Avery Dennison Corporation — Fiscal 2016 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2016. Although the request identifies 2016 Q4, this is an annual Form 10-K; fourth-quarter information is disclosed only where specifically noted.
- Avery Dennison manufactures pressure-sensitive materials, labels, tags, tapes, fasteners, RFID products, medical materials, and related converted products.
- Fiscal 2016 reportable segments were Label and Graphic Materials (LGM), Retail Branding and Information Solutions (RBIS), and Industrial and Healthcare Materials (IHM). Prior periods were reclassified for the new structure.
- Approximate sales mix: LGM 69%, RBIS 24%, and IHM 7%.
- International operations represented approximately 75% of sales. The company operated approximately 180 manufacturing and distribution facilities in more than 50 countries.
Financial metrics and capital structure
The source text incorporates the consolidated financial statements and Management’s Discussion and Analysis from the 2016 Annual Report but does not reproduce the principal revenue, earnings, cash flow, margin, balance-sheet, or debt totals. The filing text therefore does not provide clear values for fiscal 2016 revenue, net income, operating income, free cash flow, cash balances, total debt, or liquidity measures.
- Research and development expense was $89.7 million in 2016, compared with $91.9 million in 2015 and $102.5 million in 2014.
- Average variable-rate borrowings were approximately $281 million in 2016. Management estimated that a 20-basis-point increase in rates would have increased 2016 interest expense by approximately $0.5 million.
- The company repurchased 1.1219 million shares during the fourth quarter at an average price of $72.10 per share. Approximately $104.9 million remained available under the repurchase authorization at quarter-end.
- The company incurred approximately $41 million of non-cash pension settlement charges in 2016, reducing its pension liability by approximately $70 million.
- Environmental remediation liabilities were $21.3 million as of December 31, 2016.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2016. PricewaterhouseCoopers LLP audited the internal-control assessment.
Material changes versus prior comparable periods
- The company changed its operating structure in the fourth quarter of 2016 and adopted the LGM, RBIS, and IHM segment structure. Prior-period segment amounts were reclassified.
- In 2016, Avery Dennison acquired the European business of Mactac for $220 million.
- The company announced an agreement to acquire Hanita Coatings for $75 million, subject to customary adjustments.
- In February 2017, after year-end, the company announced an agreement to acquire Yongle Tape Company for $190 million, subject to customary adjustments, with a potential earn-out of up to $55 million.
- The company identified the loss of a specific personal-care customer program as having a negative impact on 2016 results.
- The company continued a multi-year transformation and restructuring program involving the former RBIS business, including regional go-to-market changes, management-efficiency initiatives, manufacturing-footprint consolidation, and productivity actions.
- Management reported capacity and technology investments in the U.S. graphics business, Asia, Luxembourg, RFID, heat-transfer technology, and information systems.
Guidance, outlook, risks, contingencies, and unusual items
The provided filing text does not state a specific fiscal 2017 earnings or revenue guidance range. Management’s strategic priorities include profitable growth, productivity improvement, emerging-market expansion, innovation, capacity investments, and integration of acquisitions.
- Key market risks include weaker global economic conditions, slower growth in China and parts of South America, European uncertainty, Brexit-related volatility, possible trade restrictions or tariffs, and foreign-currency fluctuations.
- Raw-material, labor, energy, and supply-chain costs may pressure margins. The company’s ability to recover cost increases through pricing and productivity is uncertain.
- Approximately 75% of sales are international, increasing exposure to currency translation, political and regulatory changes, tax matters, repatriation restrictions, and emerging-market volatility.
- Debt-related risks include higher interest rates, commercial-paper market access, credit-rating downgrades, borrowing costs, and restrictive debt covenants.
- The company is a potentially responsible party at 13 environmental sites. It has accrued probable and estimable costs but cannot reasonably estimate a range of possible additional expenses.
- The company is involved in routine lawsuits, claims, investigations, and regulatory matters. Management believes their aggregate impact is not currently material, although future costs could exceed accrued amounts.
- Other material risks include acquisition integration, restructuring execution, goodwill impairment, pension assumptions and asset performance, cybersecurity and information-technology disruptions, product liability, intellectual-property disputes, environmental compliance, tax audits, and labor disruptions.
Most important facts for investors to verify
- Obtain the incorporated 2016 Annual Report schedules to verify revenue, operating income, net income, EPS, segment sales and margins, operating cash flow, capital expenditures, cash, debt, and liquidity.
- Verify the effect of the new segment structure and the comparability of reclassified 2015 and 2014 results.
- Assess the financial impact and integration progress of Mactac, Hanita Coatings, and the post-year-end Yongle transaction.
- Review restructuring, transformation, pension settlement, acquisition, impairment, and other special charges excluded from or affecting reported results.
- Evaluate foreign-exchange sensitivity, raw-material pass-through, variable-rate debt exposure, and the company’s ability to access commercial-paper and revolving-credit facilities.
- Review environmental, litigation, tax, cybersecurity, product-liability, and regulatory contingencies, including potential amounts beyond recorded accruals.
- Confirm the status of the $500 million share-repurchase authorization and the effect of fourth-quarter repurchases on share count and capital allocation.