Avery Dennison Corporation — Fiscal 2021 Form 10-K Summary
Business context and reporting period
The filing reports on the fiscal year ended January 1, 2022. Avery Dennison manufactures pressure-sensitive materials, labels, tags, tapes, fasteners, RFID inlays and related solutions. Reportable segments were Label and Graphic Materials (LGM), Retail Branding and Information Solutions (RBIS), and Industrial and Healthcare Materials (IHM), representing approximately 65%, 26% and 9% of 2021 net sales, respectively.
International operations generated approximately 75% of net sales, with approximately half of sales originating in emerging markets. The company operated nearly 200 manufacturing and distribution facilities in more than 50 countries and had approximately 36,000 employees at year-end.
Financial metrics and capital structure
- The provided filing text does not include clear consolidated values for 2021 revenue, operating income, net income, earnings per share, gross margin, operating margin, free cash flow, cash balances or segment profitability. These amounts are incorporated by reference from the 2021 Annual Report.
- Debt was approximately $3.10 billion at January 1, 2022. Approximately $313 million of outstanding debt bore variable interest rates; average variable-rate borrowings were approximately $177 million during 2021.
- The company had an $800 million revolving credit facility. It drew $500 million during the first quarter of 2020 when commercial paper access was disrupted and repaid the borrowing in the second quarter of 2020.
- Capital expenditures, including fixed assets and information technology, were $272.1 million in 2021.
- Research and development expense was $137 million in 2021.
- Restructuring expenditures were approximately $14 million in 2021, while incremental savings from restructuring actions, net of transition costs, were approximately $65 million.
- The company repurchased approximately 0.9 million shares for $180.9 million during 2021. At fiscal year-end, $359.6 million remained available under the repurchase authorization.
Material changes versus the prior comparable period
- Operations largely recovered from the COVID-19-related effects experienced in 2020, with higher volume across businesses. The direct operational impact of COVID-19 was more modest in 2021, although Southeast Asia, particularly RBIS, experienced intermittent closures.
- Supply chains remained constrained, with elevated raw material, freight, labor and energy costs. Management implemented targeted price increases and material re-engineering to offset inflationary pressures.
- The company acquired CB Velocity Holdings, or Vestcom, for $1.47 billion and acquired ZippyYum and JDC for an aggregate of approximately $43 million.
- The company issued 0.850% senior notes due 2024 and 2.250% senior notes due 2032 in August 2021. The filing text does not provide the principal amounts of these issuances.
- Foreign currency translation increased 2021 net sales by approximately $201 million.
- Female representation in manager-and-above roles increased from 34% in 2020 to 35% in 2021.
Guidance, outlook, management commentary, risks and unusual items
The filing does not provide a clear numerical 2022 earnings or revenue guidance figure in the supplied text. Management expected continued uncertainty from COVID-19, inflation, supply-chain constraints and labor availability, and indicated that additional pricing actions could be required if inflation persisted.
- Key operating risks include raw material, freight, labor and energy inflation; supply-chain interruptions; foreign exchange volatility; international political and trade uncertainty; tariffs; and weakness in emerging markets.
- COVID-19 could continue to affect customers, suppliers, employees, production facilities, logistics and access to commercial paper markets.
- Acquisition risks include integration challenges, increased debt, amortization, potential impairment, employee retention issues and failure to achieve expected synergies, particularly following the Vestcom acquisition.
- The company recorded a $26.6 million contingent liability related to an adverse jury verdict in litigation brought by ADASA Inc. concerning certain RFID products. The ultimate outcome remained uncertain.
- The company was a potentially responsible party at 12 U.S. hazardous-waste sites and had accrued environmental liabilities where losses were probable and reasonably estimable. Actual remediation costs could exceed recorded liabilities.
- Goodwill was approximately $1.88 billion at January 1, 2022. Management determined that goodwill was not impaired in 2021, but future operating declines, market-capitalization reductions or other adverse events could result in impairment charges.
- The company reported effective disclosure controls and effective internal control over financial reporting as of January 1, 2022. Vestcom was excluded from the internal-control assessment because it was acquired during the third quarter; its revenue represented approximately 2% of consolidated revenue and its relevant assets represented approximately 3% of consolidated assets, excluding goodwill and other intangibles.
Most important facts for investors to verify
- Retrieve the incorporated 2021 Annual Report financial statements to verify revenue, earnings, margins, cash flow, cash, working capital and segment results.
- Review debt maturities, interest rates, covenant requirements and the amounts issued under the 2021 senior-note offerings.
- Assess Vestcom’s purchase accounting, goodwill and intangible assets, acquisition financing and post-acquisition contribution.
- Review the ADASA RFID litigation, the $26.6 million recorded contingent liability and any subsequent developments.
- Evaluate the sensitivity of margins and cash flow to inflation, pricing actions, supply-chain constraints, foreign currency movements and labor costs.
- Review environmental reserves, tax exposures, pension obligations and cybersecurity disclosures in the incorporated financial statement notes.