us to
categorize investments for which fair values are measured using the
NAV per share in our consolidated financial statements. Refer to revised
fair value disclosures in Note 6, ‘‘Pension and Other Postretirement
Benefits.’’
In April 2015, the FASB issued guidance about accounting for fees
paid in a cloud computing arrangement. Examples of cloud computing
arrangements include software as a service, platform as a service,
infrastructure as a service, and other similar hosting arrangements. As
clarified in the guidance, if a cloud computing arrangement includes a
software license, the software license element of the arrangement
should be accounted for consistent with the acquisition of other
software licenses. If a cloud computing arrangement does not include a
software license, the arrangement should be accounted for as a service
contract. This guidance is effective for annual periods beginning after
December 15, 2015, and interim periods within those fiscal years, and
may be adopted prospectively or retrospectively. We do not anticipate
that adoption of this guidance will have a significant impact on our
financial position, results of operations, cash flows, or disclosures.
In April 2015, the FASB revised guidance to allow employers with
fiscal year-ends that do not coincide with a calendar month-end to make
an accounting policy election to measure defined benefit plan assets
and obligations as of the end of the calendar month closest to their fiscal
year-end. Employers that make this election must apply the alternative
measurement date to all defined benefit plans. The guidance also
allows all employers to elect to remeasure defined plan assets and
obligations in interim periods at the closest calendar month-end to an
event that triggers the remeasurement. We elected to early adopt this
standard prospectively for our fiscal year 2015. Refer to Note 6,
‘‘Pension and Other Postretirement Benefits.’’
In April 2015, the FASB revised guidance on the presentation of
debt issuance costs. Under this revised guidance, debt issuance costs
should be presented in the balance sheet as a direct deduction from the
carrying value of the associated debt, consistent with the presentation
of a debt discount. In August 2015, this guidance was further revised to
allow for debt issuance costs related to line-of-credit arrangements to
be classified as assets and amortized ratably over the term of the
arrangement. This revised guidance is effective for annual periods
beginning after December 15, 2015, and interim periods within those
fiscal years. We elected to early adopt this standard for our fiscal year
2015 retrospectively. The impact of this adoption is presented in ‘‘Prior
Period Financial Statement Revision, Reclassifications, and Accounting
Changes.’’ We continue to present debt issuance costs related to our
line-of-credit arrangements as ‘‘Other assets’’ in the Consolidated
Balance Sheets, as allowed under the guidance.
removing
In January 2015, the FASB issued guidance on simplification of
income statement classification by
the concept of
extraordinary items from GAAP. Items that are both unusual and
infrequent will no longer be separately reported net of tax after
continuing operations. The existing requirement to separately present
items that are of an unusual nature or occur infrequently on a pre-tax
basis within income from continuing operations has been retained and
was expanded to include items that are both unusual and infrequent.
These items may be presented in the income statement or disclosed in
the footnotes to the financial statements. The guidance is effective for
periods beginning after December 15, 2015. Early adoption is
permitted, but only as of the beginning of the fiscal year of adoption. We
37
Avery Dennison Corporation
2015 Annual Report
do not expect that our adoption of this standard will have any impact on
our financial position, results of operations, cash flows, or disclosures.
In August 2014, the FASB issued a new standard that requires an
entity to evaluate whether there are conditions or events, considered in
the aggregate, that raise substantial doubt about the entity’s ability to
continue as a going concern. Management’s evaluation should be
based on relevant conditions and events that are known and reasonably
knowable at the date that the financial statements are issued. Under this
new standard, substantial doubt exists when it is probable that the entity
will be unable to meet its obligations as they become due within one
year of the date the financial statements are issued. If applicable, certain
disclosures are required, including management’s plans to mitigate
those relevant conditions or events to alleviate the substantial doubt.
This standard is effective for annual periods and interim periods within
those annual periods ending after December 15, 2016. Early adoption is
permitted. We do not expect that adoption of this standard will have any
impact on our financial position, results of operations, cash flows, or
disclosures.
In June 2014, the FASB revised guidance on share-based
compensation awards that require a specific performance target to be
achieved in order for the awards to vest. This revised guidance requires
that a performance target that impacts vesting that can be achieved
after the requisite service period be treated as a performance condition.
As such, a performance target should not be reflected in estimating the
grant-date fair value of the award. Compensation cost should be
recognized in the period in which it becomes probable that a
performance target will be achieved and should represent the
compensation cost attributable to the period(s) for which the requisite
service has already been rendered. The revised guidance is effective for
annual periods and interim periods within those annual periods
beginning after December 15, 2015, and can be applied either
(i) prospectively to all awards granted or modified after the effective date
or (ii) retrospectively to all awards with performance targets that are
outstanding as of the beginning of the earliest annual period presented
in the financial statements and to all new or modified awards thereafter.
Early adoption is permitted. We do not anticipate that our adoption of
this revised guidance will have a significant impact on our financial
position, results of operations, cash flows, or disclosures.
In May 2014, the FASB issued revised guidance on revenue
recognition. This revised guidance provides a single comprehensive
model for accounting for revenue arising from contracts with customers
and supersedes most current revenue recognition guidance, including
industry-specific guidance. This revised guidance will require an entity
to recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services.
This update 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
Notes to Consolidated Financial Statements
periods within those fiscal years, and can be applied retrospectively
either to each prior reporting period presented or with the cumulative
effect of adoption recognized at the date of initial application. Early
adoption is permitted for fiscal periods beginning after December 15,
2016. 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.
Postretirement Benefits,’’ for information regarding the curtailment gain.
The loss from discontinued operations, net of tax, reflected the
elimination of certain corporate cost allocations. The income tax
provision included in the net loss on sale reflected tax versus book basis
differences, primarily associated with goodwill.
Net sales from continuing operations to discontinued operations
were $45.8 million during 2013. These sales have been included in ‘‘Net
sales’’ in the Consolidated Statements of Income.
NOTE 2. DISCONTINUED OPERATIONS, SALE OF PRODUCT
Sale of Product Line
LINE, AND SALE OF ASSETS
Discontinued Operations
On January 29, 2013, we entered into an agreement to sell our
former OCP and DES businesses to CCL Industries Inc. (‘‘CCL’’).
On July 1, 2013, we completed the sale for a total purchase price of
$500 million ($481.2 million net of cash provided) and entered into an
amendment to the purchase agreement, which, among other things,
increased the target net working capital amount and amended
provisions related to employee matters and indemnification. We
continue to be subject to certain indemnification obligations under the
terms of the purchase agreement. In addition, the tax liability associated
with the sale is subject to completion of tax return filings in certain
foreign jurisdictions where we operated the OCP and DES businesses.
At closing, we entered into a supply agreement pursuant to which
CCL agreed to purchase certain pressure-sensitive label stock,
adhesives and other base material products from us for up to six years
after closing. While the supply agreement is expected to continue
generating revenues and cash flows from the OCP and DES
businesses, our continuing involvement in the OCP and DES operations
is not expected to be significant to us as a whole.
The operating results of the discontinued operations and loss on
In May 2015, we sold certain assets and transferred certain
liabilities associated with a product line in our Retail Branding and
Information Solutions (‘‘RBIS’’) reportable segment for $1.5 million. The
pre-tax loss from the sale, when combined with exit costs related to the
sale, totaled $8.5 million. The exit costs included $3.4 million of
severance costs, of which $1.7 million had been paid as of January 2,
2016. In the first quarter of 2015, we recorded an impairment charge of
approximately $2 million related to certain long-lived assets in this
product line. This loss and these costs were included in ‘‘Other
expense, net’’ in the Consolidated Statements of Income.
Sale of Assets
In September 2014, we sold properties
in Framingham,
Massachusetts used primarily as the former headquarters of our RBIS
business for $3.3 million, recognizing a pre-tax gain of $1.9 million. In
April 2013, we sold the property and equipment of our former corporate
headquarters in Pasadena, California for approximately $20 million,
recognizing a pre-tax gain of $10.9 million. During 2013, we also
completed the sale of certain property, plant and equipment in China for
approximately $11 million, as well as the sale of a research facility
located in Pasadena, California for approximately $5 million. These
gains were recorded in ‘‘Other expense, net’’ in the Consolidated
Statements of Income.
sale were as follows:
(In millions)
Net sales
Loss before taxes, including divestiture-
related and restructuring charges
Provision for income taxes
Loss from discontinued operations, net of
tax before loss on sale
(Loss) gain on sale before taxes
Tax (provision) benefit on sale
Loss from discontinued operations, net of
$
$
tax
$
(.1) $ (2.2) $ (28.5)
Loss from discontinued operations, net of tax, for 2015 included tax
expense related to the completion of certain tax returns related to the
sale of the OCP and DES businesses. The loss from discontinued
operations, net of tax, for 2014 reflected costs related to the resolution of
certain post-closing adjustments in the third quarter of 2014.
The
taxes,
loss before
including divestiture-related and
restructuring charges, for 2013 included a curtailment gain associated
with our postretirement health and welfare benefit plans, partially offset
by divestiture-related costs. Refer to Note 6, ‘‘Pension and Other
2015
2014
2013
– $
– $380.4
NOTE 3. GOODWILL AND OTHER INTANGIBLES RESULTING
FROM BUSINESS ACQUISITIONS
– $
–
– $ (12.4)
(.1)
–
–
–
(.1)
–
(3.3)
1.1
(12.5)
49.4
(65.4)
Goodwill
Results from our annual goodwill impairment test in the fourth
quarter of 2015 indicated that no impairment occurred in 2015. The fair
value of these assets was primarily based on Level 3 inputs.
Changes in the net carrying amount of goodwill for 2015 and 2014
by reportable segment were as follows:
(In millions)
Retail
Pressure- Branding and
Information
sensitive
Solutions
Materials
Total
Goodwill as of December 28, 2013
Translation adjustments
$334.8
(28.2)
$423.7 $758.5
(36.9)
(8.7)
Goodwill as of January 3, 2015
Acquisition adjustments
Translation adjustments
306.6
–
(28.7)
415.0
(.4)
(6.3)
721.6
(.4)
(35.0)
Goodwill as of January 2, 2016
$277.9
$408.3 $686.2
38
Notes to Consolidated Financial Statements
The carrying amounts of goodwill at January 2, 2016 and January 3, 2015 were net of accumulated impairment losses of $820 million, which were
included in our RBIS reportable segment.
There was no goodwill associated with our Vancive Medical Technologies reportable segment.
Indefinite-Lived Intangible Assets
In the third quarter of 2014, we determined that there was a need to conduct an interim impairment test of our indefinite-lived intangible assets,
consisting of certain trade names and trademarks. The factors considered included a shortfall in 2014 full-year projected revenue and a reduction in
2015 projected revenue associated with these assets. The interim impairment test indicated that the fair value of our indefinite-lived intangible assets
was less than their carrying value, which resulted in a non-cash asset impairment charge of $3 million. This charge was recorded in ‘‘Other expense,
net’’ in the Consolidated Statements of Income and included in our RBIS reportable segment. Results from our annual impairment test in the fourth
quarter of 2014 indicated that no further impairment had occurred related to indefinite-lived intangible assets. The fair value of these assets was
primarily based on Level 3 inputs.
Results from our annual indefinite-lived intangible assets impairment test in the fourth quarter of 2015 indicated that no impairment occurred in
2015.
The carrying value of indefinite-lived intangible assets resulting from business acquisitions, consisting of trade names and trademarks, was
$7.8 million and $7.9 million at January 2, 2016 and January 3, 2015, respectively.
Finite-Lived Intangible Assets
The following table sets forth our finite-lived intangible assets resulting from business acquisitions at January 2, 2016 and January 3, 2015, which
continue to be amortized:
(In millions)
Customer relationships
Patents and other acquired technology
Trade names and trademarks
Other intangibles
Total
2015
Accumulated
Amortization
$193.9
45.3
18.7
11.2
Net
Carrying
Amount
$30.4
3.7
3.3
.6
Gross
Carrying
Amount
$228.9
49.0
24.0
12.3
$269.1
$38.0
$314.2
2014
Accumulated
Amortization
$180.2
42.7
20.5
11.3
$254.7
Net
Carrying
Amount
$48.7
6.3
3.5
1.0
$59.5
Gross
Carrying
Amount
$224.3
49.0
22.0
11.8
$307.1
Amortization expense from continuing operations for finite-lived intangible assets resulting from business acquisitions was $20.5 million for 2015,
$24.4 million for 2014, and $28.5 million for 2013.
The estimated amortization expense for finite-lived intangible
assets resulting from business acquisitions for each of the next five
fiscal years is expected to be as follows:
(In millions)
2016
2017
2018
2019
2020
Estimated
Amortization
Expense
$18.5
9.8
2.7
1.7
1.2
NOTE 4. DEBT AND CAPITAL LEASES
Short-Term Borrowings
We had $28 million and $87 million of borrowings from commercial
paper issuances outstanding (weighted-average interest rate of .7% and
.4%, respectively) at January 2, 2016 and January 3, 2015, respectively.
Short-Term Credit Facilities
In October 2014, we amended and restated our revolving credit
facility (the ‘‘Revolver’’) with certain domestic and foreign banks,
increasing the amount available thereunder from $675 million to
$700 million. The amendment also extended the Revolver’s maturity
date from December 22, 2016 to October 3, 2019 and adjusted pricing
to reflect favorable market conditions. The maturity date may be
extended for additional one-year periods under certain circumstances.
The commitments under the Revolver may be increased by up to
$325 million, subject to lender approval and customary requirements.
The Revolver is used as a back-up facility for our commercial paper
program and can be used for other corporate purposes.
No balances were outstanding under the Revolver as of January 2,
2016 or January 3, 2015. Commitment fees associated with the Revolver
in 2015, 2014, and 2013 were $1.9 million, $1.3 million, and $1.4 million,
respectively.
In addition to the Revolver, we have significant short-term lines of
credit available in various countries totaling approximately $300 million
at January 2, 2016. These lines may be cancelled at any time by us or
the issuing banks. Short-term borrowings outstanding under our lines of
credit were $65 million (weighted-average interest rate of 8.7%) and
$111.6 million (weighted-average interest rate of 9.4%) at January 2,
2016 and January 3, 2015, respectively.
39
Avery Dennison Corporation
2015 Annual Report
Long-Term Borrowings and Capital Leases
Long-term debt, including its respective interest rates, and capital
lease obligations at year-end consisted of the following:
(In millions)
2015
2014
Long-term debt and capital leases
Medium-term notes:
Series 1995 due 2020 through 2025
$ 44.9
$ 49.9
Long-term notes:
Senior notes due 2017 at 6.6%
Senior notes due 2020 at 5.4%
Senior notes due 2023 at 3.4%
Senior notes due 2033 at 6.0%
Capital leases
Less amount classified as current
249.4
249.0
248.2
148.6
26.0
(2.5)
248.9
248.8
247.9
148.5
1.8
(5.7)
Total long-term debt and capital leases (1)
$963.6
$940.1
(1) Includes unamortized debt issuance cost and debt discount of $4.4 million and $.5 million as
of year-end 2015 and $5.2 million and $.7 million as of year-end 2014, respectively.
At year-end 2015, our medium-term notes have maturities from
2020 through 2025 and accrue interest at an average fixed rate of 7.5%.
Maturities of long-term debt and capital lease payments for each of
the next five fiscal years and thereafter are expected to be as follows:
Year
2016 (classified as current)
2017
2018
2019
2020
2021 and thereafter
(In millions)
$
3.7
253.7
3.7
3.6
268.3
444.2
The maturities of capital lease payments in the table above include
$6.2 million of imputed interest, of which $1.2 million is expected to be
paid in 2016.
In April 2013, we issued $250 million of senior notes due April 2023.
The notes bear an interest rate of 3.35% per year, payable semiannually
in arrears. Net proceeds from the offering, after deducting underwriting
discounts and offering expenses, of approximately $247.5 million were
used to repay a portion of the indebtedness outstanding under our
commercial paper program during the second quarter of 2013.
In January 2013, we repaid $250 million of senior notes at maturity
using commercial paper borrowings.
In May 2015, we extended and amended the lease on our Mentor,
Ohio facility for an additional ten years. This facility is used primarily as
Notes to Consolidated Financial Statements
the North American headquarters and research center of our Materials
Group business. Because ownership of the facility transfers to us at the
end of the lease term, it was accounted for as a capital lease. The
carrying value of the lease at January 2, 2016 was approximately
$25 million, of which approximately $23 million was included in
‘‘Long-term debt and capital leases’’ and approximately $2 million was
included in ‘‘Short-term borrowings and current portion of long-term
debt and capital leases’’ in the Consolidated Balance Sheets at
January 2, 2016.
Other
The Revolver contains financial covenants requiring that we
maintain specified ratios of total debt and interest expense in relation to
certain measures of income. We were in compliance with our financial
covenants as of January 2, 2016 and January 3, 2015.
Our total interest costs from continuing operations in 2015, 2014,
and 2013, were $63.5 million, $67.2 million and $64.2 million,
respectively, of which $3 million, $3.9 million, and $3.3 million,
respectively, were capitalized as part of the cost of assets.
The estimated fair value of our long-term debt is primarily based on
the credit spread above U.S. Treasury securities 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
$1.08 billion at January 2, 2016 and $1.22 billion at January 3, 2015. Fair
value amounts were determined primarily based on Level 2 inputs,
which are inputs other than quoted prices in active markets that are
either directly or indirectly observable. Refer to Note 1, ‘‘Summary of
Significant Accounting Policies,’’ for more information.
NOTE 5. FINANCIAL INSTRUMENTS
As of January 2, 2016, the aggregate U.S. dollar equivalent notional
value of our outstanding commodity contracts and foreign exchange
contracts was $3.1 million and $1.11 billion, respectively.
We recognize all derivative instruments as either assets or liabilities
at fair value in the 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 provides the fair value and balance sheet locations of derivatives as of January 2, 2016:
(In millions)
Balance Sheet Location
Fair Value
Balance Sheet Location
Asset
Liability
Foreign exchange contracts
Commodity contracts
Other current assets
Other current assets
$5.6
–
$5.6
Other accrued liabilities
Other accrued liabilities
Fair Value
$4.5
.7
$5.2
40
Notes to Consolidated Financial Statements
The following table provides the fair value and balance sheet locations of derivatives as of January 3, 2015:
(In millions)
Balance Sheet Location
Fair Value
Balance Sheet Location
Asset
Liability
Foreign exchange contracts
Commodity contracts
Other current assets
Other current assets
$10.3
–
$10.3
Other accrued liabilities
Other accrued liabilities
Long-term retirement benefits and other liabilities
Fair Value
$10.5
1.0
.2
$11.7
Fair Value Hedges
For derivative instruments that are designated and qualify as fair
value hedges, the gain or loss on the derivative and the offsetting loss or
gain on the hedged item attributable to the hedged risk are recognized
in current earnings, resulting in no material net impact to income.
The following table provides the components of the net gain (loss)
recognized in income related to fair value hedge contracts. The
corresponding gains or losses on the underlying hedged items
approximated the net gain (loss) on these fair value hedge contracts.
(In millions)
Location of Net Gains
(Losses) in Income
2015
2014
2013
Foreign exchange
Cost of products
contracts
sold
$2.9
$ (1.6) $ 2.3
Foreign exchange
Marketing, general
contracts
and administrative
expense
2.9
(43.3)
(35.9)
$5.8
$(44.9) $(33.6)
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash
flow hedges, the effective portion of the gain or loss on the derivative is
reported as a component of ‘‘Accumulated other comprehensive loss’’
and reclassified into earnings in the same period(s) during which the
hedged transaction impacts earnings. Gains and losses on the
derivatives, representing either hedge
ineffectiveness or hedge
components excluded from the assessment of effectiveness, are
recognized in current earnings.
Gains (losses) recognized in ‘‘Accumulated other comprehensive
loss’’ (effective portion) on derivatives related to cash flow hedge
contracts were as follows:
(In millions)
Foreign exchange contracts
Commodity contracts
2015
2014
2013
$(.1)
(.7)
$ 1.3
(1.2)
$1.1
(.1)
$(.8)
$ .1
$1.0
The amount of gain or loss recognized in income related to the
ineffective portion of, and the amount excluded from, effectiveness
testing for cash flow hedges and derivatives not designated as hedging
instruments were not material in 2015, 2014 or 2013.
As of January 2, 2016, we expect a net loss of approximately
$2 million to be reclassified from ‘‘Accumulated other comprehensive
loss’’ to earnings within the next 12 months.
NOTE 6. PENSION AND OTHER POSTRETIREMENT BENEFITS
Defined Benefit Plans
We sponsor a number of defined benefit plans, the accrual of
benefits under some of which has been frozen, covering eligible
employees in the U.S. and certain other countries. Benefits payable to
an employee are based primarily on years of service and the
employee’s compensation during the course of his or her employment
with us.
We are also obligated to pay unfunded termination indemnity
benefits to certain employees outside of the U.S., which are subject to
applicable agreements, laws and regulations. We have not incurred
significant costs related to these benefits, and therefore, no related
costs are included in the disclosures below.
In December 2015, we offered eligible former employees who are
vested participants in our Avery Dennison Pension Plan (‘‘ADPP’’) the
opportunity to receive their benefits immediately as either a lump-sum
payment or an annuity, rather than waiting until they are retirement
eligible under the terms of the plan. Payments associated with this offer
are expected to be made out of existing plan assets during the first half
of 2016. No additional contributions to the plan are required to complete
the offering.
Employees who participated in the ADPP, between December 1,
1986 and November 30, 1997, may also have had a benefit in a Stock
Holding and Retirement Enhancement Account (‘‘SHARE Account’’)
associated with our defined contribution plan. The ADPP is a floor offset
plan that coordinated the amount of projected benefit obligation to an
eligible participant with his or her SHARE Account such that the total
benefit payable to an eligible participant would equal the greater of the
value of the participant’s benefit from the ADPP or the value of the
participant’s SHARE Account. Lower than expected asset returns on the
participant balances in the SHARE Account could have increased the
projected benefit obligation under the ADPP. In the fourth quarter of
2013, we amended our plan documents to require participants to make
an early election either to (a) receive their assets in the SHARE Account
as a distribution, in which case their retirement benefit under the ADPP
would be offset by the annuity equivalent of these assets, or (b) transfer
their SHARE Account assets to the ADPP and receive the full ADPP
retirement benefit in annuity form, rather than wait to make such election
upon termination of employment. The amendment resulted in an
actuarial loss of approximately $20 million to the ADPP in 2013. By
October 2014, all participants with a SHARE Account completed their
elections and the existing SHARE Accounts were terminated, resulting
in our recording an additional actuarial loss of $12 million. These
actuarial losses are subject to future amortization.
41
Avery Dennison Corporation
2015 Annual Report
Notes to Consolidated Financial Statements
Plan Assets
Fair Value Measurements
Our investment management of the ADPP assets utilizes a liability
driven investment (LDI) strategy. Under an LDI strategy, the assets are
invested in a diversified portfolio that is split into two sub-portfolios: a
growth portfolio and a liability hedging portfolio. The growth portfolio
consists primarily of equity and high-yield fixed income securities. The
liability hedging portfolio consists primarily of investment grade fixed
income securities and cash, and is intended, over time, to more closely
match the liabilities of the plan. The investment objective of the portfolio
is to improve the funded status of the plan; as funded status reaches
certain trigger points, the portfolio moves to a more conservative asset
allocation by increasing the allocation to the liability hedging portfolio.
The current target allocation is 51% in the growth portfolio and 49% in
the liability hedging portfolio, subject to periodic fluctuations due to
market movements. The plan assets are diversified across asset
classes, striving to balance risk and return within the limits of prudent
risk-taking and Section 404 of the Employee Retirement Income
Security Act of 1974, as amended. Because many of the pension
liabilities are long-term, the investment horizon is also long-term, but the
investment plan must also ensure adequate near-term liquidity to fund
benefit payments.
Assets of our international plans are invested in accordance with
locally accepted practices and primarily include equity securities, fixed
income securities, insurance contracts and cash. Asset allocations and
investments vary by country and plan. Our target plan asset investment
allocation for our international plans combined is 39% in equity
securities, 49% in fixed income securities and cash, and 12% in
insurance contracts and other investments, and is subject to periodic
fluctuations in these respective asset classes.
The following is a description of the valuation methodologies used
for assets measured at fair value:
Cash is valued at nominal value. Mutual funds are valued at fair
value as determined by quoted market prices, based upon the NAV of
shares held by the plans at year-end. Pooled funds are structured as
collective trusts, are not publicly traded, and are valued by calculating
NAV per unit based on the NAV of the underlying funds/trusts as a
practical expedient for fair value of the pooled funds. Insurance
contracts are valued at book value, which approximates fair value and is
calculated using the prior year balance plus or minus investment returns
and changes in cash flows.
The methods described above may produce a fair value calculation
that may not be indicative of net realizable value or reflective of future fair
values. Furthermore, while we believe the valuation methods are
appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of
certain financial instruments could result in a different fair value
measurement at the reporting date.
Effective January 2, 2016, we adopted new accounting guidance
for investments that are valued based on NAV per share (or its
equivalent). As a result of the adoption of this new guidance, certain
investments that are measured at fair value using the NAV per share (or
its equivalent) as a practical expedient are not required to be classified
in the fair value hierarchy. The guidance was required to be applied
retrospectively, and accordingly, prior period amounts have been
revised to conform to the current period presentation.
The following table sets forth, by level within the fair value hierarchy (as applicable), U.S. plan assets (all in the ADPP) at fair value:
(In millions)
2015
Cash
Pooled funds – liability hedging portfolio (1)
Pooled funds – growth portfolio (1)
Other assets (2)
Total U.S. plan assets
2014
Cash
Pooled funds – liability hedging portfolio (1)
Pooled funds – growth portfolio (1)
Other assets (2)
Total U.S. plan assets
Fair Value Measurements Using
Quoted
Prices in
Active Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
$ –
$
–
$
–
$1.3
$
–
$
–
Total
$
–
335.9
368.9
.1
$704.9
$
1.3
371.5
406.0
.1
$778.9
(1) Pooled funds that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in
this table are intended to reconcile to total U.S. plan assets.
(2) Includes accrued recoverable taxes.
42
Notes to Consolidated Financial Statements
The following table sets forth, by level within the fair value hierarchy (as applicable), international plan assets at fair value:
(In millions)
2015
Cash
Insurance contracts
Pooled funds – fixed income securities (1)
Pooled funds – equity securities (1)
Pooled funds – other investments (1)
Total international plan assets at fair value
2014
Cash
Mutual funds
Insurance contracts
Pooled funds – fixed income securities (1)
Pooled funds – equity securities (1)
Pooled funds – other investments (1)
Total international plan assets at fair value
Fair Value Measurements Using
Quoted
Prices in
Active Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
$.8
–
$ –
–
$
–
21.4
$.6
.3
–
$ –
–
–
$
–
–
24.6
Total
$
.8
21.4
275.7
218.1
36.1
$552.1
$
.6
.3
24.6
328.4
230.7
33.5
$618.1
(1) Pooled funds that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in
this table are intended to reconcile to total international plan assets.
The following table presents a reconciliation of Level 3 international plan assets held during the year ended January 2, 2016:
(In millions)
Balance at January 3, 2015
Net realized and unrealized gain
Purchases
Settlements
Impact of changes in foreign currency exchange rates
Balance at January 2, 2016
Level 3 Assets
Insurance Contracts
$24.6
.4
2.3
(4.6)
(1.3)
$21.4
Postretirement Health Benefits
We provide postretirement health benefits to certain U.S. retired
employees up to the age of 65 under a cost-sharing arrangement and
provide supplemental Medicare benefits to certain U.S. retirees over the
age of 65. Our policy is to fund the cost of the postretirement benefits
from operating cash flows. While we have not expressed any intent to
terminate postretirement health benefits, we may do so at any time,
subject to applicable laws and regulations.
Plan Assumptions
Discount Rate
In consultation with our actuaries, we annually review and
determine the discount rates to be used in connection with valuing our
postretirement obligations. The assumed discount rate for each
pension plan reflects market rates for high quality corporate bonds
currently available. In the U.S., our discount rate is determined by
evaluating yield curves consisting of large populations of high quality
corporate bonds. The projected pension benefit payment streams are
then matched with the bond portfolios to determine a rate that reflects
the liability duration unique to our plans.
Long-term Return on Assets
We determine the long-term rate of return assumption for plan
assets by reviewing the historical and expected returns of both the
equity and fixed income markets, taking into account our asset
allocation, the correlation between returns in our asset classes, and the
mix of active and passive investments. Additionally, current market
conditions, including interest rates, are evaluated and market data is
reviewed for reasonableness and appropriateness.
Healthcare Cost Trend Rate
Our practice is to fund the cost of postretirement benefits from
operating cash flows. For measurement purposes, a 6% annual rate of
increase in the per capita cost of covered health care benefits was
assumed for 2016. This rate is expected to decrease to approximately
5% by 2018.
A one-percentage-point change in assumed health care cost trend
rates would have the following effects:
(In millions)
Effect on total of service
and interest cost
components
Effect on postretirement
benefit obligations
One-percentage-point
Increase
One-percentage-point
Decrease
$.01
.4
$(.01)
(.3)
43
Avery Dennison Corporation
2015 Annual Report
Plan Balance Sheet Reconciliations
The following table provides a reconciliation of benefit obligations, plan assets, funded status of the plans and accumulated other
Notes to Consolidated Financial Statements
comprehensive loss for our defined benefit plans:
Plan Benefit Obligations
(In millions)
Change in projected benefit obligations
Projected benefit obligations at beginning of year
Service cost
Interest cost
Participant contribution
Amendments (1)
Actuarial (gain) loss
Plan transfers (2)
Benefits paid
Curtailments
Settlements
Foreign currency translation
Pension Benefits
U.S. Postretirement
Health Benefits
2015
2014
2015
2014
U.S.
Int’l
U.S.
Int’l
$1,161.1
.4
45.8
–
–
(58.3)
–
(60.1)
–
–
–
$737.1
13.8
17.3
3.1
(.7)
(1.4)
2.5
(19.0)
(2.7)
(13.3)
(62.0)
$1,004.8
.4
47.9
–
–
145.6
21.4
(59.0)
–
–
–
$642.8
12.9
23.8
4.0
(7.2)
166.1
–
(22.3)
(7.6)
(2.2)
(73.2)
$ 8.0
–
.2
.8
–
(1.4)
–
(1.7)
–
–
–
$ 9.1
–
.3
1.1
–
.3
–
(2.8)
–
–
–
$ 8.0
Projected benefit obligations at end of year
$1,088.9
$674.7
$1,161.1
$737.1
$ 5.9
Accumulated benefit obligations at end of year
$1,088.9
$625.4
$1,161.1
$693.9
(1) Amendments to international plans in 2014 related to our plans in the Netherlands, U.K. and France.
(2) Plan transfers in 2014 for the U.S. plans represented transfers from participant SHARE Accounts.
Plan Assets
(In millions)
Change in plan assets
Plan assets at beginning of year
Actual return on plan assets
Plan transfers (1)
Employer contributions
Participant contributions
Benefits paid
Settlements
Foreign currency translation
Plan assets at end of year
(1) Plan transfers in 2014 for the U.S. plans represented transfers from participant SHARE Accounts.
Funded Status
(In millions)
Funded status of the plans
Other assets
Other accrued liabilities
Long-term retirement benefits and other liabilities (1)
Plan assets less than benefit obligations
Pension Benefits
U.S. Postretirement
Health Benefits
2015
2014
2015
2014
U.S.
Int’l
U.S.
Int’l
$778.9
(28.3)
–
14.4
–
(60.1)
–
–
$618.1
(7.4)
(.3)
14.3
3.1
(19.0)
(4.6)
(52.1)
$747.4
52.9
21.4
16.2
–
(59.0)
–
–
$566.6
117.9
–
16.0
4.0
(22.3)
(2.2)
(61.9)
$
–
–
–
.9
.8
(1.7)
–
–
$
–
–
–
1.7
1.1
(2.8)
–
–
$704.9
$552.1
$778.9
$618.1
$
–
$
–
Pension Benefits
U.S. Postretirement
Health Benefits
2015
2014
2015
2014
U.S.
Int’l
U.S.
Int’l
$
–
(13.4)
(370.6)
$
–
(2.2)
(120.4)
$
–
(14.4)
(367.8)
$ 20.0
(2.5)
(136.5)
$
–
(1.2)
(4.7)
$(384.0)
$(122.6)
$(382.2)
$(119.0)
$(5.9)
$
–
(1.6)
(6.4)
$(8.0)
(1) Per our funding strategy, we have the option to fund certain of these liabilities with proceeds from our corporate-owned life insurance policies.
44
Notes to Consolidated Financial Statements
Weighted-average assumptions used to determine year-end benefit
obligations
Discount rate
Compensation rate increase
Pension Benefits
U.S. Postretirement
Health Benefits
2015
2014
2013
2015
2014
2013
U.S.
Int’l
U.S.
Int’l
U.S.
Int’l
4.55% 2.95% 4.00% 2.54% 4.85% 3.88% 4.13% 3.50% 3.45%
–
2.21
2.22
2.24
–
–
–
–
–
For U.S. and international plans combined, the projected benefit obligations and fair value of plan assets for pension plans with projected benefit
obligations in excess of plan assets were $1.77 billion and $1.26 billion, respectively, at year-end 2015 and $1.53 billion and $997.5 million,
respectively, at year-end 2014.
For U.S. and international plans combined, the accumulated benefit obligations and fair value of plan assets for pension plans with accumulated
benefit obligations in excess of plan assets were $1.38 billion and $910.9 million, respectively, at year-end 2015 and $1.49 billion and $997.3 million,
respectively, at year-end 2014.
Accumulated Other Comprehensive Loss
The following table sets forth the pre-tax amounts recognized in ‘‘Accumulated other comprehensive loss’’ in the Consolidated Balance Sheets:
Pension Benefits
U.S. Postretirement
Health Benefits
2015
2014
2015
2014
U.S.
Int’l
U.S.
Int’l
$585.5
18.7
–
$171.9
(4.9)
.3
$584.4
19.9
–
$174.8
(5.3)
.4
$ 20.4
(19.6)
–
$ 24.1
(22.9)
–
$ 1.2
(In millions)
Net actuarial loss
Prior service cost (credit)
Net transition obligation
Net amount recognized in accumulated other comprehensive loss
$604.2
$167.3
$604.3
$169.9
$
.8
The following table sets forth the pre-tax amounts, including those of discontinued operations, recognized in ‘‘Other comprehensive loss
(income)’’:
(In millions)
Net actuarial loss (gain)
Prior service (credit) cost
Amortization of unrecognized:
Net actuarial loss
Prior service (cost) credit
Net transition asset
Curtailments
Settlements
Pension Benefits
U.S. Postretirement
Health Benefits
2015
2014
2013
2015
2014
2013
U.S.
Int’l
U.S.
Int’l
U.S.
Int’l
$ 21.1
–
$11.3
(.7)
$135.6
–
$51.3
(7.3)
$(101.8)
19.9
$ 6.1
–
$(1.4)
–
$ .3
–
$ (.9)
–
(20.0)
(1.2)
–
–
–
(9.4)
.3
–
.2
(4.3)
(16.2)
(1.2)
–
–
(.6)
(5.2)
(.4)
–
(.6)
(.4)
(19.5)
(.3)
–
(.9)
–
(8.2)
(.5)
.1
1.5
(1.2)
(2.2)
3.3
–
–
–
(2.8)
3.3
–
–
–
(2.5)
4.1
–
13.1
–
Net amount recognized in other comprehensive (income) loss
$
(.1)
$ (2.6)
$117.6
$37.4
$(102.6)
$ (2.2)
$ (.3)
$ .8
$13.8
45
Avery Dennison Corporation
2015 Annual Report
Notes to Consolidated Financial Statements
Plan Income Statement Reconciliations
The following table sets forth the components of net periodic benefit cost, which are recorded in income from continuing operations, for our
defined benefit plans:
(In millions)
Service cost
Interest cost
Actuarial loss (gain)
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service cost (credit)
Amortization of transition asset
Recognized (gain) loss on curtailments (1)
Recognized loss on settlements (2)
Pension Benefits
U.S. Postretirement
Health Benefits
2015
2014
2013
2015
2014
2013
U.S.
Int’l
U.S.
Int’l
U.S
Int’l
$
.4
45.8
.4
(51.5)
20.0
1.2
–
–
–
$ 13.8
17.3
–
(21.5)
9.4
(.3)
–
(.2)
4.3
$
.4
47.9
4.0
(51.9)
16.2
1.2
–
–
.6
$ 12.9
23.8
–
(26.0)
5.2
.4
–
.6
.4
$
.4
42.8
(3.8)
(48.1)
19.5
.3
–
–
–
$ 13.0
23.3
–
(22.6)
6.3
.5
(.1)
(1.5)
.5
$
–
.3
–
–
2.2
(3.3)
–
–
–
$
–
.3
–
–
2.8
(3.3)
–
–
–
$
–
.3
–
–
2.5
(4.1)
–
–
–
Net periodic benefit cost (credit)
$ 16.3
$ 22.8
$ 18.4
$ 17.3
$ 11.1
$ 19.4
$ (.8) $ (.2) $(1.3)
(1) Recognized gain on curtailment in 2015 and loss on curtailment in 2014 related to a pension plan in the Netherlands. Recognized gain on curtailment in 2013 related to a pension plan in Taiwan.
These amounts were recorded in ‘‘Other expense, net’’ in the Consolidated Statements of Income.
(2) Recognized loss on settlement related to pension plans in Germany and France as a result of the sale of a product line in our RBIS reportable segment in 2015, and settlement events in Switzerland
in 2015 and 2014. The losses on settlements were recorded in ‘‘Other expense, net’’ in Consolidated Statements of Income.
In 2013, in connection with the sale of our former OCP and DES businesses, we recognized a curtailment gain of $13.1 million associated with our
U.S. postretirement health benefit plan, partially offset by curtailment and settlement losses of $10.4 million associated with certain U.S. pension
plans. The net gain of $2.7 million was recorded in ‘‘Income (loss) from discontinued operations, net of tax’’ in the Consolidated Statements of
Income. Refer to Note 2, ‘‘Discontinued Operations, Sale of Product Line, and Sale of Assets,’’ for more information on the sale.
The following table sets forth the weighted-average assumptions used to determine net periodic cost:
Pension Benefits
U.S. Postretirement
Health Benefits
2015
2014
2013
2015
2014
2013
U.S.
Int’l
U.S.
Int’l
U.S.
Int’l
Discount rate
Expected return on assets
Compensation rate increase
4.00% 2.54% 4.85% 3.88% 4.00% 3.94% 3.50% 3.45% 2.85%
8.00
7.50
–
–
4.78
2.24
4.27
2.22
4.82
2.24
7.75
–
–
–
–
–
–
–
Plan Contributions
Future Benefit Payments
Anticipated future benefit payments, which reflect expected service
periods for eligible participants, were as follows:
We make contributions to our defined benefit plans sufficient to
meet the minimum funding requirements of applicable laws and
regulations, plus additional amounts, if any, we determine to be
appropriate. The following table sets forth expected contributions
during 2016:
(In millions)
U.S.
Int’l
U.S. postretirement health benefits
$ 3.7
13.6
1.2
(In millions)
2016
2017
2018
2019
2020
2021 - 2024
Pension Benefits
U.S.
Int’l
$ 60.4
62.6
81.8
60.6
61.0
319.5
$ 17.3
16.8
18.1
18.8
19.3
114.5
U.S. Postretirement
Health Benefits
$1.2
.8
.6
.5
.4
1.5
46
Notes to Consolidated Financial Statements
Estimated Amortization Amounts in Accumulated Other
NOTE 7. COMMITMENTS
Comprehensive Loss
Our estimates of fiscal year 2016 amortization of amounts included
in ‘‘Accumulated other comprehensive loss’’ were as follows:
Pension
Benefits
U.S. Postretirement
Health Benefits
(In millions)
Net actuarial loss
Prior service cost (credit)
Net transition obligation
U.S.
Int’l
$17.3
1.2
–
$7.1
(.3)
.1
Net loss (gain) to be recognized
$18.5
$6.9
$ 1.9
(3.3)
–
$(1.4)
Defined Contribution Plans
We sponsor various defined contribution plans worldwide, the
largest of which is the Avery Dennison Corporation Employee Savings
Plan (‘‘Savings Plan’’), a 401(k) plan for our U.S. employees.
We
recognized expense
from continuing operations of
$20.2 million, $19.4 million, and $21 million in 2015, 2014, and 2013,
respectively, related to our employer contributions and employer match
of participant contributions to the Savings Plan.
Minimum annual rental commitments on operating leases having initial
or remaining non-cancelable lease terms of one year or more are as
follows:
Year
2016
2017
2018
2019
2020
2021 and thereafter
Total minimum lease payments
(In millions)
$ 43.1
27.9
19.0
13.9
9.9
29.2
$143.0
Rent expense for operating leases from continuing operations was
approximately $58 million in 2015, $67 million in 2014, and $70 million in
2013. Operating leases primarily relate to office and warehouse space
technology, machinery, and
and equipment
transportation. The terms of these leases do not impose significant
restrictions or unusual obligations.
information
for
Other Retirement Plans
We have deferred compensation plans which permit eligible
employees and directors to defer a portion of their compensation. The
compensation voluntarily deferred by the participant, together with
certain employer contributions, earns specified and variable rates of
return. As of year-end 2015 and 2014, we had accrued $77.9 million and
$86 million, respectively, for our obligations under these plans. As of
year-end 2015 and 2014, our deferred compensation obligations were
secured by standby letters of credit of $1 million and $2.5 million,
respectively. A portion of the interest on certain of our contributions may
be forfeited by participants if their employment terminates before age 55
other than by reason of death or disability.
Our Directors Deferred Equity Compensation Plan allows our
non-employee directors to elect to receive their cash compensation in
deferred stock units (‘‘DSUs’’) issued under our stock option and
incentive plan. Dividend equivalents, representing the value of
dividends per share paid on shares of our common stock and
calculated with reference to the number of DSUs held as of a quarterly
dividend record date, are credited in the form of additional DSUs on the
applicable payable date. A director’s DSUs are converted into shares of
our common stock upon his or her resignation or retirement.
Approximately .1 million DSUs were outstanding as of year-end 2015
and 2014, with an aggregate value of $8 million and $6.1 million,
respectively.
We hold corporate-owned life insurance policies, the proceeds
from which are payable to us upon the death of covered participants.
The cash surrender values of these policies, net of outstanding loans,
included in ‘‘Other assets’’ in the Consolidated Balance Sheets, were
$227.1 million and $226.9 million at year-end 2015 and 2014,
respectively.
47
Avery Dennison Corporation
2015 Annual Report
Refer to Note 4, ‘‘Debt and Capital Leases,’’ for information on
capital lease obligations.
NOTE 8. CONTINGENCIES
Legal Proceedings
We are involved in various lawsuits, claims, inquiries, and other
regulatory and compliance matters, most of which are routine to the
nature of our business. We have accrued liabilities for matters where it is
probable that a loss will be incurred and the amount of loss can be
reasonably estimated. 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
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
Notes to Consolidated Financial Statements
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 in 2015 and 2014 related to environmental liabilities was
as follows:
(In millions)
Balance at beginning of year
Charges (reversals), net
Payments
Balance at end of year
2015
2014
$26.2
1.2
(9.7)
$29.6
1.7
(5.1)
$17.7
$26.2
As of January 2, 2016 and January 3, 2015, approximately
$7 million and $10 million of the balance was classified as short-term
and included in ‘‘Other accrued liabilities’’ in the Consolidated Balance
Sheets, respectively.
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, and
such liabilities are not discounted.
As of January 2, 2016, 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, which are the subject of separate investigations or proceedings
concerning alleged soil and/or groundwater contamination. No
settlement of our liability related to any of the sites has been agreed
upon. We are participating with other PRPs at these sites and anticipate
that our share of remediation costs will be determined pursuant to
agreements that we negotiate with the EPA or other governmental
authorities.
We have accrued liabilities for sites where it is probable that a loss
will be incurred and the cost or amount of loss can be reasonably
estimated. These estimates could change as a result of changes in
planned remedial actions, remediation technologies, site conditions,
the estimated time to complete remediation, environmental laws and
regulations, and other factors. Because of the uncertainties associated
with environmental assessment and remediation activities, future
expenses to remediate these sites could be higher than the liabilities we
have accrued; however, we are unable to reasonably estimate a range
NOTE 9. FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following table provides the assets and liabilities carried at fair value, measured on a recurring basis, as of January 2, 2016:
(In millions)
Assets
Trading securities
Derivative assets
Bank drafts
Liabilities
Derivative liabilities
Fair Value Measurements Using
Quoted
Prices in
Active Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
$11.3
–
24.8
$
.7
$6.6
5.6
–
$4.5
$ –
–
–
$ –
Total
$17.9
5.6
24.8
$ 5.2
The following table provides the assets and liabilities carried at fair value, measured on a recurring basis, as of January 3, 2015:
(In millions)
Assets
Trading securities
Derivative assets
Bank drafts
Liabilities
Derivative liabilities
Total
$17.9
10.3
19.8
$11.7
Fair Value Measurements Using
Quoted
Prices in
Active Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
$ 7.6
–
19.8
$10.3
10.3
–
$ 1.2
$10.5
$ –
–
–
$ –
48
Notes to Consolidated Financial Statements
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 NAV. As of January 2, 2016, trading securities of $.3 million and
$17.6 million were included in ‘‘Cash and cash equivalents’’ and ‘‘Other
current assets,’’ respectively, in the Consolidated Balance Sheets. As of
January 3, 2015, trading securities of $.8 million and $17.1 million were
included in ‘‘Cash and cash equivalents’’ and ‘‘Other current assets,’’
respectively, in the 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 90 days) are valued at
face value due to the short-term nature of these instruments and were
included in ‘‘Other current assets’’ in the Consolidated Balance Sheets.
Non-recurring Fair Value Measurements
During 2013, long-lived assets with carrying amounts totaling
$8.3 million were written down to their fair value of $4.8 million, resulting
in an impairment charge of $3.5 million, which was included in ‘‘Other
expense, net’’ in the Consolidated Statements of Income. The fair value
was based on the sale price of the assets, less estimated broker fees,
which are primarily Level 3 inputs.
NOTE 10. NET INCOME PER COMMON SHARE
Net income per common share was computed as follows:
(In millions, except per share amounts)
2015
2014
2013
(A) Income from continuing operations
(B) Loss from discontinued operations,
$274.4
$247.3
$241.7
approximately 1 million shares in 2015, 3 million shares in 2014, and
7 million shares in 2013.
NOTE 11. SUPPLEMENTAL EQUITY AND COMPREHENSIVE
INCOME INFORMATION
Common Stock and Share Repurchase Program
Our Certificate of Incorporation authorizes five million shares of $1
par value preferred stock (of which none are outstanding), with respect
to which our Board of Directors (‘‘Board’’) may fix the series and terms of
issuance, and 400 million shares of $1 par value voting common stock.
From time to time, our Board authorizes the repurchase of shares of
our outstanding common stock. Repurchased shares may be reissued
under our stock option and incentive plan or used for other corporate
purposes. In 2015, we repurchased approximately 3.9 million shares of
our common stock at an aggregate cost of $232.3 million.
On December 4, 2014, our Board authorized the repurchase of
shares of our common stock in the aggregate amount of up to
$500 million (exclusive of any fees, commissions or other expenses
related to such purchases), in addition to any outstanding shares under
any previous Board authorization. This authorization is the only one
currently in effect and will remain in effect until the shares authorized
thereby have been repurchased.
As of January 2, 2016, shares of our common stock in the
aggregate amount of approximately $367 million remained authorized
for repurchase under this Board authorization.
Treasury Shares Reissuance
We fund a portion of our employee-related expenses using shares
of our common stock held in treasury. We elected to record net gains or
losses associated with our use of treasury shares to retained earnings.
Comprehensive Income
net of tax
(.1)
(2.2)
(28.5)
The changes in ‘‘Accumulated other comprehensive loss’’ (net of
(C) Net income available to common
shareholders
$274.3
$245.1
$213.2
(D) Weighted average number of
common shares outstanding
91.0
93.8
98.4
Dilutive shares (additional common
shares issuable under stock-
based awards)
(E) Weighted average number of
common shares outstanding,
assuming dilution
Net income (loss) per common share:
Continuing operations (A) (cid:3) (D)
Discontinued operations (B) (cid:3) (D)
Net income per common share
(C) (cid:3) (D)
Net income (loss) per common share,
assuming dilution:
Continuing operations (A) (cid:3) (E)
Discontinued operations (B) (cid:3) (E)
Net income per common share,
assuming dilution (C) (cid:3) (E)
1.9
1.9
1.7
92.9
95.7
100.1
$ 3.01
–
$ 2.64
(.03)
$ 2.46
(.29)
$ 3.01
$ 2.61
$ 2.17
$ 2.95
–
$ 2.58
(.02)
$ 2.41
(.28)
$ 2.95
$ 2.56
$ 2.13
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
totaled
compensation awards excluded
the computation
from
49
Avery Dennison Corporation
2015 Annual Report
tax) for 2015 and 2014 were as follows:
Foreign
Pension and
Other
(In millions)
Balance as of
December 28, 2013
Other comprehensive
(loss) income before
reclassifications, net of
tax
Reclassifications to net
income, net of tax
Net current-period other
comprehensive (loss)
income, net of tax
Balance as of January 3,
Currency Postretirement Cash Flow
Hedges
Benefits
Translation
Total
$ 129.9
$(417.3)
$(1.0) $(288.4)
(149.8)
(125.2)
–
16.9
.1
.9
(274.9)
17.8
(149.8)
(108.3)
1.0
(257.1)
2015
(19.9)
(525.6)
–
(545.5)
Other comprehensive loss
before reclassifications,
net of tax
Reclassifications to net
income, net of tax
Net current-period other
comprehensive (loss)
income, net of tax
Balance as of January 2,
(139.0)
(18.9)
(.5)
(158.4)
–
22.9
(2.0)
20.9
(139.0)
4.0
(2.5)
(137.5)
2016
$(158.9)
$(521.6)
$(2.5) $(683.0)
The amounts reclassified from ‘‘Accumulated other comprehensive
loss’’ to increase (decrease) income from continuing operations were
as follows:
(In millions)
2015
2014
2013 Income is Presented
Affected Line Item in the
Statements Where Net
Cash flow hedges:
Foreign exchange
contracts
Commodity
contracts
Interest rate
contracts
Pension and other
postretirement
benefits (1)
$ 3.9
$ (1.2)
$
.6 Cost of products sold
(1.3)
.1
(1.2) Cost of products sold
(.1)
2.5
(.5)
(.1)
(1.2)
.3
(.1) Interest expense
(.7) Total before tax
.2 Provision for income
taxes
2.0
(.9)
(.5) Net of tax
(33.3)
10.4
(24.1)
7.2
(25.3)
8.6 Provision for income
taxes
(22.9)
(16.9)
(16.7) Net of tax
Total reclassifications
for the period
$(20.9)
$(17.8)
$(17.2) Total, net of tax
(1) See Note 6, ‘‘Pension and Other Postretirement Benefits,’’ for more information.
During 2013, we reclassified $6.4 million (net of tax) from
‘‘Accumulated other comprehensive loss’’ to ‘‘Loss from discontinued
operations, net of tax,’’ related to a net gain from curtailment in our
domestic defined benefit plans and settlements
from certain
international pension plans as a result of the sale of the OCP and DES
businesses. Refer to Note 6, ‘‘Pension and Other Postretirement
Benefits,’’ for more information.
Additionally, during 2013, we recognized $10.8 million (net of tax) of
currency translation loss from ‘‘Accumulated other comprehensive
loss’’ to ‘‘Loss from discontinued operations, net of tax’’ as a result of
the sale of the OCP and DES businesses.
The following table sets forth the income tax (benefit) expense
allocated to each component of other comprehensive (loss) income:
(In millions)
2015
2014
2013
Pension and other postretirement benefits:
Net (loss) gain recognized from actuarial
gain/loss and prior service cost/credit
Reclassifications to net income
Cash flow hedges:
(Losses) gains recognized on cash flow
hedges
Reclassifications to net income
Income tax (benefit) expense related to
items of other comprehensive (loss)
income
$(11.4)
10.4
$(54.7)
7.2
$28.6
4.7
(.3)
(.5)
.1
.3
.2
.1
$ (1.8)
$(47.1)
$33.6
Notes to Consolidated Financial Statements
NOTE 12. LONG-TERM INCENTIVE COMPENSATION
Equity Awards
Stock-Based Compensation
We maintain various stock option and incentive plans and grant our
annual stock-based compensation awards to eligible employees in
February and non-employee directors in May. Certain awards granted to
retirement-eligible employees vest in full upon retirement; awards to
these employees are accounted for as fully vested on the date of grant.
Stock-based compensation expense from continuing operations
and the total related recognized tax benefit were as follows:
(In millions)
Stock-based compensation expense
Tax benefit
2015
2014
2013
$26.3
8.2
$28.3
10.5
$32.3
10.8
This expense was
included
in
‘‘Marketing, general and
administrative expense’’ in the Consolidated Statements of Income.
As of January 2, 2016, we had approximately $27 million of
unrecognized compensation expense from continuing operations
related to unvested stock-based awards, which is expected to be
recognized over the remaining weighted-average requisite service
period of approximately two years.
Stock Options
Stock options granted to non-employee directors and employees
may be granted at no less than 100% of the fair market value of our
common stock on the date of the grant. Options generally vest ratably
over a three-year period for non-employee directors and over a
four-year period for employees. Options expire ten years from the date
of grant.
The fair value of stock option awards is estimated as of the date of
grant using the Black-Scholes option-pricing model. This model
requires input assumptions for our expected dividend yield, expected
stock price volatility, risk-free interest rate and the expected option term.
The following assumptions are used in estimating the fair value of
granted stock options:
Risk-free interest rate is based on the 52-week average of the
Treasury-Bond rate that has a term corresponding to the expected
option term.
Expected stock price volatility represents an average of the implied
and historical volatility.
Expected dividend yield is based on the current annual dividend
divided by the 12-month average of our monthly stock price prior to
grant.
Expected option term is determined based on historical experience
under our stock option and incentive plans.
No stock options were granted during 2015 and 2014. The
weighted-average grant date fair value per share for stock options was
$6.97 in 2013.
The underlying weighted-average assumptions used were as
follows:
Risk-free interest rate
Expected stock price volatility
Expected dividend yield
Expected option term
2013
1.04%
27.17%
3.40%
6.2 years
50
Notes to Consolidated Financial Statements
The following table sets forth stock option information related to our stock option and incentive plan during 2015:
Number
of options Weighted-average
exercise price
(in thousands)
5,178.6
(2,493.4)
(315.3)
2,369.9
2,365.7
2,189.0
$44.08
41.71
53.66
$45.30
45.33
$46.52
Weighted-average
remaining
contractual life
(in years)
Aggregate
intrinsic value
(in millions)
3.95
$54.6
3.68
3.68
3.48
$43.8
43.7
$38.0
Market-Leveraged Stock Units (‘‘MSUs’’)
In 2013, we began granting performance-based MSUs under our
stock option and incentive plan to eligible employees. These units vest
ratably over a four-year period provided that the performance objective
is achieved as of the end of each vesting period. MSUs accrue dividend
equivalents during the vesting period, which are earned and paid only at
vesting. The number of MSU shares earned is based upon our absolute
total shareholder return at each vesting date and can range from 0% to
200% of the target amount of MSUs subject to vesting. Each of the four
vesting periods represents one tranche of MSUs and the fair value of
each of these four tranches was determined using the Monte-Carlo
simulation model, which utilizes multiple input variables, including
expected stock price volatility and other assumptions, to estimate the
probability of achieving the performance objective established for the
award. The weighted-average grant date fair value for MSUs was
$56.46, $52.76, and $51.40 in 2015, 2014, and 2013, respectively.
The following table summarizes information related to awarded
MSUs:
Number of
MSUs
(in thousands)
Unvested at January 3, 2015
Granted at target
Adjustment for above-target performance (1)
Vested
Forfeited/cancelled
551.8
329.4
47.6
(195.4)
(127.3)
Weighted-
average
grant-date
fair value
$52.18
56.46
51.58
50.15
54.28
Unvested at January 2, 2016
606.1
$55.04
(1) Reflects adjustment as a result of achieving above-target performance for vesting of the
tranches paid out in 2015.
The fair value of vested MSUs was $9.8 million in 2015 and
$5.6 million in 2014.
Restricted Stock Units (‘‘RSUs’’)
RSUs are service-based awards granted under our stock option
and incentive plan to eligible employees that generally vest ratably over
a period of three years for non-employee directors and four years for
employees provided that directorship or employment continues
through the applicable vesting date. If the condition is not met, unvested
RSUs are generally forfeited. The weighted-average grant date fair value
for RSUs was $53.29, $45.91, and $38.72 in 2015, 2014, and 2013,
respectively.
Outstanding at January 3, 2015
Exercised
Forfeited or expired
Outstanding at January 2, 2016
Options vested and expected to vest at January 2, 2016
Options exercisable at January 2, 2016
The total intrinsic value of stock options exercised was $43.3 million
in 2015, $15.4 million in 2014, and $26.1 million in 2013. We received
approximately $104 million in 2015, $34.2 million in 2014, and
$44.8 million in 2013 from the exercise of stock options. The tax benefit
associated with these exercised options was $15.6 million in 2015,
$5.3 million in 2014, and $8.5 million in 2013. The intrinsic value of a
stock option is based on the amount by which the market value of the
underlying stock exceeds the exercise price of the option.
Performance Units (‘‘PUs’’)
PUs are performance-based awards granted under our stock
option and incentive plan to eligible employees. PUs are payable in
shares of our common stock at the end of a three-year cliff vesting
period provided that certain performance objectives are achieved at the
end of the period. Over the performance period, the estimated number
of shares of our common stock issuable upon vesting is adjusted
upward or downward based upon the probability of the achievement of
the performance objectives established for the award. The actual
number of shares issued can range from 0% to 200% of the target
shares at the time of grant. The weighted-average grant date fair value
for PUs was $51.37, $47.85, and $52.93 in 2015, 2014, and 2013,
respectively.
The following table summarizes information related to awarded
PUs:
Unvested at January 3, 2015
Granted at target
Adjustment for above-target
performance (1)
Vested
Forfeited/cancelled
Number of
PUs
(in thousands)
689.9
164.5
23.1
(355.0)
(75.4)
Weighted-
average
grant-date
fair value
$40.16
51.37
34.43
34.36
45.52
Unvested at January 2, 2016
447.1
$47.63
(1) Reflects awards granted in excess of target as a result of our achieving above-target
performance for the 2012-2014 performance period.
The fair value of vested PUs was $12.2 million in 2015 and
$9.8 million in 2013. In 2014, PUs granted during 2011 were cancelled
as the performance objective was not met as of the end of the three-year
performance period.
51
Avery Dennison Corporation
2015 Annual Report
The following table summarizes information related to awarded
RSUs:
Unvested at January 3, 2015
Granted
Vested
Forfeited/cancelled
Number of
RSUs
(in thousands)
388.0
128.3
(243.7)
(58.0)
Weighted-
average
grant-date
fair value
$32.70
53.29
34.37
40.79
Unvested at January 2, 2016
214.6
$40.96
The fair value of vested RSUs was $8.4 million, $9.5 million, and
$15.9 million in 2015, 2014, and 2013, respectively.
Cash Awards
Long-Term Incentive Units (‘‘LTI Units’’)
LTI Units are granted under our long-term incentive unit plan to
eligible employees. LTI Units are service-based awards that generally
vest ratably over a four-year period. The settlement value equals the
number of vested LTI Units multiplied by the average of the high and low
market prices of our common stock on the vesting date. The
compensation expense related to these awards is amortized on a
straight-line basis and the fair value is remeasured using the estimated
percentage of units expected to be earned multiplied by the average of
the high and low market prices of our common stock at each
quarter-end.
We also grant cash-based awards in the form of performance and
market-leveraged LTI Units to eligible employees. Performance LTI Units
are payable in cash at the end of a three-year cliff vesting period
provided that certain performance objectives are achieved at the end of
the performance period. Market-leveraged LTI Units are payable in cash
and vest ratably over a period of four years. The number of performance
and market-leveraged LTI Units earned at vesting is adjusted upward or
downward based upon the probability of achieving the performance
objectives established for the respective award and the actual number
of units issued can range from 0% to 200% of the target units subject to
vesting. The performance and market-leveraged LTI Units are
remeasured using the estimated percentage of units expected to be
earned multiplied by the average of the high and low market prices of
their respective
our common stock at each quarter-end over
performance periods. The compensation expense
to
related
performance LTI Units is amortized on a straight-line basis over their
respective performance period. The compensation expense related to
market-leveraged LTI Units is amortized on a graded-vesting basis over
their respective performance periods.
The compensation expense from continuing operations related to
LTI Units was $27.1 million in 2015, $17.8 million in 2014, and
$10.3 million in 2013. This expense was included in ‘‘Marketing, general
and administrative expense’’ in the Consolidated Statements of Income.
The total recognized tax benefit related to these units was $8.6 million in
2015, $5.7 million in 2014, and $3.2 million in 2013.
NOTE 13. COST REDUCTION ACTIONS
Restructuring Charges
We have compensation plans that provide eligible employees with
severance in the event of an involuntary termination due to qualifying
Notes to Consolidated Financial Statements
cost reduction actions. We calculate severance using the benefit
formula under the plans. Accordingly, we record provisions for
severance and other exit costs (including asset impairment charges and
lease and other contract cancellation costs) when they are probable
and estimable. In the absence of a plan or established local practice for
restructuring charges are
overseas
recognized when incurred.
jurisdictions,
liabilities
for
2015/2016 Actions
In 2015, we recorded $26.1 million in restructuring charges, net of
reversals, related to restructuring actions initiated during the third
quarter of 2015 (‘‘2015/2016 Actions’’), which we expect to continue
through 2016. These charges consisted of severance and related costs
for the reduction of approximately 430 positions, lease cancellation
costs, and asset impairment charges.
No employees impacted by our 2015/2016 Actions taken through
January 2, 2016 remained employed with us as of such date. We expect
charges and payments related to these actions to be substantially
completed in 2016.
2014/2015 Actions
In 2015, we recorded $33.4 million in restructuring charges, net of
reversals, related to restructuring actions we initiated in 2014 that
continued through the second quarter of 2015 (‘‘2014/2015 Actions’’).
These charges consisted of severance and related costs for the
reduction of approximately 605 positions, lease cancellation costs, and
asset impairment charges.
In 2014, we recorded $66.5 million in restructuring charges, net of
reversals, related to our 2014/2015 Actions. These charges consisted of
severance and related costs for the reduction of approximately 1,420
positions, lease cancellation costs, and asset impairment charges.
Approximately 125 employees impacted by our 2014/2015 Actions
remained employed with us as of January 2, 2016. We expect charges
and payments related to these actions to be substantially completed in
2016.
2012 Program
In 2013, we recorded $40.3 million in restructuring charges, net of
reversals, related to the restructuring program we initiated in 2012
(‘‘2012 Program’’), which consisted of severance and related costs for
the reduction of approximately 1,400 positions, lease and other contract
cancellation costs, and asset impairment charges.
No employees impacted by the 2012 Program remained employed
with us as of December 28, 2013.
Accruals for severance and related costs and lease and other
contract cancellation costs were included in ‘‘Other accrued liabilities’’
in the Consolidated Balance Sheets. Asset impairment charges were
based on the estimated market value of the assets. Restructuring
charges in continuing operations were included in ‘‘Other expense, net’’
in the Consolidated Statements of Income.
52
Notes to Consolidated Financial Statements
During 2015, restructuring charges and payments were as follows:
(In millions)
2015/2016 Actions
Severance and related costs
Asset impairment charges
Lease cancellation costs
2014/2015 Actions
Severance and related costs
Asset impairment charges
Lease cancellation costs
2012 Program
Severance and related costs
Total
Accrual at
January 3,
2015
Charges
(Reversals),
net
Cash
Payments
Non-cash
Impairment
Foreign
Currency
Translation
Accrual at
January 2,
2016
$
–
–
–
16.8
–
.1
.8
$22.7
2.9
.5
29.8
3.3
.3
–
$(14.3)
–
(.3)
(40.9)
–
(.4)
–
$
–
(2.9)
–
–
(3.3)
–
–
$
–
–
–
(.9)
–
–
(.1)
$ 8.4
–
.2
4.8
–
–
.7
$17.7
$59.5
$(55.9)
$(6.2)
$(1.0)
$14.1
During 2014, restructuring charges and payments were as follows:
(In millions)
2014/2015 Actions
Severance and related costs
Asset impairment charges
Lease cancellation costs
2012 Program
Severance and related costs
Lease and other contract cancellation costs
Total
Accrual at
December 28,
2013
Charges
(Reversals),
net
Cash
Payments
Non-cash
Impairment
Foreign
Currency
Translation
Accrual at
January 3,
2015
$ –
–
–
6.6
.2
$6.8
$55.1
10.8
.6
$(35.6)
–
(.5)
$
–
(10.8)
–
(.4)
–
(5.2)
(.2)
–
–
$(2.7)
–
–
(.2)
–
$16.8
–
.1
.8
–
$66.1
$(41.5)
$(10.8)
$(2.9)
$17.7
Restructuring charges
incurred by reportable segment and
Corporate were as follows:
NOTE 14. TAXES BASED ON INCOME
(In millions)
2015
2014
2013
Taxes based on income (loss) were as follows:
Restructuring charges by reportable
segment and Corporate
Pressure-sensitive Materials
Retail Branding and Information Solutions
Vancive Medical Technologies
Corporate
Total
$17.8
35.9
3.6
2.2
$40.2
21.3
4.2
.4
$10.8
28.5
.1
.9
$59.5
$66.1
$40.3
(In millions)
Current:
U.S. federal tax
State taxes
International taxes
Deferred:
U.S. federal tax
State taxes
International taxes
2015
2014
2013
$ 26.4
(.1)
92.7
$ 14.5
(.2)
116.0
$
1.9
.3
114.0
119.0
130.3
116.2
6.3
.5
8.7
(16.1)
1.9
(2.6)
(11.1)
7.4
11.8
15.5
(16.8)
8.1
Provision for income taxes
$134.5
$113.5
$124.3
53
Avery Dennison Corporation
2015 Annual Report
The principal items accounting for the difference between taxes
computed at the U.S. statutory rate and taxes recorded were as follows:
throughout the world, offset by $12.1 million of expense related to the
accrual of U.S. taxes on certain foreign earnings.
Notes to Consolidated Financial Statements
(In millions)
2015
2014
2013
Computed tax at 35% of income before
taxes
$143.1
$126.2
$128.1
Increase (decrease) in taxes resulting
from:
State taxes, net of federal tax benefit
Foreign earnings taxed at different
rates (1)
Valuation allowance
Corporate-owned life insurance
U.S. federal research and
development tax credits
Tax contingencies and audit
settlements
Other items, net
1.3
1.4
2.4
(7.5)
.9
(1.9)
(14.9)
9.9
(4.2)
(12.6)
1.8
(6.9)
(2.6)
(1.6)
(7.0)
5.1
(3.9)
(1.5)
(1.8)
21.9
(3.4)
Provision for income taxes
$134.5
$113.5
$124.3
(1) Included foreign earnings taxed in the U.S., net of credits, for all years.
Income (loss) from continuing operations before taxes from our
U.S. and international operations was as follows:
(In millions)
U.S.
International
2015
2014
2013
$ 33.9
375.0
$
(.1)
360.9
$ (33.3)
399.3
Income from continuing operations
before taxes
$408.9
$360.8
$366.0
The effective tax rate for continuing operations was 32.9%, 31.5%,
and 34% for fiscal years 2015, 2014, and 2013, respectively.
The 2015 effective tax rate for continuing operations included the
following: tax expense of $20 million associated with the tax cost to
repatriate non-permanently reinvested 2015 earnings of certain foreign
subsidiaries; tax benefits for changes in certain tax reserves, including
interest and penalties, of $5.8 million resulting from settlements of audits
and $8.2 million resulting from lapses and statute expirations; and a tax
benefit of $2.6 million from the extension of the federal research and
development credit.
The 2014 effective tax rate for continuing operations included the
following: tax benefits for changes in certain tax reserves, including
interest and penalties, of $10.2 million resulting from settlements of
audits and $18.1 million resulting from lapses and statute expirations; a
repatriation tax benefit of $9.8 million related to certain foreign losses;
tax expense of $9.1 million from the taxable inclusion of a net foreign
currency gain related to the revaluation of certain intercompany loans;
tax expense of $10.6 million related to our change in estimate of the
potential outcome of uncertain tax issues in China and Germany; and
state tax expense of $2.5 million primarily related to gains arising as a
result of certain foreign reorganizations.
The 2013 effective tax rate for continuing operations reflected
$11 million of benefit from adjustments to federal income tax, primarily
due to the enactment of the American Taxpayer Relief Act of 2012
(‘‘ATRA’’), and $24.9 million of net expense related to changes in certain
tax reserves and valuation allowances. Additionally, the effective tax rate
for 2013 reflected a benefit of $11.2 million from favorable tax rates on
jurisdictions
certain earnings
from our operations
lower-tax
in
On December 18, 2015, the Protecting Americans from Tax Hikes
Act of 2015 (‘‘PATH Act’’) was enacted, which included a provision
making permanent the federal research and development credit for tax
years 2015 and beyond. The PATH Act also retroactively extended the
controlled foreign corporation (‘‘CFC’’) look-through rule that had
expired on December 31, 2014. For periods in which the look-though
rule was effective, U.S. federal income tax on certain dividends, interest,
rents, and royalties received or accrued by a CFC of a U.S. multinational
enterprise from a related CFC are deferred. The retroactive effects of the
extension of the CFC look-through rule did not have a material impact
on our effective tax rate or operating results. The extension of the CFC
look-through rule is currently scheduled to expire on December 31,
2019.
Deferred income taxes have not been provided on approximately
$1.9 billion of undistributed earnings of foreign subsidiaries as of
January 2, 2016 since these amounts are intended to be indefinitely
reinvested in foreign operations. It is not practicable to calculate the
deferred taxes associated with these earnings because of the variability
of multiple factors that would need to be assessed at the time of any
assumed repatriation; however, foreign tax credits would likely be
available to reduce federal income taxes in the event of distribution. In
making this assertion, we evaluate, among other factors, the profitability
of our U.S. and foreign operations and the need for cash within and
outside the U.S., including cash requirements for capital improvements,
acquisitions, market expansion, dividends, and stock repurchases.
Deferred income taxes reflect the temporary differences between
the amounts at which assets and liabilities are recorded for financial
reporting purposes and the amounts utilized for tax purposes. The
primary components of the temporary differences that gave rise to our
deferred tax assets and liabilities were as follows:
(In millions)
Accrued expenses not currently deductible
Net operating losses
Tax credit carryforward
Postretirement and postemployment benefits
Pension costs
Inventory reserves
Other assets
Valuation allowance
Total deferred tax assets (2)
Depreciation and amortization
Repatriation accrual (1)
Foreign operating loss recapture
Other liabilities
Total deferred tax liabilities (2)
Total net deferred tax assets
2015
2014
$ 35.1
253.3
114.4
93.2
148.7
6.9
8.9
(73.0)
$ 40.9
277.7
104.2
103.5
142.9
9.0
12.4
(75.0)
587.5
615.6
(101.0)
(9.8)
(108.3)
(2.9)
(118.0)
1.9
(118.0)
(3.0)
(222.0)
(237.1)
$ 365.5
$ 378.5
(1) Included in the repatriation accrual as of January 2, 2016 and January 3, 2015 was a net
deferred tax liability of $12.5 million and $4.4 million, respectively, associated with the future
tax cost to repatriate non-permanently reinvested earnings of our foreign subsidiaries, which
is offset by a contra deferred tax liability of $2.7 million and $6.3 million, respectively, related
to unrealized foreign exchange losses associated with earnings of our foreign subsidiaries
that can be repatriated to the U.S. in future periods without incurring any additional U.S.
federal income taxes.
(2) Reflect gross amounts before jurisdictional netting of deferred tax assets and liabilities.
Certain 2014 components have been adjusted for a 2015 change in presentation of the
federal deduction of state income taxes.
54
Notes to Consolidated Financial Statements
A valuation allowance is recorded to reduce deferred tax assets to
the amount that is more likely than not to be realized. The valuation
allowance at January 2, 2016 and January 3, 2015 was $73 million and
$75 million, respectively.
Net operating loss carryforwards of foreign subsidiaries at
January 2, 2016 and January 3, 2015 were $825.8 million and
$928.7 million, respectively. Tax credit carryforwards of both domestic
and foreign subsidiaries at January 2, 2016 and January 3, 2015 totaled
$114.4 million and $104.2 million, respectively. If unused, foreign net
operating losses and tax credit carryforwards will expire as follows:
(In millions)
Expires in 2016
Expires in 2017
Expires in 2018
Expires in 2019
Expires in 2020
Expires in 2021
Expires in 2022
Expires in 2023
Expires in 2024
Expires in 2025
Expires in 2026
Expires in 2027
Expires in 2028
Expires in 2029
Expires in 2030
Expires in 2031
Expires in 2032
Expires in 2033
Expires in 2034
Expires in 2035
Indefinite life/no expiration
Total
Net Operating
Losses (1)
Tax Credits
$
7.0
15.7
15.4
10.4
5.5
26.2
3.5
12.0
4.2
1.6
–
.2
–
–
–
–
–
–
–
–
724.1
$
1.1
.1
13.3
33.1
15.9
.3
9.6
5.1
.4
11.4
1.2
.1
.1
.1
.1
1.7
4.1
2.9
2.5
2.6
8.7
$825.8
$114.4
(1) Net operating losses are presented before tax effect and valuation allowance
Based on current projections, certain indefinite-lived foreign net
operating losses may take up to 50 years to be fully utilized.
At January 2, 2016, we had net operating loss carryforwards in
certain state jurisdictions of $503 million before tax effect. Based on our
current ability to generate state taxable income, the majority of these
carryforward amounts are highly unlikely to be realized before they
expire. Accordingly, a valuation allowance has been recorded on
$500 million of the carryforwards.
We do not anticipate the expected expiration of our remaining tax
holidays in Thailand and Vietnam in 2016 to have a material effect on our
effective tax rate, operating results, or financial condition.
Unrecognized Tax Benefits
As of January 2, 2016, our unrecognized tax benefits totaled
$107.3 million, $89.0 million of which, if recognized, would reduce our
annual effective income tax rate. As of January 3, 2015, our
unrecognized tax benefits totaled $122.6 million, $98.7 million of which,
if recognized, would reduce our annual effective income tax rate.
Where applicable, we record potential accrued interest and
penalties related to unrecognized tax benefits from our global
operations in income tax expense. As a result, we recognized tax
55
Avery Dennison Corporation
2015 Annual Report
expense of $1.3 million, tax benefit of $1.3 million, and tax expense of
$2.7 million in the Consolidated Statements of Income in 2015, 2014,
and 2013, respectively. We have accrued $26.1 million and $26.7 million
for interest and penalties, net of tax benefit, in the Consolidated Balance
Sheets at January 2, 2016 and January 3, 2015, respectively.
A reconciliation of the beginning and ending amounts of
unrecognized tax benefits is set forth below:
(In millions)
Balance at beginning of year
Additions based on tax positions related to the
current year
Additions for tax positions of prior years
Reductions for tax positions of prior years:
Changes in judgment
Settlements
Lapses and statute expirations
Changes due to translation of foreign currencies
2015
2014
$122.6
$137.2
11.1
8.7
(12.7)
(4.5)
(8.6)
(9.3)
18.2
7.8
(1.8)
(15.8)
(13.8)
(9.2)
Balance at end of year
$107.3
$122.6
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
relevant risks, facts, and circumstances existing at that 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. As of the date the 2015 financial statements are
being issued, we and our U.S. subsidiaries have completed the Internal
Revenue Service’s Compliance Assurance Process Program through
2014. We are subject to routine tax examinations in other jurisdictions.
With a few exceptions, we are no longer subject to 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 $6 million, primarily as a result of closing tax
years.
NOTE 15. SEGMENT INFORMATION
Segment Reporting
We have the following operating and reportable segments:
(cid:129) Pressure-sensitive Materials – manufactures and sells
pressure-sensitive labeling technology and materials, films for
graphic and reflective applications, performance polymers
(largely adhesives used to manufacture pressure-sensitive
materials), and performance tapes;
(cid:129) Retail Branding and
Information Solutions – designs,
manufactures and sells a wide variety of branding and
information products and services, including brand and price
tickets, tags and labels (including RFID inlays), and related
services, supplies and equipment; and
(cid:129) Vancive Medical Technologies – manufactures an array of
pressure-sensitive adhesive products for surgical, wound care,
ostomy, and electromedical applications.
Intersegment sales are recorded at or near market prices and are
eliminated in determining consolidated sales. We evaluate performance
based on income from operations before interest expense and taxes.
General corporate expenses are also excluded from the computation of
income from operations for the segments.
We do not disclose total assets by reportable segment since we do
not produce and review such information internally. As our reporting
structure is not organized or reviewed internally by country, results by
individual country are not provided.
Financial information from continuing operations by reportable
segment is set forth below:
(In millions)
2015
2014
2013
Net sales to unaffiliated customers
Pressure-sensitive Materials
Retail Branding and Information
$4,373.7 $4,658.1 $4,455.0
Solutions
Vancive Medical Technologies
1,520.3
72.9
1,591.6
80.6
1,611.1
73.9
Net sales to unaffiliated customers
$5,966.9 $6,330.3 $6,140.0
Intersegment sales
Pressure-sensitive Materials
Retail Branding and Information
Solutions
Vancive Medical Technologies
$
60.9 $
63.2 $
64.6
1.9
4.9
2.4
9.6
2.4
3.6
Intersegment sales
$
67.7 $
75.2 $
70.6
Income from continuing operations
before taxes
Pressure-sensitive Materials
Retail Branding and Information
Solutions
Vancive Medical Technologies
Corporate expense
Interest expense
$ 496.6 $ 434.4 $ 442.8
70.0
(4.5)
(92.7)
(60.5)
87.9
(11.7)
(86.5)
(63.3)
81.7
(8.3)
(89.3)
(60.9)
Notes to Consolidated Financial Statements
(In millions)
2015
2014
2013
Other expense, net by type
Restructuring charges:
Severance and related costs
Asset impairment charges and lease
and other contract cancellation
costs
Other items:
Charitable contribution to Avery
$
52.5 $
54.7 $
27.2
7.0
11.4
13.1
Dennison Foundation
–
–
10.0
Indefinite-lived intangible asset
impairment charge
Gains on sales of assets
Net loss (gain) from curtailment and
settlement of pension obligations
Legal settlements
Loss on sale of product line and
related exit costs
Divestiture-related costs (1)
–
(1.7)
.3
(.3)
10.5
–
3.0
(2.5)
–
(17.8)
1.6
–
–
–
(1.6)
2.5
–
3.2
Other expense, net
$
68.3 $
68.2 $
36.6
(1) Represents only the portion allocated to continuing operations.
Within our Pressure-sensitive Materials reportable segment, net
sales to unaffiliated customers of the Materials product group were
$4.06 billion, $4.33 billion, and $4.16 billion in 2015, 2014, and 2013,
respectively, and net sales to unaffiliated customers of the Performance
Tapes product group were $313.6 million, $332.5 million, and
$293 million in 2015, 2014, and 2013, respectively.
Revenues from continuing operations by geographic area are set
forth below. Revenues are attributed to geographic areas based on the
location to which the product is shipped. Export sales from the U.S. to
unaffiliated customers are not a material factor in our business.
Income from continuing operations
(In millions)
2015
2014
2013
before taxes
$ 408.9 $ 360.8 $ 366.0
Capital expenditures
Pressure-sensitive Materials
Retail Branding and Information
Solutions
Vancive Medical Technologies
$
83.2 $ 110.5 $
81.1
52.9
2.8
39.6
2.1
42.4
1.2
Net sales to unaffiliated customers
U.S.
Europe
Asia
Latin America
Other international
$1,546.8 $1,529.4 $1,537.6
1,958.4
2,074.4
1,823.5
1,914.2
515.6
522.9
304.9
289.4
1,753.0
1,924.0
466.3
276.8
Capital expenditures
$ 138.9 $ 152.2 $ 124.7
Net sales to unaffiliated customers
$5,966.9 $6,330.3 $6,140.0
$ 111.5 $ 116.0 $ 113.5
operations was as follows:
Property, plant and equipment, net, in our U.S. and international
Depreciation and amortization
expense
Pressure-sensitive Materials
Retail Branding and Information
Solutions
Vancive Medical Technologies
73.1
3.7
81.4
4.2
86.7
4.1
Depreciation and amortization expense $ 188.3 $ 201.6 $ 204.3
Other expense, net by reportable
segment
Pressure-sensitive Materials
Retail Branding and Information
Solutions
Vancive Medical Technologies
Corporate
$
16.3 $
41.6 $
10.8
45.9
3.6
2.5
22.0
4.2
.4
20.0
.1
5.7
Other expense, net
$
68.3 $
68.2 $
36.6
(In millions)
2015
2014
2013
Property, plant and equipment, net
U.S.
International
$263.4
584.5
$261.5
613.8
$279.6
642.9
Property, plant and equipment, net
$847.9
$875.3
$922.5
56
Notes to Consolidated Financial Statements
NOTE 16. SUPPLEMENTAL FINANCIAL INFORMATION
Software amortization expense from continuing operations was
$37.6 million in 2015, $36.4 million in 2014, and $35.3 million in 2013.
Inventories
Net inventories at year-end were as follows:
Research and Development
(In millions)
Raw materials
Work-in-progress
Finished goods
Inventories, net
2015
2014
$180.5
143.0
155.2
$183.6
150.4
157.8
$478.7
$491.8
Research and development expense from continuing operations,
which is included in ‘‘Marketing, general and administrative expense’’ in
the Consolidated Statements of Income, was as follows:
(In millions)
2015
2014
2013
Research and development expense
$91.9
$102.5
$96.0
Property, Plant and Equipment
Major classes of property, plant and equipment, stated at cost, at
Supplemental Cash Flow Information
Cash paid for interest and income taxes, including amounts paid for
discontinued operations, was as follows:
year-end were as follows:
(In millions)
Land
Buildings and improvements
Machinery and equipment
Construction-in-progress
Property, plant and equipment
Accumulated depreciation
2015
2014
(In millions)
2015
2014
2013
$
30.4
579.3
1,922.3
67.9
$
32.1
578.2
1,958.2
86.0
2,599.9
(1,752.0)
2,654.5
(1,779.2)
Interest, net of capitalized amounts
Income taxes, net of refunds
$ 60.1
129.9
$ 61.6
108.8
$ 60.2
129.4
Capital expenditures accrued but not paid, including amounts for
discontinued operations, were $3.1 million in 2015, $3.8 million in 2014,
and $11.5 million in 2013.
Property, plant and equipment, net
$
847.9
$
875.3
Currency Effects
Software
Capitalized software costs at year-end were as follows:
(In millions)
Cost
Accumulated amortization
Software, net
2015
2014
$ 398.2
(270.8)
$ 445.7
(293.1)
$ 127.4
$ 152.6
Gains and losses resulting from foreign currency transactions are
included in income in the period incurred. Transactions in foreign
currencies (including receivables, payables and loans denominated in
currencies other than the functional currency), including hedging
impacts, decreased net income by $6.1 million, $8.7 million, and
$7.9 million, in 2015, 2014, and 2013, respectively.
We had no operations in hyperinflationary economies in fiscal years
2015, 2014, or 2013.
57
Avery Dennison Corporation
2015 Annual Report
NOTE 17. QUARTERLY FINANCIAL INFORMATION (Unaudited)
(In millions, except per share data)
2015
Net sales
Gross profit
Income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Net income (loss) per common share:
Continuing operations
Discontinued operations
Net income per common share
Net income (loss) per common share, assuming dilution:
Continuing operations
Discontinued operations
Net income per common share, assuming dilution
2014
Net sales
Gross profit
Income from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Net income (loss) per common share:
Continuing operations
Discontinued operations
Net income per common share
Net income (loss) per common share, assuming dilution:
Continuing operations
Discontinued operations
Net income per common share, assuming dilution
(1) Results for the fourth quarter of 2014 reflected the extra week in our 2014 fiscal year.
Notes to Consolidated Financial Statements
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter (1)
$1,528.0
430.0
71.9
–
71.9
$1,516.0
417.6
64.7
(1.0)
63.7
$1,468.1
405.9
81.3
.4
81.7
$1,454.8
392.3
56.5
.5
57.0
.79
–
.79
.78
–
.78
.71
(.01)
.70
.69
(.01)
.68
.89
–
.89
.87
.01
.88
.62
.01
.63
.61
.01
.62
$1,550.1
407.2
66.4
(.4)
66.0
$1,615.8
428.2
50.2
(1.9)
48.3
$1,559.6
400.7
60.9
(.7)
60.2
$1,604.8
415.1
69.8
.8
70.6
.69
–
.69
.68
(.01)
.67
.53
(.02)
.51
.52
(.02)
.50
.65
–
.65
.64
(.01)
.63
.76
.01
.77
.75
.01
.76
58
Notes to Consolidated Financial Statements
Certain prior period amounts have been revised to reflect the impact of certain adjustments. Refer to Note 1, ‘‘Summary of Significant Accounting
Policies,’’ for more information. The effects of the revision on our quarterly information were as follows:
(In millions, except per share data)
2015
Income from continuing operations
Net income
Net income (loss) per common
share:
Continuing operations
Net income per common share
Net income (loss) per common
share, assuming dilution:
Continuing operations
Net income per common share,
assuming dilution
2014
Income from continuing operations
Net income
Net income (loss) per common
share:
Continuing operations
Discontinued operations
Net income per common share
Net income (loss) per common
share, assuming dilution:
Continuing operations
Discontinued operations
Net income per common share,
assuming dilution
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
As
Previously
Reported Adjustment
As
As Previously
As
As Previously
As
As Previously
Revised Reported Adjustment
Revised Reported Adjustment
Revised Reported Adjustment
As
Revised
$71.6
71.6
$ .3
.3
$71.9
71.9
$64.3
63.3
$ .4
.4
$64.7
63.7
.79
.79
.77
.77
–
–
.01
.01
.79
.79
.78
.78
.70
.69
.69
.68
.01
.01
–
–
.71
.70
.69
.68
$71.6
71.2
$(5.2)
(5.2)
$66.4
66.0
$44.4
42.5
$5.8
5.8
$50.2
48.3
$65.0
64.3
$(4.1)
(4.1)
$60.9
60.2
$70.1
70.9
$ (.3)
(.3)
$69.8
70.6
.74
–
.74
.73
–
.73
(.05)
–
(.05)
.69
–
.69
.47
(.02)
.45
(.05)
(.01)
.68
(.01)
.46
(.02)
(.06)
.67
.44
.06
–
.06
.06
–
.06
.53
(.02)
.51
.52
(.02)
.50
.70
(.01)
.69
(.05)
.01
(.04)
.65
–
.65
.68
–
.68
(.04)
(.01)
.64
(.01)
(.05)
.63
.77
.01
.78
.75
.01
.76
(.01)
–
(.01)
–
–
–
.76
.01
.77
.75
.01
.76
‘‘Other expense, net’’ is presented by type for each quarter below:
(In millions)
2015
Restructuring charges:
Severance and related costs
Asset impairment charges and lease cancellation costs
Other items:
Net loss from curtailment and settlement of pension obligations
Loss on sale of product line and related exit costs
Legal settlements
Gain on sale of assets
Other expense, net
2014
Restructuring charges:
Severance and related costs
Asset impairment charges and lease cancellation costs
Other items:
Indefinite-lived intangible asset impairment charge
Gains on sales of assets
Losses from curtailment and settlement of pension obligations
Other expense, net
59
Avery Dennison Corporation
2015 Annual Report
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$13.5
.4
$16.8
3.2
$4.7
1.9
$17.5
1.5
–
2.6
(.5)
(1.7)
–
7.7
–
–
–
.2
.2
–
.3
–
–
–
$14.3
$27.7
$7.0
$19.3
$ 7.0
.3
$35.9
2.6
$5.1
1.6
$ 6.7
6.9
–
–
–
–
(.6)
.6
3.0
(1.9)
–
–
–
1.0
$ 7.3
$38.5
$7.8
$14.6
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements and accompanying information were prepared by and are the responsibility of management. The
statements were prepared in conformity with accounting principles generally accepted in the United States of America and, as such, include amounts
that are based on management’s best estimates and judgments.
Oversight of management’s financial reporting and internal accounting control responsibilities is exercised by the Board of Directors, through the
Audit and Finance Committee, which is comprised solely of independent directors. The Committee meets periodically with financial management,
internal auditors and the independent registered public accounting firm to obtain reasonable assurance that each is meeting its responsibilities and to
discuss matters concerning auditing, internal accounting control and financial reporting. The independent registered public accounting firm and our
internal audit department have free access to meet with the Audit and Finance Committee without management present.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f) or 15(d)-15(f). Under the supervision and with the participation of management, including the chief executive officer and
chief financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control – Integrated Framework (2013), management has concluded that internal control over financial
reporting was effective as of January 2, 2016. Management’s assessment of the effectiveness of internal control over financial reporting as of
January 2, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report
included herein.
27FEB201323543803
Dean A. Scarborough
Chairman and
Chief Executive Officer
25FEB201618145429
Anne L. Bramman
Senior Vice President and
Chief Financial Officer
60
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AVERY DENNISON CORPORATION:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income,
shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Avery Dennison Corporation and its subsidiaries at
January 2, 2016 and January 3, 2015, and the results of their operations and their cash flows for each of the three years in the period ended January 2,
2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of January 2, 2016, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for current deferred
income tax assets and liabilities in 2015.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
27FEB201501102312
PricewaterhouseCoopers LLP
Los Angeles, California
February 24, 2016
61
Avery Dennison Corporation
2015 Annual Report
Corporate
Information
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Los Angeles, California
Registrar and Transfer Agent
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
(888) 682-5999
(720) 864-4993 (international)
(855) 627-5080 (hearing impaired)
https://investor.broadridge.com
Annual Meeting
Our Annual Meeting of Stockholders will be held at 1:30 p.m. on
April 28, 2016 at the Embassy Suites, 800 North Central Avenue,
Glendale, California 91203.
The Direct Share Purchase and Sale Program
Shareholders of record may reinvest their cash dividends in
additional shares of our common stock at market price. Investors may
also invest optional cash payments of up to $12,500 per month in our
common stock at market price. Investors not yet participating in the
program, as well as brokers and custodians who hold our common
stock on behalf of clients, may obtain a copy of the program by
contacting Broadridge Corporate Issuer Solutions, Inc.
Direct Deposit of Dividends
Shareholders may receive their quarterly dividend payments by
direct deposit into their checking or savings accounts. For more
information, contact Broadridge Corporate Issuer Solutions, Inc.
Other Information
We are including, as Exhibits 31.1 and 31.2 to our Annual Report on
Form 10-K for our fiscal year 2015 filed with the Securities and Exchange
Commission (‘‘SEC’’), certificates of our Chief Executive Officer and
Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. We submitted to the New York Stock Exchange (‘‘NYSE’’)
an unqualified annual written affirmation, along with the Chief Executive
Officer’s certificate that he is not aware of any violation by the Company
of NYSE’s corporate governance listing standards, on May 6, 2015.
A copy of our Annual Report on Form 10-K, as filed with the SEC,
will be furnished to shareholders and interested investors free of charge
upon written request to our Corporate Secretary. Copies may also be
downloaded from our investor website at www.investors.averydennison.com.
Corporate Headquarters
Avery Dennison Corporation
207 Goode Avenue
Glendale, California 91203
Phone: (626) 304-2000
Stock and Dividend Data
Our common stock is listed on the NYSE.
Ticker symbol: AVY
Market Price
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividends per Common Share
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2015
2014
High
Low
High
Low
$54.64
63.18
64.65
66.18
$51.15
51.07
55.59
58.61
$52.14
51.76
51.49
52.67
$46.99
46.66
46.18
41.28
2015
2014
$
.35
.37
.37
.37
$
.29
.35
.35
.35
$ 1.46
$ 1.34
Number of shareholders of record as of year-end
5,357
5,728
62
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Available at
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investorcom@averydennison.com
Career Opportunities
Learn how you can make your
mark at Avery Dennison. Visit
www.averydennison.com/careers
Company Websites
www.averydennison.com
www.label.averydennison.com
www.graphics.averydennison.com
www.tapes.averydennison.com
www.reflectives.averydennison.com
www.rbis.averydennison.com
www.rfid.averydennison.com
www.vancive.averydennison.com
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sustainability, the paper for this
annual report is certified by the
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which promotes environmentally
responsible, socially beneficial and
economically viable management
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Avery Dennison Corporation
207 Goode Avenue
Glendale, California 91203
www.averydennison.com
Avery
Dennison
Corporation
2015
Annual
Report
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