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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2024

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 001-08454

ACCO Brands Corporation

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

36-2704017

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

Four Corporate Drive

Lake Zurich, Illinois 60047

(Address of Registrant’s Principal Executive Office, Including Zip Code)

(847) 541-9500

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ACCO

NYSE

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x

 

As of April 25, 2024, the registrant had outstanding 95,639,730 shares of Common Stock.

 


 

Cautionary Statement Regarding Forward-Looking Statements

 

Certain statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, particularly those anticipating future financial performance, business prospects, growth, strategies, business operations and similar matters, results of operations, liquidity, and financial condition an those related to cost reductions and anticipated pre-tax savings and restructuring costs are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management based on information available to us at the time such statements are made. These statements, which are generally identifiable by the use of the words "will," "believe," "expect," "intend," "anticipate," "estimate," "forecast," "project," "plan," and similar expressions, are subject to certain risks and uncertainties, are made as of the date hereof, and we undertake no duty or obligation to update them. Forward-looking statements are subject to the occurrence of events outside the Company’s control and actual results and the timing of the events may differ materially from those suggested or implied by such forward-looking statements due to numerous factors that involve substantial known and unknown risk and uncertainties. Investors and others are cautioned not place undue reliance on forward-looking statements when deciding whether to buy, sell or hold the Company's securities.

 

Some of the factors that could affect our results or cause our plans, actions and results to differ materially from those expressed in the forward-looking statements contained in this Quarterly Report on Form 10-Q are detailed in "Part I, Item 1. Business" and "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, as well as in "Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Quarterly Report on Form 10Q and from time to time in our other Securities and Exchange Commission (the "SEC") filings.

 

Website Access to Securities and Exchange Commission Reports

 

The Company’s Internet website can be found at www.accobrands.com. The Company makes available free of charge on or through its website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as practicable after the Company files them with, or furnishes them to, the SEC.

 

2


 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

4

Item 1. Financial Statements

4

Condensed Consolidated Balance Sheets

4

Consolidated Statements of Loss

5

Consolidated Statements of Comprehensive (Loss) Income

6

Condensed Consolidated Statements of Cash Flows

7

Consolidated Statement of Stockholders’ Equity

8

Notes to Condensed Consolidated Financial Statements

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3. Quantitative and Qualitative Disclosures About Market Risk

32

Item 4. Controls and Procedures

32

PART II — OTHER INFORMATION

32

Item 1. Legal Proceedings

32

Item 1A. Risk Factors

33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3. Defaults Upon Senior Securities

33

Item 4. Mine Safety Disclosures

33

Item 5. Other Information

34

Item 6. Exhibits

34

SIGNATURES

35

 

3


 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

ACCO Brands Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

March 31,
2024

 

 

December 31,
2023

 

(in millions)

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

124.6

 

 

$

66.4

 

Accounts receivable, net

 

 

274.8

 

 

 

430.7

 

Inventories

 

 

348.8

 

 

 

327.5

 

Other current assets

 

 

49.6

 

 

 

30.8

 

Total current assets

 

 

797.8

 

 

 

855.4

 

Total property, plant and equipment

 

 

584.7

 

 

 

599.6

 

Less: accumulated depreciation

 

 

(422.1

)

 

 

(429.5

)

Property, plant and equipment, net

 

 

162.6

 

 

 

170.1

 

Right of use asset, leases

 

 

92.2

 

 

 

91.0

 

Deferred income taxes

 

 

99.0

 

 

 

104.7

 

Goodwill

 

 

577.1

 

 

 

590.0

 

Identifiable intangibles, net

 

 

797.9

 

 

 

815.7

 

Other non-current assets

 

 

17.0

 

 

 

17.9

 

Total assets

 

$

2,543.6

 

 

$

2,644.8

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Notes payable

 

$

 

 

$

0.2

 

Current portion of long-term debt

 

 

57.3

 

 

 

36.5

 

Accounts payable

 

 

170.1

 

 

 

183.7

 

Accrued compensation

 

 

33.3

 

 

 

53.3

 

Accrued customer program liabilities

 

 

73.4

 

 

 

104.0

 

Lease liabilities

 

 

20.6

 

 

 

20.5

 

Other current liabilities

 

 

118.6

 

 

 

143.8

 

Total current liabilities

 

 

473.3

 

 

 

542.0

 

Long-term debt, net

 

 

897.5

 

 

 

882.2

 

Long-term lease liabilities

 

 

77.8

 

 

 

76.8

 

Deferred income taxes

 

 

119.9

 

 

 

125.6

 

Pension and post-retirement benefit obligations

 

 

148.2

 

 

 

157.6

 

Other non-current liabilities

 

 

68.4

 

 

 

73.6

 

Total liabilities

 

 

1,785.1

 

 

 

1,857.8

 

Stockholders' equity:

 

 

 

 

 

 

 Common stock

 

 

1.0

 

 

 

1.0

 

Treasury stock

 

 

(47.0

)

 

 

(45.1

)

Paid-in capital

 

 

1,918.8

 

 

 

1,913.4

 

Accumulated other comprehensive loss

 

 

(544.6

)

 

 

(526.3

)

Accumulated deficit

 

 

(569.7

)

 

 

(556.0

)

Total stockholders' equity

 

 

758.5

 

 

 

787.0

 

Total liabilities and stockholders' equity

 

$

2,543.6

 

 

$

2,644.8

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

4


 

ACCO Brands Corporation and Subsidiaries

Consolidated Statements of Loss

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

(in millions, except per share data)

 

2024

 

 

2023

 

Net sales

 

$

358.9

 

 

$

402.6

 

Cost of products sold

 

 

248.5

 

 

 

283.3

 

Gross profit

 

 

110.4

 

 

 

119.3

 

Operating costs and expenses:

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

94.2

 

 

 

95.0

 

Amortization of intangibles

 

 

10.6

 

 

 

10.9

 

Restructuring

 

 

(0.3

)

 

 

3.3

 

Total operating costs and expenses

 

 

104.5

 

 

 

109.2

 

Operating income

 

 

5.9

 

 

 

10.1

 

Non-operating expense (income):

 

 

 

 

 

 

Interest expense

 

 

13.3

 

 

 

13.9

 

Interest income

 

 

(1.9

)

 

 

(2.4

)

Non-operating pension expense

 

 

0.4

 

 

 

0.1

 

Other (income) expense, net

 

 

(0.6

)

 

 

1.8

 

Loss before income tax

 

 

(5.3

)

 

 

(3.3

)

Income tax expense

 

 

1.0

 

 

 

0.4

 

Net loss

 

$

(6.3

)

 

$

(3.7

)

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

Basic loss per share

 

$

(0.07

)

 

$

(0.04

)

Diluted loss per share

 

$

(0.07

)

 

$

(0.04

)

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

Basic

 

 

95.7

 

 

 

94.9

 

Diluted

 

 

95.7

 

 

 

94.9

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

5


 

ACCO Brands Corporation and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

(in millions)

 

2024

 

 

2023

 

Net loss

 

$

(6.3

)

 

$

(3.7

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

Unrealized gain (loss) on derivative instruments, net of tax (expense) benefit of $(0.2) and $0.3, respectively

 

 

0.5

 

 

 

(0.9

)

Foreign currency translation adjustments, net of tax benefit of zero and $0.1, respectively

 

 

(21.2

)

 

 

8.9

 

Recognition of deferred pension and other post-retirement items, net of tax (expense) benefit of $(0.7) and $0.4, respectively

 

 

2.4

 

 

 

(1.5

)

Other comprehensive (loss) income, net of tax:

 

 

(18.3

)

 

 

6.5

 

 

 

 

 

 

 

Comprehensive (loss) income

 

$

(24.6

)

 

$

2.8

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

6


 

ACCO Brands Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(in millions)

 

2024

 

 

2023

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(6.3

)

 

$

(3.7

)

Loss on disposal of assets

 

 

 

 

 

1.1

 

Depreciation

 

 

7.4

 

 

 

9.0

 

Amortization of debt issuance costs

 

 

0.7

 

 

 

0.8

 

Amortization of intangibles

 

 

10.6

 

 

 

10.9

 

Stock-based compensation

 

 

5.1

 

 

 

5.6

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

153.8

 

 

 

88.6

 

Inventories

 

 

(26.5

)

 

 

(25.0

)

Other assets

 

 

(18.6

)

 

 

3.6

 

Accounts payable

 

 

(12.7

)

 

 

(38.0

)

Accrued expenses and other liabilities

 

 

(76.2

)

 

 

(63.6

)

Accrued income taxes

 

 

(9.1

)

 

 

(12.5

)

Net cash provided (used) by operating activities

 

 

28.2

 

 

 

(23.2

)

Investing activities

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(2.3

)

 

 

(2.0

)

Net cash used by investing activities

 

 

(2.3

)

 

 

(2.0

)

Financing activities

 

 

 

 

 

 

Proceeds from long-term borrowings

 

 

61.4

 

 

 

101.1

 

Repayments of long-term debt

 

 

(18.9

)

 

 

(10.0

)

Repayments of notes payable, net

 

 

(0.2

)

 

 

(1.2

)

Dividends paid

 

 

(7.2

)

 

 

 

Payments related to tax withholding for stock-based compensation

 

 

(1.9

)

 

 

(1.7

)

Net cash provided by financing activities

 

 

33.2

 

 

 

88.2

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

(0.9

)

 

 

1.9

 

Net increase in cash and cash equivalents

 

 

58.2

 

 

 

64.9

 

Cash and cash equivalents

 

 

 

 

 

 

Beginning of the period

 

$

66.4

 

 

$

62.2

 

End of the period

 

$

124.6

 

 

$

127.1

 

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$

17.8

 

 

$

19.2

 

Income taxes

 

$

10.1

 

 

$

13.0

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

7


 

ACCO Brands Corporation and Subsidiaries

Consolidated Statement of Stockholders' Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury Stock

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

(in millions)

 

Shares

 

 

Value

 

 

Capital

 

 

Shares

 

 

Value

 

 

Income (Loss)

 

 

Deficit

 

 

Total

 

Balance at December 31, 2023

 

 

99.8

 

 

$

1.0

 

 

$

1,913.4

 

 

 

4.9

 

 

$

(45.1

)

 

$

(526.3

)

 

$

(556.0

)

 

$

787.0

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6.3

)

 

 

(6.3

)

Gain on derivative financial instruments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.5

 

 

 

 

 

 

0.5

 

Translation impact, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21.2

)

 

 

 

 

 

(21.2

)

Pension and post-retirement adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.4

 

 

 

 

 

 

2.4

 

Stock-based compensation

 

 

 

 

 

 

 

 

5.4

 

 

 

 

 

 

 

 

 

 

 

 

(0.3

)

 

 

5.1

 

Common stock issued, net of shares withheld for employee taxes

 

 

1.1

 

 

 

 

 

 

 

 

 

0.3

 

 

 

(1.9

)

 

 

 

 

 

 

 

 

(1.9

)

Dividends declared $0.075 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7.2

)

 

 

(7.2

)

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.1

 

 

 

0.1

 

Balance at March 31, 2024

 

 

100.9

 

 

$

1.0

 

 

$

1,918.8

 

 

 

5.2

 

 

$

(47.0

)

 

$

(544.6

)

 

$

(569.7

)

 

$

758.5

 

 

 

 

Common Stock

 

 

 

 

 

Treasury Stock

 

 

Accumulated Other

 

 

 

 

 

 

 

(in millions)

 

Shares

 

 

Value

 

 

Paid-in Capital

 

 

Shares

 

 

Value

 

 

Comprehensive (Loss) Income

 

 

Accumulated Deficit

 

 

Total

 

Balance at December 31, 2022

 

 

98.9

 

 

$

1.0

 

 

$

1,897.2

 

 

 

4.6

 

 

$

(43.4

)

 

$

(540.3

)

 

$

(504.4

)

 

$

810.1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3.7

)

 

 

(3.7

)

Loss on derivative financial instruments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.9

)

 

 

 

 

 

(0.9

)

Translation impact, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.9

 

 

 

 

 

 

8.9

 

Pension and post-retirement adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.5

)

 

 

 

 

 

(1.5

)

Stock-based compensation

 

 

 

 

 

 

 

 

6.2

 

 

 

 

 

 

 

 

 

 

 

 

(0.6

)

 

 

5.6

 

Common stock issued, net of shares withheld for employee taxes

 

 

0.9

 

 

 

 

 

 

 

 

 

0.3

 

 

 

(1.7

)

 

 

 

 

 

 

 

 

(1.7

)

Dividends declared $0.075 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7.1

)

 

 

(7.1

)

Other

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

 

 

0.1

 

 

 

 

 

 

0.1

 

 

 

0.1

 

Balance at March 31, 2023

 

 

99.8

 

 

$

1.0

 

 

$

1,903.3

 

 

 

4.9

 

 

$

(45.0

)

 

$

(533.8

)

 

$

(515.7

)

 

$

809.8

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

8


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

 

As used in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, the terms "ACCO Brands," "ACCO," the "Company," "we," "us," and "our" refer to ACCO Brands Corporation and its consolidated subsidiaries.

 

The management of ACCO Brands Corporation is responsible for the accuracy and internal consistency of the preparation of the condensed consolidated financial statements and notes contained in this Quarterly Report on Form 10-Q.

 

The condensed consolidated interim financial statements have been prepared pursuant to the rules and regulations of the SEC. Although the Company believes the disclosures are adequate to make the information presented not misleading, certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP") have been condensed or omitted pursuant to those rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

 

The Condensed Consolidated Balance Sheet as of March 31, 2024 and the related Consolidated Statements of Loss, Consolidated Statements of Comprehensive (Loss) Income, and Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2024 and 2023, and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 are unaudited. The December 31, 2023 Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all annual disclosures required by GAAP. The financial statements included herein were prepared by management and reflect all adjustments (consisting solely of normal recurring items unless otherwise noted) which are, in the opinion of management, necessary for the fair presentation of the results of operations and cash flows for the interim periods ended March 31, 2024 and 2023, and the financial position of the Company as of March 31, 2024. Interim results may not be indicative of results for a full year.

 

Effective January 1, 2024, the Company reorganized its previously reported North America, EMEA and International operating segments into two operating segments, Americas and International. The Americas segment includes the U.S., Canada, Brazil, Mexico and Chile and the International segment includes EMEA, Australia, New Zealand and Asia. Prior period results have been reclassified to reflect this change in our operating segments. See Note 16. Information on Business Segments" for further details.

 

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

2. Recent Accounting Pronouncements and Adopted Accounting Standards

 

Recent Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. This ASU is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. We are evaluating the effect this guidance will have on our segment disclosures.

 

9


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the income tax disclosures to provide information to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are evaluating the effect this guidance will have on our tax disclosures.

 

There were no other recently issued accounting standards that are expected to have an impact on the Company’s financial condition, results of operations or cash flow.

 

Recently Adopted Accounting Standards

 

There were no accounting standards that were adopted in the first three months of 2024 that had a material effect on the Company’s financial condition, results of operations or cash flow.

 

3. Long-term Debt and Short-term Borrowings

Notes payable and long-term debt, listed in order of the priority of security interests in assets of the Company, consisted of the following as of March 31, 2024 and December 31, 2023:

 

(in millions)

 

March 31,
2024

 

 

December 31,
2023

 

Euro Senior Secured Term Loan A, due March 2026 (floating interest rate of 5.65% at March 31, 2024 and 5.93% at December 31, 2023)

 

$

208.1

 

 

$

218.2

 

USD Senior Secured Term Loan A, due March 2026 (floating interest rate of 7.18% at March 31, 2024 and 7.50% at December 31, 2023)

 

 

76.3

 

 

 

78.0

 

Australian Dollar Senior Secured Term Loan A, due March 2026 (floating interest rate of 6.17% at March 31, 2024 and 6.42% at December 31, 2023)

 

 

30.3

 

 

 

32.5

 

U.S. Dollar Senior Secured Revolving Credit Facility, due March 2026 (floating interest rate of 7.18% at March 31, 2024 and 7.4% at December 31, 2023)

 

 

64.1

 

 

 

7.3

 

Australian Dollar Senior Secured Revolving Credit Facility, due March 2026 (floating interest rate of 6.12% at March 31, 2024 and 6.42% at December 31, 2023)

 

 

7.2

 

 

 

14.3

 

Senior Unsecured Notes, due March 2029 (fixed interest rate of 4.25%)

 

 

575.0

 

 

 

575.0

 

Other borrowings

 

 

 

 

 

0.3

 

Total debt

 

 

961.0

 

 

 

925.6

 

Less:

 

 

 

 

 

 

Current portion

 

 

57.3

 

 

 

36.7

 

Debt issuance costs, unamortized

 

 

6.2

 

 

 

6.7

 

Long-term debt, net

 

$

897.5

 

 

$

882.2

 

 

Credit Agreement

The Company is party to a Third Amended and Restated Credit Agreement (the "Credit Agreement"), dated as of January 27, 2017, among the Company, certain subsidiaries of the Company, Bank of America, N.A., as administrative agent, and the other agents and various lenders party thereto. The Credit Agreement, as amended, provides for a senior secured credit facility, which consists of a €300.0 million (US$320.8 million based on January 27, 2017, exchange rates) term loan facility, an A$80.0 million (US$60.4 million based on January 27, 2017, exchange rates) term loan facility, a US$100.0 million term loan facility, and a US$600.0 million multi-currency revolving credit facility (the "Revolving Facility").

From July 2018 to November 2022, the Company entered into six amendments (the "Amendments") to the Credit Agreement. The following are the key changes, among other things, to the Credit Agreement as a result of the Amendments:

replace the minimum fixed coverage ratio of 1.25:1.00 with a minimum Interest Coverage Ratio (as defined in the Credit Agreement) of 3.00:1.00;

10


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

increase the maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) financial covenant for each of the five fiscal quarters beginning December 31, 2022, and ending December 31, 2023, as follows:

 

Quarter Ended

 

Maximum Consolidated Leverage Ratio

December 2022

 

4.50:1.00

March 2023

 

5.00:1.00

June 2023

 

5.00:1.00

September 2023

 

4.75:1.00

December 2023

 

4.25:1.00

modify the maximum Consolidated Leverage Ratio financial covenant for all first and second fiscal quarters after December 31, 2023, from the current level of 4.00x to 4.50x, while maintaining the current level of 4.00x for all third and fourth fiscal quarters;
limit the maximum Consolidated Leverage Ratio to 5.00:1.00 at any time, thereby capping any material acquisition step ups for the fiscal quarters ending March 31, 2023, June 30, 2023 and September 30, 2023;
increase the Company’s flexibility under the restricted payments baskets; and
change the U.S. dollar reference rate from LIBOR-based pricing to SOFR-based pricing, with no changes to existing margins.

The current maturity of the Credit Agreement is March 31, 2026 and the current pricing is as follows:

 

Consolidated Leverage Ratio

 

Applicable Rate on Euro/AUD/CDN Dollar Loans

 

Applicable Rate on Base Rate Loans

 

Undrawn Fee

> 4.50 to 1.00

 

2.50 %

 

1.50 %

 

0.500 %

≤ 4.50 to 1.00 and > 4.00 to 1.00

 

2.25 %

 

1.25 %

 

0.375 %

≤ 4.00 to 1.00 and > 3.50 to 1.00

 

2.00 %

 

1.00 %

 

0.350 %

≤ 3.50 to 1.00 and > 3.00 to 1.00

 

1.75 %

 

0.75 %

 

0.300 %

≤ 3.00 to 1.00 and > 2.00 to 1.00

 

1.50 %

 

0.50 %

 

0.250 %

≤ 2.00 to 1.00

 

1.25 %

 

0.25 %

 

0.200 %

 

As of March 31, 2024, there was $71.3 million in borrowings outstanding under the Revolving Facility. The remaining amount available for borrowings was $517.6 million (allowing for $11.1 million of letters of credit outstanding on that date).

As of March 31, 2024, our Consolidated Leverage Ratio was approximately 3.49 to 1.00 versus our maximum covenant of 4.25 to 1.00.

Senior Unsecured Notes

On March 15, 2021, the Company completed a private offering of $575.0 million in aggregate principal amount of 4.25 percent Senior Unsecured Notes (the "Notes") due March 2029. Interest on the Notes is payable semiannually on March 15 and September 15 of each year. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of the Company's existing and future U.S. subsidiaries, other than certain excluded subsidiaries.

Guarantees and Security

Generally, obligations under the Credit Agreement are guaranteed by certain of the Company’s existing and future subsidiaries, and are secured by substantially all of the Company’s and certain guarantor subsidiaries’ assets, subject to certain exclusions and limitations.

11


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

4. Leases

 

The Company leases its corporate headquarters, various other facilities for distribution, manufacturing, and offices, as well as vehicles, forklifts and other equipment. The Company determines if an arrangement is a lease at inception. Leases are included in "Right of use asset, leases" ("ROU Assets"), and the current portion of the lease liability is included in "Lease liabilities" and the non-current portion is included in "Long-term lease liabilities" in the Condensed Consolidated Balance Sheets. The Company currently has an immaterial amount of financing leases and leases with terms of more than one month and less than 12 months. ROU Assets and Lease liabilities are recognized based on the present value of lease payments over the lease term. Because most of the Company’s leases do not provide an implicit rate of return, the Company uses its incremental collateralized borrowing rate, on a regional basis, in determining the present value of lease payments. The incremental borrowing rate is dependent upon the duration of the lease and has been segmented into three groups of time. All leases within the same region and the same group of time share the same incremental borrowing rate. The Company has lease agreements with lease and non-lease components, which are combined for accounting purposes for all classes of underlying assets except information technology equipment.

 

The components of lease expense were as follows:

 

 

 

Three Months Ended
March 31,

 

(in millions)

 

2024

 

 

2023

 

Operating lease cost

 

$

7.4

 

 

$

7.0

 

Sublease income

 

 

(0.9

)

 

 

(0.6

)

 Total lease cost

 

$

6.5

 

 

$

6.4

 

 

Other information related to leases was as follows:

 

 

 

Three Months Ended
March 31,

 

(in millions, except lease term and discount rate)

 

2024

 

 

2023

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

7.7

 

 

$

7.4

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

Operating leases

 

$

8.7

 

 

$

3.4

 

 

 

 

 

 

 

Weighted average remaining lease term:

 

 

 

 

 

 

Operating leases

 

6 years

 

 

 

 

 

 

 

 

 

 

 

Weighted average discount rate:

 

 

 

 

 

 

Operating leases

 

 

5.3

 %

 

 

 

 

12


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Future minimum lease payments, net of sublease income, for all non-cancelable leases as of March 31, 2024, were as follows:

 

(in millions)

 

Operating
Leases

 

2024

 

$

19.4

 

2025

 

 

24.8

 

2026

 

 

20.3

 

2027

 

 

15.1

 

2028

 

 

12.8

 

2029

 

 

10.1

 

Thereafter

 

 

17.9

 

Total minimum lease payments

 

 

120.4

 

Less imputed interest

 

 

21.9

 

Future minimum payments for leases, net of sublease rental income and imputed interest

 

$

98.5

 

 

5. Pension and Other Retiree Benefits

 

The components of net periodic benefit (income) cost for pension and post-retirement plans for the three months ended March 31, 2024 and 2023 were as follows:

 

 

 

Three Months Ended March 31,

 

 

 

Pension

 

 

Post-retirement

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

(in millions)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Service cost

 

$

 

 

$

 

 

$

0.2

 

 

$

0.1

 

 

$

 

 

$

 

Interest cost

 

 

1.9

 

 

 

2.0

 

 

 

4.6

 

 

 

4.9

 

 

 

 

 

 

 

Expected return on plan assets

 

 

(3.2

)

 

 

(3.0

)

 

 

(4.8

)

 

 

(5.3

)

 

 

 

 

 

 

Amortization of net loss (gain)

 

 

0.6

 

 

 

0.6

 

 

 

1.3

 

 

 

1.0

 

 

 

(0.1

)

 

 

(0.1

)

Amortization of prior service cost

 

 

 

 

 

 

 

 

 

 

 

0.1

 

 

 

 

 

 

 

Net periodic benefit (income) cost (1)

 

$

(0.7

)

 

$

(0.4

)

 

$

1.3

 

 

$

0.8

 

 

$

(0.1

)

 

$

(0.1

)

 

(1)
The components of net periodic benefit (income) cost, other than service cost, are included in the line "Non-operating pension expense" in the Consolidated Statements of Loss.

 

We expect to contribute approximately $15.8 million to our defined benefit plans in 2024. For the three months ended March 31, 2024, we have contributed $4.6 million to these plans.

 

6. Stock-Based Compensation

 

The following table summarizes our stock-based compensation expense (including stock options, restricted stock units ("RSUs") and performance stock units ("PSUs") for the three months ended March 31, 2024 and 2023:

 

 

 

Three months ended
March 31,

 

(in millions)

 

2024

 

 

2023

 

Stock option compensation expense

 

$

0.2

 

 

$

1.9

 

RSU compensation expense

 

 

3.6

 

 

 

2.3

 

PSU compensation expense

 

 

1.3

 

 

 

1.4

 

Total stock-based compensation expense

 

$

5.1

 

 

$

5.6

 

 

We generally recognize compensation expense for stock-based awards ratably over the vesting period. During the first quarter of 2024, stock compensation grants were made consisting of 1,302,151 RSUs and 1,741,749 PSUs.

13


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following table summarizes our unrecognized compensation expense and the weighted-average period over which the expense will be recognized as of March 31, 2024:

 

 

 

March 31, 2024

(in millions, except weighted average years)

 

Unrecognized Compensation Expense

 

Weighted Average Years Expense To Be Recognized Over

Stock options

 

$0.5

 

1.0

RSUs

 

$10.2

 

2.6

PSUs

 

$7.5

 

2.1

 

7. Inventories

 

The components of inventories were as follows:

 

(in millions)

 

March 31, 2024

 

 

December 31, 2023

 

Raw materials

 

$

53.3

 

 

$

50.1

 

Work in process

 

 

4.5

 

 

 

4.7

 

Finished goods

 

 

291.0

 

 

 

272.7

 

Total inventories

 

$

348.8

 

 

$

327.5

 

 

8. Goodwill and Identifiable Intangible Assets

 

Goodwill

 

We test goodwill for impairment at least annually as of our measurement date of May 31st and on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred.

 

As of January 1, 2024, the Company reorganized its previously reported North America, EMEA and International operating segments into two operating segments, Americas and International. See "Note 16. Information on Business Segments" for further details. Goodwill was re-allocated between our two new operating segments based on a relative fair value approach.

 

We determined that the Americas and International also represent our reporting units for goodwill impairment testing purposes. We identified the reorganization as a triggering event and performed a quantitative assessment of impairment for goodwill for each of our two new reporting units as of January 1, 2024. The result of our assessments for the Americas and International reporting units was that the fair value of each exceeded its carrying values and we concluded that no impairment existed. No further triggering events were identified during the quarter ended March 31, 2024.

 

Estimating the fair value of each reporting unit requires us to make assumptions and estimates regarding our future. We utilized a combination of discounted cash flows and market approach. The financial projections used in the valuation models reflected management's assumptions regarding revenue growth rates, economic and market trends, cost structure, discount rate, and other expectations about the anticipated short-term and long-term operating results for each of our two reporting units.

 

We believe the assumptions used in our goodwill impairment analysis are appropriate and result in reasonable estimates of the implied fair value of each reporting unit. However, given the economic environment and the uncertainties regarding the impact of our business, there can be no assurance that our estimates and assumptions, made for purposes of our goodwill impairment testing, will prove to be an accurate prediction of the future. If our assumptions regarding future performance are not achieved, we may be required to record additional goodwill impairment charges in future periods.

 

14


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

We have reclassified our goodwill by segment for the period presented below to reflect the change in operating segments. Changes in the net carrying amount of goodwill by segment were as follows:

 

(in millions)

 

ACCO Brands Americas

 

 

ACCO Brands International

 

 

Total

 

Balance at December 31, 2023

 

$

383.6

 

 

$

206.4

 

 

$

590.0

 

Foreign currency translation

 

 

(0.2

)

 

 

(12.7

)

 

 

(12.9

)

Balance at March 31, 2024

 

$

383.4

 

 

$

193.7

 

 

$

577.1

 

 

Identifiable Intangible Assets

 

The gross carrying value and accumulated amortization by class of identifiable intangible assets as of March 31, 2024 and December 31, 2023, were as follows:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

(in millions)

 

Gross Carrying Amounts

 

 

Accumulated Amortization

 

 

Net Book Value

 

 

Gross Carrying Amounts

 

 

Accumulated Amortization

 

 

Net Book Value

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names(1)

 

$

295.1

 

 

$

(44.5

)

 

$

250.6

 

 

$

295.1

 

 

$

(44.5

)

 

$

250.6

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

 

489.8

 

 

 

(145.1

)

 

 

344.7

 

 

 

497.1

 

 

 

(142.0

)

 

 

355.1

 

Customer and contractual relationships

 

 

358.0

 

 

 

(222.6

)

 

 

135.4

 

 

 

362.4

 

 

 

(221.3

)

 

 

141.1

 

Vendor relationships

 

 

82.4

 

 

 

(18.1

)

 

 

64.3

 

 

 

82.4

 

 

 

(16.7

)

 

 

65.7

 

Patents

 

 

8.0

 

 

 

(5.1

)

 

 

2.9

 

 

 

8.2

 

 

 

(5.0

)

 

 

3.2

 

Subtotal

 

 

938.2

 

 

 

(390.9

)

 

 

547.3

 

 

 

950.1

 

 

 

(385.0

)

 

 

565.1

 

Total identifiable intangibles

 

$

1,233.3

 

 

$

(435.4

)

 

$

797.9

 

 

$

1,245.2

 

 

$

(429.5

)

 

$

815.7

 

 

(1)
Accumulated amortization prior to the adoption of authoritative guidance on goodwill and other intangible assets, at which time further amortization ceased.

 

The Company's intangible amortization expense for the three months ended March 31, 2024 and 2023 was $10.6 million and $10.9 million, respectively.

Estimated amortization expense for amortizable intangible assets, as of March 31, 2024, for the current year and the next five years is as follows:

 

(in millions)

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

2028

 

 

2029

 

Estimated amortization expense(2)

 

$

42.1

 

 

$

40.5

 

 

$

38.4

 

 

$

36.0

 

 

$

33.8

 

 

$

32.0

 

 

(2)
Actual amounts of amortization expense may differ from estimated amounts due to changes in foreign currency exchange rates, additional intangible asset acquisitions, impairment of intangible assets, accelerated amortization of intangible assets and other events.

 

We test indefinite-lived intangibles for impairment at least annually as of our measurement date of May 31st and on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. We did not identify a triggering event during the quarter ended March 31, 2024, that would indicate it is more likely than not that an impairment loss has been incurred.

 

 

15


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

9. Restructuring

 

The Company recorded a $0.3 million reduction in the restructuring provision and $3.3 million of restructuring provision for the three months ended March 31, 2024 and 2023, respectively, which was primarily for severance costs related to cost reduction initiatives in our International segment.

 

The summary of the activity in the restructuring liability for the three months ended March 31, 2024, was as follows:

 

(in millions)

 

Balance at December 31, 2023

 

 

Provision

 

 

Cash Expenditures

 

Non-cash Items/Currency Change

 

 

Balance at March 31, 2024

 

Employee termination costs(1)

 

$

27.5

 

 

$

(0.3

)

 

$

(4.7

)

$

(0.2

)

 

$

22.3

 

Other(2)

 

 

0.9

 

 

 

 

 

 

(0.1

)

 

 

 

 

0.8

 

Total restructuring liability

 

$

28.4

 

 

$

(0.3

)

 

$

(4.8

)

$

(0.2

)

 

$

23.1

 

 

(1)
We expect the remaining $22.3 million employee termination costs to be substantially paid in the next twelve months.
(2)
We expect the remaining $0.8 million of other costs to be substantially paid in the next nine months.

 

The summary of the activity in the restructuring liability for the three months ended March 31, 2023, was as follows:

 

(in millions)

 

Balance at December 31, 2022

 

 

Provision

 

 

Cash Expenditures

 

 

Non-cash Items/Currency Change

 

 

Balance at March 31, 2023

 

Employee termination costs

 

$

8.7

 

 

$

2.7

 

 

$

(2.6

)

 

$

0.1

 

 

$

8.9

 

Other

 

 

 

 

 

0.6

 

 

 

 

 

 

 

 

 

0.6

 

Total restructuring liability

 

$

8.7

 

 

$

3.3

 

 

$

(2.6

)

 

$

0.1

 

 

$

9.5

 

 

10. Income Taxes

 

For the three months ended March 31, 2024, we recorded income tax expense of $1.0 million on a loss before taxes of $5.3 million. For the three months ended March 31, 2023, we recorded income tax expense of $0.4 million on a loss before taxes of $3.3 million. The $0.6 million increase in tax expense compared to the three months ended March 31, 2023 was primarily driven by a $0.7 million increase in discrete income tax expense during the first quarter of 2024 compared to the first quarter of 2023.

 

The U.S. federal statute of limitations remains open for the years 2020 and forward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from 2 to 6 years. Years still open to examination by foreign tax authorities in major jurisdictions include Australia (2018 forward), Brazil (2018 forward), Canada (2018 forward), Germany (2020 forward), Sweden (2021 forward) and the U.K. (2021 forward). We are currently under examination in certain foreign jurisdictions.

 

Organisation for Economic Co-operation and Development (“OECD”) Global Anti-Base Erosion Model Rules (Pillar Two)

Legislatures and taxing authorities in many jurisdictions in which we operate may enact changes to, or seek to enforce, novel interpretations of their tax rules. These changes may include modifications that can be temporary or permanent. For example, the Organisation for Economic Cooperation and Development (the "OECD"), the European Union and other countries (including countries in which we operate) have committed to enacting substantial changes to numerous long-standing tax principles impacting how large multinational enterprises are taxed. In particular, the OECD's Pillar Two initiative introduces a 15% global minimum tax applied on a country-by-country basis and for which many jurisdictions have now committed to an effective enactment date starting January 1, 2024. Management is currently assessing the impact and materiality of these potential new rules as well as any other changes in domestic and international tax rules and regulations.

16


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Brazil Tax Assessments

 

In connection with our May 1, 2012, acquisition of the Mead Consumer and Office Products business ("Mead C&OP"), we assumed all of the tax liabilities for the acquired foreign operations including its operating entity in Brazil ("ACCO Brazil"). In December of 2012, the Federal Revenue Department of the Ministry of Finance of Brazil ("FRD") issued a tax assessment against ACCO Brazil, challenging the tax deduction of goodwill from ACCO Brazil's taxable income for the year 2007 (the "First Assessment"). A second assessment challenging the deduction of goodwill from ACCO Brazil's taxable income for the years 2008, 2009 and 2010 was issued by FRD in October 2013 (the "Second Assessment" and together with the First Assessment, the "Brazil Tax Assessments").

 

The final administrative appeal of the Second Assessment was decided against the Company in 2017. In 2018, we challenged this decision to the first judicial level. In the fourth quarter of 2022, this case was decided against the Company by the first level judicial court. We have appealed this decision to the second judicial level. In the event we do not prevail at the judicial level, we will be required to pay an additional penalty representing attorneys' costs and fees; accordingly, in the first quarter of 2019, the Company recorded an additional reserve in the amount of $5.6 million. In connection with the judicial challenge, we were required to provide security to guarantee payment of the Second Assessment should we not prevail.

 

In the third quarter of 2020, the final administrative appeal of the First Assessment was decided against the Company, and we determined that we would challenge this decision. In 2022, we challenged this adverse decision in the tax authority's lawsuit at the judicial level seeking to collect the tax. In connection with the judicial challenge, we were required to provide security to guarantee payment of the First Assessment should we not prevail.

 

We believe we have meritorious defenses and intend to vigorously contest both of the Brazil Tax Assessments; however, there can be no assurances that we will ultimately prevail. The ultimate outcome will not be determined until the Brazilian judicial process is complete. It is possible we could have a final decision regarding the Second Assessment at any time in the next three years. If the FRD's initial position is ultimately sustained, payment of the amount assessed would materially and adversely affect our cash flow in the year of settlement.

 

Because there is no settled legal precedent on which to base a definitive opinion as to whether we will ultimately prevail, we consider the outcome of these disputes to be uncertain. Since it is not more likely than not that we will prevail, in 2012, we recorded a reserve in the amount of $44.5 million (at December 31, 2012 exchange rates) in consideration of this contingency, of which $43.3 million was recorded as an adjustment to the purchase price and which included the 2007-2012 tax years plus penalties and interest through December 2012.

 

During the third quarter of 2023, there was a change in Brazilian law which allowed us to seek a cancellation of the 75 percent standard penalty that would be payable in the event we do not prevail in our actions challenging the Brazil Tax Assessments. Following completion of the necessary administrative procedures, during the fourth quarter of 2023, the Company reduced its reserve for this contingency by $13.3 million, representing the amount of the cancelled penalties, as well as interest and other fees related to those penalties.

 

We will continue to actively monitor administrative and judicial court decisions and evaluate their impact, if any, on our legal assessment of the ultimate outcome of our disputes. In addition, we will continue to accrue interest related to this contingency until such time as the outcome is known or until evidence is presented that we are more likely than not to prevail. During the three months ended March 31, 2024 and 2023, we accrued additional interest as a charge to current income tax expense of $0.2 million and $0.4 million, respectively. At current exchange rates, our accrual as of March 31, 2024, including tax, penalties and interest is $21.2 million (reported in "Other non-current liabilities").

 

17


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

11. Earnings per Share

 

Total outstanding shares as of March 31, 2024 and 2023, were 95.6 million and 94.9 million, respectively. For each of the three months ended March 31, 2024 and 2023, we acquired 0.4 million and 0.3 million shares, respectively, related to tax withholding for share-based compensation.

 

The calculation of basic earnings per share of common stock is based on the weighted-average number of shares of common stock outstanding in the year, or period, over which they were outstanding. Our calculation of diluted earnings per share of common stock assumes that any shares of common stock outstanding were increased by shares that would be issued upon exercise of those stock awards for which the average market price for the period exceeds the exercise price less the shares that could have been purchased by the Company with the related proceeds, including compensation expense measured but not yet recognized.

 

Our weighted-average number of shares outstanding for the three months ended March 31, 2024 and 2023 was as follows:

 

 

 

Three Months Ended March 31,

 

(in millions)

 

2024

 

 

2023

 

Weighted-average number of shares of common stock outstanding - basic

 

 

95.7

 

 

 

94.9

 

Effect of dilutive securities:

 

 

 

 

 

 

Stock options

 

 

 

 

 

 

Restricted stock units

 

 

 

 

 

 

Weighted-average shares and assumed conversions - diluted(1)

 

 

95.7

 

 

 

94.9

 

 

(1)
As a result of the net loss for the three months ended March 31, 2024 and 2023, diluted earnings per share does not include the effects of the stock awards for which the average market price for the period exceeds the exercised price, as their effect would have been anti-dilutive.

 

Awards of potentially dilutive shares of common stock, which have exercise prices that were higher than the average market price during the period, are not included in the computation of dilutive earnings per share as their effect would have been anti-dilutive. For the three months ended March 31, 2024 and 2023, the number of anti-dilutive shares was approximately 9.8 million and 11.5 million, respectively.

12. Derivative Financial Instruments

We are exposed to various market risks, including changes in foreign currency exchange rates and interest rate changes. We enter into financial instruments to manage and reduce the impact of these risks, not for trading or speculative purposes. The counterparties to these financial instruments are major financial institutions. We continually monitor our foreign currency exposures in order to maximize the overall effectiveness of our foreign currency hedge positions. Principal currencies hedged against the U.S. dollar include the Euro, Australian dollar, Canadian dollar, Swedish krona, British pound and Japanese yen. We are subject to credit risk, which relates to the ability of counterparties to meet their contractual payment obligations or the potential non-performance by counterparties to financial instrument contracts. Management continues to monitor the status of our counterparties and will take action, as appropriate, to further manage our counterparty credit risk. There are no credit contingency features in our derivative financial instruments.

When hedge accounting is applicable, on the date we enter into a derivative, the derivative is designated as a hedge of the identified exposure. We measure the effectiveness of our hedging relationships both at hedge inception and on an ongoing basis.

Forward Currency Contracts

We enter into forward foreign currency contracts with third parties to reduce the effect of fluctuating foreign currencies, primarily on foreign denominated inventory purchases and intercompany loans. Our primary exposure to currency movements is

18


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

in the Euro, the Swedish krona, the British pound, the Brazilian real, the Australian dollar, the Canadian dollar, and the Mexican peso.

Forward currency contracts are used to hedge foreign denominated inventory purchases for Europe, Australia, Canada, Japan and New Zealand, and are designated as cash flow hedges. Unrealized gains and losses on these contracts are deferred in Accumulated Other Comprehensive Income (Loss) ("AOCI") until the contracts are settled and the underlying hedged transactions relating to inventory purchases are recognized, at which time the deferred gains or losses will be reported in the "Cost of products sold" line in the Consolidated Statements of Loss. As of March 31, 2024 and December 31, 2023, we had cash flow foreign exchange contracts outstanding with a U.S. dollar equivalent notional value of $89.1 million and $80.2 million, respectively, which were designated as hedges.

Forward currency contracts used to hedge foreign denominated intercompany loans are not designated as hedging instruments. Gains and losses on these derivative instruments are recognized within "Other (income) expense, net" in the Consolidated Statements of Loss and are largely offset by the change in the current translated value of the hedged item. The periods of the forward foreign exchange contracts correspond to the periods of the hedged transactions, with some relating to intercompany loans which extend beyond March 2025. As of March 31, 2024 and December 31, 2023, we had foreign exchange contracts outstanding with a U.S. dollar equivalent notional value of $160.4 million and $102.3 million, respectively, which were not designated as hedges.

The following table summarizes the fair value of our derivative financial instruments as of March 31, 2024 and December 31, 2023:

 

 

 

Fair Value of Derivative Instruments

 

 

 

Derivative Assets

 

 

Derivative Liabilities

 

(in millions)

 

Balance Sheet Location

 

March 31,
2024

 

 

December 31,
2023

 

 

Balance Sheet Location

 

March 31,
2024

 

 

December 31,
2023

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other current assets

 

$

0.8

 

 

$

0.3

 

 

Other current liabilities

 

$

0.3

 

 

$

1.6

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other current assets

 

 

0.8

 

 

 

1.0

 

 

Other current liabilities

 

 

1.8

 

 

 

0.1

 

Foreign exchange contracts

 

Other non-current assets

 

 

2.1

 

 

 

3.2

 

 

Other non-current liabilities

 

 

2.1

 

 

 

3.2

 

Total derivatives

 

 

 

$

3.7

 

 

$

4.5

 

 

 

 

$

4.2

 

 

$

4.9

 

 

19


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables summarize the pre-tax effect of our derivative financial instruments on the condensed consolidated financial statements for the three months ended March 31, 2024 and 2023:

 

 

The Effect of Derivative Instruments in Cash Flow Hedging Relationships on the Consolidated Financial Statements

 

 

 

Amount of Gain (Loss) Recognized in AOCI (Effective Portion)

 

 

Location of (Gain) Loss Reclassified from AOCI to Income

 

Amount of (Gain) Loss Reclassified from AOCI to Income (Effective Portion)

 

 

 

Three months ended March 31,

 

 

 

 

Three months ended March 31,

 

(in millions)

 

2024

 

 

2023

 

 

 

 

2024

 

 

2023

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

1.0

 

 

$

(0.6

)

 

Cost of products sold

 

$

(0.4

)

 

$

(0.5

)

 

 

 

The Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Financial Statements

 

 

 

Location of (Gain) Loss Recognized in Income on Derivatives

 

Amount of (Gain) Loss Recognized in Income

 

 

 

 

 

Three months ended March 31,

 

(in millions)

 

 

 

2024

 

 

2023

 

Foreign exchange contracts

 

Other expense (income), net

 

$

1.3

 

 

$

1.7

 

 

13. Fair Value of Financial Instruments

 

In establishing a fair value, there is a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The basis of the fair value measurement is categorized in three levels, in order of priority, as described below:

 

Level 1

Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2

Unadjusted quoted prices in active markets for similar assets or liabilities, or

 

Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or

 

Inputs other than quoted prices that are observable for the asset or liability

Level 3

Unobservable inputs for the asset or liability

 

We utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

We have determined that our financial assets and liabilities described in "Note 12. Derivative Financial Instruments" are Level 2 in the fair value hierarchy. The following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2024 and December 31, 2023:

 

(in millions)

 

March 31,
2024

 

 

December 31,
2023

 

Assets:

 

 

 

 

 

 

Forward currency contracts

 

$

3.7

 

 

$

4.5

 

Liabilities:

 

 

 

 

 

 

Forward currency contracts

 

$

4.2

 

 

$

4.9

 

 

Our forward currency contracts are included in "Other current assets," "Other current liabilities," "Other non-current assets," or "Other non-current liabilities." The forward foreign currency exchange contracts are primarily valued based on the foreign currency spot and forward rates quoted by banks or foreign currency dealers. As such, these derivative instruments are classified within Level 2.

 

20


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

The fair values of cash and cash equivalents, notes payable to banks, accounts receivable and accounts payable approximate carrying amounts due principally to their short maturities. The carrying amount of total debt was $961.0 million and $925.6 million and the estimated fair value of total debt was $900.6 million and $870.9 million at March 31, 2024 and December 31, 2023, respectively. The fair values are determined from quoted market prices, where available, and from using current interest rates based on credit ratings and the remaining terms of maturity.

Nonrecurring Fair Value Measurements

 

On a nonrecurring basis, we remeasure the fair value of the goodwill of our reporting units and our trade name indefinite-lived intangibles if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. The fair value of our reporting units and trade names are considered Level 3 measurements. Level 3 measurements require significant unobservable inputs that are reflected in our assumptions. See "Note 8. Goodwill and Identifiable Intangible Assets" for more information.

 

14. Accumulated Other Comprehensive Income (Loss)

 

AOCI is defined as net income (loss) and other changes in stockholders’ equity from transactions and other events from sources other than stockholders. The components of, and changes in, AOCI were as follows:

 

(in millions)

 

Derivative Financial Instruments

 

 

Foreign Currency Adjustments

 

 

Unrecognized Pension and Other Post-retirement Benefit Costs

 

 

Accumulated Other Comprehensive Income (Loss)

 

Balance at December 31, 2023

 

$

(0.7

)

 

$

(349.8

)

 

$

(175.8

)

 

$

(526.3

)

Other comprehensive (loss) income before reclassifications, net of tax

 

 

0.7

 

 

 

(21.2

)

 

 

1.0

 

 

 

(19.5

)

Amounts reclassified from accumulated other comprehensive income (loss), net of tax

 

 

(0.2

)

 

 

 

 

 

1.4

 

 

 

1.2

 

Balance at March 31, 2024

 

$

(0.2

)

 

$

(371.0

)

 

$

(173.4

)

 

$

(544.6

)

 

The reclassifications out of AOCI for the three months ended March 31, 2024 and 2023 were as follows:

 

 

 

Three months ended March 31,

 

 

 

(in millions)

 

2024

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

Details about Accumulated Other Comprehensive Income (Loss) Components

 

Amount Reclassified from Accumulated Other Comprehensive Income (Loss)

 

 

Location on Income Statement

Gain (loss) on cash flow hedges:

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

0.4

 

 

$

0.5

 

 

Cost of products sold

Tax expense

 

 

(0.2

)

 

 

(0.1

)

 

Income tax expense

Net of tax

 

$

0.2

 

 

$

0.4

 

 

 

Defined benefit plan items:

 

 

 

 

 

 

 

 

Amortization of net actuarial loss(1)

 

$

(1.8

)

 

$

(1.5

)

 

 

Amortization of prior service cost(1)

 

 

 

 

 

(0.1

)

 

 

Total before tax

 

 

(1.8

)

 

 

(1.6

)

 

 

Tax benefit

 

 

0.4

 

 

 

0.5

 

 

Income tax expense

Net of tax

 

$

(1.4

)

 

$

(1.1

)

 

 

 

 

 

 

 

 

 

 

Total reclassifications for the period, net of tax

 

$

(1.2

)

 

$

(0.7

)

 

 

 

(1)
These AOCI components are included in the computation of net periodic benefit (income) cost for pension and post-retirement plans. See "Note 5. Pension and Other Retiree Benefits" for additional details.

 

21


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

15. Revenue Recognition

 

Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount reflective of the consideration we expect to receive in exchange for those goods or services. Taxes we collect concurrent with revenue producing activities are excluded from revenue. Incidental items incurred that are immaterial in the context of the contract are expensed.

 

At the inception of each contract, the Company assesses the products and services promised and identifies each distinct performance obligation. To identify the performance obligations, the Company considers all products and services promised regardless of whether they are explicitly stated or implied within the contract or by standard business practices.

 

Freight and distribution activities performed before the customer obtains control of the goods are not considered promised services under customer contracts and therefore are not distinct performance obligations. The Company has chosen to account for shipping and handling activities as a fulfillment activity, and therefore accrues the expense of freight and distribution in "Cost of products sold" when products are shipped.

 

As of December 31, 2023, there was $2.9 million of unearned revenue associated with outstanding service or extended maintenance agreements ("EMAs"), primarily reported in "Other current liabilities." During the three months ended March 31, 2024, $1.2 million of the unearned revenue was earned and recognized. As of March 31, 2024, the amount of unearned revenue from EMAs was $2.9 million. We expect to earn and recognize approximately $2.5 million of the unearned amount in the next 12 months and $0.4 million in periods beyond the next 12 months.

 

The following tables present our net sales disaggregated by regional geography, by reporting business segments and our net sales disaggregated by the timing of revenue recognition for the three months ended March 31, 2024 and 2023:

 

 

 

Three months ended March 31,

 

(in millions)

 

2024

 

 

2023

 

United States

 

$

137.3

 

 

$

156.0

 

Canada

 

 

18.2

 

 

 

21.6

 

Latin America

 

 

41.7

 

 

 

52.4

 

ACCO Brands Americas

 

 

197.2

 

 

 

230.0

 

 

 

 

 

 

 

 

EMEA(1)

 

 

129.2

 

 

 

135.8

 

Australia/N.Z.

 

 

25.1

 

 

 

28.3

 

Asia

 

 

7.4

 

 

 

8.5

 

ACCO Brands International

 

 

161.7

 

 

 

172.6

 

Net sales(2)

 

$

358.9

 

 

$

402.6

 

 

(1) EMEA is comprised largely of Europe, but also includes export sales to the Middle East and Africa.

(2) Net sales are attributed to geographic areas based on the location of the selling subsidiaries.

 

 

 

Three months ended March 31,

 

(in millions)

 

2024

 

 

2023

 

Product and services transferred at a point in time

 

$

348.9

 

 

$

390.3

 

Product and services transferred over time

 

 

10.0

 

 

 

12.3

 

Net sales

 

$

358.9

 

 

$

402.6

 

 

22


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

16. Information on Business Segments

 

Effective January 1, 2024, the Company reorganized its previously reported North America, EMEA and International operating segments into two operating segments, Americas and International. The Americas includes the U.S., Canada, Brazil, Mexico and Chile and International includes EMEA, Australia, New Zealand and Asia. The new organizational structure aligns with how the Chief Operating Decision Maker ("CODM") analyzes and evaluates the Company's performance. This change will simplify and delayer the Company's operating structure and reduce costs through headcount reductions, supply change optimization, global footprint rationalization, and better leverage of our sourcing capabilities. Prior period results have been reclassified to reflect this change in our operating segments.

 

The Company's two segments are as follows:

 

Operating Segment

 

Geography

 

Primary Brands

 

Primary Products

ACCO Brands Americas

 

United States, Canada and Latin America

 

Five Star®, PowerA®, Tilibra®, AT-A-GLANCE®, Kensington®, Quartet®, GBC®, Mead®, Swingline®, Barrilito®, Foroni® and Hilroy®

 

Note taking products, computer and gaming accessories; planners; workspace machines, tools and essentials and dry erase boards and accessories.

 

 

 

 

 

 

 

ACCO Brands International

 

EMEA, Australia/N.Z., and Asia

 

Leitz®, Rapid®, Kensington®, Esselte®, Rexel®, PowerA®, GBC®, NOBO®, Franken®, Derwent®, Marbig®, Artline®* and Spirax®

*Australia/N.Z. only

 

Filing and organization products; workspace machines, tools and essentials; computer and gaming accessories; dry erase boards and accessories; and writing and art products.

 

Customers

 

We distribute our products through a wide variety of channels to ensure that our products are readily and conveniently available for purchase by consumers and other end-users, wherever they prefer to shop. These channels include mass retailers, e-tailers, technology distributors, discount, drug/grocery and variety chains, warehouse clubs, hardware and specialty stores, independent office product dealers, office superstores, wholesalers, and contract stationers. We also sell directly through e-commerce sites and our direct sales organization.

 

Net sales by reportable business segment for the three months ended March 31, 2024 and 2023 were as follows:

 

(in millions)

 

2024

 

 

2023

 

ACCO Brands Americas

 

$

197.2

 

 

$

230.0

 

ACCO Brands International

 

 

161.7

 

 

 

172.6

 

Net sales

 

$

358.9

 

 

$

402.6

 

 

23


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Operating income by business segment for the three months ended March 31, 2024 and 2023 was as follows:

 

(in millions)

 

2024

 

 

2023

 

ACCO Brands Americas

 

$

6.1

 

 

$

12.3

 

ACCO Brands International

 

 

12.8

 

 

 

9.7

 

Segment operating income

 

 

18.9

 

 

 

22.0

 

Corporate

 

 

(13.0

)

 

 

(11.9

)

Operating income(1)

 

 

5.9

 

 

 

10.1

 

Interest expense

 

 

13.3

 

 

 

13.9

 

Interest income

 

 

(1.9

)

 

 

(2.4

)

Non-operating pension expense

 

 

0.4

 

 

 

0.1

 

Other (income) expense, net

 

 

(0.6

)

 

 

1.8

 

Loss before income tax

 

$

(5.3

)

 

$

(3.3

)

 

(1)
Operating income is defined as i) net sales; ii) less cost of products sold; iii) less selling, general and administrative expenses; iv) less amortization of intangibles; v) less restructuring charges; and vi) less change in the fair value of contingent consideration.

 

The following table presents the measure of reportable business segment assets used by the Company’s CODM as of March 31, 2024 and December 31, 2023:

 

(in millions)

 

2024

 

 

2023

 

ACCO Brands Americas(2)

 

$

548.3

 

 

$

648.7

 

ACCO Brands International(2)

 

 

283.2

 

 

 

308.3

 

  Total segment assets

 

 

831.5

 

 

 

957.0

 

Unallocated assets

 

 

1,708.2

 

 

 

1,684.2

 

Corporate(2)

 

 

3.9

 

 

 

3.6

 

  Total assets

 

$

2,543.6

 

 

$

2,644.8

 

 

(2)
Represents total assets, excluding goodwill and identifiable intangibles resulting from business acquisitions, intercompany balances, cash, deferred taxes, derivatives, prepaid pension assets, prepaid debt issuance costs and right of use asset, leases.

 

As a supplement to the presentation of reportable business segment assets presented above, the table below presents reportable business segment assets, including right of use asset, leases, the allocation of identifiable intangible assets and goodwill resulting from business combinations as of March 31, 2024 and December 31, 2023:

 

(in millions)

 

2024

 

 

2023

 

ACCO Brands Americas(3)

 

$

1,516.0

 

 

$

1,624.6

 

ACCO Brands International(3)

 

 

690.7

 

 

 

738.5

 

  Total segment assets

 

 

2,206.7

 

 

 

2,363.1

 

Unallocated assets

 

 

333.3

 

 

 

278.4

 

Corporate(3)

 

 

3.6

 

 

 

3.3

 

  Total assets

 

$

2,543.6

 

 

$

2,644.8

 

 

(3)
Represents total assets, excluding intercompany balances, cash, deferred taxes, derivatives, prepaid pension assets, prepaid debt issuance costs.

 

17. Commitments and Contingencies

 

Pending Litigation - Brazil Tax Assessments

 

In connection with our May 1, 2012, acquisition of the Mead C&OP business, we assumed all of the tax liabilities for the acquired foreign operations including ACCO Brazil. For further information, see "Note 10. Income Taxes - Brazil Tax

24


ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Assessments" for details on tax assessments issued by the FRD against ACCO Brazil challenging the tax deduction of goodwill from ACCO Brazil's taxable income for the years 2007 through 2010. If the FRD's initial position is ultimately sustained, payment of the amount assessed would materially and adversely affect our cash flow in the year of settlement.

 

Brazil Tax Credits

 

In May 2021, the Supreme Court of Brazil issued its final ruling in a leading case related to the computation of certain indirect taxes which provides that the indirect tax base should not include the gross amount of the value-added tax known as “ICMS.” The Supreme Court further ruled that taxpayers can recognize future operating credits ("Tax Credits") for excess indirect tax payments from past periods due to the inclusion of ICMS in the indirect tax base to the extent the taxpayer had filed judicial challenges seeking to recover excess tax payments prior to March 15, 2017 and for any excess tax payments made after March 15, 2017.

 

ACCO Brazil filed legal actions requesting recovery of these excess tax payments by way of future Tax Credits covering various time periods prior to March 15, 2017. All of these cases have been finally decided in a court of law in favor of ACCO Brazil. During the three months ended March 31, 2024, ACCO Brazil completed the necessary administrative steps which allowed it to benefit from additional Tax Credits and record a gain of $1.9 million, which is included in "Other (income) expense, net," on our Consolidated Statements of Loss. The Tax Credits will be utilized against future tax obligations.

 

Indústria Gráfica Foroni Ltda. ("Foroni"), in years prior to its acquisition by ACCO Brazil, also filed a legal action in Brazil to recover these excess indirect tax payments and this legal action has been finalized. Upon the expiration of the applicable statute of limitations, we are required under agreements with the former owners of the Foroni business to remit certain recovered tax credits, less the applicable tax and expenses, to the extent the tax credits relate to a tax period prior to the acquisition date.

 

In September of 2021, the Supreme Court of Brazil issued its final ruling in a leading case which provides that corporate income tax (“IRPJ”) and social contribution on net income (“CSLL”) should not be levied on the Special System of Clearance and Custody (“SELIC”) interest rate received by taxpayers on the refund of overpaid taxes as in our Tax Credits. As of March 31, 2024, ACCO Brazil filed legal actions requesting recovery of these excess tax payments and completed the necessary administrative steps which allowed it to record an income tax benefit of $2.6 million.

 

Other Pending Litigation

 

We are party to various lawsuits and regulatory proceedings, primarily related to alleged patent infringement, as well as other claims incidental to our business. In addition, we may be unaware of third-party claims of intellectual property infringement relating to our technology, brands, or products, and we may face other claims related to business operations. Any litigation regarding patents or other intellectual property could be costly and time-consuming and might require us to pay monetary damages or enter into costly license agreements. We also may be subject to injunctions against development and sale of certain of our products.

 

It is the opinion of management that (other than the Brazil Tax Assessments) the ultimate resolution of currently outstanding matters will not have a material adverse effect on our financial condition, results of operations or cash flow. However, there is no assurance that we will ultimately be successful in our defense of any of these matters or that an adverse outcome in any matter will not affect our results of operations, financial condition or cash flow. Further, future claims, lawsuits and legal proceedings could materially and adversely affect our business, reputation, results of operations and financial condition.

 

25


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three months ended March 31, 2024 and 2023 should be read in conjunction with the unaudited condensed consolidated financial statements of ACCO Brands Corporation and the accompanying notes contained therein.

Overview of the Company

 

ACCO Brands is a leading global consumer, technology and business branded products company, providing well-known brands and innovative product solutions used in schools, homes and at work. We have expanded into higher growth product categories, while increasing our sales mix to higher growth channels, including retail and mass merchants, e-tailers, and technology specialists. We have an experienced management team with a proven ability to grow brands, integrate acquisitions, manage seasonal businesses, run lean organizations and navigate challenging environments. Our products are sold primarily in the U.S., Europe, Australia, Canada, Brazil and Mexico.

 

Effective January 1, 2024, the Company reorganized its previously reported North America, EMEA and International operating segments into two operating segments, Americas and International. Americas includes the U.S., Canada, Brazil, Mexico and Chile and International includes EMEA, Australia, New Zealand and Asia. This change will simplify and delayer the Company's operating structure and reduce costs through headcount reductions, supply change optimization, global footprint rationalization, and better leverage of our sourcing capabilities. Prior period results have been reclassified to reflect this change in our operating segments. Each business segment designs, markets, sources, manufactures, and sells recognized consumer, technology and business branded products used in schools, homes and at work. Product designs are tailored to end-user preferences in each geographic region, and where possible, leverage common engineering, design, and sourcing.

 

Our product categories include gaming and computer accessories; storage and organization; notebooks; shredding; laminating and binding machines; stapling; punching; planners; dry erase boards; and do-it-yourself tools, among others. We distribute our products through a wide variety of channels to ensure that our products are readily and conveniently available for purchase by consumers and other end-users, wherever they prefer to shop. These channels include mass retailers, e-tailers, technology distributors, discount, drug/grocery and variety chains, warehouse clubs, hardware and specialty stores, independent office product dealers, office superstores, wholesalers, and contract stationers. We also sell directly through e-commerce sites and our direct sales organization.

Overview of Performance

The Company continues to be impacted by soft global demand, reflecting weak consumer and office spending due to inflationary pressures and rising interest rates, overall changes in the workplace environment as return to office trends have stabilized, and geopolitical uncertainties. We expect these collective global trends to continue to impact our financial results through the remainder of the year.

During the first quarter, our net sales decreased $43.7 million, or 10.9 percent, compared to the prior year's first quarter. The decrease was due to reduced volumes due to softer global consumer and business demand for our office products and computer accessories, reduced back-to-school sales in Brazil, and from the exit of lower margin business in the U.S. and Canada, partly offset by the benefit of price increases and favorable foreign exchange. Gross margin increased 120 basis points compared to the prior-year period, primarily due to moderating input costs and the impact of cost reduction actions and price increases, partly offset by volume declines.

We reported operating income of $5.9 million in the first quarter, compared to $10.1 million in the prior year's first quarter. Operating income decreased primarily due to lower gross profit, partially offset by lower restructuring expenses.

26


 

Our operating cash flow for the first three months was cash provided of $28.2 million, compared to cash used of $23.2 million in the prior year, primarily reflecting reductions in working capital. Our seasonal operating cash flow has a historic pattern of strong inflows in the second half.

Consolidated Results of Operations for the Three Months Ended March 31, 2024 and 2023

 

 

 

Three Months Ended
March 31,

 

Amount of Change

(in millions, except per share data)

 

2024

 

2023

 

$

 

%/pts

 

Net sales

 

$358.9

 

$402.6

 

$(43.7)

 

(10.9)%

 

Cost of products sold

 

248.5

 

283.3

 

(34.8)

 

(12.3)%

 

Gross profit

 

110.4

 

119.3

 

(8.9)

 

(7.5)%

 

Gross profit margin

 

30.8 %

 

29.6 %

 

 

 

1.2

 pts

Selling, general and administrative expenses

 

94.2

 

95.0

 

(0.8)

 

(0.8)%

 

SG&A% to net sales

 

26.2 %

 

23.6 %

 

 

 

2.6

 pts

Amortization of intangibles

 

10.6

 

10.9

 

(0.3)

 

(2.8)%

 

Restructuring

 

(0.3)

 

3.3

 

(3.6)

 

NM

 

Operating income

 

5.9

 

10.1

 

(4.2)

 

(41.6)%

 

Operating income margin

 

1.6 %

 

2.5 %

 

 

 

(0.9)

 pts

Interest expense

 

13.3

 

13.9

 

(0.6)

 

(4.3)%

 

Interest income

 

(1.9)

 

(2.4)

 

0.5

 

(20.8)%

 

Non-operating pension expense

 

0.4

 

0.1

 

0.3

 

NM

 

Other (income) expense, net

 

(0.6)

 

1.8

 

(2.4)

 

NM

 

Loss before income tax

 

(5.3)

 

(3.3)

 

(2.0)

 

60.6 %

 

Income tax expense

 

1.0

 

0.4

 

0.6

 

NM

 

Effective tax rate

 

(18.9)%

 

(12.1)%

 

 

 

(6.8)

 pts

Net loss

 

(6.3)

 

(3.7)

 

(2.6)

 

70.3 %

 

Weighted average number of diluted shares outstanding:

 

95.7

 

94.9

 

0.8

 

0.8 %

 

Diluted loss per share

 

$(0.07)

 

$(0.04)

 

$(0.03)

 

75.0 %

 

Comparable sales (Non-GAAP)(1)

 

$357.2

 

$402.6

 

$(45.4)

 

(11.3)%

 

 

(1)
See reconciliation to GAAP contained in Part I, Item 2. "Supplemental Non-GAAP Financial Measure."

Net Sales

For the three months ended March 31, 2024, net sales decreased $43.7 million, or 10.9 percent, including $1.7 million, or 0.4 percent, from favorable foreign exchange. Comparable net sales decreased 11.3 percent. The sales declines were driven by lower volume, which was down 12.0 percent, primarily due to softer global consumer and business demand for our office products and computer accessories. Approximately 3.0 percent of our decline relates to lower back-to-school sales in Brazil and approximately 2.0 percent from the exit of lower margin business. The volume decline more than offset the benefit of price increases which added 0.7 percent.

Cost of Products Sold

Cost of products sold includes all manufacturing, product sourcing and distribution costs, including depreciation related to assets used in manufacturing; procurement and distribution processes; allocation of certain information technology costs supporting those processes; inbound and outbound freight; shipping and handling costs; purchasing costs associated with materials and packaging used in the production processes; and inventory valuation adjustments.

For the three months ended March 31, 2024, cost of products sold decreased $34.8 million, or 12.3 percent, primarily due to lower net sales, moderating input costs and the impact of global cost reduction actions. Adverse foreign exchange increased cost of products sold by $1.0 million, or 0.4 percent.

Gross Profit

For the three months ended March 31, 2024, gross profit decreased $8.9 million, or 7.5 percent, primarily due to volume declines partly offset by lower cost of products sold. Favorable foreign exchange increased gross profit by $0.7 million, or 0.6 percent.

27


 

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") include advertising, marketing, selling (including commissions), research and development, customer service, depreciation related to assets outside the manufacturing and distribution processes, and all other general and administrative expenses outside the manufacturing and distribution functions (e.g., finance, human resources, information technology).

For the three months ended March 31, 2024, SG&A decreased $0.8 million, or 0.8 percent, primarily due to the impact of cost reduction actions, partly offset by people cost inflation and higher incentive compensation expense. Adverse foreign exchange increased SG&A by $0.5 million, or 0.5 percent.

Operating Income

For the three months ended March 31, 2024, operating income decreased $4.2 million primarily due to a reduction in gross profit of $8.9 million, partially offset by lower restructuring charges of $3.6 million, lower SG&A of $0.8 million, and favorable foreign exchange of $0.2 million, or 2.0 percent.

 

Income Tax Expense

For the three months ended March 31, 2024, we recorded income tax expense of $1.0 million on a loss before tax of $5.3 million. This compared with an income tax expense of $0.4 million on a loss before taxes of $3.3 million for the three months ended March 31, 2023.

See "Note 10. Income Taxes" for more information.

Net Loss/Diluted Loss per Share

For the three months ended March 31, 2024, net loss was $6.3 million compared to a net loss of $3.7 million in the prior year. The increase in net loss is due to the items noted above.

 

28


 

Segment Net Sales and Operating Income (Loss) for the Three Months Ended March 31, 2024 and 2023

ACCO Brands Americas

 

 

 

Three Months Ended
March 31,

 

Amount of Change

(in millions)

 

2024

 

2023

 

$

 

%/pts

 

Net sales

 

$197.2

 

$230.0

 

$(32.8)

 

(14.3)%

 

Segment operating income⁽¹⁾

 

6.1

 

12.3

 

(6.2)

 

(50.4)%

 

Segment operating income margin

 

3.1 %

 

5.3 %

 

 

 

(2.2)

 pts

Comparable sales (Non-GAAP)⁽²⁾

 

$194.8

 

$230.0

 

$(35.2)

 

(15.3)%

 

 

(1)
Segment operating income excludes corporate costs. See "Part I, Item 1. Note 16. Information on Business Segments" for a reconciliation of total "Segment operating income" to "Loss before income tax."
(2)
See reconciliation to GAAP contained in Part I, Item 2. "Supplemental Non-GAAP Financial Measure."

 

For the three months ended March 31, 2024, net sales decreased $32.8 million, or 14.3 percent, as a result of lower volume of $33.6 million, or 14.6 percent. The volume decline was primarily due to softer consumer and business demand, particularly for office products and computer accessories. Approximately 5.0 percent of our decline relates to lower back-to-school sales in Brazil and approximately 4.0 percent from the exit of lower margin business. Favorable foreign exchange increased net sales $2.4 million or 1.0 percent.

 

For the three months ended March 31, 2024, operating income decreased $6.2 million, or 50.4 percent, due to the impact of lower sales volume and negative fixed cost leverage, partly offset by moderating input costs, and lower SG&A expense as a result of our cost reduction initiatives. Favorable foreign exchange increased operating income $0.5 million or 4.1 percent.

ACCO Brands International

 

 

Three Months Ended
March 31,

 

 

Amount of Change

(in millions)

 

2024

 

 

2023

 

 

$

 

 

%/pts

 

 

Net sales

 

$

161.7

 

 

$

172.6

 

 

$

(10.9

)

 

 

(6.3

)%

 

Segment operating income⁽¹⁾

 

 

12.8

 

 

 

9.7

 

 

 

3.1

 

 

 

32.0

 %

 

Segment operating income margin

 

 

7.9

 %

 

 

5.6

 %

 

 

 

 

 

2.3

 

 pts

Comparable sales (Non-GAAP)⁽²⁾

 

$

162.4

 

 

$

172.6

 

 

$

(10.2

)

 

 

(5.9

)%

 

 

(1)
Segment operating income excludes corporate costs. See "Part I, Item 1. Note 16. Information on Business Segments" for a reconciliation of total "Segment operating loss" to "Loss before income tax."
(2)
See reconciliation to GAAP contained in Part I, Item 2. "Supplemental Non-GAAP Financial Measure."

 

For the three months ended March 31, 2024, net sales decreased $10.9 million, or 6.3 percent, primarily due to lower volume of $14.8 million, or 8.6 percent, partly offset by price increases which added $4.7 million, or 2.7 percent. The lower volume reflects reduced consumer and business demand for our office and computer accessories categories. Adverse foreign exchange reduced net sales $0.7 million, or 0.4 percent.

 

For the three months ended March 31, 2024, operating income increased $3.1 million primarily due to lower restructuring of $3.4 million. Adverse foreign exchange reduced operating income $0.3 million, or 3.1 percent.

Liquidity and Capital Resources

Our primary liquidity needs are to support our working capital requirements, service indebtedness and fund capital expenditures and dividends. Our principal sources of liquidity are cash flows from operating activities, cash and cash equivalents held, and seasonal borrowings under our $600 million multi-currency revolving credit facility (the "Revolving Facility"). As of March 31, 2024, there was $71.3 million in borrowings outstanding under the Revolving Facility ($28.7 million reported in "Current portion of long-term debt" and $42.6 million reported in "Long-term debt, net"), and the amount available for borrowings was $517.6 million (allowing for $11.1 million of letters of credit outstanding on that date). We had $124.6 million in cash on hand. We maintain adequate financing arrangements at market rates.

29


 

As of March 31, 2024, our Consolidated Leverage Ratio was approximately 3.49 to 1.00 versus our maximum covenant of 4.25 to 1.00. We have no debt maturities before March 2026.

Our near-term use of cash will be to fund our dividend and reduce debt. Our long-term strategy remains to deploy cash to fund dividends, reduce debt, make acquisitions and repurchase stock.

The $386.0 million of debt outstanding as of March 31, 2024 under our senior secured credit facilities had a weighted average interest rate of 7.07 percent, and the $575.0 million outstanding principal amount of our senior unsecured notes due 2029 had a fixed interest rate of 4.25 percent.

Adequacy of Liquidity Sources

We believe that cash flow from operations, our current cash balance and other sources of liquidity, including borrowings available under our Revolving Facility, will be adequate to support our requirements for working capital and restructuring expenditures, and to service indebtedness for the foreseeable future.

Restructuring Activities

From time to time the Company may implement restructuring, realignment or cost-reduction plans and activities, including those related to integrating acquired businesses.

For additional details, see "Note 9. Restructuring" to the condensed consolidated financial statements contained in "Part I, Item 1. Financial Information" of this Quarterly Report on Form 10-Q.

Cash Flow for the Three Months Ended March 31, 2024 and 2023

During the three months ended March 31, 2024, our cash and cash equivalents increased $58.2 million, as compared to an increase of $64.9 million in the first three months of the prior year. The following table summarizes our cash flows for the periods presented:

 

 

 

Three Months Ended March 31,

 

 

 

 

(in millions)

 

2024

 

 

2023

 

 

Amount of Change

 

Net cash flow (used in) provided by:

 

 

 

 

 

 

 

 

 

Operating activities

 

$

28.2

 

 

$

(23.2

)

 

$

51.4

 

Investing activities

 

 

(2.3

)

 

 

(2.0

)

 

 

(0.3

)

 

 

 

 

 

 

 

 

 

 

Net (repayments) borrowings

 

 

42.3

 

 

 

89.9

 

 

 

(47.6

)

Dividends paid

 

 

(7.2

)

 

 

 

 

 

(7.2

)

All other financing

 

 

(1.9

)

 

 

(1.7

)

 

 

(0.2

)

Financing activities

 

 

33.2

 

 

 

88.2

 

 

 

(55.0

)

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

(0.9

)

 

 

1.9

 

 

 

(2.8

)

Net increase in cash and cash equivalents

 

$

58.2

 

 

$

64.9

 

 

$

(6.7

)

Cash Flow from Operating Activities

Cash provided by operating activities was $28.2 million during the three months ended March 31, 2024, which was driven by cash provided by trade working capital of $114.6 million, which includes accounts receivable, inventory and accounts payable. This was partially offset by cash payments for incentives, interest and taxes.

Cash used by operating activities was $23.2 million during the three months ended March 31, 2023, which was driven by cash payments for incentives, interest and taxes. These were partially offset by cash provided by trade working capital of $25.6 million, which includes accounts receivable, inventory and accounts payable.

30


 

Cash Flow from Investing Activities

Cash used by investing activities of $2.3 million during the three months ended March 31, 2024, was due to capital expenditures.

Cash used by investing activities of $2.0 million during the three months ended March 31, 2023, was due to capital expenditures.

Cash Flow from Financing Activities

Cash provided by financing activities of $33.2 million during the three months ended March 31, 2024, was primarily due to cash inflows from a net increase in debt of $42.3 million, partially offset by dividend payments of $7.2 million.

Cash provided by financing activities during the three months ended March 31, 2023, was primarily due to cash inflows from a net increase in debt of $89.9 million. Dividends for the first three months of the year were declared during the first quarter and were paid in the second quarter of 2023.

Supplemental Non-GAAP Financial Measure

To supplement our condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the U.S. ("GAAP"), we provide investors with certain non-GAAP financial measures, including comparable sales. Comparable sales represent net sales excluding the impact of material acquisitions, if any, and with current-period foreign operation sales translated at prior-year currency rates. We sometimes refer to comparable sales as comparable net sales.

We use comparable sales both to explain our results to stockholders and the investment community and in the internal evaluation and management of our business. We believe comparable sales provide management and investors with a more complete understanding of our underlying operational results and trends, facilitate meaningful period-to-period comparisons and enhance an overall understanding of our past and future financial performance. Comparable sales should not be considered in isolation or as a substitute for, or superior to, GAAP net sales and should be read in connection with the Company's financial statements presented in accordance with GAAP.

The following tables provide a reconciliation of GAAP net sales as reported to non-GAAP comparable sales:

 

 

Comparable Sales - Three Months Ended March 31, 2024

 

 

 

Non-GAAP

 

 

 

 

 

(in millions)

GAAP Net Sales

 

Currency Translation

Comparable Sales

ACCO Brands Americas

$197.2

 

$2.4

$194.8

ACCO Brands International

161.7

 

(0.7)

162.4

Total

$358.9

 

$1.7

$357.2

 

 

Amount of Change - Three Months Ended March 31, 2024 compared to the Three Months Ended March 31, 2023

 

$ Change - Net Sales

 

 

 

Non-GAAP

 

 

 

 

 

(in millions)

GAAP Net Sales Change

 

Currency Translation

Comparable Sales Change

ACCO Brands Americas

$(32.8)

 

$2.4

$(35.2)

ACCO Brands International

(10.9)

 

(0.7)

(10.2)

Total

$(43.7)

 

$1.7

$(45.4)

 

31


 

 

 

% Change - Net Sales

 

 

 

Non-GAAP

 

 

 

 

 

 

GAAP Net Sales Change

 

Currency Translation

Comparable Sales Change

ACCO Brands Americas

(14.3)%

 

1.0%

(15.3)%

ACCO Brands International

(6.3)%

 

(0.4)%

(5.9)%

Total

(10.9)%

 

0.4%

(11.3)%

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

See "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to Foreign Exchange Risk Management or Interest Rate Risk Management in the quarter ended March 31, 2024 or through the date of this report.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures.

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision of the Chief Executive Officer and the Chief Financial Officer, and with the participation of our Disclosure Committee, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2024.

 

(b) Changes in Internal Control over Financial Reporting.

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

 

There are various claims, lawsuits and pending actions against us incidental to our operations, including the income tax assessments against our Brazilian subsidiary, ACCO Brands Brasil Ltda. (the "Brazil Tax Assessments"), which is more fully described in "Part I, Item 1. Note 10. Income Taxes, Brazil Tax Assessments" to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

 

It is the opinion of management that (other than the Brazil Tax Assessments) the ultimate resolution of currently outstanding matters will not have a material adverse effect on our financial condition, results of operations or cash flow. However, there is no assurance that we will ultimately be successful in our defense of any of these matters or that an adverse outcome in any matter will not affect our results of operations, financial condition or cash flow. Further, future claims, lawsuits and legal proceedings could materially and adversely affect our business, reputation, results of operations, and financial condition.

32


 

 

ITEM 1A. RISK FACTORS

 

There have been no material changes in our risk factors from those disclosed in "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

(a) Not applicable.

 

(b) Not applicable.

 

(c) Common Stock Purchases

 

The following table provides information about our purchases of equity securities during the quarter ended March 31, 2024:

 

Period

 

Total Number
of Shares
Purchased

 

 

Average Price
Paid per Share

 

 

Total Number of
Shares Purchased as
Part of Publicly
Announced Plan or
Program
(1)

 

 

Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Program
(1)

 

January 1, 2024 to January 31, 2024

 

 

 

 

$

 

 

 

 

 

$

105,645,579.0

 

February 1, 2024 to February 29, 2024

 

 

 

 

 

 

 

 

 

 

 

105,645,579.0

 

March 1, 2024 to March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

105,645,579.0

 

Total

 

 

 

 

$

 

 

 

 

 

$

105,645,579.0

 

 

(1) The Company's Board of Directors has authorized the repurchase of up to $200 million in shares of its common stock.

 

The number of shares to be purchased, if any, and the timing of purchases will be based on the Company's stock price, leverage ratios, cash balances, general business and market conditions, and other factors, including alternative investment opportunities and working capital needs. The Company may repurchase its shares, from time to time, through a variety of methods, including open-market purchases, privately negotiated transactions and block trades or pursuant to repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. Any stock repurchases will be subject to market conditions, SEC regulations and other considerations and may be commenced or suspended at any time or from time to time, without prior notice. Accordingly, there is no guarantee as to the number of shares, if any, that will be repurchased or the timing of such repurchases.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

33


 

ITEM 5. OTHER INFORMATION

 

During the three months ended March 31, 2024, no director or officer of the Company who is required to file reports under Section 16 of the Exchange Act informed us that he or she adopted, materially modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 

ITEM 6. EXHIBITS

 

Exhibit

Number

 

 

Description of Exhibit

 

 

 

10.1

 

Employment Contract, dated January 29, 2024, between Mr. Cezary Monko and Esselte Polska Sp. z o o. (incorporated by reference to Exhibit 10.1 to ACCO Brands Corporation’s Form 8-K filed with the SEC on January 30, 2024 (File No. 001-08454))

 

 

 

31.1

 

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

 

 

 

31.2

 

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

 

 

 

32.1

 

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **

 

 

 

32.2

 

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **

 

 

 

101.INS

 

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents

 

 

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

 

*

 

Filed herewith.

 

 

 

**

 

Furnished herewith.

 

 

 

34


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

REGISTRANT:

 

 

ACCO BRANDS CORPORATION

 

 

By:

/s/ Thomas W. Tedford

Thomas W. Tedford

President and Chief Executive Officer

(principal executive officer)

 

 

By:

/s/ Deborah A. O'Connor

Deborah A. O'Connor

Executive Vice President and Chief Financial Officer

(principal financial officer)

 

 

By:

/s/ James M. Dudek, Jr.

James M. Dudek, Jr.

Senior Vice President, Corporate Controller and Chief Accounting Officer

(principal accounting officer)

Date: May 3, 2024

 

35