AVYAvery Dennison

Tensions remain in trade relations Trade-related uncertainty remains elevated between the U.S. and certain other regions and countries, including Canada, Mexico, China, India and the European Union. The In 2025, the U.S. recently announced intentions to impose implemented a significant 10% global baseline tariff rate on nearly all imports, with higher rates on certain goods. Additionally, it applied significant tariffs on goods from Canada Canada, Mexico, China and Mexico and a smaller tariff on certain goods from China. Each the European Union, each of these countries which announced that they would impose reciprocal tariffs, with Canada and Mexico each agreeing upon certain concessions with the U.S. to temporarily delay the mutual imposition of tariffs. The tariff on certain goods from China has gone into effect, with China imposing reciprocal tariffs, and the amount of these tariffs or the classes of goods on which they are imposed applied continues to evolve and could significantly increase. change. The U.S. has also indicated government continues to negotiate with countries regarding the tariffs. In July 2025, the U.S. and the European Union agreed to a framework for a trade deal that it may impose reciprocal tariffs included a baseline tariff rate of 15% on most goods imported from other countries or regions. the European Union into the U.S. While the direct impacts on our operations to date after our mitigating actions have not been significant, our business could be materially adversely impacted by changes in U.S. and non-U.S. trade policies, including potential modifications to existing trade agreements and additional tariffs or other restrictions on free trade, impacting our raw materials or finished products. These actions or other The indirect impact on demand for our products and solutions as a result of these events, which have resulted in softer consumer volumes, continues to be uncertain and elevated. We estimate that the indirect impact of tariffs resulted in an aggregate low single digit rate decrease in sales in our overall apparel categories over the second, third and fourth quarters of 2025. On February 20, 2026, the U.S. Supreme Court issued a decision holding that the International Emergency Economic Powers Act does not authorize the President to impose tariffs. While this may provide immediate relief from these specific duties, there will likely be a period of trade policy instability. Further developments in international trade relations relations, including increased deglobalization, could have a material adverse effect on our business.

In 2024, 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 Malaysia, the U.S. and certain countries in Latin America, primarily Mexico; in our Materials Group reportable segment, we primarily invested in buildings and equipment to support growth in the U.S., and certain countries in Europe, primarily France, and Asia Pacific, primarily China. In 2023, in our Solutions Group reportable segment, we primarily invested in buildings and equipment to support growth in certain countries in Asia Pacific, primarily Malaysia, the U.S. and certain countries in Latin America, primarily Mexico; in our Materials Group reportable segment, we primarily invested in buildings and equipment to support growth in the U.S. and certain countries in Europe, primarily France, and Asia Pacific, primarily China. In 2022, in our Solutions Group reportable segment, we primarily invested in buildings and equipment to support growth in certain countries in Asia Pacific, including Malaysia, China and Vietnam, and the U.S.; in our Materials Group reportable segment, we primarily invested in buildings and equipment in the U.S. and certain countries in Europe, primarily France, and Latin America, primarily Brazil.

We were party to a patent infringement litigation in which filed by ADASA Inc. (“Adasa”), an unrelated third party, alleged that in 2017 regarding certain of the RFID products within our Solutions Group reportable segment infringed its patent. The case was filed on October 24, 2017 in the United States District Court in the District of Oregon (Eugene Division) and was captioned ADASA Inc. v. Avery Dennison Corporation. segment. We recorded a contingent liability in the amount of $26.6 million related to this matter in 2021. We increased our contingent liability to $82.9 million as of December 30, 2023, reflecting our best estimate of the second quarter of 2021 based on anticipated judgment following a July 2023 jury verdict issued on May 14, 2021. retrial that affirmed the patent's validity.

In November 2024, September 2025, the FASB Financial Accounting Standards Board (“FASB”) issued guidance expanding changing the disclosure requirements capitalization criteria for certain expenses in notes internal-use software, eliminating references to consolidated financial statements. The project stages and requiring that projects meet completion probability before costs can be capitalized. This guidance is effective for annual reporting periods fiscal years beginning after December 15, 2026 and 2027, including interim reporting periods beginning after December 15, 2027. within those fiscal years. Early adoption is permitted. We are currently assessing the impact of adopting this guidance on our consolidated financial statement disclosures. statements.