Avery Dennison Corporation 2014 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended January 3, 2015. The fourth quarter was a 14-week fiscal period. Avery Dennison manufactures pressure-sensitive materials, labels, tags, tickets, tapes, graphics, reflective products, RFID solutions, and medical adhesive technologies.
- Reportable segments: Pressure-sensitive Materials (PSM), Retail Branding and Information Solutions (RBIS), and Vancive Medical Technologies.
- PSM represented approximately 74% of 2014 sales and RBIS approximately 25%.
- International operations represented approximately 76% of sales; the company operated in more than 50 countries, with approximately 180 manufacturing and distribution facilities and more than 25,000 employees.
Financial metrics, liquidity, and capital allocation
The filing incorporates the consolidated income statements, balance sheets, cash-flow statements, selected financial data, and management’s discussion from the 2014 Annual Report. The provided filing text does not include clear values for annual revenue, net income, operating income, cash flow from operations, margins, total debt, cash, or liquidity ratios.
- Research and development expense was $102.6 million in 2014, compared with $96.0 million in 2013 and $98.6 million in 2012.
- Average variable-rate borrowings were approximately $203 million in 2014. A 50-basis-point increase in applicable interest rates would have increased 2014 interest expense by approximately $1 million.
- The company repurchased 2.389 million shares during the fourth quarter at an average price of $45.35 per share.
- At January 3, 2015, approximately $599.5 million remained available under repurchase authorizations. A new $500 million authorization was approved in December 2014, in addition to the prior authorization.
- Environmental remediation liabilities accrued at January 3, 2015 were $26.2 million.
- The allowance for doubtful accounts was $20.8 million at year-end, compared with $21.4 million at the prior year-end. The allowance for sales returns was $9.7 million, compared with $10.2 million.
Material changes versus prior comparable periods
- The company completed a phased implementation of a new financial system for portions of its North American and European PSM businesses, medical solutions operations, and corporate accounting function.
- A phased outsourcing of transaction processing and accounting activities to a new third-party provider was completed in 2014.
- A new transactional system for RBIS began phased implementation in 2014 and was expected to continue through 2017.
- The 2013 sale of the Office and Consumer Products and Designed and Engineered Solutions businesses remained classified as discontinued operations. The company retained certain indemnification and tax-related obligations.
- R&D expense increased by $6.6 million from 2013 to 2014.
Outlook, risks, contingencies, and unusual items
The provided filing text does not state a specific 2015 earnings, revenue, margin, or cash-flow guidance.
- Management highlights exposure to global economic conditions, foreign exchange, raw-material and energy costs, customer demand, competition, supply-chain interruptions, and international political and regulatory developments.
- Approximately 76% of sales were generated outside the United States, creating material foreign-currency and international operating exposure.
- Debt levels, credit ratings, commercial-paper access, interest rates, and restrictive debt covenants could affect financing costs and financial flexibility.
- Environmental liabilities relate to 14 waste disposal or recycling sites where the company has been identified as a potentially responsible party. Future remediation costs could exceed accrued amounts, but the filing states that a reasonable range cannot currently be estimated.
- The company remains exposed to tax audits, uncertain tax liabilities, potential taxes on unrepatriated foreign earnings, product liability, intellectual-property claims, cybersecurity incidents, data breaches, and regulatory matters.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of January 3, 2015. PricewaterhouseCoopers LLP audited the controls and financial statement schedule.
Most important facts for investors to verify
- Retrieve the incorporated 2014 Annual Report for complete revenue, earnings, cash-flow, balance-sheet, debt, liquidity, segment, and margin data.
- Reconcile continuing operations with the discontinued OCP and DES businesses sold in 2013.
- Assess the effect of foreign exchange, raw-material prices, and international exposure on reported and organic performance.
- Review debt maturities, credit facilities, covenants, credit ratings, and commercial-paper availability.
- Evaluate the adequacy of environmental, tax, litigation, product-liability, and indemnification reserves.
- Monitor the RBIS enterprise-system implementation through 2017 and related execution, control, and disruption risks.
- Confirm the scope and timing of the $599.5 million remaining share-repurchase authorization and its effect on leverage and share count.