Avery Dennison Corporation (NYSE:AVY) Q2 2021 Earnings Conference Call July 28, 2021 1:00 PM ET Company Participants John Eble – Head-Investor Relations Mitch Butier – Chairman, President and Chief Executive Officer Greg Lovins – Senior Vice President and Chief Financial Officer Deon Stander – Vice President and General Manager-Retail Branding and Information Solutions Conference Call Participants George Staphos – Bank of America Securities, Inc. Ghansham Panjabi – Baird Anthony Pettinari – Citigroup Global ...

Avery Dennison Corp (NYSE:AVY) Q1 2021 Earnings Conference Call April 28, 2021 1:00 PM ET Company Participants John Eble - Executive of IR Mitchell Butier - Chairman, President & CEO Gregory Lovins - SVP & CFO Conference Call Participants Ghansham Panjabi - Robert W. Baird & Co. Anthony Pettinari - Citigroup John McNulty - BMO Capital Markets Jeffrey Zekauskas - JPMorgan Chase & Co. Adam Josephson - KeyBanc Capital Markets Neel Kumar - Morgan Stanley George Staphos - Bank of America Merrill Lynch Joshua Spe ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) A global materials science manufacturer operating through LGM, RBIS, and IHM segments with a focus on innovation 2020 Net Sales Contribution by Segment | Segment | 2020 Net Sales Contribution | | :--- | :--- | | Label and Graphic Materials (LGM) | ~68% | | Retail Branding and Information Solutions (RBIS) | ~23% | | Industrial and Healthcare Materials (IHM) | ~9% | - International operations are a substantial part of the business, representing **approximately 76% of net sales** in 2020[7](index=7&type=chunk) - The company operates **approximately 190 manufacturing and distribution facilities** in over 50 countries[7](index=7&type=chunk) [LGM Segment](index=3&type=section&id=LGM%20Segment) The largest segment, LGM, manufactures and sells pressure-sensitive label and packaging materials globally - The LGM segment manufactures and sells pressure-sensitive materials (papers, films, foils) coated with adhesives, which are sold to label converters[8](index=8&type=chunk) - Key markets for label and packaging materials include home/personal care, beer/beverage, durables, pharmaceutical, wine/spirits, and food[9](index=9&type=chunk) - Major competitors in this segment are **UPM Raflatac, Lintec Corporation, Ritrama SpA** for label materials, and **3M and Orafol Group** for graphics and reflective products[9](index=9&type=chunk) [RBIS Segment](index=4&type=section&id=RBIS%20Segment) The RBIS segment provides branding and information solutions, including RFID, to retailers and apparel brands - RBIS designs and sells branding solutions like graphic tickets, tags, and labels, as well as information solutions including **item-level RFID**, price ticketing, and brand protection[10](index=10&type=chunk) - Primary competitors include **Checkpoint Systems, Inc.** (a subsidiary of CCL Industries), **R-pac International Corporation**, and **SML Group Limited**[10](index=10&type=chunk) [IHM Segment](index=4&type=section&id=IHM%20Segment) The IHM segment manufactures adhesive-based materials and tapes for industrial and healthcare markets - IHM products include tapes, fastening systems, and other adhesive-based materials for automotive, electronics, building/construction, industrial, personal care, and medical applications[11](index=11&type=chunk) - Primary competitors for industrial and healthcare materials are **3M, Tesa-SE, and Nitto Denko Corporation**[13](index=13&type=chunk) [Research, Development and Innovation](index=5&type=section&id=Research%2C%20Development%20and%20Innovation) Innovation efforts focus on materials science, RFID, medical technologies, and sustainable products - R&D efforts are directed at developing new products, improving productivity, and enhancing sustainability, with specific focus on **RFID and medical technologies**[14](index=14&type=chunk) [Human Capital Resources](index=5&type=section&id=Human%20Capital%20Resources) The company's highly international workforce is concentrated in Asia, with a focus on safety and inclusion Workforce Distribution (Year-End 2020) | Region/Function | Workforce Percentage (Year-End 2020) | | :--- | :--- | | **By Region** | | | Asia Pacific | 60% | | Europe | 18% | | North America | 16% | | Latin America | 6% | | **By Function** | | | Operations | 67% | | Non-Operations | 33% | - The company's global **Recordable Incident Rate was 0.21** in 2020, significantly lower than the manufacturing industry average of 3.0 in 2019[21](index=21&type=chunk) [Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) The company faces multifaceted risks including pandemic impacts, international operations, and market changes [Risks Related to COVID-19](index=8&type=section&id=Risks%20Related%20to%20COVID-19) The COVID-19 pandemic negatively impacted 2020 financial results and poses ongoing operational risks - **Net sales for fiscal year 2020 were down over 1%** from the prior year due to the pandemic's impact, with a significant decline of approximately 15% in Q2 2020[27](index=27&type=chunk) - The pandemic has affected employees, with many office personnel working remotely and some manufacturing facilities experiencing temporary closures[29](index=29&type=chunk) - In Q1 2020, disrupted access to the commercial paper market led to a **temporary $500 million drawdown** from the revolving credit facility, repaid in Q2 2020[30](index=30&type=chunk) [Risks Related to International Operations](index=9&type=section&id=Risks%20Related%20to%20Our%20International%20Operations) Significant international and emerging market sales create exposure to economic, political, and currency risks - Approximately **76% of 2020 net sales were from international operations**, and about half originated in emerging markets[32](index=32&type=chunk)[36](index=36&type=chunk) - Foreign currency translation **negatively impacted 2020 net sales by approximately $67 million**[34](index=34&type=chunk) - Risks in emerging markets include unstable political conditions, unreliable legal systems, and economic volatility[36](index=36&type=chunk) [Risks Related to Business](index=11&type=section&id=Risks%20Related%20to%20Our%20Business) Business risks include competition, sustainability regulations, acquisition integration, and raw material costs - The company faces risks from changing consumer preferences and regulations regarding single-use plastics[40](index=40&type=chunk) - Recent acquisitions include Smartrac's RFID division for **~$255 million** and ACPO, Ltd. for **~$88 million**, which present integration risks[41](index=41&type=chunk) - The company expensed **$113 million on research and development** in 2020, with no guarantee of success[50](index=50&type=chunk) - The allowance for credit losses **increased by approximately 65%** from ~$27 million to ~$45 million in 2020 as a result of COVID-19[56](index=56&type=chunk) [Risks Related to Income Taxes](index=14&type=section&id=Risks%20Related%20to%20Income%20Taxes) The effective tax rate is subject to risks from jurisdictional earnings mix, law changes, and deferred tax assets - The company's effective tax rate can be affected by changes in the mix of earnings in countries with differing statutory tax rates[57](index=57&type=chunk) - Potential changes in U.S. tax legislation, including a **possible increase in the corporate tax rate**, could materially impact results[59](index=59&type=chunk) - A significant portion of the company's indefinite-lived net operating loss carryforwards is **concentrated in Luxembourg**[63](index=63&type=chunk) [Risks Related to Information Technology](index=16&type=section&id=Risks%20Related%20to%20Information%20Technology) The company's IT infrastructure is vulnerable to system failures, cyberattacks, and data security breaches - The company's IT infrastructure is susceptible to risks including system obsolescence, human error, and malicious attacks like viruses and ransomware[66](index=66&type=chunk) - Security breaches could compromise confidential information, leading to legal claims and reputational damage[67](index=67&type=chunk)[68](index=68&type=chunk) [Risks Related to Human Capital](index=17&type=section&id=Risks%20Related%20to%20Human%20Capital) Risks include competition for talent, succession planning, and potential labor disputes in non-U.S. locations - Competition to recruit and retain key management and highly-skilled employees is significant and could disrupt business operations[70](index=70&type=chunk) - The company is subject to potential work stoppages and labor disputes due to various non-U.S. collective labor arrangements[71](index=71&type=chunk) [Risks Related to Our Indebtedness](index=17&type=section&id=Risks%20Related%20to%20Our%20Indebtedness) The company's $2.12 billion debt exposes it to financing, interest rate, and LIBOR transition risks - As of January 2, 2021, the company had **approximately $2.12 billion of debt**[72](index=72&type=chunk) - Average variable-rate borrowings in 2020 were **approximately $338 million**, exposing the company to interest rate fluctuations[74](index=74&type=chunk) - The planned **discontinuation of LIBOR after 2021** poses a risk, as the company's revolving credit facility is based on it[75](index=75&type=chunk) [Risk Related to Ownership of Our Stock](index=18&type=section&id=Risk%20Related%20to%20Ownership%20of%20Our%20Stock) Stock price is subject to market variability, and capital return programs like buybacks are not guaranteed - The company's stock price is subject to significant variability influenced by market demand and company performance[78](index=78&type=chunk) - Share repurchases totaled **$104.3 million** for the fiscal year, with **$540.4 million remaining authorized** for repurchase as of January 2, 2021[80](index=80&type=chunk) [Risks Related to Legal and Regulatory Matters](index=19&type=section&id=Risks%20Related%20to%20Legal%20and%20Regulatory%20Matters) The company faces risks from intellectual property litigation and compliance with complex global regulations - The company is exposed to litigation risk involving patents and other intellectual property[81](index=81&type=chunk) - Failure to comply with anti-corruption laws like the **U.S. Foreign Corrupt Practices Act (FCPA)** could lead to substantial penalties[85](index=85&type=chunk) - The company is subject to numerous environmental, health, and safety laws globally and has accrued liabilities for environmental clean-up[86](index=86&type=chunk) [Unresolved Staff Comments](index=22&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved comments from the SEC staff - None[96](index=96&type=chunk) [Properties](index=22&type=section&id=Item%202.%20Properties) The company owns and leases numerous manufacturing facilities and offices globally, deemed adequate for current needs - The company operates major manufacturing facilities in the U.S. (Georgia, Indiana, Ohio) and internationally (Belgium, China, Germany, Mexico)[97](index=97&type=chunk)[98](index=98&type=chunk) - The corporate headquarters in Glendale, California, and key divisional offices are leased[98](index=98&type=chunk) [Legal Proceedings](index=22&type=section&id=Item%203.%20Legal%20Proceedings) Details regarding legal proceedings are incorporated by reference from Note 8 of the financial statements - Information on legal proceedings is incorporated by reference from Note 8, "Contingencies," in the Notes to Consolidated Financial Statements[99](index=99&type=chunk) [Mine Safety Disclosures](index=22&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[99](index=99&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=23&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock (AVY) trades on the NYSE, with active share repurchases in Q4 2020 - The company's common stock is listed on the New York Stock Exchange under the ticker symbol **"AVY"**[101](index=101&type=chunk) Q4 2020 Share Repurchase Activity | Period (Q4 2020) | Total Shares Purchased (in thousands) | Average Price Paid per Share | Approximate Dollar Value Remaining for Purchase (in millions) | | :--- | :--- | :--- | :--- | | Sep 27 – Oct 24, 2020 | 46.3 | $127.67 | $586.6 | | Oct 25 – Nov 28, 2020 | 168.9 | $145.39 | $562.0 | | Nov 29 – Jan 2, 2021 | 142.5 | $151.91 | $540.4 | | **Total Q4** | **357.7** | **$145.70** | **$540.4** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section is incorporated by reference from the company's 2020 Annual Report - The information for this item is incorporated by reference from the 2020 Annual Report[104](index=104&type=chunk) [Controls and Procedures](index=24&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls over financial reporting were effective - Management, including the CEO and CFO, concluded that the company's **disclosure controls and procedures were effective** as of the end of the period[108](index=108&type=chunk) - Management concluded that the company's **internal control over financial reporting was effective** as of January 2, 2021[108](index=108&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=25&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) Information on directors is referenced from the Proxy Statement, while executive officer details are provided - Information concerning directors and corporate governance is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting[110](index=110&type=chunk) Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Mitchell R. Butier | 49 | Chairman, President and Chief Executive Officer | | Gregory S. Lovins | 48 | Senior Vice President and Chief Financial Officer | | Deena Baker-Nel | 50 | Vice President and Chief Human Resources Officer | | Lori J. Bondar | 60 | Vice President, Controller, Treasurer and Chief Accounting Officer | | Nicholas Colisto | 54 | Vice President and Chief Information Officer | | Deon Stander | 52 | Vice President and General Manager, RBIS | | Ignacio Walker | 44 | Vice President and Chief Legal Officer | [Executive Compensation](index=27&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2021 Proxy Statement - The information for this item is incorporated by reference from the 2021 Proxy Statement[113](index=113&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=27&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Details on security ownership are incorporated by reference from the 2021 Proxy Statement - The information for this item is incorporated by reference from the 2021 Proxy Statement[113](index=113&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=27&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is referenced from the 2021 Proxy Statement - The information for this item is incorporated by reference from the 2021 Proxy Statement[113](index=113&type=chunk) [Principal Accounting Fees and Services](index=27&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Details on principal accounting fees and services are incorporated by reference from the 2021 Proxy Statement - The information for this item is incorporated by reference from the 2021 Proxy Statement[113](index=113&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=28&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements and exhibits filed, with schedules omitted as not applicable - Financial statements are filed as part of the report, as listed in the Index to Financial Statements[114](index=114&type=chunk)[115](index=115&type=chunk) - All financial statement schedules have been omitted because the required information is not present or is included elsewhere[114](index=114&type=chunk) - An Exhibit Index is provided, listing all exhibits filed with the report, including management contracts and compensatory plans[114](index=114&type=chunk)[117](index=117&type=chunk) [Form 10-K Summary](index=32&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports that no Form 10-K summary is provided - None[121](index=121&type=chunk)

Financial Performance & Targets - The company targets more than $500 million in free cash flow for the year [8, 63] - The company increased dividend by 7% and resumed share repurchase late in the third quarter [8, 62] - The company is targeting 15-20% growth in its $500+ million revenue RFID platform [13] - The company achieved a world-class Recordable Incident Rate of 0.23 [22] Sales & Growth - 2019 net sales were $7.1 billion [9] - High Value Categories account for ~$2.7 billion of total sales [11] - Emerging Markets account for ~$2.3 billion of total sales [11] - RBIS sales were $1.7 billion in 2019 [46] - Enterprise RFID sales up ~20% on an organic basis in Q3, and up ~65% including Smartrac acquisition [57] Sustainability - The company reduced greenhouse gas emissions by more than 30% against 2015 baseline as of September 30, 2019 [22] - Over 88% of the company's paper is certified, with close to 79% of face paper being FSC-certified [22] - 94% of waste from operations was diverted from landfills and 65% of waste was recycled as of November 2019 [22]

Table of Contents 2019 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 2019 or ☐ 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 | --- | --- | --- | |------------------------------------------------------------------- ...