Avery Dennison Corp

Liquidity

Operating Activities

During the first nine months of 2026, net cash provided by operating activities increased compared to the same period last year primarily due to changes in operational working capital, lower incentive compensation payments and higher net income, partially offset by higher tax payments, net of refunds.

Investing Activities

Purchases of Property, Plant and Equipment

During the first nine months of 2026, in our Materials Group reportable segment, we primarily invested in equipment to support growth and improve productivity in the U.S., certain countries in Europe, including Luxembourg and Ireland, and certain countries in Asia Pacific, including China and Malaysia; in our Solutions Group reportable segment, we primarily invested in equipment to support growth and improve productivity in certain countries in Asia Pacific, including Vietnam and China, the U.S. and certain countries in Latin America, primarily Mexico.

During the first nine months of 2025, in our Materials Group reportable segment, we primarily invested in equipment to support growth in the U.S., certain countries in Europe and certain countries in Asia Pacific, primarily China; in our Solutions Group reportable segment, we primarily invested in buildings and equipment to support growth in certain countries in Asia Pacific, including China and Vietnam, and the U.S.

Purchases of Software and Other Deferred Charges

During the first nine months of 2026 and 2025, we primarily invested in information technology upgrades in the U.S.

Proceeds from Sales of Property, Plant and Equipment

During the first nine months of 2025, we received proceeds from the sale of properties in China and Vietnam.

Proceeds from Settlement of Net Investment Hedges

During the first nine months of 2026 and 2025, we settled €500 million and €420 million notional amount of net investment hedges, respectively.

Payments for Acquisitions, Net of Cash Acquired, and Venture Investments

During the first nine months of 2026, we made an approximately $75 million minority investment in Wiliot Ltd. We funded this investment using cash and commercial paper borrowings. In addition, we made other venture investments and purchase price adjustments related to our acquisition of W.F. Taylor Holdings, Inc. ("Taylor Adhesives"). During the first nine months of 2025, we paid $10.7 million for venture investments.

Financing Activities

Borrowings and Repayment of Debt

During the first nine months of 2026 and 2025, our commercial paper borrowings were used to fund dividend payments, share repurchases, venture investments, capital expenditures and other general corporate purposes. During the first nine months of 2025, commercial paper borrowings were also used to repay long-term debt.

In the first quarter of 2025, we repaid our €500 million of senior notes at maturity using the net proceeds from the €500 million of senior notes we issued in the fourth quarter of 2024, cash flows from operations and commercial paper borrowings.

In the second quarter of 2025, we repaid our $25 million of medium-term notes at maturity using cash flows from operations and commercial paper borrowings.

In the third quarter of 2025, we repaid our $5 million of medium-term notes at maturity using cash flows from operations and commercial paper borrowings.

In September 2025, we issued €500 million of senior notes, due September 11, 2035, which bear an interest rate of 4.000% per year, payable annually in arrears. Our net proceeds of approximately €494 million ($577 million) from this issuance, after deducting underwriting discounts and offering expenses, were used for general corporate purposes, including to finance the acquisition of Taylor Adhesives, and to repay commercial paper indebtedness.

Dividends Paid

We paid dividends of $2.94 per share in the first nine months of 2026 compared to $2.76 per share in the same period last year. In April 2026, we increased our quarterly dividend rate from $0.94 per share to $1.00 per share, representing an increase of approximately 6%.

Subsequent to the end of the third quarter, in October 2026, our Board of Directors declared a dividend for the fourth quarter of 2026 of $1.00 per share of outstanding common stock, payable on December 16, 2026 to shareholders of record on December 2, 2026.

Share Repurchases

During the first nine months of 2026 and 2025, we repurchased approximately 1.5 million and 2.5 million shares of our common stock, respectively.

Payments for Settlement of Fair Value Hedges

During the first nine months of 2026 and 2025, we settled €500 million and €420 million notional amount of fair value hedges, respectively.

Analysis of Selected Balance Sheet Accounts

Long-lived Assets

In the nine months ended September 30, 2026, goodwill decreased by approximately $11 million to $2.26 billion, primarily reflecting the impact of foreign currency translation.

In the nine months ended September 30, 2026, other intangibles resulting from business acquisitions, net, decreased by approximately $76 million to $751.1 million, primarily reflecting current-year amortization expense.

Refer to Note 2, “Goodwill and Other Intangibles Resulting from Business Acquisitions,” to the unaudited Condensed Consolidated Financial Statements for more information.

Shareholders’ Equity Accounts

As of September 30, 2026, the balance of our shareholders’ equity was $2.39 billion. Refer to Note 8, “Supplemental Equity and Comprehensive Income Information,” to the unaudited Condensed Consolidated Financial Statements for more information.

Impact of Foreign Currency Translation

International operations generated approximately 69% of our net sales during the nine months ended September 30, 2026. Our future results are subject to changes in worldwide economic conditions, tariffs, and social, geopolitical and market conditions in the regions in which we operate, as well as the impact of fluctuations in foreign currency exchange and interest rates.

The favorable impact of foreign currency translation on net sales in the first nine months of 2026 compared to the same period last year was primarily related to euro-denominated sales and sales in China.

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 5, “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 factors 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 our cash flow and return on investment. As shown below, operational working capital, as a percentage of annualized current-quarter net sales, in the third quarter of 2026 decreased compared to the third quarter of 2025.

Accounts Receivable Ratio

The average number of days sales outstanding was 68 days in the third quarter of 2026 compared to 67 days in the third quarter of 2025, calculated using the accounts receivable balance at quarter-end divided by the average daily sales in the respective quarter. The increase in average number of days sales outstanding primarily reflected the timing of collections.

Inventory Ratio

Average inventory turnover was 6.3 in the third quarter of 2026 compared to 6.1 in the third quarter of 2025, calculated using the annualized third-quarter cost of products sold and divided by the inventory balance at the respective quarter-end. The increase in average inventory turnover primarily reflected higher volume.

Accounts Payable Ratio

The average number of days payable outstanding was 80 days in the third quarter of 2026 compared to 75 days in the third quarter of 2025, calculated using the respective accounts payable balance at quarter-end divided by the annualized third-quarter cost of products sold. The increase in average number of days payable outstanding primarily reflected the timing of vendor payments.

Capital Resources

Capital resources used to fund our operational needs include cash flows from operations, cash and cash equivalents, and debt financing, including commercial paper borrowings supported by our $1.20 billion revolving credit facility (the “Revolver”).

The Revolver 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 September 30, 2026 or December 31, 2025.

As of September 30, 2026, we had cash and cash equivalents of $271.4 million held in accounts at third-party financial institutions. Our cash balances are held in numerous locations around the world. As of September 30, 2026, 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.

Capital from Debt

The carrying value of our total debt decreased by approximately $118 million in the first nine months of 2026 to $3.62 billion, primarily due to lower commercial paper borrowings and the revaluation of our euro-denominated debt.

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 otherwise indicated therein, we have no material off-balance sheet arrangements as described in Item 303(b) of Regulation S-K.