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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended April 2, 2022.
OR
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from ________________________ to
________________________
Commission file number 1-7685
AVERY DENNISON CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware |
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95-1492269 |
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(State or other jurisdiction of incorporation or
organization) |
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(I.R.S. Employer Identification No.) |
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8080 Norton Parkway
Mentor, Ohio
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44060
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(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (440)
534-6000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Common stock, $1 par value |
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AVY |
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New York Stock Exchange
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1.25% Senior Notes due 2025 |
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AVY25 |
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Nasdaq Stock Market
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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x
Large accelerated filer
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o
Accelerated filer
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o
Non-accelerated filer
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o
Smaller reporting company
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o
Emerging growth company
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
x
Number of shares of $1 par value common stock outstanding as of
April 30, 2022: 81,714,286
AVERY DENNISON CORPORATION
FISCAL FIRST QUARTER 2022 QUARTERLY REPORT ON FORM
10-Q
TABLE OF CONTENTS
Safe Harbor Statement
The matters discussed in this Quarterly Report contain
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements, which
are not statements of historical fact, contain estimates,
assumptions, projections and/or expectations regarding future
events, that 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: (i) the impacts
to underlying demand for our products and/or foreign currency
fluctuations from global economic conditions, political
uncertainty, changes in environmental standards and governmental
regulations, including as a result of COVID-19; (ii) the
availability of raw materials; (iii) the degree to which higher
costs can be offset with productivity measures and/or passed on to
customers through price increases, without a significant loss of
volume; (iv) competitors’ actions, including pricing, expansion in
key markets, and product offerings; and (v) the execution and
integration of acquisitions, including the acquisition of CB
Velocity Holdings, LLC ("Vestcom").
The more significant risks and uncertainties that may impact us are
discussed in more detail under “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” in our 2021 Annual Report on Form 10-K filed on
February 23, 2022. These risks and uncertainties include, but are
not limited to, the following:
•COVID-19
•International
Operations – worldwide and local economic and market conditions;
changes in political conditions, including those related to the
Russian invasion of Ukraine; and fluctuations in foreign currency
exchange rates and other risks associated with foreign operations,
including in emerging markets
•Our
Business – fluctuations in demand affecting sales to customers;
fluctuations in the cost and availability of raw materials and
energy; changes in our markets due to competitive conditions,
technological developments, environmental standards, laws and
regulations, and customer preferences; the impact of competitive
products and pricing; execution and integration of acquisitions,
including our acquisition of Vestcom; selling prices; customer and
supplier concentrations or consolidations; financial condition of
distributors; outsourced manufacturers; product and service
quality; timely development and market acceptance of new products,
including sustainable or sustainably-sourced products; investment
in development activities and new production facilities; successful
implementation of new manufacturing technologies and installation
of manufacturing equipment; our ability to generate sustained
productivity improvement; our ability to achieve and sustain
targeted cost reductions; and collection of receivables from
customers
•Income
Taxes – fluctuations in tax rates; changes in tax laws and
regulations, and uncertainties associated with interpretations of
such laws and regulations; retention of tax incentives; outcome of
tax audits; and the realization of deferred tax assets
•Information
Technology – disruptions in information technology systems or data
security breaches, including cyber-attacks or other intrusions to
network security; and successful installation of new or upgraded
information technology systems
•Human
Capital – recruitment and retention of employees; fluctuations in
employee benefit costs; and collective labor
arrangements
•Our
Indebtedness – credit risks; our ability to obtain adequate
financing arrangements and maintain access to capital; fluctuations
in interest rates; volatility of financial markets; and compliance
with our debt covenants
•Ownership
of Our Stock – potential significant variability of our stock price
and amounts of future dividends and share repurchases
•Legal
and Regulatory Matters – protection and infringement of
intellectual property; impact of legal and regulatory proceedings,
including with respect to environmental, anti-corruption, health
and safety, and trade compliance
•Other
Financial Matters – fluctuations in pension costs and goodwill
impairment
Our forward-looking statements are made only as of the date hereof.
We assume no duty to update these forward-looking statements to
reflect new, changed or unanticipated events or circumstances,
other than as may be required by law.
Avery Dennison Corporation
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(Dollars in millions, except per share amount) |
April 2, 2022 |
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January 1, 2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
147.1 |
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$ |
162.7 |
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Trade accounts receivable, less allowances of $39.5 and $33 at
April 2, 2022 and January 1, 2022,
respectively
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1,551.4 |
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1,424.5 |
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Inventories |
960.9 |
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907.2 |
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Other current assets |
234.9 |
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240.2 |
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Total current assets |
2,894.3 |
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2,734.6 |
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Property, plant and equipment, net |
1,477.5 |
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1,477.7 |
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Goodwill |
1,890.0 |
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1,881.5 |
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Other intangibles resulting from business acquisitions,
net |
910.8 |
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911.4 |
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Deferred tax assets |
128.8 |
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130.2 |
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Other assets |
837.4 |
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836.2 |
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$ |
8,138.8 |
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$ |
7,971.6 |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Short-term borrowings and current portion of long-term debt and
finance leases |
$ |
494.9 |
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$ |
318.8 |
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Accounts payable |
1,372.5 |
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1,298.8 |
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Accrued payroll and employee benefits |
214.9 |
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299.0 |
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Other current liabilities |
640.9 |
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631.3 |
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Total current liabilities |
2,723.2 |
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2,547.9 |
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Long-term debt and finance leases |
2,773.8 |
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2,785.9 |
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Long-term retirement benefits and other liabilities |
465.0 |
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474.9 |
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Deferred tax liabilities and income taxes payable |
244.3 |
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238.5 |
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Commitments and contingencies (see Note 11) |
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Shareholders’ equity: |
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Common stock, $1 par value per share, authorized – 400,000,000
shares at April 2, 2022 and January 1, 2022; issued –
124,126,624 shares at April 2, 2022 and January 1, 2022;
outstanding – 82,014,117 shares and 82,605,953 shares at
April 2, 2022 and January 1, 2022,
respectively
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124.1 |
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124.1 |
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Capital in excess of par value |
844.6 |
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862.3 |
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Retained earnings |
4,023.2 |
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3,880.7 |
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Treasury stock at cost, 42,112,507 shares and 41,520,671 shares at
April 2, 2022 and January 1, 2022,
respectively
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(2,799.4) |
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(2,659.8) |
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Accumulated other comprehensive loss |
(260.0) |
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(282.9) |
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Total shareholders’ equity |
1,932.5 |
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1,924.4 |
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$ |
8,138.8 |
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$ |
7,971.6 |
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See Notes to Unaudited Condensed Consolidated Financial
Statements
Avery Dennison Corporation
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended |
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(In millions, except per share amounts) |
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April 2, 2022 |
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April 3, 2021 |
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Net sales |
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$ |
2,349.3 |
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$ |
2,051.3 |
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Cost of products sold |
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1,708.0 |
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1,454.3 |
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Gross profit |
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641.3 |
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597.0 |
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Marketing, general and administrative expense |
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355.0 |
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312.3 |
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Other expense (income), net |
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(1.6) |
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.9 |
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Interest expense |
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19.6 |
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16.2 |
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Other non-operating expense (income), net |
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(1.4) |
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(1.3) |
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Income before taxes |
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269.7 |
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268.9 |
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Provision for income taxes |
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71.5 |
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58.1 |
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Equity method investment (losses) gains |
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— |
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(1.3) |
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Net income |
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$ |
198.2 |
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$ |
209.5 |
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Per share amounts: |
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Net income per common share |
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$ |
2.41 |
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$ |
2.52 |
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Net income per common share, assuming dilution |
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$ |
2.39 |
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$ |
2.50 |
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Weighted average number of shares outstanding: |
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Common shares |
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82.4 |
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83.1 |
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Common shares, assuming dilution |
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83.0 |
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83.9 |
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See Notes to Unaudited Condensed Consolidated Financial
Statements
Avery Dennison Corporation
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(Unaudited)
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Three Months Ended |
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(In millions) |
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April 2, 2022 |
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April 3, 2021 |
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Net income |
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$ |
198.2 |
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$ |
209.5 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation |
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20.3 |
|
|
7.6 |
|
|
Pension and other postretirement benefits |
|
|
|
|
.8 |
|
|
1.2 |
|
|
Cash flow hedges |
|
|
|
|
1.8 |
|
|
(5.3) |
|
|
Other comprehensive income (loss), net of tax |
|
|
|
|
22.9 |
|
|
3.5 |
|
|
Total comprehensive income, net of tax |
|
|
|
|
$ |
221.1 |
|
|
$ |
213.0 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
Avery Dennison Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(In millions) |
April 2, 2022 |
|
April 3, 2021 |
|
Operating Activities |
|
|
|
|
Net income |
$ |
198.2 |
|
|
$ |
209.5 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Depreciation |
43.8 |
|
|
40.0 |
|
|
Amortization |
28.2 |
|
|
14.4 |
|
|
Provision for credit losses and sales returns |
16.1 |
|
|
8.9 |
|
|
Stock-based compensation |
11.1 |
|
|
9.9 |
|
|
Pension plan settlement loss |
— |
|
|
.4 |
|
|
Deferred taxes and other non-cash taxes |
1.9 |
|
|
1.5 |
|
|
Other non-cash expense and loss (income and gain), net |
6.5 |
|
|
2.7 |
|
|
Changes in assets and liabilities and other adjustments |
(179.6) |
|
|
(78.0) |
|
|
Net cash provided by operating activities |
126.2 |
|
|
209.3 |
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
Purchases of property, plant and equipment |
(49.7) |
|
|
(25.2) |
|
|
Purchases of software and other deferred charges |
(5.6) |
|
|
(2.3) |
|
|
Proceeds from sales of property, plant and equipment |
.3 |
|
|
.7 |
|
|
Proceeds from insurance and sales (purchases) of investments,
net |
1.8 |
|
|
(.5) |
|
|
Proceeds from sale of product line |
— |
|
|
6.7 |
|
|
Payments for acquisitions, net of cash acquired, and investments in
businesses |
(33.4) |
|
|
(30.6) |
|
|
Net cash used in investing activities |
(86.6) |
|
|
(51.2) |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
Net increase (decrease) in borrowings with maturities of three
months or less |
179.4 |
|
|
53.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt and finance leases |
(1.9) |
|
|
(1.5) |
|
|
Dividends paid |
(56.2) |
|
|
(51.6) |
|
|
Share repurchases |
(151.5) |
|
|
(55.6) |
|
|
Net (tax withholding) proceeds related to stock-based
compensation |
(24.9) |
|
|
(25.3) |
|
|
Net cash used in financing activities
|
(55.1) |
|
|
(80.2) |
|
|
|
|
|
|
|
Effect of foreign currency translation on cash balances |
(.1) |
|
|
(2.2) |
|
|
Increase (decrease) in cash and cash equivalents |
(15.6) |
|
|
75.7 |
|
|
Cash and cash equivalents, beginning of year |
162.7 |
|
|
252.3 |
|
|
Cash and cash equivalents, end of period |
$ |
147.1 |
|
|
$ |
328.0 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
Avery Dennison Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 1. General
The unaudited Condensed Consolidated Financial Statements and
related notes in this Quarterly Report on Form 10-Q are presented
as permitted by Article 10 of Regulation S-X and do not contain
certain information included in the audited Consolidated Financial
Statements and related notes in our 2021 Annual Report on Form
10-K, which should be read in conjunction with this Quarterly
Report on Form 10-Q. These unaudited Condensed Consolidated
Financial Statements contain all adjustments of a normal and
recurring nature necessary for a fair statement of our interim
results. Interim results of operations are not necessarily
indicative of future results. These unaudited Condensed
Consolidated Financial Statements reflect our current estimates and
assumptions that affect our reported amounts of assets and
liabilities and related disclosures as of the date of the financial
statements and our reported amounts of sales and expenses during
the reporting periods presented.
Fiscal Periods
The three months ended April 2, 2022 and April 3, 2021
each consisted of a thirteen-week period.
Note 2. Acquisitions
During January 2022, we completed our acquisitions of TexTrace AG
("TexTrace"), a Switzerland-based technology developer specializing
in custom-made woven and knitted radio-frequency identification
("RFID") products that can be sewn onto or inserted into garments,
and Rietveld Serigrafie B.V. and Rietveld Screenprinting Serigrafi
Baski Matbaa Tekstil Ithalat Ihracat Sanayi ve Ticaret Limited
Sirketi ("Rietveld"), a Netherlands-based provider of external
embellishment solutions and application and printing methods for
performance brands and team sports in Europe. These acquisitions
expand the product portfolio in our Retail Branding and Information
Solutions ("RBIS") reportable segment.
The acquisitions of TexTrace and Rietveld are referred to
collectively as the "2022 Acquisitions."
The aggregate purchase consideration for the 2022 Acquisitions was
approximately $35 million. We funded the 2022 Acquisitions using
cash and commercial paper borrowings. In addition to the cash paid
at closing, the sellers in one of these acquisitions are eligible
for earn-out payments of up to $30 million subject to the acquired
company achieving certain post-acquisition performance targets. As
of the acquisition date, we have included an estimate of the fair
value of these earn-out payments in the aggregate purchase
consideration.
The 2022 Acquisitions were not material, individually or in the
aggregate, to the unaudited Condensed Consolidated Financial
Statements.
Note 3. Goodwill and Other Intangibles Resulting from Business
Acquisitions
The goodwill from the 2022 Acquisitions was not material to the
unaudited Condensed Consolidated Financial Statements. Refer to
Note 2, "Acquisitions," to the unaudited Condensed Consolidated
Financial Statements for more information.
Changes in the net carrying amount of goodwill for the three months
ended April 2, 2022 by reportable segment are shown
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
Label and
Graphic
Materials
|
|
Retail Branding
and Information
Solutions
|
|
Industrial and
Healthcare
Materials
|
|
Total |
|
Goodwill as of January 1, 2022
|
$ |
456.4 |
|
|
$ |
1,236.0 |
|
|
$ |
189.1 |
|
|
$ |
1,881.5 |
|
|
Acquisitions(1)
|
— |
|
|
16.3 |
|
|
— |
|
|
16.3 |
|
|
Acquisition adjustment(2)
|
— |
|
|
(.7) |
|
|
— |
|
|
(.7) |
|
|
Translation adjustments |
(3.4) |
|
|
(2.9) |
|
|
(.8) |
|
|
(7.1) |
|
|
Goodwill as of April 2, 2022
|
$ |
453.0 |
|
|
$ |
1,248.7 |
|
|
$ |
188.3 |
|
|
$ |
1,890.0 |
|
(1)Goodwill
acquired related to the 2022 Acquisitions. We expect the recognized
goodwill related to the 2022 Acquisitions not to be deductible for
income tax purposes.
(2)Measurement
period adjustment related to the finalization of the purchase price
allocation for the acquisition of CB Velocity Holdings, LLC
completed in August 2021.
Avery Dennison Corporation
In connection with the 2022 Acquisitions, we acquired approximately
$21 million of identifiable finite-lived intangible assets,
which consisted of patented and other developed technology as well
as customer relationships.
Amortization expense for all finite-lived intangible assets
resulting from business acquisitions was $20.5 million and
$6.4 million for the three months ended April 2, 2022 and
April 3, 2021, respectively.
Estimated future amortization expense related to existing
finite-lived intangible assets for the remainder of fiscal year
2022 and for each of the next four fiscal years is shown below.
These amounts include the effects of the 2022 Acquisitions and
updated amounts from year-end 2021.
|
|
|
|
|
|
|
Estimated
Amortization
Expense |
|
2022 (remainder of year) |
$ |
62.2 |
|
|
2023 |
81.9 |
|
|
2024 |
80.2 |
|
|
2025 |
79.3 |
|
|
2026 |
76.3 |
|
Note 4. 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 include commercial paper issuances and
short-term lines of credit, approximates their carrying value given
the short duration of these obligations. The fair value of our
total debt was $3.19 billion at April 2, 2022 and $3.25
billion at January 1, 2022. Fair values were determined based
primarily on Level 2 inputs, which are inputs other than quoted
prices in active markets that are either directly or indirectly
observable.
Our $800 million revolving credit facility (the “Revolver”)
contains a financial covenant requiring that we maintain a
specified ratio of total debt in relation to a certain measure of
income. As of both April 2, 2022 and January 1, 2022, we
were in compliance with this financial covenant. No balance was
outstanding under the Revolver as of April 2, 2022 or
January 1, 2022.
Note 5. Cost Reduction Actions
2019/2020 Actions
During the three months ended April 2, 2022, we recorded $0.9
million in restructuring charges related to our 2019/2020 actions.
These charges consisted of severance and related costs for the
reduction of approximately 20 positions at numerous locations
across our company. These actions, which were primarily taken in
our RBIS reportable segment, largely related to global headcount
and footprint reductions. Accruals for severance and related costs,
as well as lease cancellation costs, were not material as of April
2, 2022.
Note 6. Financial Instruments
We enter into foreign exchange hedge contracts to reduce our risk
from foreign exchange rate fluctuations associated with
receivables, payables, loans and firm commitments denominated in
certain foreign currencies that arise primarily as a result of our
operations outside the U.S. We also enter into futures contracts to
hedge certain price fluctuations for a portion of our anticipated
domestic purchases of natural gas. The impact of these foreign
exchange and commodities hedge activities on the unaudited
Condensed Consolidated Financial Statements was not
material.
In March 2020, we entered into U.S. dollar to euro cross-currency
swap contracts with a total notional amount of $250 million to have
the effect of converting the fixed-rate U.S. dollar-denominated
debt to euro-denominated debt, including semiannual interest
payments and the payment of principal at maturity. During the term
of the contract, which ends on April 30, 2030, we pay fixed-rate
interest in euros and receive fixed-rate interest in U.S. dollars.
These contracts have been designated as cash flow hedges. The fair
value of these contracts was $(5.0) million and $(10.3) million as
of April 2, 2022 and January 1, 2022, respectively, which
was included in “Long-term retirement benefits and other
liabilities” in the unaudited Condensed Consolidated Balance
Sheets. Refer to Note 10, “Fair Value Measurements,” to the
unaudited Condensed Consolidated Financial Statements for more
information.
We recorded no ineffectiveness from our cross-currency swap to
earnings during the three months ended April 2, 2022 or
April 3, 2021.
Avery Dennison Corporation
Note 7. Taxes Based on Income
The following table summarizes our income before taxes, provision
for income taxes, and effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(Dollars in millions) |
|
|
|
|
April 2, 2022 |
|
April 3, 2021 |
|
Income before taxes |
|
|
|
|
$ |
269.7 |
|
|
$ |
268.9 |
|
|
Provision for income taxes |
|
|
|
|
71.5 |
|
|
58.1 |
|
|
Effective tax rate |
|
|
|
|
26.5 |
% |
|
21.6 |
% |
Our provision for income taxes for the three months ended
April 2, 2022 included $6.6 million of net tax charge related
to the tax on global intangible low-taxed income (“GILTI”) of our
foreign subsidiaries and the recognition of foreign withholding
taxes on current year earnings, partially offset by the benefit
from foreign-derived intangible income (“FDII”).
Our provision for income taxes for the three months ended
April 3, 2021 included $7 million of net tax charge related to
the tax on GILTI of our foreign subsidiaries and the recognition of
foreign withholding taxes on current year earnings, partially
offset by the benefit from FDII. Our provision for income taxes for
the three months ended April 3, 2021 also reflected $14.1
million of return-to-provision benefit related to an election made
on our amended 2018 U.S. federal tax return.
We have not yet determined whether to make an annual election to
exclude foreign income subject to a high effective tax rate from
our GILTI inclusions for tax years 2021 and 2022. We continue to
evaluate the impact of these elections and currently anticipate
that the benefit from making this election on our 2021 or 2022 U.S.
federal tax return may be significant.
The amount of income taxes we pay is subject to ongoing audits by
taxing jurisdictions around the world. Our estimate of the
potential outcome of any uncertain tax issue is subject to our
assessment of the relevant risks, facts, and circumstances existing
at the time. We believe that we have adequately provided for
reasonably foreseeable outcomes related to these matters. However,
our future results may include favorable or unfavorable adjustments
to our estimated tax liabilities in the period the assessments are
made or resolved, which may impact our effective tax rate. The
final determination of tax audits and any related legal proceedings
could materially differ from the amounts currently reflected in our
tax provision for income taxes and the related liabilities. To
date, we and our U.S. subsidiaries have completed the Internal
Revenue Service’s Compliance Assurance Process Program through
2018. With limited exceptions, we are no longer subject to income
tax examinations by tax authorities for years prior to
2010.
It is reasonably possible that, during the next 12 months, we may
realize a net decrease in our uncertain tax positions, including
interest and penalties, of approximately $9 million, primarily as a
result of closing tax years.
Note 8. Net Income Per Common Share
Net income per common share was computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(In millions, except per share amounts) |
|
|
|
|
April 2, 2022 |
|
April 3, 2021 |
|
(A)Net
income
|
|
|
|
|
$ |
198.2 |
|
|
$ |
209.5 |
|
|
(B)Weighted
average number of common shares outstanding
|
|
|
|
|
82.4 |
|
|
83.1 |
|
|
Dilutive shares (additional common shares issuable under
stock-based awards)
|
|
|
|
|
.6 |
|
|
.8 |
|
|
(C) Weighted
average number of common shares outstanding, assuming
dilution
|
|
|
|
|
83.0 |
|
|
83.9 |
|
|
Net income per common share: (A) ÷ (B) |
|
|
|
|
$ |
2.41 |
|
|
$ |
2.52 |
|
|
Net income per common share, assuming dilution: (A) ÷
(C) |
|
|
|
|
$ |
2.39 |
|
|
$ |
2.50 |
|
Certain stock-based compensation awards were not included in the
computation of net income per common share, assuming dilution,
because they would not have had a dilutive effect. Stock-based
compensation awards excluded from the computation were not
significant for the three months ended April 2, 2022 or
April 3, 2021.
Avery Dennison Corporation
Note 9. Supplemental Equity and Comprehensive Income
Information
Consolidated Changes in Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(In millions) |
|
|
|
|
April 2, 2022 |
|
April 3, 2021 |
|
Common stock issued, $1 par value per share
|
|
|
|
|
$ |
124.1 |
|
|
$ |
124.1 |
|
|
Capital in excess of par value |
|
|
|
|
|
|
|
|
Beginning balance |
|
|
|
|
$ |
862.3 |
|
|
$ |
862.1 |
|
|
Issuance of shares under stock-based compensation
plans(1)
|
|
|
|
|
(17.7) |
|
|
(16.3) |
|
|
Ending balance |
|
|
|
|
$ |
844.6 |
|
|
$ |
845.8 |
|
|
Retained earnings |
|
|
|
|
|
|
|
|
Beginning balance |
|
|
|
|
$ |
3,880.7 |
|
|
$ |
3,349.3 |
|
|
Net income |
|
|
|
|
198.2 |
|
|
209.5 |
|
|
Issuance of shares under stock-based compensation
plans(1)
|
|
|
|
|
(5.8) |
|
|
(7.7) |
|
|
Contribution of shares to 401(k) Plan(1)
|
|
|
|
|
6.3 |
|
|
4.9 |
|
|
Dividends |
|
|
|
|
(56.2) |
|
|
(51.6) |
|
|
Ending balance |
|
|
|
|
$ |
4,023.2 |
|
|
$ |
3,504.4 |
|
|
Treasury stock at cost |
|
|
|
|
|
|
|
|
Beginning balance |
|
|
|
|
$ |
(2,659.8) |
|
|
$ |
(2,501.0) |
|
|
Repurchase of shares for treasury |
|
|
|
|
(151.5) |
|
|
(55.6) |
|
|
Issuance of shares under stock-based compensation
plans(1)
|
|
|
|
|
9.7 |
|
|
8.6 |
|
|
Contribution of shares to 401(k) Plan(1)
|
|
|
|
|
2.2 |
|
|
1.7 |
|
|
Ending balance |
|
|
|
|
$ |
(2,799.4) |
|
|
$ |
(2,546.3) |
|
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
Beginning balance |
|
|
|
|
$ |
(282.9) |
|
|
$ |
(349.6) |
|
|
Other comprehensive income (loss), net of tax |
|
|
|
|
22.9 |
|
|
3.5 |
|
|
Ending balance |
|
|
|
|
$ |
(260.0) |
|
|
$ |
(346.1) |
|
(1)We
fund a portion of our employee-related expenses using shares of our
common stock held in treasury. We reduce capital in excess of par
value based on the grant date fair value of vesting awards and
record net gains or losses associated with using treasury shares to
retained earnings.
Dividends per common share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
April 2, 2022 |
|
April 3, 2021 |
|
Dividends per common share |
|
|
|
|
$ |
.68 |
|
|
$ |
.62 |
|
In April 2022, subsequent to the end of the first quarter of 2022,
our Board authorized the repurchase of shares of our common stock
with a fair market value of up to $750 million, excluding any
fees, commissions or other expenses related to such purchases and
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.
Avery Dennison Corporation
Changes in Accumulated Other Comprehensive Loss
The changes in “Accumulated other comprehensive loss” (net of tax)
for the three-month period ended April 2, 2022 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
Foreign
Currency
Translation
|
|
Pension and
Other
Postretirement
Benefits
|
|
Cash Flow
Hedges
|
|
Total |
|
Balance as of January 1, 2022
|
$ |
(217.4) |
|
|
$ |
(60.4) |
|
|
$ |
(5.1) |
|
|
$ |
(282.9) |
|
|
Other comprehensive income (loss) before reclassifications, net of
tax |
20.3 |
|
|
— |
|
|
2.6 |
|
|
22.9 |
|
|
Reclassifications to net income, net of tax |
— |
|
|
.8 |
|
|
(.8) |
|
|
— |
|
|
Other comprehensive income (loss), net of tax |
20.3 |
|
|
.8 |
|
|
1.8 |
|
|
22.9 |
|
|
Balance as of April 2, 2022
|
$ |
(197.1) |
|
|
$ |
(59.6) |
|
|
$ |
(3.3) |
|
|
$ |
(260.0) |
|
The changes in “Accumulated other comprehensive loss” (net of tax)
for the three-month period ended April 3, 2021 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
Foreign
Currency
Translation
|
|
Pension and
Other
Postretirement
Benefits
|
|
Cash Flow
Hedges
|
|
Total |
|
Balance as of January 2, 2021
|
$ |
(248.1) |
|
|
$ |
(92.7) |
|
|
$ |
(8.8) |
|
|
$ |
(349.6) |
|
|
Other comprehensive income (loss) before reclassifications, net of
tax |
7.6 |
|
|
— |
|
|
(4.8) |
|
|
2.8 |
|
|
Reclassifications to net income, net of tax |
— |
|
|
1.2 |
|
|
(.5) |
|
|
.7 |
|
|
Other comprehensive income (loss), net of tax |
7.6 |
|
|
1.2 |
|
|
(5.3) |
|
|
3.5 |
|
|
Balance as of April 3, 2021
|
$ |
(240.5) |
|
|
$ |
(91.5) |
|
|
$ |
(14.1) |
|
|
$ |
(346.1) |
|
Note 10. Fair Value Measurements
Recurring Fair Value Measurements
Assets and liabilities carried at fair value, measured on a
recurring basis, as of April 2, 2022 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
(In millions) |
Total |
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Other
Unobservable
Inputs
(Level 3) |
|
Assets |
|
|
|
|
|
|
|
|
Investments |
$ |
32.5 |
|
|
$ |
26.0 |
|
|
$ |
6.5 |
|
|
$ |
— |
|
|
Derivative assets |
14.2 |
|
|
2.1 |
|
|
12.1 |
|
|
— |
|
|
Bank drafts |
8.3 |
|
|
8.3 |
|
|
— |
|
|
— |
|
|
Liabilities |
|
|
|
|
|
|
|
|
Cross-currency swap |
$ |
5.0 |
|
|
$ |
— |
|
|
$ |
5.0 |
|
|
$ |
— |
|
|
Derivative liabilities |
10.3 |
|
|
— |
|
|
10.3 |
|
|
— |
|
|
Contingent consideration liabilities |
12.6 |
|
|
— |
|
|
— |
|
|
12.6 |
|
Avery Dennison Corporation
Assets and liabilities carried at fair value, measured on a
recurring basis, as of January 1, 2022 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
(In millions) |
Total |
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
|
Assets |
|
|
|
|
|
|
|
|
Investments |
$ |
33.9 |
|
|
$ |
27.1 |
|
|
$ |
6.8 |
|
|
$ |
— |
|
|
Derivative assets |
7.1 |
|
|
.6 |
|
|
6.5 |
|
|
— |
|
|
Bank drafts |
14.1 |
|
|
14.1 |
|
|
— |
|
|
— |
|
|
Liabilities |
|
|
|
|
|
|
|
|
Cross-currency swap |
$ |
10.3 |
|
|
$ |
— |
|
|
$ |
10.3 |
|
|
$ |
— |
|
|
Derivative liabilities |
3.6 |
|
|
— |
|
|
3.6 |
|
|
— |
|
|
Contingent consideration liabilities |
7.6 |
|
|
— |
|
|
— |
|
|
7.6 |
|
Investments include fixed income securities (primarily U.S.
government and corporate debt securities) measured at fair value
using quoted prices/bids and a money market fund measured at fair
value using net asset value. As of April 2, 2022, investments
of $0.4 million and $32.1 million were included in “Cash and cash
equivalents” and “Other current assets,” respectively, in the
unaudited Condensed Consolidated Balance Sheets. As of
January 1, 2022, investments of $0.5 million and $33.4 million
were included in “Cash and cash equivalents” and “Other current
assets,” respectively, in the unaudited Condensed Consolidated
Balance Sheets. Derivatives that are exchange-traded are measured
at fair value using quoted market prices and classified within
Level 1 of the valuation hierarchy. Derivatives measured based on
foreign exchange rate inputs that are readily available in public
markets are classified within Level 2 of the valuation hierarchy.
Bank drafts (maturities greater than three months) are valued at
face value due to their short-term nature and were included in
“Other current assets” in the unaudited Condensed Consolidated
Balance Sheets.
Contingent consideration liabilities relate to estimated earn-out
payments associated with certain acquisitions completed in 2022 and
2021. These payments are based on the respective acquired company
achieving agreed upon performance targets and are estimated based
on the expected payments related to these targets as of
April 2, 2022. We have classified these liabilities as Level
3.
In addition to the investments described above, we also hold
venture investments in privately held companies and utilize the
measurement alternative for equity investments that do not have
readily determinable fair values, measuring these investments at
cost less impairment plus or minus observable price changes in
orderly transactions. The total carrying values of our venture
investments were $55.8 million and $52.0 million as of
April 2, 2022 and January 1, 2022, respectively, and
included in “Other assets” in the unaudited Condensed Consolidated
Balance Sheets.
Note 11. Commitments and Contingencies
Legal Proceedings
We are involved in various lawsuits, claims, inquiries, and other
regulatory and compliance matters, most of which are routine to the
nature of our business. When it is probable that a loss will be
incurred and where a range of the loss can be reasonably estimated,
the best estimate within the range is accrued. When the best
estimate within the range cannot be determined, the low end of the
range is accrued. The ultimate resolution of these claims could
affect future results of operations should our exposure be
materially different from our estimates or should we incur
liabilities that were not previously accrued. Potential insurance
reimbursements are not offset against potential
liabilities.
We are currently party to a litigation in which ADASA Inc.
(“Adasa”), an unrelated third party, alleged that certain of our
RFID products infringed on its patent. We recorded a contingent
liability related to this matter in the second quarter of 2021 in
the amount of $26.6 million based on a jury verdict issued on May
14, 2021.
During the third quarter of 2021, the first instance judgment
associated with the jury verdict was issued. This resulted in
additional potential liability of $35.8 million
for, among other things, royalties on a higher number of tags and
royalties on tags sold after March 31, 2021. We did not increase
the contingent liability we recorded for this additional potential
liability. With continued evaluation of the matter and our
defenses, as well as consultation with our outside counsel, we
continue to believe that Adasa’s patent is invalid and that, even
if valid, we have not infringed it, and that the royalty rate used
as the basis for the jury’s determination is unreasonable under
prevailing industry standards, as well as that any liability
related to this matter would be substantially lower than that which
is reflected in either the jury verdict or the first instance
judgment. On October 22, 2021, we appealed the judgment to the
United States Court of Appeals for the Federal Circuit and continue
to believe meritorious defenses exist to significantly reduce the
liability we currently have recorded. As our appeal is still
pending, we maintained our current contingent liability of $26.6
million for this matter as a reasonable
Avery Dennison Corporation
estimate within the range of probable outcomes. We have largely
completed our migration to alternative encoding methods used in our
other RFID tags.
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 and determined such to be probable, 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. 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 matters could affect future results of
operations should our exposure be materially different from our
estimates or should we incur liabilities that were not previously
accrued. Potential insurance reimbursements are not offset against
potential liabilities. 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”). 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.
As of April 2, 2022, we have been designated by the U.S.
Environmental Protection Agency (“EPA”) and/or other responsible
state agencies as a PRP at twelve 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 for the three
months ended April 2, 2022 is shown below.
|
|
|
|
|
|
|
(In millions) |
|
|
Balance at January 1, 2022
|
$ |
21.9 |
|
|
Charges, net of reversals |
.7 |
|
|
Payments |
(.5) |
|
|
Balance at April 2, 2022
|
$ |
22.1 |
|
Approximately $2 million of this balance was classified as
short-term and included in “Other current liabilities” in the
unaudited Condensed Consolidated Balance Sheets as of both
April 2, 2022 and January 1, 2022,
respectively.
Note 12. Segment and Disaggregated Revenue Information
Disaggregated Revenue Information
Disaggregated revenue information is shown below in the manner that
best depicts how the nature, amount, timing and uncertainty of our
revenue and cash flows are affected by economic factors. Revenue
from our Label and Graphic Materials 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.
Avery Dennison Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(In millions) |
|
|
|
|
April 2, 2022 |
|
April 3, 2021 |
|
Net sales to unaffiliated customers |
|
|
|
|
|
|
|
|
Label and Graphic Materials: |
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
$ |
419.6 |
|
|
$ |
364.9 |
|
|
Europe |
|
|
|
|
559.0 |
|
|
515.6 |
|
|
Asia |
|
|
|
|
308.8 |
|
|
323.1 |
|
|
Latin America |
|
|
|
|
106.0 |
|
|
95.5 |
|
|
Other international |
|
|
|
|
86.8 |
|
|
77.9 |
|
|
Total Label and Graphic Materials |
|
|
|
|
1,480.2 |
|
|
1,377.0 |
|
|
Retail Branding and Information Solutions: |
|
|
|
|
|
|
|
|
Apparel |
|
|
|
|
514.6 |
|
|
428.4 |
|
|
Identification Solutions and Vestcom |
|
|
|
|
164.4 |
|
|
54.3 |
|
|
Total Retail Branding and Information Solutions |
|
|
|
|
679.0 |
|
|
482.7 |
|
|
Industrial and Healthcare Materials |
|
|
|
|
190.1 |
|
|
191.6 |
|
|
Net sales to unaffiliated customers |
|
|
|
|
$ |
2,349.3 |
|
|
$ |
2,051.3 |
|
Additional Segment Information
Additional financial information by reportable segment and
Corporate is shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(In millions) |
|
|
|
|
April 2, 2022 |
|
April 3, 2021 |
|
Intersegment sales |
|
|
|
|
|
|
|
|
Label and Graphic Materials |
|
|
|
|
$ |
28.7 |
|
|
$ |
21.6 |
|
|
Retail Branding and Information Solutions |
|
|
|
|
11.0 |
|
|
8.3 |
|
|
Industrial and Healthcare Materials |
|
|
|
|
5.0 |
|
|
2.1 |
|
|
Intersegment sales |
|
|
|
|
$ |
44.7 |
|
|
$ |
32.0 |
|
|
Income before taxes |
|
|
|
|
|
|
|
|
Label and Graphic Materials |
|
|
|
|
$ |
207.2 |
|
|
$ |
226.2 |
|
|
Retail Branding and Information Solutions |
|
|
|
|
90.3 |
|
|
60.0 |
|
|
Industrial and Healthcare Materials |
|
|
|
|
15.6 |
|
|
23.5 |
|
|
Corporate expense |
|
|
|
|
(25.2) |
|
|
(25.9) |
|
|
Interest expense |
|
|
|
|
(19.6) |
|
|
(16.2) |
|
|
Other non-operating expense (income), net |
|
|
|
|
1.4 |
|
|
1.3 |
|
|
Income before taxes |
|
|
|
|
$ |
269.7 |
|
|
$ |
268.9 |
|
|
Other expense (income), net, by reportable segment and
Corporate |
|
|
|
|
|
|
|
|
Label and Graphic Materials |
|
|
|
|
$ |
(3.2) |
|
|
$ |
(1.9) |
|
|
Retail Branding and Information Solutions |
|
|
|
|
1.6 |
|
|
2.1 |
|
|
Industrial and Healthcare Materials |
|
|
|
|
— |
|
|
.1 |
|
|
Corporate |
|
|
|
|
— |
|
|
.6 |
|
|
Other expense (income), net |
|
|
|
|
$ |
(1.6) |
|
|
$ |
.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avery Dennison Corporation
Other expense (income), net, by type was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(In millions) |
|
|
|
|
April 2, 2022 |
|
April 3, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income), net, by type |
|
|
|
|
|
|
|
|
Restructuring charges: |
|
|
|
|
|
|
|
|
Severance and related costs |
|
|
|
|
$ |
.9 |
|
|
$ |
2.4 |
|
|
Asset impairment charges and lease cancellation costs |
|
|
|
|
— |
|
|
.5 |
|
|
Other items: |
|
|
|
|
|
|
|
|
Outcomes of legal proceedings |
|
|
|
|
1.0 |
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and related costs |
|
|
|
|
.2 |
|
|
.7 |
|
|
Gain on venture investment |
|
|
|
|
(3.7) |
|
|
— |
|
|
Gain on sale of product line |
|
|
|
|
— |
|
|
(4.8) |
|
|
Other expense (income), net |
|
|
|
|
$ |
(1.6) |
|
|
$ |
.9 |
|
Note 13. Supplemental Financial Information
Inventories
The table below summarizes the amounts in inventories.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
April 2, 2022 |
|
January 1, 2022 |
|
Raw materials |
$ |
409.8 |
|
|
$ |
393.6 |
|
|
Work-in-progress |
245.6 |
|
|
233.1 |
|
|
Finished goods |
305.5 |
|
|
280.5 |
|
|
Inventories |
$ |
960.9 |
|
|
$ |
907.2 |
|
Property, Plant and Equipment
The table below summarizes the amounts in property, plant and
equipment, net.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
April 2, 2022 |
|
January 1, 2022 |
|
Property, plant and equipment |
$ |
3,650.2 |
|
|
$ |
3,626.2 |
|
|
Accumulated depreciation |
(2,172.7) |
|
|
(2,148.5) |
|
|
Property, plant and equipment, net |
$ |
1,477.5 |
|
|
$ |
1,477.7 |
|
Allowance for Credit Losses
The activity related to our allowance for credit losses is shown
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(In millions) |
April 2, 2022 |
|
April 3, 2021 |
|
Beginning balance |
$ |
33.0 |
|
|
$ |
44.6 |
|
|
Provision for (reversal of) credit losses
|
6.6 |
|
|
(1.9) |
|
|
Amounts written off |
(.4) |
|
|
(1.1) |
|
|
Other, including foreign currency translation |
.3 |
|
|
(.9) |
|
|
Ending balance |
$ |
39.5 |
|
|
$ |
40.7 |
|
Avery Dennison Corporation
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and
Results of Operations, or MD&A, provides management’s views on
our financial condition and results of operations and should be
read in conjunction with the accompanying unaudited Condensed
Consolidated Financial Statements and related notes.
NON-GAAP FINANCIAL MEASURES
We report our financial results in conformity with accounting
principles generally accepted in the United States of America, or
GAAP, and also communicate with investors using certain non-GAAP
financial measures. These non-GAAP financial measures are not in
accordance with, nor are they a substitute for or superior to, the
comparable GAAP financial measures. These non-GAAP financial
measures are intended to supplement the presentation of our
financial results that are prepared in accordance with GAAP. Based
on feedback from investors and financial analysts, we believe that
the supplemental non-GAAP financial measures we provide are useful
to their assessments of our performance and operating trends, as
well as liquidity.
Our non-GAAP financial measures exclude the impact of certain
events, activities or strategic decisions. The accounting effects
of these events, activities or decisions, which are included in the
GAAP financial measures, may make it difficult to assess our
underlying performance in a single period. By excluding the
accounting effects, positive or negative, of certain items (e.g.,
restructuring charges, outcomes of certain legal proceedings,
certain effects of strategic transactions and related costs, losses
from debt extinguishments, gains or losses from curtailment or
settlement of pension obligations, gains or losses on sales of
certain assets, gains or losses on venture investments and other
items), we believe that we are providing meaningful supplemental
information that facilitates an understanding of our core operating
results and liquidity measures. While some of the items we exclude
from GAAP financial measures recur, they tend to be disparate in
amount, frequency, or timing.
We use these non-GAAP financial measures internally to evaluate
trends in our underlying performance, as well as to facilitate
comparison to the results of competitors for quarters and
year-to-date periods, as applicable.
We use the non-GAAP financial measures described below 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 the
reclassification of sales between segments, and, where applicable,
an extra week in our fiscal year and the calendar shift resulting
from the extra week in the prior fiscal year and currency
adjustment for transitional reporting of highly inflationary
economies. The estimated impact of foreign currency translation is
calculated on a constant currency basis, with prior period results
translated at current period average exchange rates to exclude the
effect of currency fluctuations.
•Organic
sales change
refers to sales change ex. currency, excluding the estimated impact
of acquisitions and product line divestitures.
We believe that sales change ex. currency and organic sales change
assist investors in evaluating the sales change from the ongoing
activities of our businesses and enhance their ability to evaluate
our results from period to period.
•Free
cash flow
refers to cash flow provided by operating activities, less payments
for property, plant and equipment, software and other deferred
charges, plus proceeds from sales of property, plant and equipment,
plus (minus) net proceeds from insurance and sales (purchases) of
investments. Free cash flow is also adjusted for, where applicable,
certain acquisition-related transaction costs. 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 accounts receivable and inventories, net of
accounts payable, and excludes cash and cash equivalents,
short-term borrowings, deferred taxes, other current assets and
other current liabilities, as well as net current assets or
liabilities held-for-sale divided by annualized current quarter net
sales. We believe that operational working capital as a percentage
of annualized current quarter net sales assists investors in
assessing our working capital requirements because it excludes the
impact of fluctuations attributable to our financing and other
activities (which affect cash and cash equivalents, deferred taxes,
other current assets, and other current liabilities) that tend to
be disparate in amount, frequency, or timing, and 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.
Avery Dennison Corporation
OVERVIEW AND OUTLOOK
Net Sales
The factors impacting the reported sales change, as compared to the
prior-year period, are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 2, 2022 |
|
Reported sales change |
|
|
15 |
% |
|
Foreign currency translation |
|
|
3 |
|
|
Sales change ex. currency(1)
|
|
|
18 |
|
|
Acquisitions |
|
|
(5) |
|
|
Organic sales change(1)
|
|
|
13 |
% |
(1)
Totals may not sum due to rounding
In the three months ended April 2, 2022, net sales increased
on an organic basis compared to the same period in the prior year
due to pricing actions and higher volume/mix.
Net Income
Net income decreased from approximately $210 million in the
first three months of 2021 to approximately $198 million in
the first three months of 2022. Major factors affecting the change
in net income included the following:
•Higher
tax provision
•Unfavorable
currency translation
•Growth
investments
Offsetting factors:
•Higher
organic volume/mix
•Higher
income from business acquisitions, net of associated amortization
of other intangibles
Acquisitions
During January 2022, we completed our acquisitions of TexTrace AG
("TexTrace"), a Switzerland-based technology developer specializing
in custom-made woven and knitted radio-frequency identification
("RFID") products that can be sewn onto or inserted into garments,
and Rietveld, a Netherlands-based provider of external
embellishment solutions and application and printing methods for
performance brands and team sports in Europe. These acquisitions
expand the product portfolio in our Retail Branding and Information
Solutions ("RBIS") reportable segment.
The acquisitions of TexTrace and Rietveld are referred to
collectively as the "2022 Acquisitions."
The aggregate purchase consideration for the 2022 Acquisitions was
approximately $35 million. We funded the 2022 Acquisitions using
cash and commercial paper borrowings. In addition to the cash paid
at closing, the sellers in one of these acquisitions are eligible
for earn-out payments of up to $30 million subject to the acquired
company achieving certain post-acquisition performance targets. As
of the acquisition date, we have included an estimate of the fair
value of these earn-out payments in the aggregate purchase
consideration.
The 2022 Acquisitions were not material, individually or in the
aggregate, to the unaudited Condensed Consolidated Financial
Statements.
Refer to Note 2, “Acquisitions,” to the unaudited Condensed
Consolidated Financial Statements for more
information.
Cost Reduction Actions
2019/2020 Actions
During the three months ended April 2, 2022, we recorded $0.9
million in restructuring charges related to our 2019/2020 actions.
These charges consisted of severance and related costs for the
reduction of approximately 20 positions at numerous locations
across our company. These actions, which were primarily taken in
our RBIS reportable segment, largely related to global headcount
and footprint reductions. Accruals for severance and related costs,
as well as lease cancellation costs, were not material as of April
2, 2022.
Restructuring charges were included in “Other expense (income),
net” in the unaudited Condensed Consolidated Statements of Income.
Refer to Note 5, “Cost Reduction Actions,” to the unaudited
Condensed Consolidated Financial Statements for more
information.
Avery Dennison Corporation
Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(In millions) |
April 2, 2022 |
|
April 3, 2021 |
|
Net cash provided by operating activities |
$ |
126.2 |
|
|
$ |
209.3 |
|
|
Purchases of property, plant and equipment |
(49.7) |
|
|
(25.2) |
|
|
Purchases of software and other deferred charges |
(5.6) |
|
|
(2.3) |
|
|
Proceeds from sales of property, plant and equipment |
.3 |
|
|
.7 |
|
|
Proceeds from insurance and sales (purchases) of investments,
net |
1.8 |
|
|
(.5) |
|
|
Payments for certain acquisition-related transaction
costs |
.3 |
|
|
— |
|
|
Free cash flow |
$ |
73.3 |
|
|
$ |
182.0 |
|
During the first three months of 2022, net cash provided by
operating activities decreased compared to the same period last
year primarily due to changes in operational working capital,
higher incentive compensation payments and timing of payroll
payments. During the first three months of 2022, free cash flow
decreased compared to the same period last year primarily due to a
decrease in net cash provided by operating activities and an
increase in purchases of property, plant and
equipment.
Outlook
Certain factors that we believe may contribute to our 2022 results
are described below.
•We
expect net sales to increase by approximately 12% to 14%, including
a decrease of approximately 3% from the effect of foreign currency
translation and an increase of approximately 3% from the effect of
acquisitions.
•Based
on recent exchange rates, we expect foreign currency translation to
decrease our operating income by approximately $40
million.
•We
expect our full year effective tax rate to be in the mid-twenty
percent range.
•We
expect fixed and IT capital spend of up to $350
million.
ANALYSIS OF RESULTS OF OPERATIONS FOR THE FIRST
QUARTER
Income Before Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(In millions, except percentages) |
April 2, 2022 |
|
April 3, 2021 |
|
Net sales |
$ |
2,349.3 |
|
|
$ |
2,051.3 |
|
|
Cost of products sold |
1,708.0 |
|
|
1,454.3 |
|
|
Gross profit |
641.3 |
|
|
597.0 |
|
|
Marketing, general and administrative expense |
355.0 |
|
|
312.3 |
|
|
Other expense (income), net |
(1.6) |
|
|
.9 |
|
|
Interest expense |
19.6 |
|
|
16.2 |
|
|
Other non-operating expense (income), net |
(1.4) |
|
|
(1.3) |
|
|
Income before taxes |
$ |
269.7 |
|
|
$ |
268.9 |
|
|
|
|
|
|
|
Gross profit margin |
27.3 |
% |
|
29.1 |
% |
Gross Profit Margin
Gross profit margin for the first quarter of 2022 decreased from
the same period last year primarily due to the net unfavorable
impact of higher selling prices, higher raw material costs and
higher freight costs, as well as higher employee-related costs,
partially offset by higher volume/mix.
Marketing, General and Administrative Expense
Marketing, general and administrative expense increased in the
first quarter of 2022 compared to the same period last year
primarily due to the impact of acquisitions and growth
investments.
Avery Dennison Corporation
Other Expense (Income), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(In millions) |
April 2, 2022 |
|
April 3, 2021 |
|
Other expense (income), net, by type |
|
|
|
|
Restructuring charges: |
|
|
|
|
Severance and related costs |
$ |
.9 |
|
|
$ |
2.4 |
|
|
Asset impairment charges and lease cancellation costs |
— |
|
|
.5 |
|
|
Other items: |
|
|
|
|
Outcomes of legal proceedings |
1.0 |
|
|
2.1 |
|
|
Transaction and related costs |
.2 |
|
|
.7 |
|
|
Gain on venture investment |
(3.7) |
|
|
— |
|
|
Gain on sale of product line |
— |
|
|
(4.8) |
|
|
Other expense (income), net |
$ |
(1.6) |
|
|
$ |
.9 |
|
Refer to Note 5, “Cost Reduction Actions,” to the unaudited
Condensed Consolidated Financial Statements for more information
regarding restructuring charges.
Interest Expense
Interest expense increased in the first quarter of 2022 compared to
the same period last year reflecting additional interest costs
related to the $800 million of senior notes we issued in August
2021.
Net Income and Earnings per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(In millions, except per share amounts and percentages) |
April 2, 2022 |
|
April 3, 2021 |
|
Income before taxes |
$ |
269.7 |
|
|
$ |
268.9 |
|
|
Provision for income taxes |
71.5 |
|
|
58.1 |
|
|
Equity method investment (losses) gains |
— |
|
|
(1.3) |
|
|
Net income |
$ |
198.2 |
|
|
$ |
209.5 |
|
|
Per share amounts: |
|
|
|
|
Net income per common share |
$ |
2.41 |
|
|
$ |
2.52 |
|
|
Net income per common share, assuming dilution |
2.39 |
|
|
2.50 |
|
|
|
|
|
|
|
Effective tax rate |
26.5 |
% |
|
21.6 |
% |
Provision for Income Taxes
Our effective tax rate for the three months ended April 2,
2022 was 26.5% compared to 21.6% in the same period last year. The
lower rate in the prior-year period reflected a discrete
return-to-provision benefit related to an election made on our
amended 2018 U.S. federal tax return. Refer to Note 7, “Taxes Based
on Income,” to the unaudited Condensed Consolidated Financial
Statements for more information.
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.
Avery Dennison Corporation
RESULTS OF OPERATIONS BY REPORTABLE SEGMENT FOR THE FIRST
QUARTER
Operating income refers to income before taxes, interest and other
non-operating expense (income), net.
Label and Graphic Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(In millions) |
April 2, 2022 |
|
April 3, 2021 |
|
Net sales including intersegment sales |
$ |
1,508.9 |
|
|
$ |
1,398.6 |
|
|
Less intersegment sales |
(28.7) |
|
(21.6) |
|
Net sales |
$ |
1,480.2 |
|
|
$ |
1,377.0 |
|
|
Operating income(1)
|
207.2 |
|
226.2 |
|
(1)Included
charges associated with restructuring actions in both years, gain
on venture investment in 2022, outcome of legal proceedings,
transaction and related costs and gain on sale of product line in
2021.
|
$ |
(3.2) |
|
|
$ |
(1.9) |
|
Net Sales
The factors impacting reported sales change are shown in the table
below.
|
|
|
|
|
|
|
Three Months Ended |
|
April 2, 2022 |
|
Reported sales change |
8 |
% |
|
Foreign currency translation |
4 |
|
|
Sales change ex. currency(1)
|
12 |
|
|
|
|
Organic sales change(1)
|
12 |
% |
|
(1)
Totals may not sum due to rounding
|
|
In the first quarter of 2022, net sales increased on an organic
basis compared to the same period in the prior year due to pricing
actions, partially offset by a modest decline in volume/mix. On an
organic basis, net sales increased by a low-to-mid-single digit
rate in emerging markets and high teens rates in North America and
Western Europe.
Operating Income
Operating income decreased in the first quarter of 2022 compared to
the same period last year primarily due to unfavorable currency
translation and the net unfavorable impact of higher selling
prices, higher raw material costs and higher freight
costs.
Retail Branding and Information Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(In millions) |
April 2, 2022 |
|
April 3, 2021 |
|
Net sales including intersegment sales |
$ |
690.0 |
|
|
$ |
491.0 |
|
|
Less intersegment sales |
(11.0) |
|
(8.3) |
|
Net sales |
$ |
679.0 |
|
|
$ |
482.7 |
|
|
Operating income(1)
|
90.3 |
|
60.0 |
|
(1)Included
charges associated with restructuring actions and transaction and
related costs in both years, outcome of legal proceedings in 2022
and loss on sale of asset in 2021.
|
$ |
1.6 |
|
|
$ |
2.1 |
|
Avery Dennison Corporation
Net Sales
The factors impacting reported sales change are shown in the table
below.
|
|
|
|
|
|
|
Three Months Ended |
|
April 2, 2022 |
|
Reported sales change |
41 |
% |
|
Foreign currency translation |
3 |
|
|
|
|
Sales change ex. currency(1)
|
43 |
|
|
Acquisitions |
(23) |
|
|
Organic sales change(1)
|
20 |
% |
|
(1)
Totals may not sum due to rounding
|
|
In the first quarter of 2022, on an organic basis, sales increased
by over 20% in high value categories and a mid-teens rate in the
base business.
Company-wide, on an organic basis, sales of Intelligent Labels
solutions increased over 20%.
Operating Income
Operating income increased in the first quarter of 2022 compared to
the same period last year primarily due to higher organic volume
and the impact of acquisitions, partially offset by higher
amortization of other intangibles resulting from business
acquisitions, growth investments and higher employee-related
costs.
Industrial and Healthcare Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(In millions) |
April 2, 2022 |
|
April 3, 2021 |
|
Net sales including intersegment sales |
$ |
195.1 |
|
|
$ |
193.7 |
|
|
Less intersegment sales |
(5.0) |
|
|
(2.1) |
|
|
Net sales |
$ |
190.1 |
|
|
$ |
191.6 |
|
|
Operating income(1)
|
15.6 |
|
|
23.5 |
|
|
(1)Included
transaction and related costs and gain on sale of assets in
2021.
|
$ |
— |
|
|
$ |
.1 |
|
Net Sales
The factors impacting reported sales change are shown in the table
below.
|
|
|
|
|
|
|
Three Months Ended |
|
April 2, 2022 |
|
Reported sales change |
(1) |
% |
|
Foreign currency translation |
2 |
|
|
Sales change ex. currency(1)
|
1 |
|
|
Acquisitions |
(1) |
|
|
Organic sales change(1)
|
1 |
% |
|
(1)
Totals may not sum due to rounding
|
|
In the first quarter of 2022, net sales increased on an organic
basis compared to the same period in the prior year by a low-double
digit rate in healthcare categories, partially offset by a
low-single digit rate decrease in industrial
categories.
Operating Income
Operating income decreased in the first quarter of 2022 compared to
the same period last year primarily due to lower
volume/mix.
Avery Dennison Corporation
FINANCIAL CONDITION
Liquidity
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
(In millions) |
April 2, 2022 |
|
April 3, 2021 |
|
Net income |
$ |
198.2 |
|
|
$ |
209.5 |
|
|
Depreciation |
43.8 |
|
|
40.0 |
|
|
Amortization |
28.2 |
|
|
14.4 |
|
|
Provision for credit losses and sales returns |
16.1 |
|
|
8.9 |
|
|
Stock-based compensation |
11.1 |
|
|
9.9 |
|
|
Pension plan settlement loss |
— |
|
|
.4 |
|
|
Deferred taxes and other non-cash taxes |
1.9 |
|
|
1.5 |
|
|
Other non-cash expense and loss (income and gain), net |
6.5 |
|
|
2.7 |
|
|
Changes in assets and liabilities and other adjustments |
(179.6) |
|
|
(78.0) |
|
|
Net cash provided by operating activities |
$ |
126.2 |
|
|
$ |
209.3 |
|
During the first three months of 2022, net cash provided by
operating activities decreased compared to the same period last
year primarily due to changes in operational working capital,
higher incentive compensation payments and timing of payroll
payments.
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
(In millions)
|
April 2, 2022 |
|
April 3, 2021 |
|
Purchases of property, plant and equipment |
$ |
(49.7) |
|
|
$ |
(25.2) |
|
|
Purchases of software and other deferred charges |
(5.6) |
|
|
(2.3) |
|
|
Proceeds from sales of property, plant and equipment |
.3 |
|
|
.7 |
|
|
Proceeds from insurance and sales (purchases) of investments,
net |
1.8 |
|
|
(.5) |
|
|
Proceeds from sale of product line |
— |
|
|
6.7 |
|
|
Payments for acquisitions, net of cash acquired, and investments in
businesses |
(33.4) |
|
|
(30.6) |
|
|
Net cash used in investing activities |
$ |
(86.6) |
|
|
$ |
(51.2) |
|
Purchases of Property, Plant and Equipment
During the first three months of 2022, we primarily invested in
buildings and equipment to support growth in certain countries in
Europe, the U.S. and certain countries in Latin America for our
Labels and Graphic Materials (“LGM”) reportable segment, in the
U.S. for our IHM reportable segment and in the U.S. and certain
countries in Asia for our RBIS reportable segment. During the first
three months of 2021, we primarily invested in equipment to support
growth in the U.S. for our LGM and IHM reportable segments and in
certain countries in Asia for our RBIS reportable
segment.
Purchases of Software and Other Deferred Charges
During the first three months of 2022 and 2021, we primarily
invested in information technology upgrades in the
U.S.
Proceeds from Sale of Product Line
During the first three months of 2021, proceeds from the sale of a
product line were in our LGM reportable segment.
Payments for Acquisitions, Net of Cash Acquired, and Investments in
Businesses
During the first three months of 2022, we paid consideration, net
of cash acquired, of approximately $30 million for the 2022
Acquisitions. We funded the 2022 Acquisitions using cash and
commercial paper borrowings. During the first three months of 2021,
we paid consideration, net of cash acquired, of approximately
$30 million for acquisitions, which we funded using cash and
commercial paper borrowings. We also made certain venture
investments in both 2022 and 2021.
Avery Dennison Corporation
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
(In millions)
|
April 2, 2022 |
|
April 3, 2021 |
|
Net increase (decrease) in borrowings with maturities of three
months or less |
$ |
179.4 |
|
|
$ |
53.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt and finance leases |
(1.9) |
|
|
(1.5) |
|
|
Dividends paid |
(56.2) |
|
|
(51.6) |
|
|
Share repurchases |
(151.5) |
|
|
(55.6) |
|
|
Net (tax withholding) proceeds related to stock-based
compensation |
(24.9) |
|
|
(25.3) |
|
|
Net cash used in financing activities
|
$ |
(55.1) |
|
|
$ |
(80.2) |
|
Borrowings and Repayment of Debt
During the first three months of 2022 and 2021, our commercial
paper borrowings were used to fund acquisitions, dividend payments,
share repurchases, capital expenditures and other general corporate
purposes.
Refer to Note 2, “Acquisitions,” and Note 4, “Debt,” to the
unaudited Condensed Consolidated Financial Statements for more
information.
Dividends Paid
We paid dividends of $.68 per share in the first three months of
2022 compared to $.62 per share in the same period last year. In
April 2022, subsequent to the end of our first quarter 2022, we
increased our quarterly dividend rate to $.75 per share,
representing an increase of approximately 10% from our previous
quarterly dividend rate of $.68 per share.
Share Repurchases
During the first three months of 2022 and 2021, we repurchased
approximately 0.8 million and 0.3 million shares of our common
stock, respectively.
In April 2022, subsequent to the end of the first quarter of 2022,
our Board authorized the repurchase of shares of our common stock
with a fair market value of up to $750 million, excluding any
fees, commissions or other expenses related to such purchases and
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.
Net (Tax Withholding) Proceeds Related to Stock-Based
Compensation
During the first three months of 2022, tax withholding for
stock-based compensation decreased compared to the same period last
year primarily as a result of equity awards vesting at lower share
prices.
Analysis of Selected Balance Sheet Accounts
Long-lived Assets
In the three months ended April 2, 2022, goodwill increased by
approximately $9 million to $1.89 billion, which reflected the
preliminary valuation of goodwill associated with the 2022
Acquisitions, partially offset by the impact of foreign currency
translation.
In the three months ended April 2, 2022, other intangibles
resulting from business acquisitions, net, decreased by
approximately $1 million to $910.8 million, which
reflected current year amortization expense and the impact of
foreign currency translation, partially offset by the preliminary
valuation of intangible assets associated with the 2022
Acquisitions.
Refer to Note 3, “Goodwill and Other Intangibles Resulting from
Business Acquisitions,” to the unaudited Condensed Consolidated
Financial Statements for more information.
Shareholders’ Equity Accounts
As of April 2, 2022, the balance of our shareholders’ equity
was $1.93 billion. Refer to Note 9, “Supplemental Equity and
Comprehensive Income Information,” to the unaudited Condensed
Consolidated Financial Statements for more
information.
Avery Dennison Corporation
Impact of Foreign Currency Translation
|
|
|
|
|
|
|
Three Months Ended |
|
(In millions) |
April 2, 2022 |
|
Change in net sales |
$ |
(60) |
|
International operations generated approximately 72% of our net
sales during the three months ended April 2, 2022. 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 the first three months of 2022 compared to the same period last
year was primarily related to euro-denominated sales.
Effect of Foreign Currency Transactions
The impact on net income from transactions denominated in foreign
currencies is largely mitigated because the costs of our products
are generally denominated in the same currencies in which they are
sold. In addition, to reduce our income and cash flow exposure to
transactions in foreign currencies, we enter into foreign exchange
forward, option and swap contracts where available and appropriate.
Refer to Note 6, “Financial Instruments,” to the unaudited
Condensed Consolidated Financial Statements for more
information.
Analysis of Selected Financial Ratios
We utilize the financial ratios discussed below to assess our
financial condition and operating performance. We believe this
information assists our investors in understanding the drivers
impacting our cash flow other than net income and capital
expenditures.
Operational Working Capital Ratio
Operational working capital, as a percentage of annualized
current-quarter net sales, is reconciled to working capital below.
Our objective is to minimize our investment in operational working
capital, as a percentage of annualized current-quarter net sales,
to maximize cash flow and return on investment. Operational working
capital, as a percentage of annualized current-quarter net sales,
in the first quarter of 2022 was higher compared to the first
quarter of 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except percentages) |
April 2, 2022 |
|
April 3, 2021 |
|
(A) Working capital |
$ |
171.1 |
|
|
$ |
573.9 |
|
|
Reconciling items: |
|
|
|
|
Cash and cash equivalents |
(147.1) |
|
|
(328.0) |
|
|
Other current assets |
(234.9) |
|
|
(216.3) |
|
|
Short-term borrowings and current portion of long-term debt and
finance leases |
494.9 |
|
|
116.9 |
|
|
Accrued payroll and employee benefits and other current
liabilities |
855.8 |
|
|
763.6 |
|
|
(B) Operational working capital |
$ |
1,139.8 |
|
|
$ |
910.1 |
|
|
(C) First-quarter net sales, annualized
|
$ |
9,397.2 |
|
|
$ |
8,205.2 |
|
|
Operational working capital, as a percentage of annualized
current-quarter net sales: (B) ÷ (C) |
12.1 |
% |
|
11.1 |
% |
Accounts Receivable Ratio
The average number of days sales outstanding was 60 days in the
first quarter of 2022 compared to 58 days in the first quarter of
2021, calculated using the accounts receivable balance at
quarter-end divided by the average daily sales in the first quarter
of 2022 and 2021, respectively. The increase in average number of
days sales outstanding was primarily due to the impact of
acquisitions and foreign currency translation.
Inventory Ratio
Average inventory turnover was 7.1 in the first quarter of 2022
compared to 7.4 in the first quarter of 2021, calculated using the
annualized first-quarter cost of products sold in 2022 and 2021,
respectively, and divided by the inventory balance at quarter-end.
The decrease in average inventory turnover primarily reflected
inventory build to manage supply chain disruptions and anticipated
increased demand.
Accounts Payable Ratio
The average number of days payable outstanding was 73 days in the
first quarter of 2022 compared to 74 days in the first quarter of
2021, calculated using the accounts payable balance at quarter-end
divided by the annualized first-quarter cost of products sold, in
2022 and 2021, respectively. The decrease in average number of days
payable outstanding primarily reflected the impact of
acquisitions,
Avery Dennison Corporation
partially offset by the impact of foreign currency translation and
higher accounts payable balances due to our inventory build to
manage supply chain disruptions and anticipated increased
demand.
Capital Resources
Capital resources include cash flows from operations, cash and cash
equivalents and debt financing, including access to commercial
paper borrowings supported by our Revolver. We use these resources
to fund our operational needs.
As of April 2, 2022, we had cash and cash equivalents of
$147.1 million held in accounts at third-party financial
institutions. Our cash balances are held in numerous locations
throughout the world. As of April 2, 2022, the majority of our
cash and cash equivalents was held by our foreign subsidiaries,
primarily in Asia Pacific.
To meet our 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 foreign earnings and profits, a
portion would be subject to cash payments of withholding taxes
imposed by foreign tax authorities. Additional U.S. taxes may also
result from the impact of foreign currency fluctuations related to
these earnings and profits.
The Revolver, which matures in February 2025, is used as a back-up
facility for our commercial paper borrowings and can be used for
other corporate purposes. No balance was outstanding under the
Revolver as of April 2, 2022 or January 1,
2022.
Capital from Debt
The carrying value of our total debt increased by approximately
$164 million in the first three months of 2022 to
$3.27 billion, primarily reflecting a net increase in
commercial paper borrowings.
Credit ratings are a significant factor in our ability to raise
short- and long-term financing. The credit ratings assigned to us
also impact the interest rates we pay and our access to commercial
paper, credit facilities and other borrowings. A downgrade of our
short-term credit ratings could impact our ability to access
commercial paper markets. If our access to commercial paper markets
were to become limited, we believe that the Revolver and our other
credit facilities would be available to meet our short-term funding
requirements. When determining a credit rating, we believe that
rating agencies primarily consider our competitive position,
business outlook, consistency of cash flows, debt level and
liquidity, geographic dispersion and management team. We remain
committed to maintaining an investment grade rating.
Off-Balance Sheet Arrangements, Contractual Obligations, and Other
Matters
Refer to Note 11, “Commitments and Contingencies,” to the unaudited
Condensed Consolidated Financial Statements for this information.
Except as indicated therein, we have no material off-balance sheet
arrangements as described in Item 303(b) of Regulation
S-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
There have been no material changes to the information provided in
Part II, Item 7A of our Annual Report on Form 10-K for the fiscal
year ended January 1, 2022 that have not been disclosed in our
periodic filings with the SEC.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(f)) that are designed to ensure that
information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC, and that such
information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding the required
disclosure.
In designing and evaluating the disclosure controls and procedures,
we recognize that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management
necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and
procedures.
Our disclosure controls system is based upon a global chain of
financial and general business reporting lines that converge in our
headquarters in Mentor, Ohio. As required by SEC Rule 13a-15(b), we
carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as
of the end of the quarter covered by this report. Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures were
effective as of such time to provide reasonable assurance that
information was recorded, processed, summarized and reported within
the time periods
Avery Dennison Corporation
specified in the SEC’s rules and forms, and that such information
was accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding the required
disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Avery Dennison Corporation
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to “Legal Proceedings” in Note 11, “Commitments and
Contingencies,” to the unaudited Condensed Consolidated Financial
Statements in Part 1, Item 1 for this information.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors included in
Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal
year ended January 1, 2022 that have not been disclosed in our
periodic filings with the SEC, except as set forth
below.
The demand for our products is impacted by the effects of, and
changes in, worldwide economic, social, political and market
conditions, which could have a material adverse effect on our
business.
We have operations in over 50 countries and our domestic and
international operations are strongly influenced by matters beyond
our control, including changes in political, social, economic and
labor conditions, tax laws (including U.S. taxes on foreign
earnings), and international trade regulations (including tariffs),
as well as the impact of these changes on the underlying demand for
our products. In 2021, approximately 75% of our net sales were from
international operations.
Macroeconomic developments such as impacts from COVID-19,
inflation, raw material, freight and labor availability, slower
growth in the geographic regions in which we operate and
uncertainty in the global credit or financial markets leading to a
loss of consumer confidence could result in a material adverse
effect on our business as a result of, among other things, reduced
consumer spending, declines in asset valuations, diminished
liquidity and credit availability, volatility in securities prices,
credit rating downgrades and fluctuations in foreign currency
exchange rates.
While we saw the ease of trade tensions between the U.S. and some
of its trading partners such as the EU and Japan, we continue to
face uncertainty from trade relations between the U.S. and China.
Over the past few years, the U.S. government has imposed additional
tariffs on products imported into the U.S. from China. This has
resulted in reciprocal tariffs on goods imported from the U.S. into
China. The impacts on our operations to date have not been
significant. There remains risk that our business could be
significantly impacted if additional tariffs or other restrictions
are imposed on products. Any of these actions or further
developments in international trade relations could have a material
adverse effect on our business.
In addition, business and operational disruptions or delays caused
by political, social or economic instability and unrest – such as
civil, political and economic disturbances in places such as the
U.S., Russia, Ukraine, Afghanistan, Syria, Iraq, Iran, Turkey,
North Korea, and Hong Kong and the related impact on global
stability, terrorist attacks and the potential for other
hostilities, public health crises or natural disasters in various
parts of the world – could contribute to a climate of economic and
political uncertainty that in turn could have a material adverse
effect on our business. In February 2022, Russia invaded Ukraine
resulting in the U.S., Canada, the European Union and other
countries imposing economic sanctions on Russia. Additional
potential sanctions and penalties have been proposed or threatened.
Russian military actions and the resulting sanctions could
adversely affect the global economy and financial markets. Any
Russian response could also disrupt commercial and financial
transactions. We have ceased shipment of all products for the
Russian market. Our sales for the Russian market were approximately
1% of our net sales in 2021. Further, the continuing conflict in
Ukraine has spilled over into neighboring countries due to the
displacement of a large number of refugees, which could adversely
impact the global supply chain and disrupt our operations or
negatively impact the demand for our products in our primary end
markets. Any such disruption could have a material adverse effect
to our financial results.
We are not able to predict the duration and severity of adverse
economic, social, political or market conditions in the U.S. or
other countries.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
(a)Not
Applicable
(b)Not
Applicable
(c)Repurchases
of Equity Securities by Issuer
Avery Dennison Corporation
Repurchases by us or our “affiliated purchasers” (as defined in
Rule 10b-18(a)(3) of the Exchange Act) of registered equity
securities in the first quarter of 2022 are shown in the table
below. Repurchased shares may be reissued under our long-term
incentive plan or used for other corporate purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period(1)
|
Total number
of shares
purchased(2)
|
|
Average
price paid
per share |
|
Total number of shares
purchased as part of
publicly announced
plans(2)(3)
|
|
Approximate dollar
value of shares that may
yet be purchased under
the plans(4)
|
|
January 2, 2022 – January 29, 2022 |
151.5 |
|
|
$ |
205.18 |
|
|
151.5 |
|
|
$ |
328.4 |
|
|
January 30, 2022 – February 26, 2022 |
128.8 |
|
|
194.02 |
|
|
128.8 |
|
|
303.4 |
|
|
February 27, 2022 – April 2, 2022 |
568.8 |
|
|
167.78 |
|
|
568.8 |
|
|
208.0 |
|
|
Total |
849.1 |
|
|
$ |
178.43 |
|
|
849.1 |
|
|
$ |
208.0 |
|
(1)The
periods shown are our fiscal periods during the thirteen-week
quarter ended April 2, 2022.
(2)Shares
in thousands.
(3)In
April 2019, our Board authorized the repurchase of shares of our
common stock with a fair market value of up to $650 million,
excluding any fees, commissions or other expenses related to such
purchases. This Board authorization will remain in effect until
shares in the amount authorized thereunder have been
repurchased..
(4)Dollars
in millions.
In April 2022, subsequent to the end of the first quarter of 2022,
our Board authorized the repurchase of shares of our common stock
with a fair market value of up to $750 million, excluding any fees,
commissions or other expenses related to such purchases, in
addition to the amount outstanding under our previous Board
authorization pursuant to which purchases were made in the periods
shown in the table above. Board authorizations remain in effect
until shares in the amount authorized thereunder have been
repurchased
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
Avery Dennison Corporation
ITEM 6. EXHIBITS
|
|
|
|
|
|
|
Exhibit 10.1* |
|
|
Exhibit 10.2* |
|
|
Exhibit 10.3* |
|
|
Exhibit 31.1* |
|
|
Exhibit 31.2* |
|
|
Exhibit 32.1** |
|
|
Exhibit 32.2** |
|
|
Exhibit 101.INS*** |
Inline XBRL Instance Document – the instance document does not
appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document. |
|
Exhibit 101.SCH*** |
Inline XBRL Extension Schema Document |
|
Exhibit 101.CAL*** |
Inline XBRL Extension Calculation Linkbase Document |
|
Exhibit 101.LAB*** |
Inline XBRL Extension Label Linkbase Document |
|
Exhibit 101.PRE*** |
Inline XBRL Extension Presentation Linkbase Document |
|
Exhibit 101.DEF*** |
Inline XBRL Extension Definition Linkbase Document |
|
Exhibit 104*** |
Inline XBRL for the cover page of this Quarterly Report on Form
10-Q, included as part of this Exhibit 101 inline XBRL document
set |
____________________
|
|
|
|
|
|
|
* |
Filed herewith. |
|
** |
Furnished herewith. |
|
*** |
Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the
Interactive Data Files on Exhibit 101 hereto are deemed not filed
or part of a registration statement or prospectus for purposes of
Sections 11 or 12 of the Securities Act, are deemed not filed for
purposes of Section 18 of the Exchange Act and otherwise are not
subject to liability under those sections. |
Avery Dennison Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
|
|
|
AVERY DENNISON CORPORATION |
|
(Registrant) |
|
|
|
/s/ Gregory S. Lovins |
|
Gregory S. Lovins |
|
Senior Vice President and Chief Financial Officer |
|
(Principal Financial Officer) |
|
|
|
/s/ Lori J. Bondar |
|
Lori J. Bondar |
|
Vice President, Controller, Treasurer, and Chief Accounting
Officer |
|
(Principal Accounting Officer) |
|
|
|
May 3, 2022
|
Avery Dennison (NYSE:AVY)
Graphique Historique de l'Action
De Juil 2022 à Août 2022
Avery Dennison (NYSE:AVY)
Graphique Historique de l'Action
De Août 2021 à Août 2022
