Avery Dennison Corporation — Fiscal 2013 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 28, 2013, including the fourth quarter. Avery Dennison manufactures pressure-sensitive materials and converted products, including labels, tapes, graphics, reflective products, tickets, tags, RFID products, and medical adhesive solutions. Its reportable segments were Pressure-sensitive Materials (PSM) and Retail Branding and Information Solutions (RBIS); Vancive Medical Technologies was included in other specialty converting businesses.
- PSM represented approximately 73% of 2013 sales.
- RBIS represented approximately 26% of 2013 sales.
- Approximately 75% of sales came from international operations spanning more than 50 countries.
- The company operated approximately 180 manufacturing and distribution facilities and employed approximately 26,000 people at year-end.
Revenue, profit, cash flow, margins, debt, and liquidity
The filing text provided does not include clear consolidated values for revenue, operating income, net income, earnings per share, cash flow, gross margin, operating margin, cash balances, or total debt. Those amounts are incorporated by reference from the 2013 Annual Report and its consolidated financial statements.
| Metric | Reported information in provided text |
|---|---|
| International sales | Approximately 75% of total sales |
| Research and development expense | $96.0 million in 2013, compared with $98.6 million in 2012 and $93.8 million in 2011 |
| Variable-rate borrowings | $73.9 million at December 28, 2013 |
| Environmental remediation accrual | $29.6 million at December 28, 2013 |
| Allowance for doubtful accounts | $21.4 million at year-end 2013, compared with $31.1 million at year-end 2012 |
| Allowance for sales returns | $10.2 million at year-end 2013, compared with $13.7 million at year-end 2012 |
The company had revolving and other credit facilities available for short-term funding if access to commercial paper became limited. The provided text does not state total available capacity, drawn amounts, liquidity ratios, or credit ratings.
Material changes versus the prior comparable period
- On July 1, 2013, Avery Dennison completed the sale of its Office and Consumer Products and Designed and Engineered Solutions businesses to CCL Industries for a total purchase price of $500 million. These businesses were reported as discontinued operations.
- The divestiture changed the company’s business mix and reduced the scope of continuing operations relative to 2012. The filing states that related tax liabilities remained subject to completion of tax filings, and the company retained certain indemnification obligations.
- Research and development expense declined by $2.6 million, or approximately 3%, from 2012.
- Allowance for doubtful accounts declined by $9.7 million, while the allowance for sales returns declined by $3.5 million.
- The company began a phased implementation of a new financial system and outsourced certain transaction-processing and accounting activities to a third-party provider during the third quarter of 2013. Implementation was expected to continue for several quarters.
- The board authorized an additional $400 million share-repurchase program in July 2013. During the fourth quarter, the company repurchased 1.31 million shares for approximately $59.7 million, at an average price of $45.54 per share. Approximately $455 million remained available under the announced repurchase plans at quarter-end.
Guidance, outlook, management commentary, risks, contingencies, and unusual items
The provided filing text does not state specific earnings, revenue, margin, or cash-flow guidance. Management’s discussion and analysis and financial statements are incorporated by reference rather than reproduced in the supplied text.
- Management emphasized continued productivity initiatives, including facility closures, footprint reductions, headcount reductions, restructuring, process standardization, and manufacturing relocation. The filing cautions that these actions could create execution, production, sales, and employee-retention risks.
- Key operating exposures include global economic conditions, customer demand, competition, raw-material and energy prices, labor costs, supply-chain interruptions, and foreign-currency fluctuations.
- Approximately 75% of sales were international, creating exposure to political, economic, tax, trade, currency, and regulatory developments.
- Environmental liabilities related to ten waste-disposal or recycling sites were accrued where probable and estimable. The company stated that future remediation costs could exceed recorded liabilities but could not reasonably estimate a range of additional exposure.
- The company is subject to routine lawsuits, claims, investigations, and regulatory matters. Based on current information, management believed their aggregate impact would not be material, but future costs could exceed accrued liabilities.
- Conflict-minerals due diligence began in 2013 and was expected to continue in 2014, potentially increasing compliance costs and affecting product sourcing.
- Other material risks include goodwill impairment, pension and postretirement obligations, tax audits and changes in tax law, information-technology and cybersecurity disruptions, intellectual-property claims, anti-corruption compliance, healthcare reform costs, and debt covenant or refinancing constraints.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 28, 2013. PricewaterhouseCoopers LLP audited the internal-control assessment.
Most important facts for investors to verify
- Retrieve the incorporated 2013 Annual Report and verify consolidated revenue, continuing-operations profit, earnings per share, operating margins, cash flow, total debt, cash, and liquidity.
- Reconcile 2013 results with 2012 after adjusting for the OCP and DES divestiture and discontinued-operations presentation.
- Review segment sales and operating income for PSM, RBIS, and Vancive, including currency and volume effects.
- Verify the $500 million divestiture proceeds, tax consequences, indemnification obligations, and any gain or loss recognized.
- Assess debt maturities, credit-facility capacity, commercial-paper reliance, covenant compliance, and the effect of variable-rate borrowings.
- Review the status and potential range of environmental, litigation, tax, and other contingent liabilities beyond recorded accruals.
- Evaluate the execution and control implications of the new financial system and accounting-outsourcing implementation.
- Confirm the amount remaining under share-repurchase authorizations and the effect of repurchases on share count and per-share results.