Avery Dennison Annual Report 2019

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FY2019 Annual Report · Avery Dennison

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Annual Report

Avery Dennison Corporation | 2019 Annual Report SECTION II

2019 Annual Report

Contents

Five-Year Summary

4 Management’s Discussion and Analysis of

Financial Condition and Results of Operations

19 Consolidated Financial Statements

24 Notes to Consolidated Financial Statements

56 Report of Independent Registered Public Accounting Firm

59 Other Information

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.

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

Certain risks and uncertainties are discussed in more detail under ‘‘Risk Factors’’ and ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations’’ in our Annual Report on Form 10-K for the fiscal year ended
December 28, 2019 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 and market conditions; changes in political conditions;
fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging
markets; changes in our markets due to competitive conditions, technological developments, laws and regulations, and
customer preferences; fluctuations in the cost and availability of raw materials and energy; changes in governmental laws
and regulations; the impact of competitive products and pricing; the financial condition and inventory strategies of
customers; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost
reductions; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix
shift; execution and integration of acquisitions; product and service quality; timely development and market acceptance of
new products, including sustainable or sustainably-sourced products; investment in development activities and new
production facilities; amounts of future dividends and share repurchases; customer and supplier concentrations or
consolidations; fluctuations in interest and tax rates; changes in tax laws and regulations, and uncertainties associated with
interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; successful implementation of
new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology
systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded
information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets,
including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain
access to capital; the realization of deferred tax assets; interest rates and our debt covenants; fluctuations in pension,
insurance, and employee benefit costs; goodwill impairment; the impact of legal and regulatory proceedings, including
with respect to environmental, health and safety, anti-corruption and trade compliance; protection and infringement of
intellectual property; the impact of epidemiological events on the economy and our customers and suppliers; acts of war,
terrorism, and natural disasters; and other factors.

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

Avery Dennison Corporation 2019 Annual Report

Five-Year Summary

(Dollars in millions, except percentages
and per share amounts)

2019

2018

2017

2016

2015

Dollars

For the Year
Net sales
Gross profit
Marketing, general and administrative expense
Other expense, net(1)
Interest expense
Other non-operating expense, net(2)
Income from continuing operations before taxes
(Benefit from) provision for income taxes(3)
Equity method investment losses
Income from continuing operations
Loss from discontinued operations, net of tax
Net income

Per Share Information
Income per common share from continuing

operations

Loss per common share from discontinued

operations

Net income per common share
Income per common share from continuing

operations, assuming dilution

Loss per common share from discontinued

operations, assuming dilution

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)

At End of Year
Property, plant and equipment, net
Total assets(4)
Long-term debt and finance leases
Total debt(5)
Shareholders’ equity

Other Information
Depreciation and amortization expense
Research and development expense
Effective tax rate(3)

$7,070.1 100.0 $7,159.0 100.0 $6,613.8 100.0 $6,086.5 100.0 $5,966.9 100.0
27.9 1,645.8 27.6
17.8 1,087.8 18.2
1.1
1.0
.4
6.9
2.3
–
4.6
–
4.6

1,904.1 26.9 1,915.5 26.8 1,812.2 27.4 1,699.7
1,080.4 15.3 1,127.5 15.7 1,105.2 16.7 1,085.7
23.8
1.0
59.9
.8
53.2
1.5
477.1
7.7
156.4
1.2
–
–
320.7
6.5
–
–
320.7
6.5

64.5
60.5
24.1
408.9
134.5
–
274.4
(.1)
274.3

53.2
75.8
445.2
249.5
(56.7)
(2.6)
303.6
–
303.6

69.9
58.5
104.8
554.8
85.4
(2.0)
467.4
–
467.4

36.5
63.0
18.0
589.5
307.7
–
281.8
–
281.8

.8
1.1
6.3
3.5
(.8)
–
4.3
–
4.3

.4
1.0
.9
7.8
2.6
–
5.3
–
5.3

.6
1.0
.3
8.9
4.7
–
4.3
–
4.3

2019

2018

2017

2016

2015

3.61

5.35

3.19

3.60

3.01

–
3.61

3.57

–

3.57
2.26

84.0

85.0

–
5.35

5.28

–

5.28
2.01

87.3

88.6

–
3.19

3.13

–

3.13
1.76

88.3

90.1

–
3.60

3.54

–

3.54
1.60

89.1

90.7

–
3.01

2.95

–

2.95
1.46

91.0

92.9

$1,210.7
5,488.8
1,499.3
1,939.5
1,204.0

$1,137.4
5,177.5
1,771.6
1,966.2
955.1

$1,097.9
5,136.9
1,316.3
1,581.7
1,046.2

$ 915.2
4,396.4
713.4
1,292.5
925.5

$ 847.9
4,133.7
963.6
1,058.9
965.7

$ 179.0
92.6
(22.7)%

$ 181.0
98.2
15.4%

$ 178.7
93.4
52.2%

$ 180.1
89.7
32.8%

$ 188.3
91.9
32.9%

(1) Included pretax charges for severance and related costs, asset impairment charges and lease cancellation costs, Argentine peso remeasurement transition loss, reversal of acquisition-

related contingent consideration, legal settlements, transactions costs, and other items.

(2) Included pension plan settlements and related charges of $444.1 for fiscal year 2019.

(3) Included tax benefit of $178.9 for fiscal year 2019 related to the termination of our U.S. pension plan.

(4) In the first quarter of 2019, we adopted accounting guidance that requires lessees to recognize on their balance sheets the rights and obligations created by leases. As allowed by this
guidance, we elected to apply it using a modified retrospective approach. This approach applies to all leases that existed at or commenced after the date of our initial application. As
such, prior year comparative periods have not been adjusted.

(5) Included finance leases.

2019 Annual Report Avery Dennison Corporation

Stockholder Return Performance

The graph below 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, 2019.

Comparison of Five-Year Cumulative Total Return as of December 31, 2019

Avery Dennison Corporation

S&P 500 Index

Industrials and Materials (Weighted Average)

Industrials and Materials (Median)

$240

$220

$200

$180

$160

$140

$120

$100

$80
12/31/2014

Total Return Analysis(1)

12/31/2015

12/31/2016

12/31/2017

12/31/2018

27FEB202011021751
12/31/2019

Avery Dennison Corporation
S&P 500 Index
Market Basket (Weighted Average)(2)
Market Basket (Median)

12/31/2014

12/31/2015

12/31/2016

12/31/2017

12/31/2018

12/31/2019

$100.00
100.00
100.00
100.00

$121.32
99.27
98.20
89.54

$137.83
108.31
117.10
104.87

$208.30
127.53
144.15
128.51

$161.10
119.32
122.88
106.24

$224.85
149.59
154.41
136.21

(1) Assumes $100.00 invested on December 31, 2014 and reinvestment of dividends.
(2) Average weighted by market capitalization.

Historical stock price performance is not necessarily indicative of future stock price performance.

Avery Dennison Corporation 2019 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

4
5
7
8
10
15
18
18

NON-GAAP FINANCIAL MEASURES

We report our financial results in conformity with
accounting principles generally accepted in the United
States of America, or GAAP, and also communicate with
investors using certain non-GAAP financial measures.
These non-GAAP financial measures are not in accordance
with, nor are they a substitute for or superior to, the
comparable GAAP financial measures. These non-GAAP
supplement
financial measures are
presentation of our financial results that are prepared in
accordance with GAAP. Based upon feedback from
investors and financial analysts, we believe that the
supplemental non-GAAP financial measures we provide are
useful to their assessments of our performance and
operating trends, as well as liquidity.

intended

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

We use these non-GAAP financial measures internally
to evaluate trends in our underlying performance, as well as

2019 Annual Report Avery Dennison Corporation

to facilitate comparison to the results of competitors for a
single period.

We use the following non-GAAP financial measures in

this MD&A:

• Sales change ex. currency refers to the increase or
decrease in net sales, excluding the estimated
impact of foreign currency translation, and, where
applicable, currency adjustment for transitional
reporting of highly
inflationary economies
(Argentina). Segment results are also adjusted for
the reclassification of sales between segments.
The estimated
foreign currency
impact of
translation is calculated on a constant currency
basis, with prior period results translated at
current period average exchange rates to exclude
the effect of currency fluctuations.

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

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

sales

insurance and

• Free cash flow refers to cash flow provided by
operating activities, less payments for property,
plant and equipment, software and other deferred
charges, plus proceeds from sales of property,
plant and equipment, plus (minus) net proceeds
(purchases) of
from
investments. Free cash flow is also adjusted for the
cash contributions related to the termination of
our U.S. pension plan. We believe that free cash
flow assists investors by showing the amount of
cash we have available for debt reductions,
dividends, share repurchases, and acquisitions.
• Operational working capital as a percentage of
annualized current quarter net sales refers to trade
inventories, net of
accounts receivable and
accounts payable, and excludes cash and cash
equivalents, short-term borrowings, deferred
taxes, other current assets and other current
liabilities, as well as net current assets or liabilities
held-for-sale divided by annualized current
quarter net sales. We believe that operational
working capital as a percentage of annualized
current quarter net sales assists investors in
requirements
assessing our working capital
because it excludes the impact of fluctuations
attributable to our financing and other activities

(which affect cash and cash equivalents, deferred
taxes, other current assets, and other current
liabilities) that tend to be disparate in amount,
frequency, or timing, and that may increase the
volatility of working capital as a percentage of
sales from period to period. The items excluded
from this measure are not significantly influenced
by our day-to-day activities managed at the
operating level and do not necessarily reflect the
underlying trends in our operations.

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
2019, 2018, and 2017 fiscal years consisted of 52-week
periods ending December 28, 2019, December 29, 2018,
and December 30, 2017, respectively.

Net Sales

The factors impacting the reported sales change are

shown in the table below.

Reported sales change

Foreign currency translation

Sales change ex. currency

Acquisitions

Organic sales change

2019

(1)%
3

2%
–

2018

In 2019, net sales increased on an organic basis due to
a combination of higher volume/mix and pricing actions. In
2018, net sales increased on an organic basis primarily due
to higher volume.

Net Income
Net

income decreased

approximately
$467 million in 2018 to approximately $304 million in 2019.
The major factors affecting the change in net income in
2019 compared to 2018 were:

from

• Pension plan settlement charges, net of related

tax benefits

• Higher employee-related costs
• Impact of foreign currency translation

Offsetting factors:

• Benefits from productivity initiatives, including
restructuring actions, net of

savings
from
transition costs

• Tax benefit from a discrete foreign structuring

transaction

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

U.S. Pension Plan Termination

In July 2018, our Board of Directors (‘‘Board’’)
approved the termination of the Avery Dennison Pension
Plan (the ‘‘ADPP’’), a U.S. defined benefit plan, effective as
of September 28, 2018. In connection with the termination,
we contributed $200 million to the ADPP in August 2018;
settled approximately $152 million of ADPP liabilities
during the fourth quarter of 2018 through lump-sum
payments from existing plan assets to eligible participants
who elected to receive them; and recorded approximately
$85 million of non-cash charges associated with these
settlements, partially offset by related tax benefits of
approximately $19 million. During 2019, we settled
approximately $749 million of ADPP liabilities by entering
into an agreement to purchase annuities primarily from
American General Life Insurance Company (‘‘AGL’’). This
agreement covered approximately 8,300 active and former
employees and their beneficiaries, with AGL assuming the
future annuity payments for these individuals, commencing
April 1, 2019. Additionally, we settled approximately
$4 million of ADPP liabilities through a combination of
annuities and direct funding to the Pension Benefit
Guaranty Corporation for the remaining approximately 200
former employees and their beneficiaries. We contributed
approximately $10 million of cash during fiscal 2019 to the
8% ADPP to cover costs associated with the final settlement of
(1)
these
in
approximately $444 million of pretax charges in 2019,
partially offset by related tax benefits of approximately
$179 million.

liabilities. These

settlements

resulted

7%
(1)

Refer to Note 6, ‘‘Pension and Other Postretirement
Benefits,’’ to the Consolidated Financial Statements for
more information.

Cost Reduction Actions
2019/2020 Actions

During fiscal year 2019, we recorded $25.2 million in
restructuring charges related to our 2019/2020 actions.
These charges consisted of severance and related costs for
the reduction of approximately 370 positions, as well as
asset impairment charges.

2018/2019 Actions

temporary

labor,

from

Avery Dennison Corporation 2019 Annual Report

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

we recorded $55.2 million in restructuring charges, net of
reversals. The cumulative charges associated with the 2018
Plan consisted of severance and related costs for the
headcount reduction, as well as asset impairment charges.
The activities related to the 2018 Plan were substantially
completed as of the end of the second quarter of 2019.
In addition to restructuring charges recorded under
the 2018 Plan, we recorded $28.2 million in restructuring
charges during fiscal year 2019 related to other 2018/2019
actions. These charges consisted of severance and related
costs for the reduction of approximately 490 positions, as
well as asset impairment charges. In the fourth quarter
2018, we recorded $4.2 million in restructuring charges
relating to these other 2018/2019 actions. These charges
consisted of severance and related costs for the reduction
of approximately 85 positions, as well as impairment
charges.

2015/2016 Actions

During fiscal year 2018, we recorded $14.3 million in
restructuring charges, net of reversals, related to our
2015/2016 actions. These charges consisted of severance
and related costs for the reduction of approximately 625
positions, lease cancellation costs, and asset impairment
charges. The activities and related charges and payments
related to the 2015/2016 actions were substantially
completed in 2018.

Impact of Cost Reduction Actions

During fiscal year 2019, we realized approximately
$50 million in savings, net of transition costs, primarily from
our 2018/2019 actions. During fiscal year 2018, we realized
approximately $30 million in savings, net of transition costs,
primarily from our 2015/2016 actions.
Restructuring charges were

‘‘Other
expense, net’’ in the Consolidated Statements of Income.
Refer to Note 13, ‘‘Cost Reduction Actions,’’ to the
Consolidated Financial Statements for more information.

included

Acquisitions

In November 2019, we announced our agreement to
Inlay) division
acquire Smartrac’s Transponder
(‘‘Smartrac’’),
radio-frequency
a manufacturer
identification (‘‘RFID’’) products, for a purchase price of
approximately $250 million (e225 million), subject to
customary adjustments. We expect to complete this
acquisition in the first quarter of 2020.

(RFID
of

During 2017, we completed the stock acquisitions of
Yongle Tape Ltd. (‘‘Yongle Tape’’) and Finesse Medical
Limited, and the net asset acquisition of Hanita Coatings
stock
Rural Cooperative Association Limited and
acquisition of certain of its subsidiaries (collectively, the
‘‘2017 Acquisitions’’), which were not material, individually

2019 Annual Report Avery Dennison Corporation

or in the aggregate, to the Consolidated Financial
Statements.

Accounting Guidance Updates

Refer to Note 1, ‘‘Summary of Significant Accounting
Policies,’’ to the Consolidated Financial Statements for this
information.

Cash Flow
(In millions)

2019

2018

2017

Net cash provided by operating

activities

$ 746.5

$ 457.9

$ 645.7

Purchases of property, plant and

equipment

(219.4)

(226.7)

(190.5)

Purchases of software and other

deferred charges

(37.8)

(29.9)

(35.6)

Proceeds from sales of property,

plant and equipment

7.8

9.4

6.0

Proceeds from insurance and

(purchases) sales of
investments, net

Plus: Pension plan contributions

4.9

18.5

(3.9)

for plan termination

10.3

200.0

–

Free cash flow

$ 512.3

$ 429.2

$ 421.7

In 2019, cash flow provided by operating activities
increased compared to 2018 primarily due to lower
pension plan contributions, improved operational working
capital, and lower incentive compensation payments,
partially offset by higher restructuring payments. In 2019,
free cash flow increased compared to 2018 primarily due to
higher cash provided by operating activities adjusted for
our contribution to the ADPP, partially offset by net
proceeds
(purchases) sales of
investments.

insurance and

from

Outlook

Certain factors that we believe may contribute to our

2020 results are described below:

• We expect our net sales to increase by 4.0% to
5.5%, including the impacts of the Smartrac
acquisition and the extra week in our 2020 fiscal
year.
• We

anticipate
restructuring, net of
approximately $30 million to $40 million.

from
savings
transition costs, of

incremental

• We estimate cash restructuring charges of

approximately $20 million.

• We expect our full year effective tax rate to be in

the mid-twenty percent range.

• We anticipate capital and software expenditures

of $220 million to $230 million.

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

ANALYSIS OF RESULTS OF OPERATIONS

Income before Taxes
(In millions, except percentages)

2019

2018

2017

Other Expense, net
(In millions)

Other expense, net by type
Restructuring charges:

2019

2018

2017

Net sales
Cost of products sold

$7,070.1
5,166.0

$7,159.0
5,243.5

$6,613.8
4,801.6

Severance and related costs
Asset impairment charges and

$45.3

$63.0

$31.2

lease cancellation costs

5.1

10.7

Gross profit
Marketing, general and

administrative expense

Other expense, net
Interest expense
Other non-operating

expense, net

1,904.1

1,915.5

1,812.2

1,080.4
53.2
75.8

1,127.5
69.9
58.5

1,105.2
36.5
63.0

445.2

104.8

18.0

Income before taxes

$ 249.5

$ 554.8

$ 589.5

Gross profit margin

26.9%

26.8%

27.4%

Gross Profit Margin

in 2019

Gross profit margin

increased slightly
compared to 2018 reflecting benefits from productivity
initiatives, including material re-engineering and savings
from restructuring actions, net of transition costs, partially
offset by the net impact of higher employee- related costs
and unfavorable volume/mix.

Gross profit margin in 2018 decreased compared to
2017 reflecting the net impact of pricing and raw material
inflation and higher employee-related costs, as well as
growth investments, partially offset by the benefits from
productivity initiatives, including savings from restructuring
actions, net of transition costs.

Marketing, General and Administrative Expense

Marketing, general and administrative expense
decreased in 2019 compared to 2018 reflecting the
benefits from productivity initiatives, including savings from
restructuring actions, net of transition costs, and the
favorable impact of foreign currency translation, partially
offset by higher employee-related costs and growth
investments.

Marketing, general and administrative expense
increased in 2018 compared to 2017 reflecting the impact
of acquisitions and other growth investments and the
unfavorable impact of foreign currency translation, partially
offset by the benefits from productivity initiatives, including
savings from restructuring, net of transition costs.

Other items:

Legal settlement
Transaction costs
Argentine peso remeasurement

transition loss

Other restructuring-related charge
Reversal of acquisition-related
contingent consideration
Net gains on sales of assets

2.2

–
5.2

–
–

3.4
2.6

–
–

3.4
.5

–
(3.2)

(5.0)
(2.7)

–
(2.1)

Other expense, net

$53.2

$69.9

$36.5

Refer to Note 13, ‘‘Cost Reduction Actions,’’ to the
Consolidated Financial Statements for more information.

Interest Expense
Interest

expense

approximately
$17.3 million in 2019 compared to 2018, reflecting
additional interest costs related to the $500 million of
senior notes we issued in December 2018.

increased

Interest expense decreased approximately $4.5 million
in 2018 compared to 2017, reflecting the repayment of
$250 million of senior notes in October 2017, which was
financed using commercial paper borrowed at a lower
interest rate.

Other Non-Operating Expense, Net

Other non-operating expense, net increased in 2019
compared
reflected approximately
$444 million of final settlement charges related to the
termination of the ADPP.

to 2018, which

to 2017, which

Other non-operating expense, net increased in 2018
compared
reflected approximately
$94 million of settlement charges related to the termination
of the ADPP, as well as losses associated with two U.S.
nonqualified benefit plans and two of our international
benefit plans, partially offset by a higher expected return
on plan assets in certain of our international defined benefit
pension plans.

Refer to Note 6, ‘‘Pension and Other Postretirement
Benefits,’’ and Note 14, ‘‘Taxes Based on Income,’’ to the
Consolidated Financial Statements for more information.

Avery Dennison Corporation 2019 Annual Report

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)

2019

2018

2017

Income before taxes
(Benefit from) provision for

income taxes

Equity method investment losses

Net income

Net income per common share
Net income per common share,

assuming dilution

Effective tax rate

$249.5

$554.8

$589.5

(56.7)
(2.6)

85.4
(2.0)

307.7
–

$303.6

$467.4

$281.8

$ 3.61

$ 5.35

$ 3.19

3.57

5.28

3.13

(22.7)% 15.4%

52.2%

(Benefit from) Provision for Income Taxes

Our effective tax rate in 2019 decreased compared to
2018 primarily due to the tax effects of the settlement
charges associated with the termination of the ADPP and a
discrete foreign structuring transaction.

Our effective tax rate in 2018 decreased compared to
2017 primarily due to tax benefits related to adjustments to
our 2017 U.S. Tax Cuts and Jobs Act (‘‘TCJA’’) provisional
amount and a discrete foreign tax planning action, while
our effective tax rate in 2017 included net tax charges
comprised of our TCJA provisional amount.

We expect our effective tax rate for 2020 to be in the
mid-twenty percent range. Our effective tax rate can vary
from period to period due to the recognition of discrete
events, such as changes in tax reserves, settlements of
income tax audits, changes in tax laws and regulations,
return-to-provision adjustments, and tax impacts related to
stock-based payments, as well as recurring factors, such as
changes in the mix of earnings in countries with differing
statutory tax rates and the execution of tax planning
strategies.

Refer to Note 14, ‘‘Taxes Based on Income,’’ to the
Consolidated Financial Statements for more information.

RESULTS OF OPERATIONS BY REPORTABLE SEGMENT

Operating income refers to income before taxes,

interest and other non-operating expenses, net.

Label and Graphic Materials
(In millions)

2019

2018

2017

Net sales including

intersegment sales
Less intersegment sales

$4,826.1
(80.2)

$4,929.8
(78.7)

$4,575.8
(64.1)

Net sales
Operating income(1)

$4,745.9
601.5

$4,851.1
568.2

$4,511.7
577.4

(1) Included charges associated with
restructuring actions and gains/
losses on sales of assets in all years,
Argentine peso remeasurement
transition loss and other
restructuring-related charge in
2018, and transaction costs in 2017.

28.3

61.8

14.5

Net Sales

The factors impacting reported sales change are

shown in the table below.

Reported sales change

Foreign currency translation

Organic sales change(1)

(1) Total does not sum due to rounding

2019

2018

(2)%
4

8%
(2)

In 2019, net sales increased on an organic basis
primarily due to prior year pricing actions. On an organic
basis, net sales increased low-single digits in emerging
markets and were comparable to prior year in North
America and Western Europe.

In 2018, net sales increased on an organic basis due to
higher volume and pricing actions. Net sales increased on
an organic basis at mid-single digit rates in emerging
markets and North America and at a low-single digit rate in
Western Europe.

Operating Income

Operating income increased in 2019 compared to
2018 primarily due to benefits from productivity initiatives,
including material re-engineering and savings
from
restructuring actions, net of transition costs, and lower
restructuring charges, partially offset by the unfavorable
impact of foreign currency translation and the combined
effect of volume and mix.

Operating income decreased in 2018 compared to
2017 reflecting higher restructuring charges, employee-
related costs and the net impact of pricing and raw material
costs, excluding the effects of foreign currency, partially
offset by the combined effect of volume and mix, as well as
a net benefit from changes in foreign currency.

2019 Annual Report Avery Dennison Corporation

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Retail Branding and Information Solutions
(In millions)

2019

2018

2017

Industrial and Healthcare Materials
(In millions)

2019

2018

2017

Net sales including

intersegment sales
Less intersegment sales

Net sales
Operating income(1)

(1) Included charges associated with

restructuring actions and net gains
on sales of assets in all years,
transaction costs in 2019, and
transaction costs related to sale of
product line in 2017.

Net sales including intersegment

$1,670.9
(20.6)

$1,617.9
(4.7)

$1,514.4
(3.2)

$1,650.3
196.6

$1,613.2
170.4

$1,511.2
126.7

sales

Less intersegment sales

Net sales
Operating income(1)

$682.7
(8.8)

$703.5
(8.8)

$598.6
(7.7)

$673.9
60.0

$694.7
62.9

$590.9
52.6

9.9

11.4

18.1

(1) Included charges associated with
restructuring actions in all years,
transaction costs in 2017, and reversal of
acquisition-related contingent
consideration in 2018.

$ 9.4

$ (1.0)

$ 3.7

Net Sales

The factors impacting reported sales change are

shown in the table below.

2019

2018

shown in the table below.

Reported sales change

Reclassification of sales between segments
Foreign currency translation

Organic sales change

2%
1
2

7%
–
–

Reported sales change

Foreign currency translation

7% Sales change ex. currency

2019

2018

(3)% 18%
3

(2)

–
–

16
(15)

–%

In 2019, net sales increased on an organic basis
primarily due to continued strength in RFID solutions and
external embellishments.

In 2018, net sales increased on an organic basis driven
by strength in both RFID solutions and the base business.

Operating Income

Operating income increased in 2019 compared to
2018 primarily due to higher volume and benefits from
productivity initiatives, including savings from restructuring
actions, net of transition costs, partially offset by higher
employee-related costs.

reflecting higher volume,

Operating income increased in 2018 compared to
2017
from
productivity initiatives, including savings from restructuring
actions, net of transition costs, and lower amortization of
intangible assets resulting from business acquisitions,
partially offset by higher employee-related costs and
growth investments.

the benefits

Acquisitions

Organic sales change

In 2019, net sales were comparable to prior year on an

organic basis.

In 2018, net sales increased on an organic basis

primarily due to higher volume in industrial categories.

Operating Income

Operating income decreased in 2019 compared to
2018 primarily due to higher restructuring charges and a
prior year reversal of acquisition-related contingent
consideration, as well as higher employee-related costs,
largely offset by benefits from productivity initiatives,
including savings from restructuring actions, net of
transition costs and the net benefit of pricing and raw
material costs.

Operating income increased in 2018 compared to
2017 driven by the net impact of acquisitions and organic
growth, partially offset by growth investments.

Avery Dennison Corporation 2019 Annual Report

Investing Activities
(In millions)

Purchases of property, plant and

2019

2018

2017

equipment

$(219.4) $(226.7) $(190.5)

Purchases of software and other

2019

2018

2017

deferred charges

(37.8)

(29.9)

(35.6)

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

FINANCIAL CONDITION

Liquidity

Operating Activities
(In millions)

Net income
Depreciation
Amortization
Provision for doubtful accounts

and sales returns

Stock-based compensation
Pension plan settlements and

related charges

Deferred taxes and other

non-cash taxes

Other non-cash expense and loss
Trade accounts receivable
Inventories
Accounts payable
Taxes on income
Other assets
Other liabilities

Net cash provided by operating

$ 303.6
140.3
38.7

$ 467.4
141.5
39.5

$ 281.8
126.6
52.1

58.7
34.5

45.6
34.3

37.6
30.2

444.1

93.7

–

(216.9)
28.3
(42.2)
(18.1)
46.4
5.4
38.4
(114.7)

(32.7)
60.4
(62.5)
(70.5)
43.6
(35.5)
(11.6)
(255.3)

151.6
53.5
(141.2)
(14.9)
83.4
29.6
(20.9)
(23.7)

activities

$ 746.5

$ 457.9

$ 645.7

In 2018, cash flow provided by operating activities
decreased compared to 2017 primarily due to our
$200 million contribution to the ADPP in connection with its
termination, higher income tax payments, net of refunds,
changes
in operational working capital, and higher
incentive compensation payments, partially offset by
higher net income.

2019 Annual Report Avery Dennison Corporation

Proceeds from sales of property,

plant and equipment

7.8

9.4

6.0

Proceeds from insurance and

(purchases) sales of
investments, net

Payments for investments in

businesses and acquisitions, net
of cash acquired

Net cash used in investing

4.9

18.5

(3.9)

(6.5)

(3.8)

(319.3)

activities

$(251.0) $(232.5) $(543.3)

Purchases of Property, Plant and Equipment

In 2019, 2018 and 2017, we invested in equipment and
expanded manufacturing facilities to support growth and
improve manufacturing productivity in Asia, North America
and Europe.

Purchases of Software and Other Deferred Charges

In 2019, we invested in enterprise resource planning
system implementations in North America and enterprise
resource planning system upgrades worldwide. In 2018, we
system
invested
implementations in North America and Asia. In 2017, we
invested
system
implementations in North America, Asia, and Europe.

resource planning

in enterprise

Proceeds from Sales of Property, Plant and Equipment

In 2019, the majority of the proceeds from sales of
property, plant and equipment was related to the sale of
one property in each of North America, Asia and Europe. In
2018, the majority of the proceeds from sales of property,
plant and equipment was related to the sale of two
properties in Europe.

Proceeds from Insurance and (Purchases) Sales of

Investments, Net

In 2019, we had lower proceeds from insurance
associated with our corporate-owned
insurance
policies, partially offset by lower net (purchases) sales of
investments compared to 2018. In 2018, we had higher
proceeds from insurance associated with our corporate-
owned life insurance policies and lower net (purchases)
sales of investments compared to 2017.

life

Payments for Investments in Businesses and Acquisitions,

Net of Cash Acquired

In 2019 and 2018, we paid $6.5 million and $3.8 million
for investments in unconsolidated businesses, respectively.
In 2017, the aggregate payments for acquisitions, net of
in businesses were
investments
cash acquired, and
approximately $319 million, which we funded through cash
and commercial paper borrowings. The 2017 Acquisitions
were also partially funded using proceeds from the
e500 million senior notes we issued in 2017.

Refer to Note 2, ‘‘Acquisitions,’’ to the Consolidated

Financial Statements for more information.

Financing Activities
(In millions)

Net change in borrowings and
repayments of debt and
finance leases

Additional long-term borrowings
Dividends paid
Share repurchases
Net (tax withholding) proceeds

related to stock-based
compensation

Payments of contingent

consideration

Net cash used in financing

2019

2018

2017

$ (23.9)
–
(189.7)
(237.7)

$ (84.0)
493.3
(175.0)
(392.9)

$(343.0)
542.9
(155.5)
(129.7)

(17.4)

(32.2)

1.4

(1.6)

(17.3)

–

activities

$(470.3)

$(208.1)

$ (83.9)

Borrowings and Repayment of Debt

During 2019, 2018, and 2017, our commercial paper
borrowings were used to fund share repurchase activity,
dividend payments, capital expenditures and acquisitions,
and for other general corporate purposes.

In December 2018, we issued $500 million of senior
notes, due December 2028. These senior notes bear an
interest rate of 4.875% per year, payable semi-annually in
arrears. The net proceeds from this offering, after
deducting underwriting discounts and estimated offering
expenses, were $493.3 million, which we used to repay
commercial paper borrowings. Prior to the issuance of
these senior notes, we used commercial paper borrowings
in the third quarter to fund our $200 million contribution to
the ADPP in connection with its termination.

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

to repay commercial paper borrowed to finance a portion
of the purchase price for our acquisition of the European
business of Mactac and the remainder of which we used for
general corporate purposes, including other acquisitions.
Refer to Note 2, ‘‘Acquisitions,’’ and Note 4, ‘‘Debt,’’ to
for more

the Consolidated Financial Statements
information.

Dividends Paid

We paid dividends of $2.26 per share in 2019
compared to $2.01 per share in 2018. In April 2019, we
increased our quarterly dividend to $.58 per share,
representing an increase of approximately 12% from our
previous dividend rate of $.52 per share.

Share Repurchases

From time to time, our Board authorizes the
repurchase of shares of our outstanding common stock.
Repurchased shares may be reissued under our long-term
incentive plan or used for other corporate purposes. In
2019, we repurchased approximately 2 million shares of our
common stock at an aggregate cost of $237.7 million. In
2018, we repurchased approximately 4 million shares of our
common stock at an aggregate cost of $392.9 million.

In April 2019, our Board authorized the repurchase of
shares of our common stock with a fair market value of up to
$650 million, exclusive of any fees, commissions or other
expenses related to such purchases, in addition to the
amount outstanding under our previous Board
authorization. Board authorizations remain in effect until
shares in the amount authorized thereunder have been
repurchased. As of December 28, 2019, shares of our
common stock in the aggregate amount of $644.7 million
remained authorized for repurchase under this Board
authorization.

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

for

2019,

tax withholding

stock-based
compensation decreased compared to 2018 as a result of
equity awards vesting at lower share prices. In 2018, tax
increased
withholding
compared to 2017 as a result of higher share prices for
equity awards vesting during the year.

for stock-based compensation

Approximately .3 million, .03 million, and .6 million
stock options were exercised in 2019, 2018, and 2017,
respectively. Refer to Note 12, ‘‘Long-Term Incentive
Compensation,’’ to the Consolidated Financial Statements
for more information.

Avery Dennison Corporation 2019 Annual Report

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Analysis of Selected Balance Sheet Accounts
Long-lived Assets

Property, plant and equipment, net, increased by
approximately $73 million to $1.2 billion at year-end 2019,
which primarily reflected purchases of property, plant and
equipment, partially offset by depreciation expense and
the impact of foreign currency translation.

Goodwill decreased by approximately $11 million to
$930.8 million at year-end 2019 due to the impact of
foreign currency translation.

Other intangibles resulting from business acquisitions,
net, decreased by approximately $18 million
to
$126.5 million at year-end 2019, which primarily reflected
amortization expense.

Refer to Note 3, ‘‘Goodwill and Other Intangibles
Resulting from Business Acquisitions,’’ to the Consolidated
Financial Statements for more information.

Other assets increased by approximately $204 million
to $654.8 million and long-term retirement benefits and
other liabilities increased by approximately $87 million to
$421.4 million, primarily reflecting the recognition of
operating lease assets and liabilities as the result of our
adoption of the accounting guidance update described in
Note 1, ‘‘Summary of Significant Accounting Policies,’’ of
the Consolidated Financial Statements.

Shareholders’ Equity Accounts

The balance of our shareholders’ equity increased by
approximately $249 million to $1.2 billion at year-end 2019.
Refer
‘‘Supplemental Equity and
Comprehensive Income Information,’’ to the Consolidated
Financial Statements for more information.

to Note 11,

Impact of Foreign Currency Translation
(In millions)

Change in net sales

2019

2018

$(230)

$86

2019,

international operations generated
approximately 77% 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 2019 compared to 2018 was primarily
related to euro-denominated sales and sales in China and
Brazil.

On July 1, 2018, we began accounting for our
operations in Argentina as highly inflationary, as the
country’s three-year cumulative inflation rate exceeded
100%. As a result, the functional currency of our Argentine
subsidiary became the U.S. dollar.

2019 Annual Report Avery Dennison Corporation

The

from

income

Effect of Foreign Currency Transactions
impact on net

transactions
denominated in foreign currencies is largely mitigated
because
the costs of our products are generally
denominated in the same currencies in which they are sold.
In addition, to reduce our income and cash flow exposure
to transactions in foreign currencies, we enter into foreign
exchange forward, option and swap contracts where
available and appropriate. We also utilized certain foreign-
currency-denominated debt to mitigate our
foreign
currency translation exposure from our net investment in
foreign operations. Refer
‘‘Financial
Instruments,’’ to the Consolidated Financial Statements for
more information.

to Note 5,

Analysis of Selected Financial Ratios

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

investors

this

Operational Working Capital Ratio

Operational working capital, as a percentage of
annualized current-quarter net sales, is reconciled to
working capital below. Our objective is to minimize our
investment in operational working capital, as a percentage
of annualized current-quarter net sales, to maximize our
cash flow and return on investment. Operational working
capital, as a percentage of annualized current-quarter net
sales in 2019 was modestly favorable compared to 2018.

(In millions, except percentages)

2019

2018

(A) Working capital
Reconciling items:

Cash and cash equivalents
Other current assets
Short-term borrowings and current
portion of long-term debt and
finance leases

Current income taxes payable and
other current accrued liabilities

86.8

$ 304.0

(253.7)
(211.7)

(232.0)
(224.9)

440.2

194.6

747.5

768.9

(B) Operational working capital

$ 809.1

$ 810.6

$7,091.6

$7,074.8

Operational working capital, as a

percentage of annualized current-
quarter net sales (B) (cid:3) (C)

11.4%

11.5%

Accounts Receivable Ratio

The average number of days sales outstanding was
63 days in 2019 compared to 62 days in 2018, calculated

using the four-quarter average accounts receivable balance
divided by the average daily sales in 2019 and 2018,
respectively. The increase in average number of days sales
outstanding primarily reflected the timing of collections
and the impact of foreign currency translation.

Inventory Ratio

Average inventory turnover was 7.7 in 2019 compared
to 7.8 in 2018, calculated using the annual cost of sales in
2019 and 2018, respectively, and divided by the
four-quarter average inventory balance. The decrease in
average inventory turnover primarily reflected the timing of
inventory purchases.

Accounts Payable Ratio

The average number of days payable outstanding was
74 days in 2019 compared to 73 days in 2018, calculated
using the four-quarter average accounts payable balance
divided by the average daily cost of products sold in 2019
and 2018, respectively. The increase in average number of
days payable outstanding primarily reflected
longer
payment terms with vendors and the impact of foreign
currency translation.

Financial Covenants

Our revolving credit facility (the ‘‘Revolver’’) contains
financial covenants requiring that we maintain specified
ratios of total debt and interest expense in relation to
certain measures of income. As of December 28, 2019 and
December 29, 2018, 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 or euro government bond securities, as
applicable, on notes with similar rates, credit ratings, and
remaining maturities. The
fair value of short-term
borrowings, which includes 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 $2.05 billion at December 28, 2019
and $2 billion at December 29, 2018. Fair value amounts
were determined based primarily on Level 2 inputs, which
are inputs other than quoted prices in active markets that
are either directly or indirectly observable. Refer to Note 1,
‘‘Summary of Significant Accounting Policies,’’ for more
information.

Capital Resources

Capital resources include cash flows from operations,
cash and cash equivalents and debt financing, including

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

access to commercial paper. We use these resources to
fund operational needs.

At year-end 2019, we had cash and cash equivalents of
$253.7 million held in accounts at third-party financial
institutions. Our cash balances are held in numerous
locations throughout the world. At year-end 2019, 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 and profits. However, if we were to
repatriate incremental foreign earnings and profits, we
could be subject to cash payments of withholding taxes
imposed by foreign tax authorities and additional U.S.
taxes due to the impact of foreign currency movements
related to such earnings and profits.

In November 2017, we amended and restated the
Revolver, increasing the amount available from certain
domestic and
from $700 million to
$800 million. The amendment also extended the Revolver’s
maturity date to November 8, 2022. The Revolver is used as
a back-up facility for our commercial paper program and
can be used for other corporate purposes.

foreign banks

No balance was outstanding under the Revolver as of
December 28, 2019 or December 29, 2018. Commitment
fees associated with the Revolver in 2019, 2018, and 2017
were $1.2 million, $1.2 million, and $1.1 million,
respectively.

Subsequent to our fiscal year-end 2019, in February
2020, we again amended and restated the Revolver,
extending the maturity date to February 13, 2025. The
maturity date may be extended for an additional one-year
period under certain circumstances. The commitments
under the Revolver may be increased by up to $400 million,
subject to lender approvals and customary requirements.
In addition to the Revolver, we have significant
short-term lines of credit available in various countries of
approximately $330 million
the aggregate at
December 28, 2019. These lines may be cancelled at any
time by us or the issuing banks. Short-term borrowings
outstanding under our lines of credit were $37.4 million and
$45.5 million at December 28, 2019 and December 29,
2018, respectively, with a weighted average interest rate of
6.4% and 7%, respectively.

Refer to Note 4, ‘‘Debt,’’ 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.

Avery Dennison Corporation 2019 Annual Report

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Capital from Debt

Our total debt decreased by approximately $27 million
to $1.94 billion at year-end 2019 compared to $1.97 billion
at year-end 2018, primarily reflecting a net decrease in
commercial paper borrowings and the impact of foreign
currency translation.

Credit ratings are a significant factor in our ability to
raise short- and long-term financing. The credit ratings
assigned to us also impact the interest rates paid and our
access to commercial paper, credit facilities, and other
borrowings. A downgrade of our short-term credit ratings

could impact our ability to access the commercial paper
markets. If our access to commercial paper markets were to
become limited, we expect that the Revolver and our other
credit facilities would be available to meet our short-term
funding requirements. When determining a credit rating,
we believe that rating agencies primarily consider our
competitive position, business outlook, consistency of cash
flows, debt level and liquidity, geographic dispersion and
management team. We remain committed to maintaining
an investment grade rating.

Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Contractual Obligations at End of Year 2019

(In millions)

Short-term borrowings
Long-term debt, including current portion
Interest on long-term debt
Finance leases
Operating leases

Payments Due by Period

Total

2020

2021

2022

2023

2024 Thereafter

$ 170.7 $170.7 $

1,751.5
415.6
31.6
159.7

265.0
55.4
5.7
46.0

– $
–
51.0
12.5
35.2

– $
–
51.0
4.5
22.4

– $

250.0
45.0
4.1
15.2

–
–
42.6
3.9
11.1

$
–
1,236.5
170.6
.9
29.8

Total contractual obligations

$2,529.1 $542.8 $98.7 $77.9 $314.3 $57.6

$1,437.8

The table above does not include:

• 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 entered into at fair value and
cancelable without penalty.

• 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 trusts
or trust equivalents. 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
trusts or trust equivalents. Refer to Note 6,
‘‘Pension and Other Postretirement Benefits,’’ to
the Consolidated Financial Statements
for
information regarding expected contributions to
these plans and plan
terminations and
settlements.

• Pension and postretirement benefit payments—
As of December 28, 2019, we had unfunded
benefit obligations from certain defined benefit

plans. Refer to Note 6, ‘‘Pension and Other
Postretirement Benefits,’’ to the Consolidated
Financial Statements
information,
including expected benefit payments over the
next 10 years.

for more

• Deferred compensation plan benefit payments—
It is impracticable for us to obtain a reasonable
estimate for 2019 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.

• 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 end of
respective performance periods, and,
their
therefore, we cannot reasonably estimate the
amounts to be paid on the vesting dates. Refer to
Note 12, ‘‘Long-term Incentive Compensation,’’
to the Consolidated Financial Statements for
more information.

2019 Annual Report Avery Dennison Corporation

• 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.
• Unrecognized tax benefits of $70 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
for more
Consolidated Financial Statements
information.

• Payments related to cost reduction actions—The
payments for severance and other contract
applicable
terminations
agreements, local laws and practices. Refer to
Note 13, ‘‘Cost Reduction Actions,’’ to the
Consolidated Financial Statements
for more
information.

subject

are

• Acquisition-related

obligations—Obligations
related to our agreement to acquire Smartrac’s
Transponder (RFID Inlay) division. Refer to Note 2,
‘‘Acquisitions,’’ to the Consolidated Financial
Statements for more information.

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 these 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, and
long-term incentive compensation.

Goodwill

Our reporting units are composed of either a discrete
business or an aggregation of businesses with similar
economic characteristics. We perform an annual
impairment test of goodwill during the fourth quarter,
unless certain factors indicate the need to perform an
impairment assessment in addition to the annual test. In

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

performing the required impairment tests, we have the
option to first assess qualitative factors to determine
whether
is necessary to perform a quantitative
assessment for goodwill impairment. If the qualitative
assessment indicates that it is more-likely-than-not that the
fair value of a reporting unit is less than its carrying value, a
quantitative assessment is performed. A quantitative
assessment primarily consists of a present value
(discounted cash flow) method to determine the fair value
of the reporting units with goodwill.

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 compare the fair value of each reporting unit to its
carrying amount, and, to the extent the carrying amount
exceeds the unit’s fair value, an impairment of goodwill is
recognized for the excess up to the amount of goodwill of
that reporting unit.

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 their respective forecasted sales, operating
margins and 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
reasonable. However, actual future results may materially
differ from these estimates and projections. 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
require
management judgment. The estimated fair value could
increase or decrease depending on changes in the inputs
and assumptions.

strategies

that

In our annual impairment analysis in the fourth quarter
of 2019, the goodwill of all reporting units in our Label and
Graphic Materials and Retail Branding and Information
Solutions reportable segments, as well as the goodwill of
one reporting unit in our Industrial and Healthcare

Avery Dennison Corporation 2019 Annual Report

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Materials reportable segment, were tested utilizing a
qualitative assessment. Based on this assessment, we
determined that the fair values of these reporting units
were more likely than not greater than their respective
carrying values. Therefore, the goodwill in these reporting
units was not impaired.

Additionally, in our annual 2019 impairment analysis,
the goodwill of one reporting unit in our Industrial and
Healthcare Materials reportable segment was tested
utilizing a quantitative assessment. This assessment
indicated that the fair value of this reporting unit exceeded
its carrying amount, including goodwill, by more than 100%
and the goodwill of this reporting unit was not impaired.

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 costs.

Discount Rate

In consultation with our actuaries, we annually review
and determine the discount rates to be used in valuing our
postretirement obligations. The assumed discount rates for
our international pension plans reflect market rates for high
quality corporate bonds currently available. Our discount
rates are 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. As of
December 28, 2019, a .25% increase in the discount rates
international plans would have
associated with our
decreased our year-end projected benefit obligation by
$42 million and increased expected periodic benefit cost
for the coming year by approximately $1 million.
Conversely, a
in the discount rates
international plans would have
associated with our
increased our year-end projected benefit obligation by
approximately $42 million and decreased expected
periodic benefit cost for the coming year by approximately
$2 million.

.25% decrease

We use the full yield curve approach to estimate the
service and interest cost components of net periodic

2019 Annual Report Avery Dennison Corporation

benefit cost for our pension and other postretirement
benefit plans. Under this approach, we 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
this approach provides a more precise
believe
measurement of service and interest cost by aligning the
timing of the plans’ liability cash flows to the corresponding
rates on the yield curve.

Long-term Return on Plan Assets

investments. Additionally,

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 our mix of active and
passive
current market
conditions, including interest rates, are evaluated and
market data
reasonableness and
appropriateness. An increase or decrease of .25% on the
long-term return on assets associated with our international
plans would have decreased or increased, respectively, our
periodic benefit cost for the coming year by approximately
$2 million.

reviewed

for

Taxes Based on Income

from net operating

We are subject to income tax in the U.S. and multiple
foreign jurisdictions, whereby judgment is required in
evaluating and estimating our worldwide provision,
accruals for taxes, deferred taxes and for evaluating our tax
positions. Our provision for income taxes is determined
using the asset and liability approach in accordance with
GAAP. Deferred tax assets represent amounts available to
reduce income taxes payable in future years. These assets
arise because of temporary differences between the
financial reporting and tax bases of assets and liabilities, as
well as
losses 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
realizability 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. Our forecasted earnings
by jurisdiction are determined by how we operate our
business and any changes to our operations may affect our
effective tax rate. For example, our future income tax rate
could be adversely affected by earnings being lower than
anticipated in jurisdictions in which we have significant
deferred tax assets that are dependent on such earnings to
be realized. We use historical experience along with

operating forecasts to evaluate expected future taxable
income. 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
that 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.’’

Our income tax rate is significantly affected by the
different tax rates applicable in the jurisdictions in which we
do business.

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.

Tax

issue
relevant

laws are complex and subject to different
interpretations by taxpayers and 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 evaluating our tax positions, including
evaluating uncertainties. Our estimate of the potential
is subject to
outcome of any uncertain tax
management’s assessment of
facts and
circumstances existing at the balance sheet date, taking
into consideration existing laws, regulations and practices
of any governmental authorities exercising jurisdiction over
our operations. For example, the European Commission
has conducted investigations in multiple countries focusing
on whether local country tax rulings or tax legislation
provides preferential tax treatment that violates European
Union state aid rules and concluded that certain countries,
including the Netherlands, Luxembourg, Belgium, Ireland,
and the United Kingdom, have provided illegal state aid in
to monitor state aid
certain cases. We continue
developments since they involve jurisdictions in which we
have significant operations, and consider these matters in
determining our uncertain tax positions.

Refer to Note 14, ‘‘Taxes Based on Income,’’ to the
Consolidated Financial Statements for more information.

Long-Term Incentive Compensation
Valuation of Stock-Based Awards

and performance

(‘‘PUs’’).

units

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

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 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 long-term incentive plans.
The fair value of RSUs and the component of PUs that
is subject to achievement of performance objectives based
on a financial performance condition is determined based
on the fair market value of our common stock on the grant
date, 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 the other component
of 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.

Forfeiture Rate

Certain of

Changes in estimated forfeiture rates are recorded as
cumulative adjustments in the period estimates are revised.
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

Avery Dennison Corporation 2019 Annual Report

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

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.

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 foreign

currency exchange rates and interest 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
translation exposure in a manner that would entirely
eliminate the effects of changes in foreign exchange rates
on our net income. We also utilize certain foreign-currency-
denominated debt to mitigate our foreign currency
translation exposure from our net investment in foreign
operations.

Our objective in managing our exposure to interest
rate changes is to reduce the impact of interest rate
changes on earnings and cash 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 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 and compliance risk,
which are not reflected in the analyses described below.

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 are made
assuming normal market conditions. The model includes
foreign exchange derivative contracts. Forecasted
transactions, firm commitments, and accounts receivable
and accounts payable denominated in foreign currencies,
which certain of these instruments are intended to hedge,
are excluded from the model.

The VAR model is a risk analysis tool and does not
represent actual losses in fair value that we could incur, nor
does it consider the potential effect of favorable changes in
market factors.

In both 2019 and 2018, 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 not significant at year-end 2019 or 2018.

Interest Rate Sensitivity

In 2019 and 2018, an assumed 30 basis point increase
in interest rates affecting our variable-rate borrowings (10%
of our weighted average interest rate on floating rate debt)
would not have had a significant impact on interest
expense.

2019 Annual Report Avery Dennison Corporation

Consolidated Balance Sheets

(Dollars in millions, except per share amount)

Assets
Current assets:

December 28,
2019

December 29,
2018

Cash and cash equivalents
Trade accounts receivable, less allowances of $27.1 and $21.1 at year-end 2019 and 2018,

$ 253.7

$ 232.0

respectively
Inventories, net
Other current assets

Total current assets

Property, plant and equipment, net
Goodwill
Other intangibles resulting from business acquisitions, net
Deferred tax assets
Other assets

Liabilities and Shareholders’ Equity
Current liabilities:

Short-term borrowings and current portion of long-term debt and finance leases
Accounts payable
Accrued payroll and employee benefits
Accrued trade rebates
Income taxes payable
Other current liabilities

Total current liabilities

Long-term debt and finance leases
Long-term retirement benefits and other liabilities
Deferred tax liabilities and income taxes payable
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 2019 and
2018; issued – 124,126,624 shares at year-end 2019 and 2018; outstanding – 83,366,840 and
84,723,655 shares at year-end 2019 and 2018, respectively

Capital in excess of par value
Retained earnings
Treasury stock at cost, 40,759,784 and 39,402,969 shares at year-end 2019 and 2018, respectively
Accumulated other comprehensive loss

Total shareholders’ equity

See Notes to Consolidated Financial Statements

1,212.2
663.0
211.7

2,340.6
1,210.7
930.8
126.5
225.4
654.8

1,189.7
651.4
224.9

2,298.0
1,137.4
941.8
144.0
205.3
451.0

$ 5,488.8

$ 5,177.5

$ 440.2
1,066.1
220.4
132.4
71.4
323.3

2,253.8
1,499.3
421.4
110.3

$ 194.6
1,030.5
217.9
129.8
58.1
363.1

1,994.0
1,771.6
334.7
122.1

124.1
874.0
2,979.1
(2,425.1)
(348.1)

1,204.0

124.1
872.0
2,864.9
(2,223.9)
(682.0)

955.1

$ 5,488.8

$ 5,177.5

Avery Dennison Corporation 2019 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
Other expense, net
Interest expense
Other non-operating expense, net

Income before taxes
(Benefit from) provision for income taxes
Equity method investment losses

Net income

Per share amounts:
Net income per common share

Net income per common share, assuming dilution

Weighted average number of shares outstanding:

Common shares
Common shares, assuming dilution

See Notes to Consolidated Financial Statements

2019

2018

2017

$7,070.1
5,166.0

1,904.1
1,080.4
53.2
75.8
445.2

249.5
(56.7)
(2.6)

$7,159.0
5,243.5

1,915.5
1,127.5
69.9
58.5
104.8

554.8
85.4
(2.0)

$6,613.8
4,801.6

1,812.2
1,105.2
36.5
63.0
18.0

589.5
307.7
–

$ 303.6

$ 467.4

$ 281.8

3.61

3.57

5.35

5.28

3.19

3.13

84.0
85.0

87.3
88.6

88.3
90.1

2019 Annual Report Avery Dennison Corporation

Consolidated Statements of Comprehensive Income

(In millions)

Net income
Other comprehensive income (loss), net of tax:

Foreign currency translation:

Translation gain (loss)

Pension and other postretirement benefits:

Net gain (loss) recognized from actuarial gain/loss and prior service cost/credit
Reclassifications to net income

Cash flow hedges:

Gains (losses) recognized on cash flow hedges
Reclassifications to net income

Other comprehensive income (loss), net of tax

Total comprehensive income, net of tax

See Notes to Consolidated Financial Statements

2019

2018

2017

$ 303.6

$ 467.4

$ 281.8

2.3

(91.2)

66.4
266.1

.5
(1.4)

333.9

(4.1)
93.8

1.1
(1.1)

(1.5)

56.4

(3.0)
19.3

(2.2)
.9

71.4

$ 637.5

$ 465.9

$ 353.2

Avery Dennison Corporation 2019 Annual Report

Consolidated Statements of Shareholders’ Equity

(Dollars in millions, except per share amounts)

Balance as of December 31, 2016
Net income
Other comprehensive income, net of tax
Repurchase of 1,488,890 shares for treasury
Issuance of 960,656 shares under stock-based compensation

plans

Contribution of 230,915 shares to 401(k) Plan
Dividends of $1.76 per share

Balance as of December 30, 2017
Tax accounting for intra-entity asset transfers(1)

Balance as of December 31, 2017
Net income
Other comprehensive loss, net of tax
Repurchase of 3,951,215 shares for treasury
Issuance of 458,506 shares under stock-based compensation

plans

Contribution of 204,823 shares to 401(k) Plan
Dividends of $2.01 per share

Balance as of December 29, 2018
Net income
Other comprehensive income, net of tax
Repurchase of 2,222,937 shares for treasury
Issuance of 665,380 shares under stock-based compensation

plans

Contribution of 200,742 shares to 401(k) Plan
Dividends of $2.26 per share

Common Capital in
excess of
stock, $1
par value
par value

Retained
earnings

Treasury
stock

Accumulated
other
comprehensive
loss

Total

$124.1
–
–
–

$852.0 $2,473.3 $(1,772.0)
–
281.8
–
–
(129.7)
–

–
–
–

$(751.9) $ 925.5
281.8
71.4
(129.7)

–
71.4
–

–
–
–

10.6
–
–

(14.4)
11.5
(155.5)

36.2
8.8
–

$124.1
–

$124.1
–
–
–

$862.6 $2,596.7 $(1,856.7)
–
(13.8)

–

$862.6 $2,582.9 $(1,856.7)
–
467.4
–
–
(392.9)
–

–
–
–

32.4
20.3
(155.5)

$(680.5) $1,046.2
(13.8)

–

$(680.5) $1,032.4
467.4
(1.5)
(392.9)

–
(1.5)
–

–
–
–

9.4
–
–

(24.1)
13.7
(175.0)

17.6
8.1
–

–
–
–

2.9
21.8
(175.0)

$124.1
–
–
–

$872.0 $2,864.9 $(2,223.9)
–
303.6
–
–
(237.7)
–

–
–
–

$(682.0) $ 955.1
303.6
333.9
(237.7)

–
333.9
–

–
–
–

2.0
–
–

(13.6)
13.9
(189.7)

28.0
8.5
–

–
–
–

16.4
22.4
(189.7)

Balance as of December 28, 2019

$124.1

$874.0 $2,979.1 $(2,425.1)

$(348.1) $1,204.0

(1) In the first quarter of 2018, we adopted an accounting guidance update that requires recognition of the income tax effects of intra-entity sales and transfers of assets other than

inventory in the period in which they occur.

See Notes to Consolidated Financial Statements

2019 Annual Report Avery Dennison Corporation

Consolidated Statements of Cash Flows

(In millions)

Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:

2019

2018

2017

$ 303.6

$ 467.4

$ 281.8

Depreciation
Amortization
Provision for doubtful accounts and sales returns
Stock-based compensation
Pension plan settlements and related charges
Deferred taxes and other non-cash taxes
Other non-cash expense and loss (income and gain), net

Changes in assets and liabilities and other adjustments:

Trade accounts receivable
Inventories
Accounts payable
Taxes on income
Other assets
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
Proceeds from insurance and (purchases) sales of investments, net
Payments for investments in businesses and acquisitions, net of cash acquired

Net cash used in investing activities

Financing Activities
Net decrease in borrowings (maturities of three months or less)
Additional long-term borrowings
Repayments of long-term debt and finance leases
Dividends paid
Share repurchases
Net (tax withholding) proceeds related to stock-based compensation
Payments of contingent consideration

Net cash used in financing activities

Effect of foreign currency translation on cash balances

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

140.3
38.7
58.7
34.5
444.1
(216.9)
28.3

(42.2)
(18.1)
46.4
5.4
38.4
(114.7)

746.5

(219.4)
(37.8)
7.8
4.9
(6.5)

(251.0)

(5.3)
–
(18.6)
(189.7)
(237.7)
(17.4)
(1.6)

(470.3)

(3.5)

21.7
232.0

141.5
39.5
45.6
34.3
93.7
(32.7)
60.4

(62.5)
(70.5)
43.6
(35.5)
(11.6)
(255.3)

457.9

(226.7)
(29.9)
9.4
18.5
(3.8)

(232.5)

(77.6)
493.3
(6.4)
(175.0)
(392.9)
(32.2)
(17.3)

(208.1)

(9.7)

7.6
224.4

126.6
52.1
37.6
30.2
–
151.6
53.5

(141.2)
(14.9)
83.4
29.6
(20.9)
(23.7)

645.7

(190.5)
(35.6)
6.0
(3.9)
(319.3)

(543.3)

(89.2)
542.9
(253.8)
(155.5)
(129.7)
1.4
–

(83.9)

10.8

29.3
195.1

$ 253.7

$ 232.0

$ 224.4

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING

Hedge accounting

POLICIES

Nature of Operations

Our businesses include the production of pressure-
sensitive materials and a variety of tickets, tags, labels and
other converted products. We sell most of our pressure-
sensitive materials to label printers and converters that
convert the materials into labels and other products
through embossing, printing, stamping and die-cutting.
We sell other pressure-sensitive materials in converted
form as tapes and reflective sheeting. We also manufacture
and sell a variety of other converted products and items not
involving pressure-sensitive components, such as fasteners,
tickets, tags, radio-frequency identification (‘‘RFID’’) inlays
and tags, and imprinting equipment and related solutions,
which serve the apparel and other end markets.

Principles of Consolidation

Our Consolidated Financial Statements include the
accounts of majority-owned and controlled subsidiaries.
Intercompany accounts, transactions, and profits are
eliminated in consolidation. We apply the equity method of
accounting for investments in which we have significant
influence but not a controlling interest.

Reclassifications

Certain amounts in the prior year’s Consolidated
Financial Statements have been reclassified to conform to
the current year presentation.

Fiscal Year

Accounting Guidance Updates
Leases

In the first quarter of 2019, we adopted accounting
guidance that requires lessees to recognize on their
balance sheets the rights and obligations created by leases.
This guidance also
requires enhanced disclosures
regarding the amount, timing, and uncertainty of cash flows
from leases. As allowed by this guidance, we elected to
apply it using a modified retrospective approach. This
leases that existed at or
approach applies to all
commenced after the date of our initial adoption. As such,
prior year comparative amounts have not been adjusted.
We elected the transition practical expedients allowed
under this guidance. See Note 7, ‘‘Commitments and
Leases,’’ for more information.

In the first quarter of 2019, we prospectively adopted
amended accounting guidance issued to improve the
financial reporting of hedging relationships by better
reflecting the economic results of an entity’s risk
management activities in its financial statements and
simplifying the application of hedge accounting. As a result
of adopting this guidance, our reclassification of gains and
losses from cash flow hedges to earnings is included in the
same financial statement line item as the hedged item. Our
adoption of this guidance did not have a material impact on
our financial position, results of operations, cash flows, or
disclosures.

Reclassification of certain tax effects from accumulated
other comprehensive income

In the first quarter of 2019, we adopted accounting
guidance that provides entities with the option to reclassify
certain tax effects of the U.S. Tax Cuts and Jobs Act
(‘‘TCJA’’) in accumulated other comprehensive income
(‘‘AOCI’’) to retained earnings. We elected not to reclassify
the income tax effects stranded in AOCI to retained
earnings. Our accounting policy is to release the income
tax effects from AOCI to the income statement at the
current statutory rate when the related pretax change is
recognized. We also release the disproportionate tax
effects in AOCI through the income statement as a discrete
tax adjustment in the period when the circumstances upon
which they are premised cease to exist.

Use of Estimates

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.

Cash and Cash Equivalents

Cash and cash equivalents generally consist of cash on
hand, deposits in banks, cash-in-transit, and 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.

Trade Accounts Receivable

We record trade accounts receivable at the invoiced
amount. The allowance for doubtful accounts reserve
trade accounts
represents allowances

for customer

2019 Annual Report Avery Dennison Corporation

receivable that are estimated to be partially or entirely
uncollectible. These allowances are used to reduce gross
trade receivables to their net realizable values. We record
these allowances based on estimates related to the
following:

• Customer-specific allowances;
• Amounts based on an aging schedule; and
• 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 2019
or 2018. However, during 2019, 2018, and 2017, our ten
the aggregate
largest customers by net sales
represented approximately 16%, 15%, and 15% of our net
sales, respectively. As of December 28, 2019 and
December 29, 2018, our ten largest customers by trade
represented
accounts
approximately 12% and 14% of our trade accounts
receivable,
customers were
concentrated primarily in our Label and Graphic Materials
reportable segment. We generally do not require our
customers to provide collateral.

the aggregate

respectively.

receivable

These

Inventories

Inventories are stated at the lower of cost or net
realizable value and 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
respective 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
renewals and
improvements 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.

incurred;

Leases

Our leases primarily relate to office and warehouse
space, machinery, transportation, and equipment for
information technology. For lease accounting purposes, we
do not separate lease and nonlease components, nor do

Notes to Consolidated Financial Statements

we record operating or finance lease assets and liabilities
for short-term leases. We determine if an arrangement is a
lease or contains a lease at inception. We have options to
renew or terminate some of our leases. We evaluate
renewal and termination options based on considerations
available at the lease commencement date and over the
lease term to determine if we are reasonably certain to
exercise these options. As most of our leases do not
provide an implicit rate, we use our incremental borrowing
rate based on the information available at the lease
commencement date to determine the present value of
lease payments. We recognize expense for operating
leases on a straight-line basis over the lease term, with
variable lease payments recognized in the periods in which
they are incurred.

Software

We capitalize software costs incurred during the
application development stage of software development,
including costs incurred for design, coding, installation to
hardware, testing, and upgrades and enhancements that
provide
the software or hardware with additional
functionalities and capabilities. Software costs, including
internal and external training costs and maintenance costs,
incurred during the preliminary project stage and the
post-implementation
are
expensed. In addition, we capitalize implementation costs
incurred under a hosting arrangement that is a service
contract. 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.

and/or operation

stage

Impairment of Long-lived Assets

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 the applicable
asset or asset group’s use and eventual disposition to its
carrying value. The amount of impairment loss is calculated
as the excess of the carrying value over the fair value.
Historically,
and
management strategy have caused us to reassess the
carrying amount of our long-lived assets.

in market

conditions

changes

Goodwill and Other Intangibles Resulting from Business
Acquisitions

Business combinations are accounted for using 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

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

relationships, patents and other acquired technology, and
trade names and trademarks.

We perform an annual impairment test of goodwill
during the fourth quarter, unless certain factors indicate the
need to perform an impairment assessment in addition to
the annual test. In performing the required impairment
tests, we have the option to first assess qualitative factors to
determine whether it is necessary to perform a quantitative
assessment for goodwill impairment. If the qualitative
assessment indicates that it is more-likely-than-not that the
fair value of a reporting unit is less than its carrying value, a
quantitative assessment is performed. A quantitative
assessment primarily consists of a present value
(discounted cash flow) method to determine the fair value
of the reporting units with goodwill.

strategies

that

2019 Annual Report Avery Dennison Corporation

We test indefinite-lived intangible assets, consisting of
trade names and trademarks, for impairment in the fourth
quarter or whenever events or 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.

We amortize finite-lived intangible assets, consisting of
customer relationships, patents and other acquired
technology, trade names and trademarks, and other
intangibles, on a straight-line basis over the estimated
useful life of the assets.

See Note 3, ‘‘Goodwill and Other Intangibles Resulting

from Business Acquisitions,’’ for more information.

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
in certain
international operations and from the translation of balance
sheet accounts are recorded directly as a component of
other comprehensive income.

investments

Financial Instruments

We enter into foreign exchange derivative 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. From
time to time, 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. 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). Other derivatives not designated as hedges are
recorded on the balance sheets at fair value, with changes
in fair value recognized in earnings. 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 any hedge and on
an ongoing basis, whether our hedges are highly effective.
If it is determined that a hedge is not highly effective, we
prospectively discontinue hedge accounting. For cash flow
hedges, gains and losses are recorded as components of
other comprehensive income and reclassified into earnings
in the same period during which the hedged transaction
affects earnings.
In the event that 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.

We also utilized certain foreign-currency-denominated
debt to mitigate our foreign currency translation exposure
from our net investment in foreign operations.
Instruments,’’

See Note 5,

‘‘Financial

for more

information.

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 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, which require us to
develop our own assumptions to determine the best
estimate of fair value.

Notes to Consolidated Financial Statements

Revenue Recognition

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

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

Sales

in certain

returns are accepted

limited
circumstances. We record an estimate for return liabilities
and a corresponding reduction to sales, in the amount we
expect to repay or credit customers, which we base on
historical returns and outstanding customer claims.
Changes in estimates are updated each reporting period.
rebates, discounts, and other customer
concessions represent variable consideration and are
common in the industries and regions in which we operate
and are accounted for as a reduction to sales based on
estimates at the time at which products are sold. These
estimates are based on our historical experience, as well as
current information such as sales forecasts. We review our
estimates regularly and, as additional information becomes
available, we adjust our sales and the respective accruals,
as necessary.

Sales tax, value-added tax, and other taxes we collect

from customers are excluded from sales.

Shipping and handling activities after control of a
product is transferred to a customer are accounted for as
fulfillment costs and not as separate performance
obligations. As a practical expedient, we have elected not
to disclose
the value of unsatisfied performance
obligations for contracts with an original expected length
of less than one year.

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

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 2019, 2018, or 2017.

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

Valuation of Stock-Based Awards

Forfeitures

We estimate expected forfeitures in determining the
compensation cost to be recognized each period, rather
than accounting for forfeitures as they occur. Changes in
estimated forfeiture rates are recorded as cumulative
adjustments in the period estimates are revised.

See Note 12, ‘‘Long-term Incentive Compensation,’’

for more information.

Taxes Based on Income

tax consequences of

future

See Note 14, ‘‘Taxes Based on Income,’’ for more

information.

Recent Accounting Requirements
In November 2018,

the Financial Accounting
Standards Board (‘‘FASB’’) issued guidance that clarifies the
interaction between guidance regarding collaborative
arrangements and revenue from contracts with customers.
This guidance is effective for interim and annual periods
beginning after December 15, 2019, with early adoption
permitted. We do not anticipate that the adoption of this
guidance will have a significant impact on our financial
position, results of operations, cash flows, and disclosures.
In June 2016, the FASB issued revised guidance on the
measurement of credit losses on financial instruments.
Credit losses on loans, trade and other receivables,
held-to-maturity debt securities, and other instruments will
reflect the current estimate of the expected credit losses.
This guidance is effective for interim and annual periods
beginning after December 15, 2019, with early adoption
permitted. We do not anticipate that our adoption of this
guidance will have a significant impact on our financial
position, results of operations, cash flows, and disclosures.

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
(‘‘RSUs’’). Compensation expense 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. Compensation expense
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
respective
performance periods.

their

The fair value of RSUs and the component of PUs that
is subject to the achievement of a performance objective
based on a financial 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 the other component
of PUs, is determined using the Monte-Carlo simulation
method, 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. LTI Units
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.

2019 Annual Report Avery Dennison Corporation

NOTE 2. ACQUISITIONS

In November 2019, we announced our agreement to
acquire Smartrac’s Transponder (RFID Inlay) division, a
manufacturer of RFID products, for a purchase price of
approximately $250 million (e225 million), subject to
customary adjustments. We expect to complete this
acquisition in the first quarter of 2020.

On June 23, 2017, we completed the stock acquisition
of Yongle Tape Ltd. (‘‘Yongle Tape’’), a China-based
manufacturer of specialty tapes and related products used
in a variety of industrial markets, from Yongle Tape’s
management and Shaw Kwei & Partners.

On May 19, 2017, we completed the stock acquisition
of Finesse Medical Limited (‘‘Finesse Medical’’), an Ireland-
based manufacturer of healthcare products used in the

Notes to Consolidated Financial Statements

management of wound care and skin conditions, from
Finesse Medical’s management.

On March 1, 2017, we completed the net asset
acquisition of Hanita Coatings Rural Cooperative
Association Limited and stock acquisition of certain of its
subsidiaries (‘‘Hanita’’), an Israel-based pressure-sensitive
manufacturer of specialty films and laminates, from Kibbutz
Hanita Coatings and Tene Investment Funds.

The aggregate purchase consideration

the
acquisitions we made in 2017 (the ‘‘2017 Acquisitions’’) was
approximately $340 million. The 2017 Acquisitions were
funded through cash and existing credit facilities.

for

The 2017 Acquisitions were not material, individually
or in the aggregate, to our Consolidated Financial
Statements.

NOTE 3. GOODWILL AND OTHER INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS

Goodwill

Results from our annual goodwill impairment test in the fourth quarter of 2019 indicated that no impairment occurred

during 2019. The assumptions used in our assessment of these assets were primarily based on Level 3 inputs.

Changes in the net carrying amount of goodwill for 2019 and 2018 by reportable segment were as follows:

(In millions)

Goodwill as of December 30, 2017
Acquisition adjustments(1)
Translation adjustments

Goodwill as of December 29, 2018
Translation adjustments

Goodwill as of December 28, 2019

Label and
Graphic
Materials

$429.5
–
(14.0)

415.5
(7.7)

$407.8

Retail
Branding and
Information
Solutions

Industrial and
Healthcare
Materials

$355.4
–
(5.7)

349.7
(.4)

$349.3

$200.2
(17.7)
(5.9)

176.6
(2.9)

$173.7

Total

$985.1
(17.7)
(25.6)

941.8
(11.0)

$930.8

(1) Goodwill purchase price allocation adjustments and measurement period adjustments for contingent consideration liabilities related to the acquisition of Yongle Tape.

The carrying amounts of goodwill at December 28, 2019 and December 29, 2018 were net of accumulated impairment
losses of $820 million recognized in fiscal year 2009 by our Retail Branding and Information Solutions (‘‘RBIS’’) reportable
segment.

Indefinite-Lived Intangible Assets

Results from our annual indefinite-lived intangible assets impairment test in the fourth quarter indicated that no

impairment occurred in 2019.

The carrying value of indefinite-lived intangible assets resulting from business acquisitions, consisting of trade names

and trademarks, was $20.8 million and $21.1 million at December 28, 2019 and December 29, 2018, respectively.

Finite-Lived Intangible Assets

In connection with the 2017 Acquisitions, we acquired approximately $107 million of identifiable intangible assets,
which consisted of customer relationships, trade names and trademarks, and patents and other acquired technology. We
utilized the income approach to estimate the fair values of the identifiable intangible assets associated with the 2017
Acquisitions, using primarily Level 3 inputs. The discount rates we used to value these assets were between 11% and 16.5%.

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

The table below summarizes the amounts and weighted useful lives of these intangible assets at acquisition.

Customer relationships
Patents and other acquired technology
Trade names and trademarks

Amount
(in millions)

$70.9
31.9
4.2

Weighted average
amortization
period
(in years)

16
9
6

Refer to Note 2, ‘‘Acquisitions,’’ for more information.
The following table sets forth our finite-lived intangible assets resulting from business acquisitions at December 28,

2019 and December 29, 2018, which continue to be amortized:

(In millions)

Customer relationships
Patents and other acquired technology
Trade names and trademarks
Other intangibles

Total

Gross
Carrying
Amount

$319.5
81.7
24.3
.2

$425.7

2019

Accumulated
Amortization

$238.7
61.3
19.8
.2

Net
Carrying
Amount

$ 80.8
20.4
4.5
–

Gross
Carrying
Amount

$322.2
84.0
27.0
11.9

2018

Accumulated
Amortization

$231.8
56.8
21.7
11.9

Net
Carrying
Amount

$ 90.4
27.2
5.3
–

$320.0

$105.7

$445.1

$322.2

$122.9

Amortization expense for finite-lived intangible assets
resulting from business acquisitions was $13.5 million for
2019, $15.2 million for 2018, and $18.6 million for 2017.
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:

from the date of issuance. Our payment obligations with
respect to any notes issued under this program are backed
by our revolving credit facility (the ‘‘Revolver’’). There are no
financial covenants under this program. We had a balance
of $50.1 million outstanding under this program as of
December 28, 2019. There was no balance outstanding as
of December 29, 2018.

Estimated
Amortization
Expense

$12.2
11.6
10.6
9.6
8.0

(In millions)

2020
2021
2022
2023
2024

NOTE 4. DEBT

Short-Term Borrowings

We had $83.2 million and $131 million of borrowings
from U.S. commercial paper issuances outstanding at
December 28, 2019 and December 29, 2018, respectively,
with a weighted average interest rate of 1.98% and 2.75%,
respectively.

We have a Euro-Commercial Paper Program under
which we may issue unsecured commercial paper notes up
to a maximum aggregate amount outstanding of
$500 million. Proceeds from issuances under this program
may be used for general corporate purposes. The
maturities of the notes vary, but may not exceed 364 days

2019 Annual Report Avery Dennison Corporation

Short-Term Credit Facilities

foreign banks

December 28, 2019. These lines may be cancelled at any
time by us or the issuing banks. Short-term borrowings
outstanding under our lines of credit were $37.4 million and
$45.5 million at December 28, 2019 and December 29,
2018, respectively, with a weighted average interest rate of
6.4% and 7%, respectively.

From time to time, certain of our subsidiaries provide
guarantees on certain arrangements with banks. Our
exposure to these guarantees is not material.

Long-Term Borrowings

In December 2018, we issued $500 million of senior
notes, due December 2028. These senior notes bear an
interest rate of 4.875% per year, payable semiannually in
arrears. The net proceeds from this offering, after deducting
underwriting discounts and offering expenses, were
$493.3 million, which we used to repay commercial paper
borrowings. Prior to the issuance of these senior notes, we
used commercial paper borrowings in August 2018 to fund
our $200 million contribution to the Avery Dennison Pension
Plan in connection with its termination. Refer to Note 6,
‘‘Pension and Other Postretirement Benefits.’’

In March 2017, we issued e500 million of senior notes,
due March 2025. These senior notes bear an interest rate of
1.25% per year, payable annually in arrears. The net
proceeds from this offering, after deducting underwriting
discounts and estimated offering expenses, were
$526.6 million (e495.5 million), a portion of which we used
to repay commercial paper borrowings used to finance a
portion of our purchase price for the acquisition of Mactac,
and the remainder of which we used for general corporate
purposes and the 2017 Acquisitions. Refer to Note 5,
‘‘Financial Instruments,’’ for more information.

Long-term debt, including its respective interest rates,

at year-end are shown below.

(In millions)

Long-term debt
Medium-term notes:

2019

2018

Series 1995 due 2020 through 2025

45.0

Long-term notes:

Senior notes due 2020 at 5.4%
Senior notes due 2023 at 3.4%
Senior notes due 2025 at 1.25%(1)
Senior notes due 2028 at 4.875%
Senior notes due 2033 at 6.0%

Other borrowings(2)
Less amount classified as current

250.0
249.1
553.4
493.9
148.9
–
(265.0)

249.7
248.9
569.0
493.3
148.8
14.4
(18.2)

Total long-term debt(3)
(1) These senior notes are euro-denominated.
(2) Other borrowings consisted of long-term bank borrowings by foreign subsidiaries.
(3) Includes unamortized debt issuance cost and debt discount of $5.6 million and
$5.7 million, respectively, as of year-end 2019 and $6.8 million and $6.3 million,
respectively, as of year-end 2018.

$1,475.3

$1,750.9

At year-end 2019 and 2018, our medium-term notes
had maturities from 2020 through 2025 and accrued
interest at a weighted average fixed rate of 7.5%.

Notes to Consolidated Financial Statements

We expect maturities of our long-term debt for each of

the next five fiscal years and thereafter to be as follows:

Year

2020 (classified as current)
2021
2022
2023
2024
2025 and thereafter

(In millions)

$ 265.0
–
–
250.0
–
1,236.5

Refer to Note 7, ‘‘Commitments and Leases,’’ for

information related to finance leases.

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. As of
December 28, 2019 and December 29, 2018, we were in
compliance with our financial covenants.

Our total interest costs in 2019, 2018, and 2017 were
$81.1 million, $63.8 million, and $67.9 million, respectively,
of which $5.3 million, $5.3 million, and $4.9 million,
respectively, was 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 or euro government bond securities, as
applicable, on notes with similar rates, credit ratings, and
remaining maturities. The
fair value of short-term
borrowings, which includes 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 $2.05 billion at December 28, 2019
and $2 billion at December 29, 2018. Fair value amounts
were determined based primarily on Level 2 inputs, which
are inputs other than quoted prices in active markets that
are either directly or indirectly observable. Refer to Note 1,
‘‘Summary of Significant Accounting Policies,’’ for more
information.

NOTE 5. FINANCIAL INSTRUMENTS

As of December 28, 2019, the aggregate U.S. dollar
equivalent notional value of our outstanding commodity
contracts and foreign exchange contracts was $3.2 million
and $1.19 billion, respectively.

We recognize 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. We also
enter into foreign exchange contracts to offset certain of
our economic exposures arising from foreign exchange rate
fluctuations.

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

The following table shows the fair value and balance sheet locations of cash flow hedges as of December 28, 2019 and

December 29, 2018:

(In millions)

Balance Sheet Location

2019

2018

Balance Sheet Location

2019

2018

Foreign exchange contracts
Commodity contracts

Other current assets
Other current assets

$ .4
–

$ .5
.1

Other current liabilities
Other current liabilities

$ .9
.4

$ .8
–

Asset

Liability

$ .4

$ .6

$1.3

$ .8

The following table shows the fair value and balance sheet locations of other derivatives as of December 28, 2019 and

December 29, 2018:

(In millions)

Balance Sheet Location

2019

2018

Balance Sheet Location

2019

2018

Foreign exchange contracts

Other current assets

$4.8

$3.0

Other current liabilities

$4.7

$7.9

Asset

Liability

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

representing

derivatives,

either

Gains

(losses), before

taxes,
in
(effective
‘‘Accumulated other comprehensive
portion) on derivatives related to cash flow hedge contracts
were as follows:

recognized
loss’’

(In millions)

Foreign exchange contracts
Commodity contracts

2019

$1.4
(.8)

$ .6

2018

$ 1.0
.4

$ 1.4

2017

$(2.2)
(.6)

$(2.8)

Neither the amount recognized in income related to
the ineffective portion of, nor the amount excluded from
effectiveness testing for, cash flow hedges was material in
2019, 2018, or 2017.

As of December 28, 2019, we expected a net loss of
approximately $.5 million
from
‘‘Accumulated other comprehensive loss’’ to earnings
within the next 12 months.

reclassified

to be

Other Derivatives

For other derivative instruments not designated as
hedging instruments, the gain or loss is recognized in
current earnings.

2019 Annual Report Avery Dennison Corporation

The following table shows the components of the net
gains (losses) recognized in income related to these
derivative instruments:

(In millions)

Statements of Income
Location

2019

2018

2017

Foreign exchange

contracts

Cost of products
sold

Foreign exchange Marketing, general
and administrative
expense

contracts

$ (1.5) $ 4.5 $ (1.2)

3.5

(27.0)

(42.9)

$ 2.0 $(22.5) $(44.1)

Net Investment Hedge

In March 2017, we designated e500 million of our
1.25% senior notes due 2025 as a net investment hedge of
our investment in foreign operations. In January 2018, we
reduced the amount we designated as a net investment
hedge to e255 million. In May 2019, we de-designated the
remaining net investment hedge as a result of changes in
our intercompany capital structure. Through the period
preceding the de-designation, the net assets from our
investment in foreign operations were greater than the
amount designated as a net investment hedge, and, as
such, the net investment hedge was effective.

Refer to Note 4, ‘‘Debt,’’ for more information.
Gains (losses), before tax, recognized in ‘‘Accumulated
other comprehensive loss’’ (effective portion) related to the
net investment hedge were as follows:

(In millions)

2019

2018

2017

Foreign currency denominated debt

$ 6.8

$ 1.3

$(63.7)

from our net
investment hedge to earnings during 2019, 2018 and 2017.

ineffectiveness

recorded no

Notes to Consolidated Financial Statements

NOTE 6. PENSION AND OTHER POSTRETIREMENT
BENEFITS

partially offset by related tax benefits of approximately
$179 million.

Defined Benefit Plans

Plan Assets

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 have
been included in the disclosures below.

In July 2018, our Board of Directors (‘‘Board’’)
approved the termination of the Avery Dennison Pension
Plan (the ‘‘ADPP’’), a U.S. defined benefit plan, effective as
of September 28, 2018. In connection with the termination,
we contributed $200 million to the ADPP in August 2018;
settled approximately $152 million of ADPP liabilities
during the fourth quarter of 2018 through lump-sum
payments from existing plan assets to eligible participants
who elected to receive them; and recorded approximately
$85 million of non-cash charges associated with these
settlements, partially offset by related tax benefits of
approximately $19 million. During 2019, we settled
approximately $749 million of ADPP liabilities by entering
into an agreement to purchase annuities primarily from
American General Life Insurance Company (‘‘AGL’’). This
agreement covered approximately 8,300 active and former
employees and their beneficiaries, with AGL assuming the
future annuity payments for these individuals, commencing
April 1, 2019. Additionally, we settled approximately
$4 million of ADPP liabilities through a combination of
annuities and direct funding to the Pension Benefit
Guaranty Corporation for the remaining approximately 200
former employees and their beneficiaries. We contributed
approximately $10 million of cash during fiscal 2019 to the
ADPP to cover costs associated with the final settlement of
in
these
approximately $444 million of pretax charges in 2019,

liabilities. These

settlements

resulted

Assets in 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 in the aggregate is
32% in equity securities, 44% in fixed income securities and
insurance contracts and other
cash, and 24%
investments, subject to periodic fluctuations in these
respective asset classes.

Fair Value Measurements

The valuation methodologies we use for assets

measured at fair value are described below.

Cash is valued at nominal value. Cash equivalents and
mutual funds are valued at fair value as determined by
quoted market prices, based upon the net asset value
(‘‘NAV’’) of shares held at year-end. Fixed income treasury
securities are valued at fair value as determined by quoted
prices in active markets. The fixed income municipal and
corporate bonds are valued at fair value based on quoted
prices for similar instruments in active markets or other
inputs that are observable or can be corroborated by
observable market data. Pooled funds are structured as
collective trusts, not publicly traded, and valued by
calculating NAV per unit based on the NAV of the
underlying funds/trusts as a practical expedient for the 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.

These methods 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 these 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.

Avery Dennison Corporation 2019 Annual Report

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)

2019
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

2018
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

Fair Value Measurements Using

Quoted
Prices
in Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Other
Unobservable
Inputs
(Level 3)

$ 1.2
–

$ 4.1
–

–
–

–
36.3

–
36.9

Total

$ 1.2
36.3
329.9
268.8
98.2

$734.4

$ 4.1
36.9
300.4
185.0
105.4

$631.8

(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 asset activity during the year ended

December 28, 2019:

(In millions)

Balance at December 29, 2018
Net realized and unrealized gain
Purchases
Settlements
Impact of changes in foreign currency exchange rates

Balance at December 28, 2019

Level 3 Assets

Insurance Contracts

$36.9
1.5
5.6
(7.0)
(.7)

$36.3

As a result of the ADPP settlements, there were no U.S. plan assets as of December 28, 2019. 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 as of December 29,
2018.

(In millions)

2018
Cash and cash equivalents
Equity securities
Fixed income securities – government and municipal bonds
Fixed income securities – corporate bonds
Other

Total U.S. plan assets

2019 Annual Report Avery Dennison Corporation

Fair Value Measurements Using

Quoted
Prices
in Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Other
Unobservable
Inputs
(Level 3)

$27.1
–
66.3
–
–

–
.3
46.7
592.8
2.4

–
–
–
–
–

Total

$ 27.1
.3
113.0
592.8
2.4

$735.6

Plan Assumptions
Discount Rate

In consultation with our actuaries, we annually review
and determine the discount rates used to value our
postretirement obligations. The assumed discount rate for
each pension plan reflects market rates for high quality
corporate bonds currently available. 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
bond portfolios to determine a rate that reflects the liability
duration unique to our plans. As of December 29, 2018, the
discount rate for the ADPP, after reflecting the plan’s
termination, was based on estimated insurer pricing.

We use the 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 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
this approach provides a more precise
believe

Plan Balance Sheet Reconciliations

Notes to Consolidated Financial Statements

measurement of service and interest cost by aligning the
timing of a plans’ liability cash flows to its corresponding
rates on the yield curve.

Long-term Return on Assets

investments. Additionally,

reviewed

for

Measurement Date

We measure the actuarial value of our benefit
obligations and plan assets using the calendar month-end
closest to our
for any
contributions or other significant events between the
measurement date and our fiscal year-end.

fiscal year-end and adjust

The following table provides a reconciliation of benefit obligations, plan assets, funded status of the plans and

accumulated other 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
Actuarial (gain) loss
Benefits paid
Settlements(1)
Foreign currency translation

Projected benefit obligations at end of year

Accumulated benefit obligations at end of year

Pension Benefits

2019

U.S.

Int’l

2018

U.S.

Int’l

$ 868.5
–
9.0
–
–
(27.1)
(20.7)
(754.0)
–

$755.8
15.6
14.8
4.1
1.8
56.8
(21.3)
(4.5)
(11.4)

$1,082.1
–
34.5
–
–
(13.2)
(61.8)
(173.1)
–

$836.7
19.2
15.7
3.8
–
(58.8)
(22.3)
(9.5)
(29.0)

$ 75.7

$811.7

$ 868.5

$755.8

$ 75.7

$754.0

$ 868.5

$696.7

(1) In 2019, settlements in the U.S. related to the ADPP termination. Settlements in our international plans related to lump-sum payments in Switzerland. In 2018, settlements in the U.S.
related to lump-sum payments associated with the ADPP termination and two nonqualified benefit plans. Settlements in our international plans related to lump-sum payments in the
UK and France.

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

Plan Assets

(In millions)

Change in plan assets
Plan assets at beginning of year
Actual return on plan assets
Employer contributions(1)
Participant contributions
Benefits paid
Settlements(2)
Foreign currency translation

Plan assets at end of year

Pension Benefits

2019

2018

U.S.

Int’l

U.S.

Int’l

$ 735.6
20.7
18.4
–
(20.7)
(754.0)
–

$631.8
118.5
13.6
4.1
(21.3)
(4.5)
(7.8)

$ 740.2
(3.6)
233.9
–
(61.8)
(173.1)
–

$683.7
(13.3)
14.7
3.8
(22.3)
(9.5)
(25.3)

–

$734.4

$ 735.6

$631.8

(1) In 2019, an additional contribution of $10 million was made to the ADPP to cover the remaining liabilities associated with its termination. In August 2018, a contribution of $200 million

had been made to the ADPP using commercial paper borrowings.

(2) In 2019, settlements in the U.S. related to the ADPP termination. Settlements in our international plans related to lump-sum payments in Switzerland. In 2018, settlements in the U.S.
related to lump-sum payments associated with the ADPP and two nonqualified benefit plans. Settlements in our international plans related to lump-sum payments in the UK and
France.

Funded Status

(In millions)

Funded status of the plans
Other assets
Other accrued liabilities(1)
Long-term retirement benefits and other liabilities(2)

Plan assets less than benefit obligations

Pension Benefits

2019

2018

U.S.

Int’l

U.S.

Int’l

–
(7.5)
(68.2)

$ 50.8
(2.4)
(125.7)

–
(65.1)
(67.8)

$ 12.6
(2.0)
(134.6)

$(75.7)

$ (77.3)

$(132.9)

$(124.0)

(1) In 2019, in connection with its termination, we settled ADPP’s 2018 underfunded benefit obligation of approximately $57 million.
(2) In accordance with our funding strategy, we have the option to fund certain of these U.S. liabilities with proceeds from our corporate-owned life insurance policies.

Weighted average assumptions used to determine year-end benefit obligations
Discount rate
Compensation rate increase

Pension Benefits

2019

2018

U.S.

Int’l

U.S.

Int’l

2.93% 1.66% 3.72% 2.39%

–

2.21

–

2.23

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 $263 million and $59 million, respectively, at year-end
2019 and $1.47 billion and $1.20 billion, respectively, at year-end 2018.

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 $237 million and $59 million, respectively,
at year-end 2019 and $1.02 billion and $792 million, respectively, at year-end 2018.

2019 Annual Report Avery Dennison Corporation

Notes to Consolidated Financial Statements

Accumulated Other Comprehensive Loss

The following table sets forth the pre-tax amounts recognized in ‘‘Accumulated other comprehensive loss’’ in the

Consolidated Balance Sheets:

(In millions)

Net actuarial loss
Prior service (credit) cost
Net transition obligation

Net amount recognized in accumulated other comprehensive loss

Pension Benefits

2019

2018

U.S.

Int’l

U.S.

Int’l

$15.5
–
–

$101.9
(4.3)
–

$487.5
15.9
–

$149.3
(6.7)
.1

$15.5

$ 97.6

$503.4

$142.7

The following table sets forth the pre-tax amounts recognized in ‘‘Other comprehensive loss (income)’’:

(In millions)

Net actuarial (gain) loss
Prior service credit
Amortization of unrecognized:

Net actuarial gain
Prior service credit (cost)

Settlements

Pension Benefits

2019

2018

2017

U.S.

Int’l

U.S.

Int’l

U.S.

Int’l

$ (44.6)
–

$(42.7)
1.8

$ 33.5
–

$(27.2)
–

$ 21.8
–

$(17.2)
(2.1)

(.5)
–
(442.8)

(4.0)
.4
(.6)

(21.2)
(.8)
(92.0)

(8.1)
.5
(1.7)

(18.7)
(.9)
–

(10.8)
.4
–

Net amount recognized in other comprehensive (income) loss

$(487.9)

$(45.1)

$(80.5)

$(36.5)

$ 2.2

$(29.7)

Plan Income Statement Reconciliations

The following table sets forth the components of net periodic benefit cost, which are recorded in net income 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 (credit) cost
Recognized loss on settlements(1)

Net periodic benefit cost (credit)

Pension Benefits

2019

2018

2017

U.S.

Int’l

U.S.

Int’l

U.S.

Int’l

–
2.7
2.5
–
.5
–
443.5

$ 15.6
14.8
–
(21.0)
4.0
(.4)
.6

–
34.5
(.6)
(42.5)
21.2
.8
92.0

$ 19.2
15.7
–
(23.8)
8.1
(.5)
1.7

.5
35.3
1.7
(40.5)
18.7
.9
–

$ 18.2
14.3
–
(21.1)
10.8
(.4)
–

$449.2

$ 13.6

$105.4

$ 20.4

$ 16.6

$ 21.8

(1) In 2019, settlements in the U.S. related to the ADPP termination. Settlements in our international plans related to lump-sum payments in Switzerland. In 2018, settlements in the U.S.
related to lump-sum payments associated with the ADPP and two nonqualified benefit plans. Settlements in our international plans related to lump-sum payments in the UK and
France.

Service cost and components of net periodic benefit cost other than service cost were included in ‘‘Marketing, general
and administrative expense’’ and ‘‘Other non-operating expense’’ in the Consolidated Statements of Income, respectively.

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

The following table sets forth the weighted average assumptions used to determine net periodic cost:

Discount rate
Expected return on assets
Compensation rate increase

Pension Benefits

2019

2018

2017

U.S.

Int’l

U.S.

Int’l

U.S.

Int’l

3.73% 2.39% 3.72% 2.25% 4.18% 2.12%

–
–

3.38
2.23

7.00
–

3.78
2.26

7.00
–

3.77
2.24

Plan Contributions

Defined Contribution Plans

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 our expected contributions in 2020:

(In millions)

U.S. pension plans
International pension plans

$ 7.6
13.2

Future Benefit Payments

The future benefit payments shown below reflect

expected service periods for eligible participants.

(In millions)

2020
2021
2022
2023
2024
2025 - 2029

Postretirement Health Benefits

Pension Benefits

U.S.

Int’l

$ 7.6
8.0
6.6
6.4
6.4
26.0

$ 20.2
22.0
23.1
22.6
22.7
141.6

We provide postretirement health benefits to certain
of our retired U.S. employees up to the age of 65 under a
cost-sharing arrangement and provide supplemental
Medicare benefits to certain of our U.S. retirees over the
age of 65. Our policy is to fund the cost of these
postretirement benefits from operating cash flows. While
we have not expressed any intent to terminate these
postretirement health benefits, we may do so at any time,
subject to applicable laws and regulations. At year-end
2019, our postretirement health benefits obligation and
related
other
comprehensive loss’’ were approximately $3 million and
approximately $8 million, respectively. At year-end 2018,
our postretirement health benefits obligation and related
loss recorded in ‘‘Accumulated other comprehensive loss’’
were approximately $4 million and approximately
$6 million, respectively. Net periodic benefit cost was not
material in 2019, 2018, or 2017.

‘‘Accumulated

recorded

loss

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 of $22.4 million, $21.8 million,
and $20.2 million in 2019, 2018, and 2017, respectively,
related to our employer contributions and employer match
of participant contributions to the Savings Plan.

Other Retirement Plans

We have deferred compensation plans that permit
eligible employees and directors to defer a portion of their
compensation. The compensation voluntarily deferred by
the participant,
certain employer
together with
contributions, earns specified and variable rates of return.
As of year-end 2019 and 2018, we had accrued
$91.6 million and $84.3 million, respectively, for our
obligations under these plans. 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.

equity

plans. Dividend

Our Directors Deferred Equity Compensation Program
allows our non-employee directors to elect to receive their
cash compensation in deferred stock units (‘‘DSUs’’) issued
under our equity plan. Additionally, two legacy deferred
compensation plans had DSUs that were issued under our
then-active
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. DSUs are converted into
shares of our common stock upon a director’s resignation or
retirement. Approximately
.2 million DSUs were
outstanding as of year-end 2019 and 2018, respectively,
with an aggregate value of $25 million and $17 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, which are included in
‘‘Other assets’’ in the Consolidated Balance Sheets, were
$236.9 million and $227.4 million at year-end 2019 and
2018, respectively.

2019 Annual Report Avery Dennison Corporation

Notes to Consolidated Financial Statements

2019

$65.4

2019

$138.1
36.1

$174.2

NOTE 7. COMMITMENTS AND LEASES

Supplemental cost information related to leases is shown below.

(In millions)

Operating lease cost

Lease costs related to finance leases were immaterial in 2019.
Supplemental balance sheet information related to leases is shown below.

Balance Sheet Location

Other assets
Property, plant and equipment, net

(In millions)

Assets

Operating
Finance(1)

Total leased assets

Liabilities
Current:
Operating
Finance
Non-current:
Operating
Finance

Total lease liabilities

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

$ 41.4
4.5

Long-term retirement benefits and other liabilities
Long-term debt and finance leases

98.9
24.0

$168.8

(1) Finance lease assets are net of accumulated amortization of $5.7 million as of December 28, 2019.

Supplemental cash flow information related to leases is

Operating and finance lease liabilities by maturity date

shown below.

(In millions)

from December 28, 2019 are shown below.

2019

(In millions)

Operating Leases

Finance Leases

Cash paid for amounts included in the measurement of

operating lease liabilities

Operating lease assets obtained in exchange for

operating lease liabilities

$53.1

32.6

Cash flows related to finance leases were immaterial in

2019.

Weighted average remaining lease term and discount

rate information related to leases is shown below.

2020
2021
2022
2023
2024
2025 and thereafter
Total lease payments
Less: imputed interest

Present value of lease

liabilities

$ 46.0
35.2
22.4
15.2
11.1
29.8
159.7
(19.4)

$ 5.7
12.5
4.5
4.1
3.9
.9
31.6
(3.1)

$140.3

$28.5

Weighted average remaining lease term (in years):

Operating
Finance

Weighted average discount rate (percentage):

Operating
Finance

2019

5.5
4.1

4.9%
3.1

As of December 28, 2019, we had no significant
operating or finance leases that had not yet commenced.
Rent expense for operating leases was approximately

$66 million in 2018 and $64 million in 2017.

Avery Dennison Corporation 2019 Annual Report

the

range

is accrued. Potential

estimate within the range is accrued. When the best
estimate within the range cannot be determined, the low
end of
insurance
reimbursements are not offset against potential liabilities.
As of December 28, 2019, we have been designated
by the U.S. Environmental Protection Agency (‘‘EPA’’)
and/or other responsible state agencies as a PRP at eleven
waste disposal or waste recycling sites that are the subject
of separate investigations or proceedings concerning
alleged soil and/or groundwater contamination. No
settlement of our liability related to any of these sites has
been agreed upon. We are participating with other PRPs at
these sites and anticipate that our share of remediation
costs will be determined pursuant to agreements that we
negotiate with the EPA or other governmental authorities.
These estimates could change as a result of changes in
planned remedial actions, remediation technologies, site
conditions, the estimated time to complete remediation,
environmental laws and regulations, and other factors.
Because of the uncertainties associated with environmental
assessment and remediation activities, our future expenses
to remediate these sites could be higher than the liabilities
we have accrued; however, we are unable to reasonably
estimate a range of potential expenses. If information were
to become available that allowed us to reasonably estimate
a range of potential expenses in an amount higher or lower
than what we have accrued, we would adjust our
environmental liabilities accordingly. In addition, we may
be identified as a PRP at additional sites in the future. The
range of expenses for remediation of any future-identified
sites would be addressed as they arise; until then, a range
of expenses for such remediation cannot be determined.
The activity related to our environmental liabilities in

2019 and 2018 were as follows:

(In millions)

Balance at beginning of year
Charges, net of reversals
Payments

Balance at end of year

2019

2018

$20.0
7.4
(6.0)

$21.1
3.9
(5.0)

$21.4

$20.0

Approximately $10 million and $5 million, respectively,
of the balance was classified as short-term and included in
‘‘Other current liabilities’’ in the Consolidated Balance
Sheets as of December 28, 2019 and December 29, 2018.

Notes to Consolidated Financial Statements

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. 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.

Because of the uncertainties associated with claims
resolution and litigation, future expenses to resolve these
matters could be higher than the liabilities we have
accrued; however, we are unable to reasonably estimate a
range of potential expenses. If information were to become
available that allowed us to reasonably estimate a range of
potential expenses in an amount higher or lower than what
we have accrued, we would adjust our accrued liabilities
accordingly. Additional lawsuits, claims, inquiries, and
other regulatory and compliance matters could arise in the
future. The range of expenses for resolving any future
matters would be assessed as they arise; until then, a range
of potential expenses for such resolution cannot be
determined. Based upon current information, we believe
that the impact of the resolution of these matters would not
be, individually or in the aggregate, material to our financial
position, results of operations or cash flows.

Environmental Expenditures

Environmental expenditures are generally expensed.
However, environmental expenditures for newly acquired
assets and those that extend or improve the economic
useful life of existing assets are capitalized and amortized
over the shorter of the estimated useful life of the acquired
asset or the remaining life of the existing asset. We review
our estimates of the costs of complying with environmental
laws related to remediation and cleanup of various sites,
including sites in which governmental agencies have
designated us as a potentially responsible party (‘‘PRP’’).
When it is probable that a loss will be incurred and where a
range of the loss can be reasonably estimated, the best

2019 Annual Report Avery Dennison Corporation

Notes to Consolidated Financial Statements

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

December 28, 2019:

(In millions)

Assets

Trading securities
Derivative assets
Bank drafts

Liabilities

Derivative liabilities

Fair Value Measurements Using

Quoted
Prices
in
Active
Markets
(Level 1)

$26.0
–
21.3

Total

$30.6
5.2
21.3

$ 6.0

$ .4

Significant
Other
Observable
Inputs
(Level 2)

Significant
Other
Unobservable
Inputs
(Level 3)

$4.6
5.2
–

$5.6

$ –
–
–

$ –

The following table provides the assets and liabilities carried at fair value, measured on a recurring basis, as of

December 29, 2018:

(In millions)

Assets

Trading securities
Derivative assets
Bank drafts

Liabilities

Derivative liabilities
Contingent consideration liabilities

‘‘Other current assets,’’

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
December 28, 2019, trading securities of $.4 million and
$30.2 million were included in ‘‘Cash and cash equivalents’’
and
the
Consolidated Balance Sheets. As of December 29, 2018,
trading securities of $.2 million and $26.1 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

respectively,

Fair Value Measurements Using

Quoted
Prices in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Other
Unobservable
Inputs
(Level 3)

$21.5
.1
23.0

–
–

$4.8
3.5
–

$8.7
–

$ –
–
–

$ –
1.6

Total

$26.3
3.6
23.0

$ 8.7
1.6

measured based on foreign exchange rate inputs that are
readily available in public markets are classified within
Level 2 of the valuation hierarchy. Bank drafts (maturities
greater than three months) are valued at face value due to
their short-term nature and were included in ‘‘Other current
assets’’ in the Consolidated Balance Sheets. Contingent
consideration liability in 2018, which was included in
‘‘Other current liabilities’’ in the Consolidated Balance
Sheets, related to an estimated earn-out payment
associated with an acquisition we completed in 2017 and
was classified as Level 3. This liability was based on the
acquired company’s achievement of the designated
performance target in 2018 under the terms of the
purchase agreement and paid in the first quarter of 2019.

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

Non-Recurring Fair Value Measurements

NOTE 11. SUPPLEMENTAL EQUITY AND COMPREHENSIVE

During the year ended December 29, 2018, long-lived
assets with carrying amounts totaling $18.1 million were
written down to their fair value of $10.6 million, resulting in
an impairment charge of $7.5 million, which was included in
‘‘Other expense, net’’ in the Consolidated Statements of
Income. The fair value was based on the estimated sale
price of the assets, less estimated broker fees, which is
primarily a Level 3 input.

NOTE 10. NET INCOME PER COMMON SHARE

Net income per common share was computed as

follows:

(In millions, except per share amounts)

2019

2018

2017

(A) Net income

(B) Weighted average number of
common shares outstanding

Dilutive shares (additional

common shares issuable under
stock-based awards)

common shares outstanding,
assuming dilution

Net income per common share:

(A) (cid:3) (B)

Net income per common share,
assuming dilution (A) (cid:3) (C)

$303.6 $467.4 $281.8

84.0

87.3

88.3

1.0

85.0

1.3

88.6

1.8

90.1

$ 3.61 $ 5.35 $ 3.19

$ 3.57 $ 5.28 $ 3.13

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 compensation awards
excluded from the computation were not significant in
2019, 2018 or 2017.

INCOME INFORMATION

Common Stock and Share Repurchase Program

Our Amended

and Restated Certificate of
Incorporation authorizes five million shares of $1 par value
preferred stock (of which no shares are outstanding), with
respect to which our Board may fix the series and terms of
issuance, and 400 million shares of $1 par value voting
common stock.

In April 2019, our Board authorized the repurchase of
shares of our common stock with a fair market value of up to
$650 million, exclusive of any fees, commissions or other
expenses related to such purchases, in addition to the
amount then outstanding under our previous Board
authorization. Board authorizations remain in effect until
shares in the amount authorized thereunder have been
repurchased. Shares of our common stock in the aggregate
amount of $644.7 million as of December 28, 2019
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
record net gains or losses associated with our use of
treasury shares to retained earnings.

2019 Annual Report Avery Dennison Corporation

Notes to Consolidated Financial Statements

Accumulated Other Comprehensive Loss

The changes in ‘‘Accumulated other comprehensive loss’’ (net of tax) for 2019 and 2018 were as follows:

Foreign

Pension and
Other

(In millions)

Balance as of December 30, 2017
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 December 29, 2018
Other comprehensive income before reclassifications, net of tax
Reclassifications to net income, net of tax

Currency Postretirement Cash Flow
Hedges

Benefits

Translation

Total

$(156.2)
(91.2)
–

(91.2)

$(247.4)
2.3
–

$(524.0)
(4.1)
93.8

$ (.3) $(680.5)
(94.2)
92.7

1.1
(1.1)

89.7

–

(1.5)

$(434.3)
66.4
266.1

$ (.3) $(682.0)
69.2
264.7

.5
(1.4)

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

2.3

332.5

(.9)

333.9

Balance as of December 28, 2019

$(245.1)

$(101.8)

$(1.2) $(348.1)

The amounts reclassified from ‘‘Accumulated other comprehensive loss’’ to increase (decrease) net income were as

follows:

(In millions)

Cash flow hedges:

Foreign exchange contracts
Commodity contracts
Interest rate contracts

Total before tax
Tax

Net of tax

2019

2018

2017 Statements of Income Location

2.1 $
(.2)
–

1.9
(.5)

1.3 $
.1
–

1.4
(.3)

.2 Cost of products sold
.2 Cost of products sold

(1.8) Interest expense

(1.4)

.5 (Benefit from) provision for income

taxes

1.4

1.1

(.9)

Pension and other postretirement benefits
Tax

(445.4)
179.3

(121.4)
27.6

(28.2) Other non-operating expense, net
8.9 (Benefit from) provision for income

Net of tax

Total reclassifications for the period

taxes

(266.1)

(93.8)

(19.3)

$(264.7) $ (92.7) $(20.2)

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

income (loss):

(In millions)

Foreign currency translation:

Translation gain (loss)

Pension and other postretirement benefits:

Net gain (loss) recognized from actuarial gain/loss and prior service cost/credit
Reclassifications to net income

Cash flow hedges:

Gains (losses) recognized on cash flow hedges
Reclassifications to net income

2019

2018

2017

$ (5.5) $ (9.1) $(25.1)

19.4
179.3

(2.4)
27.6

.2
(.5)

.3
(.3)

.5
8.9

(.6)
.5

Income tax expense (benefit) allocated to components of other comprehensive income (loss)

$192.9 $ 16.1 $(15.8)

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

NOTE 12. LONG-TERM INCENTIVE COMPENSATION

Stock-Based Awards
Stock-Based Compensation

to eligible employees

We grant our annual stock-based compensation
awards
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.

In April 2017, our shareholders approved our 2017
Incentive Award Plan (the ‘‘Equity Plan’’) to replace our
Amended and Restated Stock Option and Incentive Plan.
The Equity Plan, a long-term incentive plan for eligible
employees and non-employee directors, allows us to grant
stock
stock-based
options, RSUs, PUs, MSUs and DSUs–or a combination of
these and other awards. Under the Equity Plan, 5.4 million
shares are available for issuance, and each full value award
is counted as 1.5 shares for purposes of the number of
shares authorized for issuance. Full value awards include
RSUs, PUs, and MSUs.

awards–including

compensation

As of December 28, 2019, we had approximately
$42 million of unrecognized compensation expense related
to unvested stock-based awards, which is expected to be
recognized over the remaining weighted average requisite
service period of approximately two years.

Stock Options

employees

Stock options granted

and
non-employee directors may be granted at no less than
100% of the fair market value of our common stock on the
date of the grant and generally vest ratably over a four-year
period. Options expire ten years from the date of grant.
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.

Stock-based compensation expense and the related

Expected stock price volatility represents an average

recognized tax benefit were as follows:

of the implied and historical volatility.

(In millions)

2019

2018

2017

Stock-based compensation expense
Tax benefit

$34.5
4.3

$34.3
4.7

$30.2
4.3

This expense was included in ‘‘Marketing, general and
administrative expense’’ in the Consolidated Statements of
Income.

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 long-term incentive plans.
No stock options were granted in fiscal years 2019,

2018 or 2017.

The following table summarizes information related to stock options:

Outstanding at December 29, 2018
Exercised

Outstanding at December 28, 2019
Options vested and expected to vest at December 28, 2019
Options exercisable at December 28, 2019

Number of

options Weighted average
exercise price

(in thousands)

511.6
(305.4)

206.2
204.3
135.7

$45.06
33.56

$62.10
61.99
$55.93

Weighted average
remaining
contractual life
(in years)

Aggregate
intrinsic value
(in millions)

4.00

$22.4

4.92
4.91
4.14

$14.3
14.2
$10.3

The total intrinsic value of stock options exercised was
$23.5 million
in 2019, $2.7 million
in 2018, and
in 2017. We received approximately
$26.8 million
$10 million in 2019, $1 million in 2018, and $22 million in
2017 from the exercise of stock options. The tax benefit
associated with these exercised options was $5.7 million in
2019, $.6 million in 2018, and $10.1 million in 2017. The
intrinsic value of a stock option is based on the amount by

which the market value of our stock exceeds the exercise
price of the option.

Performance Units (‘‘PUs’’)

PUs are performance-based awards granted to eligible
employees under our equity plans. PUs are payable in
shares of our common stock at the end of a three-or
four-year cliff vesting period provided that certain

2019 Annual Report Avery Dennison Corporation

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 $104.43, $120.25, and $82.15 in
2019, 2018, and 2017, respectively.

The following table summarizes information related to

awarded PUs:

Number of

Weighted
average
PUs grant-date
fair value

(in thousands)

Notes to Consolidated Financial Statements

The following table summarizes information related to

awarded MSUs:

Number of

Weighted
average
MSUs grant-date
fair value

(in thousands)

Unvested at December 29, 2018
Granted at target
Adjustments for above-target

performance(1)

Vested
Forfeited/cancelled

Unvested at December 28, 2019

303.6
104.6

$ 90.33
135.85

83.4
(216.2)
(12.0)

70.38
73.60
114.11

263.4

$115.71

(1) Reflects adjustments for the vesting of awards based on above-target performance for

each of the tranches of awards vesting in 2019.

452.8
182.6

$ 86.20
104.43

The fair value of vested MSUs was $15.9 million in

2019, $24.0 million in 2018, and $19.3 million in 2017.

Unvested at December 29, 2018
Granted at target
Adjustment for above-target

performance(1)

Vested
Forfeited/cancelled

182.4
(374.2)
(16.1)

68.61
68.42
97.58

Unvested at December 28, 2019

427.5

$101.61

(1) Reflects adjustments for the vesting of awards based on above-target performance for

the 2016-2018 performance period.

The fair value of vested PUs was $25.6 million in 2019,

$11.9 million in 2018, and $11.2 million in 2017.

Market-Leveraged Stock Units (‘‘MSUs’’)

MSUs are performance-based awards granted to
eligible employees under our equity plans. MSUs are
payable in shares of our common stock over a four-year
is
period provided that the performance objective
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 provided that, at a
minimum, threshold performance is achieved. The number
of 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 $135.85, $117.75, and
$91.40 in 2019, 2018, and 2017, respectively.

Restricted Stock Units (‘‘RSUs’’)

RSUs are service-based awards granted to eligible
employees and non-employee directors under our equity
plans. RSUs granted to employees generally vest ratably
over a period of four years. Prior to 2017, RSUs granted to
non-employee directors generally vested ratably over a
period of three years. Beginning in 2017, RSUs granted to
non-employee directors generally vest over a period of one
year. The vesting of RSUs is subject to continued service
through the applicable vesting date. If that condition is not
met, unvested RSUs are generally forfeited. The weighted
average grant date fair value for RSUs was $107.18,
$106.44, and $82.77 in 2019, 2018, and 2017, respectively.
The following table summarizes information related to

awarded RSUs:

Unvested at December 29, 2018
Granted
Vested
Forfeited/cancelled

Number of
RSUs
(in thousands)

88.7
30.3
(53.9)
(5.4)

Weighted
average
grant-date
fair value

$ 83.72
107.18
81.71
82.51

Unvested at December 28, 2019

59.7

$ 97.56

The fair value of vested RSUs was $4.4 million,
$5.1 million, and $2.7 million in 2019, 2018, and 2017,
respectively.

Cash-Based Awards
Long-Term Incentive Units (‘‘LTI Units’’)

LTI Units are cash-based awards granted to eligible
employees under our long-term incentive unit plan. LTI

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

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 performance-based, 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. 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 our common stock at each quarter-end over their
respective performance periods. The compensation
expense related to performance LTI Units is amortized on a
straight-line basis over their respective performance
periods. The compensation expense related to market-
leveraged LTI Units is amortized on a graded-vesting basis
over their respective performance periods.

The compensation expense related to LTI Units was
$19.1 million
in 2018, and
in 2019, $12.4 million
$36.6 million in 2017. This expense was included in
‘‘Marketing, general and administrative expense’’ in the
Consolidated Statements of Income. The total recognized
tax benefit related to LTI Units was $4.4 million in 2019,
$2.9 million in 2018, and $8.3 million in 2017.

NOTE 13. COST REDUCTION ACTIONS

Restructuring Charges

We have plans that provide eligible employees with
severance in the event of an involuntary termination. We
calculate severance using the applicable benefit formulas
under the respective plans. We record restructuring
charges
for
severance and other exit costs (including asset impairment
charges and lease and other contract cancellation costs)
when they are probable and estimable.

from qualifying cost reduction actions

2019 Annual Report Avery Dennison Corporation

2019/2020 Actions

2018/2019 Actions

from

labor,

temporary

In April 2018, we approved a restructuring plan (the
‘‘2018 Plan’’) to consolidate the European footprint of our
Label and Graphic Materials (‘‘LGM’’) reportable segment,
which reduced headcount by approximately 390 positions,
including
the closure of a
manufacturing facility. This reduction was partially offset by
headcount additions in other locations, resulting in a net
reduction of approximately 150 positions. During fiscal year
2019, we recorded a net $2.3 million in restructuring
reversals related to the 2018 Plan. During fiscal year 2018,
we recorded $55.2 million in restructuring charges, net of
reversals. The cumulative charges associated with the 2018
Plan consisted of severance and related costs for the
headcount reduction, as well as asset impairment charges.
The activities related to the 2018 Plan were substantially
completed as of the end of the second quarter of 2019.
In addition to restructuring charges recorded under the
2018 Plan, we recorded $28.2 million in restructuring
charges during fiscal year 2019 related to other 2018/2019
actions. These charges consisted of severance and related
costs for the reduction of approximately 490 positions, as
well as asset impairment charges. In the fourth quarter 2018,
we recorded $4.2 million in restructuring charges relating to
these other 2018/2019 actions. These charges consisted of
severance and
reduction of
approximately 85 positions, as well as impairment charges.

related costs

the

for

2015/2016 Actions

Accruals for severance and related costs and lease
cancellation costs were
‘‘Other current
included
liabilities’’ in the Consolidated Balance Sheets. Asset
impairment charges were based on the estimated market
value of the assets, less selling costs, if applicable.
Restructuring charges were included in ‘‘Other expense,
net’’ in the Consolidated Statements of Income.

Notes to Consolidated Financial Statements

During 2019, restructuring charges and payments were as follows:

(In millions)

2019/2020 Actions
Severance and related costs
Asset impairment charges

2018/2019 Actions
Severance and related costs
Lease cancellation costs
Asset impairment charges

Total

Accrual at
December 29,
2018

Charges,
Net of
Reversals

Cash
Payments

Non-cash
Impairment

Foreign
Currency
Translation

Accrual at
December 28,
2019

–
–

$21.9
3.3

–
–

–
(3.3)

–
–

40.7
–
–

24.0
.3
1.6

(57.1)
–
–

–
–
(1.6)

(1.1)
–
–

$21.9
–

6.5
.3
–

$40.7

$51.1

$(57.1)

$(4.9)

$(1.1)

$28.7

During 2018, restructuring charges and payments were as follows:

(In millions)

2018/2019 Actions
Severance and related costs
Asset impairment charges

Total

Accrual at
December 30,
2017

Charges,
Net of
Reversals

Cash
Payments

Non-cash
Impairment

Foreign
Currency
Translation

Accrual at
December 29,
2018

–
–

–

$51.8
7.6

$59.4

$ (9.8)
–

$ (9.8)

–
(7.6)

$(7.6)

$(1.3)
–

$(1.3)

$40.7
–

$40.7

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

(In millions)

Restructuring charges by reportable segment and Corporate
Label and Graphic Materials
Retail Branding and Information Solutions
Industrial and Healthcare Materials
Corporate

Total

NOTE 14. TAXES BASED ON INCOME

Taxes based on income were as follows:

(In millions)

Current:

U.S. federal tax
State taxes
International taxes

Deferred:

U.S. federal tax
State taxes
International taxes

(Benefit from) provision for income taxes

2019

2018

2017

$ 29.0
9.8
9.4
2.2

$ 57.8
11.9
4.0
–

$ 14.8
18.4
.2
–

$ 50.4

$ 73.7

$ 33.4

2019

2018

2017

$ 11.0
.5
148.1

$ (19.7)
.8
134.3

$ 47.0
.2
111.0

159.6

115.4

158.2

(168.0)
(8.9)
(39.4)

(6.3)
2.3
(26.0)

134.8
(3.7)
18.4

(216.3)

(30.0)

149.5

$ (56.7)

$ 85.4

$307.7

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

The principal items accounting for the difference between taxes computed at the U.S. federal statutory rate and taxes

recorded were as follows:

(In millions)

Computed tax provision at U.S. federal statutory rate(1)
Increase (decrease) in taxes resulting from:
State taxes, net of federal tax benefit(1)
U.S. pension plan settlements and related charges(1)
Tax Cuts and Jobs Act(2)
Foreign earnings taxed at different rates(3)
Foreign tax structuring and planning transactions(4)
Excess tax benefits associated with stock-based payments
Valuation allowance
Corporate-owned life insurance
U.S. federal research and development tax credits
Tax contingencies and audit settlements
Other items, net

2019

2018

2017

$ 52.4

$116.5

$206.7

(12.8)
(76.6)
–
56.2
(47.9)
(7.8)
2.0
(4.0)
(6.1)
(11.8)
(.3)

3.9
–
(34.7)
44.0
(31.0)
(7.7)
10.7
(3.8)
(6.1)
(11.9)
5.5

(3.2)
–
172.0
(40.2)
–
(16.0)
(1.4)
(6.7)
(4.9)
(1.9)
3.3

(Benefit from) provision for income taxes

$(56.7)

$ 85.4

$307.7

(1) Included in 2019 and 2018 are tax effects of the pension plan settlement charges associated with the termination of the ADPP. The tax benefits of $102 million and $19 million on the
pretax charges were reflected in computed tax provision at U.S. federal statutory rate and state taxes, net of federal tax benefit for fiscal years 2019 and 2018, respectively. In 2019, the
tax benefit of $77 million related to the release of stranded tax effects in AOCI through the income statement was reflected in U.S. pension plan settlements and related charges.
(2) During 2018 and 2017, we recognized a net tax benefit of $34.7 million and a net tax charge of $172 million, respectively, as a result of the TCJA. These amounts included our TCJA
provisional amount and subsequent adjustments, including items that would otherwise be separately disclosed as state taxes, net of federal tax benefit, tax effects of foreign earnings
taxed at different rates, tax contingencies and audit settlements, and other items, net. We finalized our TCJA provisional amount as defined under SEC Staff Accounting Bulletin
No. 118 in 2018.

(3) Included in 2019 and 2018 are certain U.S. international tax provisions imposed by the TCJA; all years included foreign earnings taxed in the U.S., net of credits.
(4) In 2019, we recognized a net tax benefit of $47.9 million related to a foreign structuring transaction. This net benefit resulted from the elimination of recapture conditions to which our
previously recognized net operating losses were subject. By eliminating these conditions, our losses became permanent, and the offsetting deferred tax liability related to future
recapture was released. In 2018, we recognized a net tax benefit of $31 million related to a foreign planning transaction. This net benefit resulted from the recognition of a deferred tax
asset in a higher tax rate jurisdiction, partially offset by a taxable gain recognized in a lower effective tax rate jurisdiction.

Income before taxes from our U.S. and international

operations was as follows:

(In millions)

U.S.
International

2019

2018

2017

$(355.4)
604.9

$ (7.3)
562.1

$ 49.0
540.5

Income before taxes

$ 249.5

$554.8

$589.5

Our effective tax rate was (22.7)%, 15.4%, and 52.2%

for fiscal years 2019, 2018, and 2017, respectively.

income taxes

Our 2019 provision

included
for
$179 million of tax benefit related to the effective
settlement of the ADPP, $102 million of which was the
related tax effect on the pretax charge of $444 million and
$77 million of which was related to the release of stranded
tax effects in AOCI through the income statement. The tax
effects were stranded primarily as a result of the U.S. federal
tax rate change under the TCJA. Refer to Note 1,
‘‘Summary of Significant Accounting Policies,’’ and Note 6,
‘‘Pension and Other Postretirement Benefits,’’ for more
information. Our 2019 provision for income taxes also
included (i) $47.9 million of tax benefit from a foreign tax
structuring transaction resulting in previously recognized
tax losses becoming permanent; (ii) $24.7 million of net tax
charge related to the tax on global intangible low-taxed

2019 Annual Report Avery Dennison Corporation

income (‘‘GILTI’’) of our foreign subsidiaries and the
recognition of foreign withholding taxes on current year
earnings, partially offset by the benefit from foreign-
derived intangible income (‘‘FDII’’); (iii) $11.8 million of net
tax benefit from the effective settlement of certain German
tax audits and decreases in reserves as a result of closing
tax years, partially offset by additional interest and penalty
accruals, and increases in reserves from our change in
judgment; (iv) $7.8 million of tax benefit related to excess
tax benefits associated with stock-based payments; and
(v) $2 million of net tax benefit from an intellectual property
tax incentive in a foreign jurisdiction having met the
eligibility requirements. Effective in 2019, we implemented
certain operational structure changes to more closely align
with our business strategies, one benefit of which was to
reduce our base erosion payments below the statutory
threshold. As a result, our 2019 provision for income taxes
did not include tax charges related to Base Erosion
Antiabuse Tax (‘‘BEAT’’).

income taxes

Our 2018 provision

included
for
(i) $34.7 million of tax benefit for measurement period
adjustments to our 2017 TCJA provisional amount in
accordance with guidance provided under SEC Staff
Accounting Bulletin No. 118 (‘‘SAB 118’’); (ii) $31 million of
net tax charge for GILTI and BEAT, and the recognition of

foreign withholding taxes on current year earnings, partially
offset by the benefit from FDII; (iii) $11.9 million of net tax
benefit from the effective settlement of our German tax
audit and decreases in reserves as a result of closing tax
years, partially offset by additional interest and penalty
accruals, and increases in reserves from our change in
judgment; and (iv) $31 million of net tax benefit primarily
due to the recognition of a deferred tax asset in a higher tax
rate
jurisdiction, partially offset by a taxable gain
recognized in a lower effective tax rate jurisdiction. Our
2018 provision for income taxes was not significantly
impacted by the $10.7 million increase in valuation
allowance primarily due to offsetting changes in deferred
taxes and uncertain tax positions.

income taxes

Our 2017 provision

included
for
(i) $172 million of net tax charge for our 2017 TCJA
provisional amount; (ii) $5.1 million of tax benefit from the
release of valuation allowance on certain state deferred tax
assets; (iii) $16 million of tax benefit related to excess tax
benefits associated with stock-based payments; and
(iv) $1.9 million of net tax benefit from effective settlements
and decreases in reserves as a result of closing tax years,
partially offset by additional interest and penalty accruals,
and increases in reserves from our change in judgment.

U.S. Tax Reform

The TCJA enacted in the U.S. in December 2017
significantly changed U.S. corporate income taxation by,
among other things, reducing the federal corporate
income tax rates to 21%; implementing a modified
territorial tax system prospectively by providing a dividend
received deduction on certain dividends from our foreign
subsidiaries, loss of domestic manufacturing deductions,
and limitations on the deductibility of our executive
compensation; and interest expense, and imposing a
one-time transition tax through a deemed repatriation of
accumulated untaxed earnings and profits of foreign
subsidiaries.

In 2017, we

included a provisional amount of
$172 million as the estimated impact of the TCJA in our
results for the fourth quarter and full year 2017. This
provisional amount included (i) $147 million of tax charge
related to the estimated transition tax; (ii) $49.2 million of
tax charge resulting from the estimated remeasurement of
net U.S. deferred tax assets at the lower corporate income
tax rate; (iii) $9.3 million of tax charge related to potential
uncertainties of our accumulated tax attributes that were

Notes to Consolidated Financial Statements

transition

in our estimated

used
tax calculation;
(iv) $5.3 million of tax charge from the estimated reduction
of previously recognized U.S. deferred tax assets that we no
longer anticipated to benefit from due to changes in the
future deductibility of executive compensation; and
(v) $38.8 million of net tax benefit, primarily from the
reversal of the deferred tax liability that we previously
recorded for future tax costs associated with repatriations
of certain foreign earnings and profits that we considered
not to be indefinitely reinvested.

As of December 29, 2018, we completed our
accounting for the income tax effects of the TCJA following
the guidance of SAB 118. Specifically, we included
$34.7 million of net tax benefit as measurement period
adjustments primarily related to (i) $9.5 million of tax
charge as an adjustment to the transition tax, reflecting
subsequent regulatory and administrative guidance issued
by the Internal Revenue Service (‘‘IRS’’) and certain state
taxing authorities and the finalization of our foreign
earnings and profits as well as taxes; (ii) $39.6 million of tax
benefit as an adjustment to the remeasurement of deferred
taxes as a result of our decision to accelerate certain
deductions in conjunction with the completion of our 2017
U.S. federal income tax return; (iii) $3.6 million of tax charge
as an incremental accrual for foreign withholding taxes
associated with changes in our indefinite reinvestment
assertions after
information required to make such
determination was obtained; and (iv) $9.4 million of tax
benefit from releasing a previously recorded uncertain tax
position after we did not take the position on our 2017 U.S.
federal income tax return.

Consistent with the prior year, our accumulated
earnings
indefinitely
foreign subsidiaries are not
reinvested. As a result of the one-time transition tax and the
dividend received deduction prescribed by the TCJA, our
accumulated earnings in foreign subsidiaries can generally
be
tax
consequences. As of December 28, 2019, we recorded a
deferred tax liability of $18.9 million related to future tax
consequences from repatriating our accumulated earnings
in foreign subsidiaries that are not indefinitely reinvested.

the U.S. without material

repatriated

Deferred Taxes

Deferred 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

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

temporary differences that gave rise to our deferred tax
assets and liabilities were as follows:

(In millions)

Accrued expenses not currently deductible
Net operating loss carryforwards(1)
Tax credit carryforwards
Stock-based compensation
Pension and other postretirement benefits
Lease liabilities(2)
Other assets
Valuation allowance

2019

2018

$ 25.7
154.6
46.5
11.8
57.8
30.5
21.3
(67.7)

$ 18.4
166.4
69.0
12.4
79.8
–
18.5
(71.8)

Total deferred tax assets(3)

280.5

292.7

Depreciation and amortization
Repatriation accrual
Foreign operating loss recapture(1)
Lease assets(2)
Other liabilities

Total deferred tax liabilities(3)

Total net deferred tax assets

(41.6)
(18.9)
(3.4)
(29.7)
–

(45.1)
(21.3)
(56.5)
–
(1.6)

(93.6)

(124.5)

$186.9

$ 168.2

(1) A portion of our net operating losses originated from prior impairments of investment
value in foreign subsidiaries as recognized for foreign accounting and tax reporting
purposes. As required by law, these impairment losses are subject to future recapture
under certain conditions. In 2019, we executed a foreign tax structuring transaction
that eliminated the conditions under which future recapture may occur. Consequently,
our previously recognized impairment losses became permanent, and the deferred tax
liability related to future recapture was released.

(2) In 2019, we adopted the accounting guidance on leases using a modified
retrospective approach. As such, the prior year period has not been adjusted. Refer to
Note 1, ‘‘Summary of Significant Accounting Policies,’’ and Note 7, ‘‘Commitments
and Leases,’’ to the Consolidated Financial Statements for more information.

(3) Reflect gross amounts before jurisdictional netting of deferred tax assets and liabilities.

We assess the available positive and negative
evidence to estimate if sufficient future taxable income is
expected to be generated to use existing deferred tax
assets. On the basis of our assessment, we record valuation
allowances only with respect to the portion of the deferred
tax asset that is not more-likely-than-not to be realized. Our
assessment of the future realizability of our deferred tax
assets relies heavily on our forecasted earnings in certain
jurisdictions, and such forecasted earnings are determined
by the manner in which we operate our business. Any
changes to our operations may affect our assessment of
deferred tax assets considered realizable if the positive
evidence no longer outweighs the negative evidence.

Net operating

loss carryforwards of

foreign
subsidiaries at December 28, 2019 and December 29, 2018
were $508 million and $538 million, respectively. Tax credit
carryforwards of both domestic and foreign subsidiaries at

2019 Annual Report Avery Dennison Corporation

December 28, 2019 and December 29, 2018 totaled
$47 million and $69 million, respectively. If unused, foreign
net operating losses and tax credit carryforwards will expire
as follows:

(In millions)
Year of Expiry

2020
2021
2022
2023
2024
2025 - 2039
Indefinite life/no expiry

Total

Net Operating
Losses(1)

Tax Credits

$ 5.1
3.1
6.6
5.2
5.2
8.4
474.5

$508.1

$ .3
.5
.6
2.5
.4
35.1
7.1

$46.5

(1) Net operating losses are presented before tax effect and valuation allowance.

Certain indefinite-lived foreign net operating losses
may require decades to be fully utilized under our current
business model.

At December 28, 2019, we had net operating loss
carryforwards in certain state jurisdictions of $635 million
before tax effect. Based on our estimates of future state
taxable income, it is more-likely-than-not that the majority
of these carryforwards will not be realized before they
expire. Accordingly, a valuation allowance has been
recorded on $588 million of these carryforwards.

As of December 28, 2019, our provision for income
taxes did not materially benefit from applicable tax holidays
in foreign jurisdictions.

Unrecognized Tax Benefits

As of December 28, 2019, our unrecognized tax
benefits totaled $70 million, $61 million of which, if
recognized, would reduce our annual effective income tax
rate. As of December 29, 2018, our unrecognized tax
benefits totaled $81 million, $72 million of which, if
recognized, would reduce our annual effective income tax
rate.

Where applicable, we accrue potential interest and
penalties related to unrecognized tax benefits in income
tax expense. The interest and penalties we recognized
during fiscal years 2019, 2018 and 2017 were not material,
individually or
the Consolidated
Statements of Income. We have accrued balances of
$22 million and $25 million for interest and penalties, net of
tax benefit, in the Consolidated Balance Sheets at
December 28, 2019 and December 29, 2018, respectively.

in aggregate,

A reconciliation of the beginning and ending amounts

of unrecognized tax benefits is set forth below:

RFID inlays), and related services, supplies and
equipment; and

Notes to Consolidated Financial Statements

(In millions)

Balance at beginning of year
Additions for tax positions of the current year
Reductions for tax positions of prior years, net
Settlements with tax authorities
Expirations of statutes of limitations
Changes due to translation of foreign

currencies

Balance at end of year

2019

2018

$80.8 $108.7
11.5
(23.1)
(6.6)
(5.9)

7.5
(6.7)
(1.9)
(8.0)

(1.8)

(3.8)

$69.9 $ 80.8

is reasonably possible that, during the next
12 months, we may realize a decrease in our uncertain tax
positions,
of
interest
approximately $19 million, primarily as a result of audit
settlements and closing tax years.

and penalties,

including

The amount of income taxes we pay is subject to
ongoing audits by taxing jurisdictions around the world.
Our estimate of the potential outcome of any uncertain tax
issue is subject to our assessment of the relevant risks, facts,
and circumstances existing at the time. We believe that we
have adequately provided for reasonably foreseeable
outcomes related to these matters. However, our future
results may include favorable or unfavorable adjustments
to our estimated tax liabilities in the period the assessments
are made or resolved, which may impact our effective tax
rate. The final determination of tax audits and any related
legal proceedings could materially differ from amounts
reflected in our tax provision and the related liabilities. As
of the date the 2019 Consolidated Financial Statements are
being issued, we and our U.S. subsidiaries have completed
the IRS’ Compliance Assurance Process Program through
2016. With some exceptions, we and our subsidiaries are
no longer subject to income tax examinations by tax
authorities for years prior to 2009.

• Industrial

and Healthcare Materials

–
manufactures and sells performance tapes and
other adhesive products for industrial, medical
and other applications as well as
fastener
solutions.

Intersegment sales are recorded at or near market
prices and are eliminated in determining consolidated
sales. We evaluate our performance based on income from
operations before interest expense and taxes. General
corporate expenses are excluded from the computation of
income from operations for the segments.

We do not disclose total assets by reportable segment
since we neither generate nor review such information
internally. As our reporting structure is neither organized
nor reviewed internally by country, results by individual
country are not provided.

Disaggregated Revenue Information

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

(In millions)

2019

2018

2017

Net sales to unaffiliated

customers

Label and Graphic Materials:

U.S.
Europe
Asia
Latin America
Other international

$1,246.6 $1,256.0 $1,198.4
1,689.3
1,851.3
1,002.6
1,081.2
357.0
367.8
264.4
294.8

1,767.9
1,065.0
375.4
291.0

NOTE 15. SEGMENT AND DISAGGREGATED REVENUE

Total Label and Graphic Materials

4,745.9

4,851.1

4,511.7

INFORMATION

Retail Branding and Information

Segment Reporting

We have the following reportable segments:

• Label and Graphic Materials – manufactures and
sells pressure-sensitive
label and packaging
materials and films for graphic and reflective
products;

• Retail Branding and Information Solutions –
designs, manufactures and sells a wide variety of
branding and information solutions, including
brand and price tickets, tags and labels (including

Solutions:
Apparel
Printer Solutions

Total Retail Branding and
Information Solutions

Industrial and Healthcare

Materials

Net sales to unaffiliated

customers

1,458.5
191.8

1,441.7
171.5

1,352.0
159.2

1,650.3

1,613.2

1,511.2

673.9

694.7

590.9

$7,070.1 $7,159.0 $6,613.8

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

Revenue by geographic area is set forth below.
Revenue is attributed to geographic areas based on the
location from which the product is shipped.

(In millions)

2019

2018

2017

Net sales to unaffiliated

customers

U.S.
Europe
Asia
Latin America
Other international

Net sales to unaffiliated

customers

$1,638.8 $1,625.1 $1,557.8
2,041.6
2,251.4
2,250.5
2,473.2
476.4
490.0
287.5
319.3

2,160.2
2,458.5
498.3
314.3

$7,070.1 $7,159.0 $6,613.8

Solutions

Net sales to unaffiliated customers in Asia included
sales in China (including Hong Kong) of $1.38 billion in
2019, $1.43 billion in 2018, and $1.3 billion in 2017.

Additional Segment Information

Additional

financial

information by

reportable

segment is set forth below.

(In millions)

2019

2018

2017

Intersegment sales
Label and Graphic Materials
Retail Branding and Information

Solutions

Industrial and Healthcare Materials

$ 80.2 $ 78.7 $ 64.1

20.6
8.8

4.7
8.8

3.2
7.7

Intersegment sales

$ 109.6 $ 92.2 $ 75.0

(In millions)

2019

2018

2017

Depreciation and amortization

expense

Label and Graphic Materials
Retail Branding and Information

Solutions

Industrial and Healthcare Materials

Depreciation and amortization

$ 100.2 $ 104.7 $102.3

52.6
26.2

49.0
27.3

56.4
20.0

expense

$ 179.0 $ 181.0 $178.7

Other expense, net by reportable

segment

Label and Graphic Materials
Retail Branding and Information

Industrial and Healthcare Materials
Corporate

$ 28.3 $ 61.8 $ 14.5

9.9
9.4
5.6

11.4
(1.0)
(2.3)

18.1
3.7
.2

Other expense, net

$ 53.2 $ 69.9 $ 36.5

Other expense, net by type
Restructuring charges:

Severance and related costs
Asset impairment charges and lease

$ 45.3 $ 63.0 $ 31.2

cancellation costs

Other items:

Legal settlement
Transaction costs
Argentine peso remeasurement

transition loss

Other restructuring-related charge
Reversal of acquisition-related
contingent consideration
Net gain on sales of assets

5.1

10.7

2.2

3.4
2.6

–
–

3.4
.5

–
5.2

–
–

–
(3.2)

(5.0)
(2.7)

–
(2.1)

Income before taxes
Label and Graphic Materials
Retail Branding and Information

Solutions

Industrial and Healthcare Materials
Corporate expense
Interest expense
Other non-operating expense, net

Capital expenditures
Label and Graphic Materials
Retail Branding and Information

Solutions

Industrial and Healthcare Materials

$ 601.5 $ 568.2 $577.4

Other expense, net

$ 53.2 $ 69.9 $ 36.5

196.6
60.0
(87.6)
(75.8)
(445.2)

170.4
62.9
(83.4)
(58.5)
(104.8)

126.7
52.6
(86.2)
(63.0)
(18.0)

Property, plant and equipment, net, in our U.S. and

international operations were as follows:

(In millions)

2019

2018

2017

Property, plant and equipment,

$ 137.8 $ 151.5 $125.5

net

U.S.
International

$ 366.9 $ 317.3 $ 286.4
811.5

843.8

820.1

63.1
24.2

57.1
19.3

48.8
19.5

net

Property, plant and equipment,

$1,210.7 $1,137.4 $1,097.9

Income before taxes

$ 249.5 $ 554.8 $589.5

Capital expenditures

$ 225.1 $ 227.9 $193.8

2019 Annual Report Avery Dennison Corporation

Notes to Consolidated Financial Statements

NOTE 16. SUPPLEMENTAL FINANCIAL INFORMATION

Research and Development

Inventories

Net inventories at year-end were as follows:

Research and development expense, which is included
in ‘‘Marketing, general and administrative expense’’ in the
Consolidated Statements of Income, was as follows:

(In millions)

Raw materials
Work-in-progress
Finished goods

Inventories, net

2019

2018

(In millions)

2019

2018

2017

$ 231.6
201.0
230.4

$ 236.2
196.7
218.5

Research and development

expense

$ 92.6

$ 98.2

$ 93.4

$ 663.0

$ 651.4

Supplemental Cash Flow Information

Cash paid for interest and income taxes was as follows:

Property, Plant and Equipment

Major classes of property, plant and equipment, stated

at cost, at year-end were as follows:

(In millions)

Land
Buildings and improvements
Machinery and equipment
Construction-in-progress

Property, plant and equipment
Accumulated depreciation

2019

2018

25.1
687.4
2,316.9
142.2

28.0
643.1
2,231.1
151.5

3,171.6
(1,960.9)

3,053.7
(1,916.3)

Property, plant and equipment, net

$ 1,210.7

$ 1,137.4

Software

Capitalized software costs at year-end were as follows:

(In millions)

Cost
Accumulated amortization

Software, net

2019

2018

$ 487.2
(334.4)

$ 452.4
(316.9)

$ 152.8

$ 135.5

Software amortization expense was $20.8 million in

2019, $20.2 million in 2018, and $29.3 million in 2017.

Equity Method Investment

As of December 28, 2019, we held a 22.9% interest in
PragmatIC Printing Limited (‘‘PragmatIC’’), a company that
develops flexible electronics technology. The carrying
value of this investment was $8.8 million and $6.7 million as
of December 28, 2019 and December 29, 2018,
respectively, and was included in ‘‘Other assets’’ in the
Consolidated Balance Sheets. In January 2019, we made an
additional investment in PragmatIC of approximately
$4 million.

(In millions)

2019

2018

2017

Interest
Income taxes, net of refunds

$ 74.3
155.0

$ 54.9
153.5

$ 57.7
125.6

Foreign Currency Effects

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),
impacts,
decreased net income by $9.7 million, $13.4 million, and
$4.1 million in 2019, 2018, and 2017, respectively.

including hedging

Deferred Revenue

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

The following table shows the amounts and balance
sheet locations of deferred revenue as of December 28,
2019 and December 29, 2018:

(In millions)

Other current liabilities
Long-term retirement benefits

and other liabilities

Total deferred revenue

December 28,
2019

December 29,
2018

$12.6

$12.9

$11.5

$11.8

from amounts

Revenue recognized

in
deferred
revenue as of December 29, 2018 was
$10.8 million in 2019. Revenue recognized from amounts
included in deferred revenue as of December 30, 2017 was
$12.2 million in 2018. This revenue was included in ‘‘Net
sales’’ in the Consolidated Statements of Income.

included

Avery Dennison Corporation 2019 Annual Report

Notes to Consolidated Financial Statements

NOTE 17. QUARTERLY FINANCIAL INFORMATION (Unaudited)

(In millions, except per share data)

2019
Net sales
Gross profit
Net (loss) income(1)
Net (loss) income per common share
Net (loss) income per common share, assuming dilution

2018
Net sales
Gross profit
Net income(2)
Net income per common share
Net income per common share, assuming dilution

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$1,740.1
465.4
(146.9)
(1.74)
(1.74)

$1,795.7
482.3
143.4
1.70
1.69

$1,776.4
483.4
125.2
1.42
1.40

$1,854.2
501.4
95.6
1.09
1.07

$1,761.4
471.7
144.6
1.72
1.71

$1,759.7
459.2
149.5
1.71
1.69

$1,772.9
484.7
162.5
1.95
1.92

$1,768.7
471.5
97.1
1.13
1.11

(1) In the first quarter of 2019, we recognized final settlement charges associated with the termination of the ADPP. Refer to Note 6, ‘‘Pension and Other Postretirement Benefits,’’ for more

information.

(2) In the fourth quarter of 2018, we recognized settlement charges related to lump-sum payments associated with the ADPP. Refer to Note 6, ‘‘Pension and Other Postretirement

Benefits,’’ for more information.

‘‘Other expense (income), net’’ by type for each quarter is presented below.

(In millions)

2019
Restructuring charges:

Severance and related costs
Asset impairment charges and lease cancellation costs

Other items:

Legal settlement
Transaction costs
Net gain on sales of assets

Other expense, net

2018
Restructuring charges:

Severance and related costs, net of reversals
Asset impairment charges and lease cancellation costs

Other items:

Argentine peso remeasurement transition loss
Other restructuring-related charge
Reversal of acquisition-related contingent consideration
Net gain on sales of assets

Other expense (income), net

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$10.4
.3

$ 6.1
1.4

$ 3.3
–

$25.5
3.4

–
–
(3.2)

–
–
–

3.4
–
–

–
2.6
–

$ 7.5

$ 6.7

$31.5

$ 4.3
8.4

$58.8
.6

$(7.1)
.7

$ 7.0
1.0

–
.5
–
(.4)

–
–
–
(2.3)

3.4
–
–
–

–
–
(5.0)
–

$12.8

$57.1

$(3.0)

$ 3.0

2019 Annual Report Avery Dennison Corporation

STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS

The consolidated financial statements and accompanying information are the responsibility of and were prepared by
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 our
Board of Directors, through its Audit and Finance Committee, which is comprised solely of independent directors. The
Committee meets periodically with financial management, internal auditors and our 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, and periodically 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 that
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 our chief executive officer and chief financial officer, we 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 December 28, 2019. Management’s assessment of the effectiveness of internal control
over financial reporting as of December 28, 2019 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report included herein.

21FEB201715482343

22FEB201821250323

Mitchell R. Butier
Chairman, President and Chief Executive Officer

Gregory S. Lovins
Senior Vice President and Chief Financial Officer

Avery Dennison Corporation 2019 Annual Report

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Avery Dennison Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Avery Dennison Corporation and its subsidiaries
(the ‘‘Company’’) as of December 28, 2019 and December 29, 2018, and the related consolidated statements of income, of
comprehensive income, of shareholders’ equity and of cash flows for each of the three years in the period ended
December 28, 2019, including the related notes (collectively referred to as the ‘‘consolidated financial statements’’). We also
have audited the Company’s internal control over financial reporting as of December 28, 2019, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 28, 2019 and December 29, 2018, and the results of its operations and its
cash flows for each of the three years in the period ended December 28, 2019 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 December 28, 2019, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts

for leases in 2019.

Basis for Opinions

The Company’s management is responsible for these consolidated 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 the Company’s consolidated financial statements and on the Company’s internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained
in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. 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.

Definition and Limitations of Internal Control over Financial Reporting

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

56 2019 Annual Report Avery Dennison Corporation

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to
accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they
relate.

Goodwill Impairment Assessment of One Reporting Unit in the Industrial and Healthcare Materials (‘‘IHM’’) Reportable

Segment

As described in Notes 1 and 3 to the consolidated financial statements, the Company’s consolidated goodwill balance
was $930.8 million as of December 28, 2019, of which $173.7 million related to the Company’s IHM reportable segment.
Management performs an annual impairment test of goodwill during the fourth quarter, unless certain factors indicate the
need to perform an impairment assessment in addition to the annual test. Potential impairment is identified by comparing
the fair value of a reporting unit to its carrying amount, and, to the extent the carrying amount exceeds the fair value, an
impairment of goodwill is recognized for the excess up to the amount of goodwill of that reporting unit. The goodwill of one
reporting unit in the Company’s IHM reportable segment was tested utilizing a quantitative assessment. Management’s
quantitative analysis primarily consists of a present value (discounted cash flow) method to determine the fair value of the
reporting units with goodwill. A discounted cash flow analysis requires management to make various assumptions about the
reporting units, including forecasted sales, operating margins and growth rates, and discount rates. Assumptions are also
made for varying perpetual growth rates for periods beyond the long-term business plan period.

The principal considerations for our determination that performing procedures relating to the goodwill impairment
assessment of one reporting unit in the IHM reportable segment is a critical audit matter are there was significant judgment
by management when developing the fair value measurement of the reporting unit. This in turn led to a high degree of
auditor judgment, subjectivity, and effort in performing procedures and in evaluating management’s cash flow projections
and significant assumptions, including forecasted sales, operating margins and growth rates, discount rates and perpetual
growth rates for periods beyond the long-term business plan period. In addition, the audit effort involved the use of
professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit
evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls
relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s
reporting units. These procedures also included, among others, testing management’s process for developing the fair value
estimate; evaluating the appropriateness of the discounted cash flow method; testing the completeness, accuracy, and
relevance of underlying data used in the estimate; and evaluating the significant assumptions used by management,
including forecasted sales, operating margins and growth rates, discount rates and perpetual growth rates for periods
beyond the long-term business plan period. Evaluating management’s assumptions related to forecasted sales, operating
margins and growth rates, involved evaluating whether the assumptions used by management were reasonable considering
(i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and
(iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with
specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow method and
certain significant assumptions, including discount rates and perpetual growth rates for periods beyond the long-term
business plan.

Avery Dennison Corporation 2019 Annual Report

Income Taxes

As described in Notes 1 and 14 to the consolidated financial statements, the Company is subject to income tax in the
U.S. and multiple foreign jurisdictions, whereby management applies judgment in evaluating and estimating the Company’s
worldwide provision, accruals for taxes and deferred taxes and for evaluating the Company’s tax positions. The Company
recorded a benefit from income taxes of $56.7 million, total net deferred tax assets of $186.9 million and unrecognized tax
benefits of $69.9 million as of and for the year-ended December 28, 2019. Significant judgments and estimates are required
by management when determining the Company’s tax expense and evaluating tax positions, including uncertainties.
Management’s estimate of the potential outcome of uncertain tax issues is subject to management’s assessment of relevant
facts and circumstances existing at the balance sheet date, as well as existing laws, regulations and practices of any
governmental authorities exercising jurisdiction over the Company’s operations. Management’s assessment of the future
realizability of the Company’s deferred tax assets relies heavily on forecasted earnings in certain jurisdictions, and such
forecasted earnings are determined by the manner in which the Company operates its business.

The principal considerations for our determination that performing procedures relating to income taxes is a critical
audit matter are there was significant judgment by management in accounting for income taxes, including evaluating the
potential outcome of various uncertain tax issues and the realizability of deferred tax assets. This in turn led to a high degree
of auditor judgment, effort and subjectivity in performing procedures to evaluate the potential outcome of uncertain tax
issues and the realizability of deferred tax assets on a jurisdictional basis. In addition, the audit effort involved the use of
professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit
evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls
relating to accounting for income taxes, including controls over uncertain tax issues and the realizability of deferred tax
assets on a jurisdictional basis. These procedures also included testing the income tax provision, including the rate
reconciliation, return to provision adjustments in the U.S. and certain foreign jurisdictions. Evaluating management’s
assessment related to the potential outcome of uncertain tax issues included evaluating management’s assessment of
existing laws, regulations and practices of governmental authorities exercising jurisdiction over the Company’s operations.
Evaluating management’s process for assessing the future realizability of deferred tax assets on a jurisdictional basis
included evaluating estimates of future taxable income, evaluating management’s application of income tax law, and testing
the completeness and accuracy of underlying data used in management’s assessment. Evaluating management’s estimates
of future taxable income involved evaluating whether the estimates used by management were reasonable considering the
current and past performance of the Company on a jurisdictional basis and whether the estimates were consistent with
evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in
evaluating the reasonableness of management’s judgment and estimates, including the application of relevant foreign and
domestic income tax laws and regulations, the provision for income taxes and the reasonableness of management’s
assessments of whether certain tax positions are more-likely-than-not of being sustained.

Los Angeles, California
February 26, 2020

27FEB202011203885

We have served as the Company’s auditor since at least 1960, which were the Company’s first financial statements
subject to SEC reporting requirements. We have not been able to determine the specific year we began serving as auditor
of the Company or a predecessor company.

58 2019 Annual Report Avery Dennison Corporation

Other
Information

Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
601 South Figueroa Street, Suite 900
Los Angeles, California 90017
(213) 356-6000

Registrar and Transfer Agent
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, New York 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. Pacific Time on April 23, 2020 at 207 Goode
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.

Certification Information

We are including, as Exhibits 31.1 and 31.2 to our
Annual Report on Form 10-K for fiscal year 2019 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 April 29, 2019.

Annual Report on Form 10-K Requests

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 are also available on 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

Dividends per Common Share
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2019

2018

$ .52
.58
.58
.58

$ .45
.52
.52
.52

$ 2.26

$ 2.01

Number of shareholders of record as of

fiscal year-end

4,397

4,606

Avery Dennison Corporation 2019 Annual Report