Form |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Exact Name of Registrant as Specified in Its Charter) |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | |
Emerging growth company |
Consolidated Statements of Operations | |
March 31, 2020 | December 31, 2019 | ||||||
(in millions) | (unaudited) | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Accounts receivable, net | |||||||
Inventories | |||||||
Other current assets | |||||||
Total current assets | |||||||
Total property, plant and equipment | |||||||
Less: accumulated depreciation | ( | ) | ( | ) | |||
Property, plant and equipment, net | |||||||
Right of use asset, leases | |||||||
Deferred income taxes | |||||||
Goodwill | |||||||
Identifiable intangibles, net | |||||||
Other non-current assets | |||||||
Total assets | $ | $ | |||||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Notes payable | $ | $ | |||||
Current portion of long-term debt | |||||||
Accounts payable | |||||||
Accrued compensation | |||||||
Accrued customer program liabilities | |||||||
Lease liabilities | |||||||
Other current liabilities | |||||||
Total current liabilities | |||||||
Long-term debt, net | |||||||
Long-term lease liabilities | |||||||
Deferred income taxes | |||||||
Pension and post-retirement benefit obligations | |||||||
Other non-current liabilities | |||||||
Total liabilities | |||||||
Stockholders' equity: | |||||||
Common stock | |||||||
Treasury stock | ( | ) | ( | ) | |||
Paid-in capital | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Accumulated deficit | ( | ) | ( | ) | |||
Total stockholders' equity | |||||||
Total liabilities and stockholders' equity | $ | $ |
Three Months Ended March 31, | |||||||
(in millions, except per share data) | 2020 | 2019 | |||||
Net sales | $ | $ | |||||
Cost of products sold | |||||||
Gross profit | |||||||
Operating costs and expenses: | |||||||
Selling, general and administrative expenses | |||||||
Amortization of intangibles | |||||||
Restructuring charges | |||||||
Total operating costs and expenses | |||||||
Operating income | |||||||
Non-operating expense (income): | |||||||
Interest expense | |||||||
Interest income | ( | ) | ( | ) | |||
Non-operating pension income | ( | ) | ( | ) | |||
Other income, net | ( | ) | ( | ) | |||
Income before income tax | |||||||
Income tax expense | |||||||
Net income (loss) | $ | $ | ( | ) | |||
Per share: | |||||||
Basic income (loss) per share | $ | $ | ( | ) | |||
Diluted income (loss) per share | $ | $ | ( | ) | |||
Weighted average number of shares outstanding: | |||||||
Basic | |||||||
Diluted |
Three Months Ended March 31, | |||||||
(in millions) | 2020 | 2019 | |||||
Net income (loss) | $ | $ | ( | ) | |||
Other comprehensive income (loss), net of tax: | |||||||
Unrealized income (loss) on derivative instruments, net of tax (expense) benefit of $(0.9) and $0.4, respectively | ( | ) | |||||
Foreign currency translation adjustments, net of tax benefit (expense) of $2.1 and $(3.8), respectively | ( | ) | ( | ) | |||
Recognition of deferred pension and other post-retirement items, net of tax (expense) benefit of $(2.4) and $0.4, respectively | ( | ) | |||||
Other comprehensive loss, net of tax | ( | ) | ( | ) | |||
Comprehensive loss | $ | ( | ) | $ | ( | ) |
Three Months Ended March 31, | |||||||
(in millions) | 2020 | 2019 | |||||
Operating activities | |||||||
Net income (loss) | $ | $ | ( | ) | |||
Amortization of inventory step-up | |||||||
Loss on disposal of assets | |||||||
Depreciation | |||||||
Amortization of debt issuance costs | |||||||
Amortization of intangibles | |||||||
Stock-based compensation | |||||||
Changes in balance sheet items: | |||||||
Accounts receivable | |||||||
Inventories | ( | ) | ( | ) | |||
Other assets | ( | ) | ( | ) | |||
Accounts payable | ( | ) | ( | ) | |||
Accrued expenses and other liabilities | ( | ) | ( | ) | |||
Accrued income taxes | ( | ) | ( | ) | |||
Net cash used by operating activities | ( | ) | ( | ) | |||
Investing activities | |||||||
Additions to property, plant and equipment | ( | ) | ( | ) | |||
Proceeds from the disposition of assets | |||||||
Cost of acquisitions, net of cash acquired | |||||||
Other assets acquired | ( | ) | |||||
Net cash used by investing activities | ( | ) | ( | ) | |||
Financing activities | |||||||
Proceeds from long-term borrowings | |||||||
Repayments of long-term debt | ( | ) | |||||
Borrowings of notes payable, net | |||||||
Dividends paid | ( | ) | ( | ) | |||
Repurchases of common stock | ( | ) | ( | ) | |||
Payments related to tax withholding for stock-based compensation | ( | ) | ( | ) | |||
Proceeds from the exercise of stock options | |||||||
Net cash provided by financing activities | |||||||
Effect of foreign exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | |||
Net increase in cash and cash equivalents | |||||||
Cash and cash equivalents | |||||||
Beginning of the period | |||||||
End of the period | $ | $ | |||||
Cash paid during the year for: | |||||||
Interest | $ | $ | |||||
Income taxes | $ | $ |
(in millions) | Common Stock | Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Accumulated Deficit | Total | |||||||||||||||||
Balance at December 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||
Net income | — | — | — | — | |||||||||||||||||||
Gain on derivative financial instruments, net of tax | — | — | — | — | |||||||||||||||||||
Translation impact | — | — | ( | ) | — | — | ( | ) | |||||||||||||||
Pension and post-retirement adjustment, net of tax | — | — | — | — | |||||||||||||||||||
Common stock repurchases | — | ( | ) | — | — | — | ( | ) | |||||||||||||||
Stock-based compensation | — | — | — | — | |||||||||||||||||||
Common stock issued, net of shares withheld for employee taxes | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Dividends declared, $.065 per share | — | — | — | — | ( | ) | ( | ) | |||||||||||||||
Balance at March 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ |
Common Stock | Treasury Stock | Net Shares | ||||||
Shares at December 31, 2019 | ||||||||
Common stock issued, net of shares withheld for employee taxes | ||||||||
Common stock repurchases | ( | ) | — | ( | ) | |||
Shares at March 31, 2020 |
(in millions) | Common Stock | Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Accumulated Deficit | Total | |||||||||||||||||
December 31, 2018 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||
Net loss | — | — | — | — | ( | ) | ( | ) | |||||||||||||||
Loss on derivative financial instruments, net of tax | — | — | ( | ) | — | — | ( | ) | |||||||||||||||
Translation impact | — | — | ( | ) | — | — | ( | ) | |||||||||||||||
Pension and post-retirement adjustment, net of tax | — | — | ( | ) | — | — | ( | ) | |||||||||||||||
Common stock repurchases | — | ( | ) | — | — | — | ( | ) | |||||||||||||||
Stock-based compensation | — | — | — | — | |||||||||||||||||||
Common stock issued, net of shares withheld for employee taxes | — | — | — | ( | ) | — | ( | ) | |||||||||||||||
Dividends declared, $.06 per share | — | — | — | — | ( | ) | ( | ) | |||||||||||||||
Other | — | ( | ) | — | — | ||||||||||||||||||
Cumulative effect due to the adoption of ASU 2016-02 | — | — | — | — | |||||||||||||||||||
Balance at March 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ |
Common Stock | Treasury Stock | Net Shares | ||||||
Shares at December 31, 2018 | ||||||||
Common stock issued, net of shares withheld for employee taxes | ||||||||
Common stock repurchases | ( | ) | — | ( | ) | |||
Shares at March 31, 2019 |
(in millions) | At August 1, 2019 | ||
Calculation of Goodwill: | |||
Purchase price, net of working capital adjustment | $ | ||
Plus fair value of liabilities assumed: | |||
Accounts payable and accrued liabilities | |||
Deferred tax liabilities | |||
Debt | |||
Lease liabilities | |||
Fair value of liabilities assumed | $ | ||
Less fair value of assets acquired: | |||
Cash acquired | |||
Accounts receivable | |||
Inventory | |||
Property and equipment | |||
Identifiable intangibles | |||
Deferred tax assets | |||
Right of use asset, leases | |||
Other assets | |||
Fair value of assets acquired | $ | ||
Goodwill | $ |
(in millions) | March 31, 2020 | December 31, 2019 | |||||
Euro Senior Secured Term Loan A, due May 2024 (floating interest rate of 1.50% at March 31, 2020 and 1.50% at December 31, 2019) | $ | $ | |||||
USD Senior Secured Term Loan A, due May 2024 (floating interest rate of 2.57% at March 31, 2020 and 3.44% at December 31, 2019) | |||||||
Australian Dollar Senior Secured Term Loan A, due May 2024 (floating interest rate of 2.20% at March 31, 2020 and 2.45% at December 31, 2019) | |||||||
U.S. Dollar Senior Secured Revolving Credit Facility, due May 2024 (floating interest rate of 2.40% at March 31, 2020 and 3.26% at December 31, 2019) | |||||||
Australian Dollar Senior Secured Revolving Credit Facility, due May 2024 (floating interest rate of 1.98% at March 31, 2020 and 2.44% at December 31, 2019) | |||||||
Senior Unsecured Notes, due December 2024 (fixed interest rate of 5.25%) | |||||||
Other borrowings | |||||||
Total debt | |||||||
Less: | |||||||
Current portion | |||||||
Debt issuance costs, unamortized | |||||||
Long-term debt, net | $ | $ |
• | extend the maturity date to May 23, 2024; |
• | increase the aggregate revolving credit commitments under the Revolving Facility from $ |
• | establish a new term loan facility denominated in U.S. Dollars in an aggregate principal amount of $ |
• | replace the minimum fixed coverage ratio of |
• | reflect a more favorable restricted payment covenant, with the consolidated leverage ratio hurdle for unlimited restricted |
• | reflect, in certain cases, more favorable pricing with a 25 basis point reduction in the applicable rate on outstanding loans than was in effect prior to the Second Amendment based on the Company's current consolidated leverage ratio, along with lower fees on undrawn amounts; |
• | eliminate the requirement to make annual principal prepayments of excess cash flow; |
• | reduce amortization payments for the term loans; and |
• | increase the qualified receivables transaction basket with respect to sales or financings of certain receivables. |
Three Months Ended March 31, | |||||||
(in millions) | 2020 | 2019 | |||||
Operating lease cost | $ | $ | |||||
Sublease income | ( | ) | ( | ) | |||
Total lease cost | $ | $ |
Three Months Ended March 31, | |||||||
(in millions, except lease term and discount rate) | 2020 | 2019 | |||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||
Operating cash flows from operating leases | $ | $ | |||||
Right-of-use assets obtained in exchange for lease obligations: | |||||||
Operating leases(1) | $ | $ | ( | ) | |||
Weighted average remaining lease term: | |||||||
Operating leases | |||||||
Weighted average discount rate: | |||||||
Operating leases | % |
(in millions) | |||
2020 | $ | ||
2021 | |||
2022 | |||
2023 | |||
2024 | |||
2025 | |||
Thereafter | |||
Total minimum lease payments | |||
Less imputed interest | |||
Future minimum payments for leases, net of sublease rental income and imputed interest | $ |
Three Months Ended March 31, | |||||||||||||||||||||||
Pension | Post-retirement | ||||||||||||||||||||||
U.S. | International | ||||||||||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||
Service cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Interest cost | |||||||||||||||||||||||
Expected return on plan assets | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||
Amortization of net loss (gain) | ( | ) | ( | ) | |||||||||||||||||||
Amortization of prior service cost | |||||||||||||||||||||||
Net periodic benefit income(1) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ |
(1) | The components, other than service cost, are included in the line "Non-operating pension income" in the Consolidated Statements of Operations. |
Three Months Ended March 31, | |||||||
(in millions) | 2020 | 2019 | |||||
Stock option compensation expense | $ | $ | |||||
RSU compensation expense | |||||||
PSU compensation expense | ( | ) | |||||
Total stock-based compensation expense | $ | $ |
March 31, 2020 | |||
Unrecognized | Weighted Average | ||
Compensation | Years Expense To Be | ||
(in millions, except weighted average years) | Expense | Recognized Over | |
Stock options | $ | ||
RSUs | $ | ||
PSUs | $ |
(in millions) | March 31, 2020 | December 31, 2019 | |||||
Raw materials | $ | $ | |||||
Work in process | |||||||
Finished goods | |||||||
Total inventories | $ | $ |
(in millions) | ACCO Brands North America | ACCO Brands EMEA | ACCO Brands International | Total | |||||||||||
Balance at December 31, 2019 | $ | $ | $ | $ | |||||||||||
Acquisitions | ( | ) | ( | ) | |||||||||||
Foreign currency translation | ( | ) | ( | ) | |||||||||||
Balance at March 31, 2020 | $ | $ | $ | $ |
March 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
(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) | $ | $ | $ | ( | ) | (1) | $ | |||||||||||
Amortizable intangible assets: | |||||||||||||||||||||||
Trade names | ( | ) | ( | ) | |||||||||||||||||||
Customer and contractual relationships | ( | ) | ( | ) | |||||||||||||||||||
Patents | ( | ) | ( | ) | |||||||||||||||||||
Subtotal | ( | ) | ( | ) | |||||||||||||||||||
Total identifiable intangibles | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ |
(1) | Accumulated amortization prior to the adoption of authoritative guidance on goodwill and other intangible assets, at which time further amortization ceased. |
(in millions) | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | |||||||||||||||||
Estimated amortization expense(2) | $ | $ | $ | $ | $ | $ |
(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. |
(in millions) | Balance at December 31, 2019 | Provision | Cash Expenditures | Non-cash Items/ Currency Change | Balance at March 31, 2020 | ||||||||||||||
Employee termination costs(1) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
Termination of lease agreements(2) | ( | ) | |||||||||||||||||
Other(3) | ( | ) | |||||||||||||||||
Total restructuring liability | $ | $ | $ | ( | ) | $ | ( | ) | $ |
(in millions) | Balance at December 31, 2018 | Provision | Cash Expenditures | Non-cash Items/ Currency Change | Balance at March 31, 2019 | ||||||||||||||
Employee termination costs | $ | $ | $ | ( | ) | $ | $ | ||||||||||||
Termination of lease agreements | ( | ) | |||||||||||||||||
Total restructuring liability | $ | $ | $ | ( | ) | $ | $ |
Three Months Ended March 31, | |||||
(in millions) | 2020 | 2019 | |||
Weighted-average number of shares of common stock outstanding - basic | |||||
Stock options | |||||
Restricted stock units | |||||
Weighted-average shares and assumed conversions - diluted(1) |
(1) | Due to the net loss during the three months ended March 31, 2019, the denominator in the diluted earnings per share calculation does not include the effects of the stock awards for which the average market price for the period exceeds the exercise price, as it would result in a less dilutive computation. As a result, reported diluted earnings per share for the three months ended March 31, 2019 are the same as basic earnings per share. |
Fair Value of Derivative Instruments | |||||||||||||||||||
Derivative Assets | Derivative Liabilities | ||||||||||||||||||
(in millions) | Balance Sheet Location | March 31, 2020 | December 31, 2019 | Balance Sheet Location | March 31, 2020 | December 31, 2019 | |||||||||||||
Derivatives designated as hedging instruments: | |||||||||||||||||||
Foreign exchange contracts | Other current assets | $ | $ | Other current liabilities | $ | $ | |||||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||
Foreign exchange contracts | Other current assets | Other current liabilities | |||||||||||||||||
Foreign exchange contracts | Other non-current assets | Other non-current liabilities | |||||||||||||||||
Total derivatives | $ | $ | $ | $ |
The Effect of Derivative Instruments in Cash Flow Hedging Relationships on the Condensed 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) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
Cash flow hedges: | ||||||||||||||||||
Foreign exchange contracts | $ | $ | Cost of products sold | $ | ( | ) | $ | ( | ) |
The Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Operations | |||||||||
Location of (Gain) Loss Recognized in Income on Derivatives | Amount of (Gain) Loss Recognized in Income | ||||||||
Three Months Ended March 31, | |||||||||
(in millions) | 2020 | 2019 | |||||||
Foreign exchange contracts | Other income, net | $ | ( | ) | $ |
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 |
(in millions) | March 31, 2020 | December 31, 2019 | |||||
Assets: | |||||||
Forward currency contracts | $ | $ | |||||
Liabilities: | |||||||
Forward currency contracts | $ | $ |
(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, 2019 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Other comprehensive income (loss) before reclassifications, net of tax | ( | ) | ( | ) | |||||||||||
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax | ( | ) | |||||||||||||
Balance at March 31, 2020 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Three Months Ended March 31, | |||||||||
2020 | 2019 | ||||||||
(in millions) | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | Location on Income Statement | |||||||
Details about Accumulated Other Comprehensive Income (Loss) Components | |||||||||
Gain (loss) on cash flow hedges: | |||||||||
Foreign exchange contracts | $ | $ | Cost of products sold | ||||||
Tax expense | ( | ) | ( | ) | Income tax expense | ||||
Net of tax | $ | $ | |||||||
Defined benefit plan items: | |||||||||
Amortization of actuarial loss | $ | ( | ) | $ | ( | ) | (1) | ||
Amortization of prior service cost | ( | ) | ( | ) | (1) | ||||
Total before tax | ( | ) | ( | ) | |||||
Tax benefit | Income tax expense | ||||||||
Net of tax | $ | ( | ) | $ | ( | ) | |||
Total reclassifications for the period, net of tax | $ | ( | ) | $ | ( | ) |
(1) | These AOCI components are included in the computation of net periodic benefit cost for pension and post-retirement plans. See "Note 6. Pension and Other Retiree Benefits" for additional details. |
Three Months Ended March 31, | |||||||
(in millions) | 2020 | 2019 | |||||
United States | $ | $ | |||||
Canada | |||||||
ACCO Brands North America | |||||||
ACCO Brands EMEA(2) | |||||||
Australia/N.Z. | |||||||
Latin America | |||||||
Asia-Pacific | |||||||
ACCO Brands International | |||||||
Net sales | $ | $ |
Three Months Ended March 31, | |||||||
(in millions) | 2020 | 2019 | |||||
Product and services transferred at a point in time | $ | $ | |||||
Product and services transferred over time | |||||||
Net sales | $ | $ |
Operating Segment | Geography | Primary Brands | Primary Products | |||
ACCO Brands North America | United States and Canada | Five Star®, Quartet®, AT-A-GLANCE®, GBC®, Swingline®, Kensington®, Mead®, and Hilroy® | School notebooks, planners, dry erase boards, storage and organization products (3-ring binders), stapling, punching, laminating, binding products, and computer accessories | |||
ACCO Brands EMEA | Europe, Middle East and Africa | Leitz®, Rapid®, Esselte®, Kensington®, Rexel® GBC®, NOBO®, and Derwent® | Storage and organization products (lever-arch binders, sheet protectors, indexes), stapling, punching, laminating, shredding, do-it-yourself tools, dry erase boards, writing instruments and computer accessories | |||
ACCO Brands International | Australia/N.Z., Latin America and Asia-Pacific | Tilibra®, GBC®, Barrilito®, Foroni®, Marbig®, Kensington®, Artline®*, Wilson Jones®, Quartet®, Spirax®, and Rexel® *Australia/N.Z. only | School notebooks, planners, dry erase boards, storage and organization products (binders, sheet protectors and indexes), stapling, punching, laminating, shredding, writing instruments, janitorial supplies and computer accessories |
Three Months Ended March 31, | |||||||
(in millions) | 2020 | 2019 | |||||
ACCO Brands North America | $ | $ | |||||
ACCO Brands EMEA | |||||||
ACCO Brands International | |||||||
Net sales | $ | $ |
Three Months Ended March 31, | |||||||
(in millions) | 2020 | 2019 | |||||
ACCO Brands North America | $ | $ | |||||
ACCO Brands EMEA | |||||||
ACCO Brands International | |||||||
Segment operating income | |||||||
Corporate | ( | ) | ( | ) | |||
Operating income(1) | |||||||
Interest expense | |||||||
Interest income | ( | ) | ( | ) | |||
Non-operating pension income | ( | ) | ( | ) | |||
Other income, net | ( | ) | ( | ) | |||
Income before income tax | $ | $ |
(1) | Operating income as presented in the segment table above is defined as i) net sales; ii) less cost of products sold; iii) less selling, general and administrative expenses; iv) less amortization of intangibles; and v) less restructuring charges. |
• | Increase the maximum consolidated leverage ratio from |
• | Amend the pricing based on the Company’s consolidated leverage ratio, with a scaled increase in fees based on varying leverage ratios. Per the terms of the Third Amendment, pricing will be locked at LIBOR plus 200 bps until the Company publishes its financial results for the fiscal quarter ended June 30, 2020. |
• | Reduce the Company’s capacity to incur certain other indebtedness, and impose additional limitations on certain restricted payments (other than dividends) and permitted acquisitions. |
• | Require that the Company pay down any amounts on its revolving facility when cash and cash equivalents of the loan parties exceed $ |
2020 1ST QTR Average Versus 2019 1ST QTR Average | ||
Currency | Increase/(Decline) | |
Euro | (3)% | |
Brazilian real | (15)% | |
Australian dollar | (8)% | |
Canadian dollar | (1)% | |
Mexican peso | (3)% | |
Swedish krona | (5)% | |
British pound | (2)% | |
Japanese yen | 1% |
Three Months Ended March 31, | Amount of Change | ||||||||||||||
(in millions, except per share data) | 2020 | 2019 | $ | %/pts | |||||||||||
Net sales | $ | 384.1 | $ | 393.9 | $ | (9.8 | ) | (2.5 | )% | ||||||
Cost of products sold | 271.9 | 268.1 | 3.8 | 1.4 | % | ||||||||||
Gross profit | 112.2 | 125.8 | (13.6 | ) | (10.8 | )% | |||||||||
Gross profit margin | 29.2 | % | 31.9 | % | (2.7) | pts | |||||||||
Selling, general and administrative expenses | 86.1 | 95.9 | (9.8 | ) | (10.2 | )% | |||||||||
Amortization of intangibles | 8.4 | 9.3 | (0.9 | ) | (9.7 | )% | |||||||||
Restructuring charges | 0.3 | 2.7 | (2.4 | ) | (88.9 | )% | |||||||||
Operating income | 17.4 | 17.9 | (0.5 | ) | (2.8 | )% | |||||||||
Operating income margin | 4.5 | % | 4.5 | % | 0.0 | pts | |||||||||
Interest expense | 8.6 | 10.4 | (1.8 | ) | (17.3 | )% | |||||||||
Interest income | (0.3 | ) | (0.9 | ) | (0.6 | ) | (66.7 | )% | |||||||
Non-operating pension income | (1.5 | ) | (1.4 | ) | 0.1 | 7.1 | % | ||||||||
Other income, net | (0.5 | ) | (0.2 | ) | 0.3 | 150.0 | % | ||||||||
Income before income tax | 11.1 | 10.0 | 1.1 | 11.0 | % | ||||||||||
Income tax expense | 3.1 | 10.6 | (7.5 | ) | (70.8 | )% | |||||||||
Effective tax rate | 27.9 | % | 106.0 | % | (78.1) | pts | |||||||||
Net income (loss) | 8.0 | (0.6 | ) | 8.6 | NM | ||||||||||
Weighted average number of diluted shares outstanding: | 97.5 | 102.3 | (4.8 | ) | (4.7 | )% | |||||||||
Diluted income (loss) per share | $ | 0.08 | $ | (0.01 | ) | $ | 0.09 | NM |
Three Months Ended March 31, 2020 | Amount of Change Compared to the Three Months Ended March 31, 2019 | |||||||||||||||||||||||||
Net Sales | Segment Operating Income (A) | Segment Operating Income Margin | Net Sales | Net Sales | Segment Operating Income (A) | Segment Operating Income | Margin Points | |||||||||||||||||||
(in millions) | $ | % | $ | % | ||||||||||||||||||||||
ACCO Brands North America | $ | 167.8 | $ | 7.6 | 4.5 | % | $ | 7.4 | 4.6% | $ | 0.8 | 11.8 | % | 30 | ||||||||||||
ACCO Brands EMEA | 127.5 | 12.0 | 9.4 | % | (19.0 | ) | (13.0)% | (3.9 | ) | (24.5 | )% | (150 | ) | |||||||||||||
ACCO Brands International | 88.8 | 5.9 | 6.6 | % | 1.8 | 2.1% | 0.3 | 5.4 | % | 20 | ||||||||||||||||
Total | $ | 384.1 | $ | 25.5 | $ | (9.8 | ) | $ | (2.8 | ) | ||||||||||||||||
Three Months Ended March 31, 2019 | ||||||||||||||||||||||||||
Net Sales | Segment Operating Income (A) | Segment Operating Income Margin | ||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||
ACCO Brands North America | $ | 160.4 | $ | 6.8 | 4.2 | % | ||||||||||||||||||||
ACCO Brands EMEA | 146.5 | 15.9 | 10.9 | % | ||||||||||||||||||||||
ACCO Brands International | 87.0 | 5.6 | 6.4 | % | ||||||||||||||||||||||
Total | $ | 393.9 | $ | 28.3 |
Amount of Change - Three Months Ended March 31, 2020 compared to the Three Months Ended March 31, 2019 | |||||||
$ Change - Net Sales | |||||||
Non-GAAP | |||||||
GAAP | Comparable | ||||||
Net Sales | Currency | Net Sales | |||||
(in millions) | Change | Translation | Acquisition | Change | |||
ACCO Brands North America | $7.4 | $(0.2) | $— | $7.6 | |||
ACCO Brands EMEA | (19.0) | (4.3) | — | (14.7) | |||
ACCO Brands International | 1.8 | (6.1) | 14.4 | (6.5) | |||
Total | $(9.8) | $(10.6) | $14.4 | $(13.6) | |||
% Change - Net Sales | |||||||
Non-GAAP | |||||||
GAAP | Comparable | ||||||
Net Sales | Currency | Net Sales | |||||
Change | Translation | Acquisition | Change | ||||
ACCO Brands North America | 4.6% | (0.1)% | —% | 4.7% | |||
ACCO Brands EMEA | (13.0)% | (2.9)% | —% | (10.1)% | |||
ACCO Brands International | 2.1% | (7.0)% | 16.6% | (7.5)% | |||
Total | (2.5)% | (2.7)% | 3.7% | (3.5)% | |||
Three Months Ended | Amount of Change | ||||||||||
(in millions) | March 31, 2020 | March 31, 2019 | |||||||||
Accounts receivable | $ | 112.0 | $ | 108.1 | $ | 3.9 | |||||
Inventories | (26.2 | ) | (57.3 | ) | 31.1 | ||||||
Accounts payable | (45.2 | ) | (79.9 | ) | 34.7 | ||||||
Cash flow provided (used) by net working capital | $ | 40.6 | $ | (29.1 | ) | $ | 69.7 |
• | Accounts receivable was a source of cash of $112.0 million during the first quarter of 2020, a favorable change of $3.9 million compared to a source of cash of $108.1 million during the first quarter of 2019. The $3.9 million improvement resulted from improved collections and lower sales during the first quarter of 2020. |
• | Inventories was a use of cash of $26.2 million during the first quarter of 2020, a favorable change of $31.1 million when compared with the $57.3 million used during the first quarter of 2019. The use of cash for inventory was higher during the first quarter of 2019 as a result of the Company acquiring additional inventory during the fourth quarter of 2018 to secure supply and to partially reduce the anticipated inflation and avoid import tariffs that went into effect during 2019. The inventory build-up was not repeated in 2019. |
• | Accounts payable was a use of cash of $45.2 million during the first quarter of 2020, a favorable change of $34.7 million when compared to a use of cash of $79.9 million during the first quarter of 2019. The use of cash for accounts payable was higher during the first quarter of 2019 as a result of the Company paying for the additional inventory that was acquired during the fourth quarter of 2018 as noted above. |
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, 2020 to January 31, 2020 | — | $ | — | — | $ | 143,964,231 | ||||||||
February 1, 2020 to February 28, 2020 | 535,839 | 8.30 | 535,839 | 139,517,188 | ||||||||||
March 1, 2020 to March 31, 2020 | 2,154,453 | 6.72 | 2,154,453 | 125,045,248 | ||||||||||
Total | 2,690,292 | $ | 7.03 | 2,690,292 | $ | 125,045,248 |
10.1 |
10.2 |
31.1 |
31.2 |
32.1 |
32.2 |
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 |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished herewith. |
REGISTRANT: | |
ACCO BRANDS CORPORATION | |
By: | /s/ Boris Elisman |
Boris Elisman | |
Chairman, President and Chief Executive Officer (principal executive officer) | |
By: | /s/ Neal V. Fenwick |
Neal V. Fenwick | |
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) |
Vesting Date | Portion of Option that is Vested and Exercisable |
First Anniversary of the Grant Date | One-Third of the Option, rounded to the next higher whole number of Shares |
Second Anniversary of the Grant Date | An Additional One-Third of the Option for a Total of Two-Thirds of the Option, rounded to the next higher whole number of Shares |
Third Anniversary of the Grant Date | The remaining unvested portion of the Option |
(1) | Acknowledges that he or she is the authorized recipient of this Agreement and that he or she has properly accessed the E*Trade online system by use of the username and password created by the Participant; |
(2) | Acknowledges that he or she has read and understands the 2019 ACCO Brands Corporation Incentive Plan Nonqualified Stock Option Agreement in its entirety, including Exhibit A, and has also read and understands the 2019 ACCO Brands Corporation Incentive Plan, which he or she understands will control in the event of any discrepancy between the Agreement and the Plan; and |
(3) | Accepts and agrees to the terms and conditions of the 2019 ACCO Brands Corporation Incentive Plan Nonqualified Stock Option Agreement in its entirety, including Exhibit A, and the 2019 ACCO Brands Corporation Incentive Plan. |
ACCO Brands Corporation | PARTICIPANT |
Name: Title: | NAME |
Vesting Date | Portion of Option that is Vested and Exercisable |
First Anniversary of the Grant Date | One-Third of the Option, rounded to the next higher whole number of Shares |
Second Anniversary of the Grant Date | An Additional One-Third of the Option for a Total of Two-Thirds of the Option, rounded to the next higher whole number of Shares |
Third Anniversary of the Grant Date | The remaining unvested portion of the Option |
(1) | Acknowledges that he or she is the authorized recipient of this Agreement and that he or she has properly accessed the E*Trade online system by use of the username and password created by the Participant; |
(2) | Acknowledges that he or she has read and understands the 2019 ACCO Brands Corporation Incentive Plan Nonqualified Stock Option Agreement in its entirety, including Exhibit A and the Addendum, and has also read and understands the 2019 ACCO Brands Corporation Incentive Plan, which he or she understands will control in the event of any discrepancy between the Agreement and the Plan; and |
(3) | Accepts and agrees to the terms and conditions of the 2019 ACCO Brands Corporation Incentive Plan Nonqualified Stock Option Agreement in its entirety, including Exhibit A and the Addendum, and the 2019 ACCO Brands Corporation Incentive Plan. |
ACCO Brands Corporation | PARTICIPANT |
Name: Title: | NAME |
1. | I have reviewed this Quarterly Report on Form 10-Q of ACCO Brands Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By: | /s/ Boris Elisman |
Boris Elisman | |
Chairman, President and Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of ACCO Brands Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By: | /s/ Neal V. Fenwick |
Neal V. Fenwick | |
Executive Vice President and Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ACCO Brands Corporation. |
By: | /s/ Boris Elisman |
Boris Elisman | |
Chairman, President and Chief Executive Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ACCO Brands Corporation. |
By: | /s/ Neal V. Fenwick |
Neal V. Fenwick | |
Executive Vice President and Chief Financial Officer |
Fair Value Of Financial Instruments |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Of Financial Instruments | 14. 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:
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 13. 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, 2020 and December 31, 2019:
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. 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 $929.2 million and $816.0 million and the estimated fair value of total debt was $906.7 million and $831.4 million at March 31, 2020 and December 31, 2019, respectively. The fair values are determined from quoted market prices, where available, and from investment bankers using current interest rates considering credit ratings and the remaining time to maturity.
|
Commitments And Contingencies |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments And Contingencies | 18. 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 Tilibra Produtos de Papelaria Ltda. ("Tilibra"). For further information, see "Note 11. Income Taxes - Brazil Tax Assessments" for details on tax assessments issued by the FRD against Tilibra challenging the tax deduction of goodwill from Tilibra'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 March 2017, the Supreme Court of Brazil ruled against the Brazilian tax authority in a leading case related to the computation of certain indirect taxes. The Supreme Court ruled that the indirect tax base should not include a value-added tax known as "ICMS." The Supreme Court decision, in principle, affects all applicable judicial proceedings in progress, and reduces future indirect taxes on our Brazilian subsidiary, Tilibra. However, the Brazilian tax authority has filed an appeal seeking clarification of certain matters, including the amount by which taxpayers would be entitled to reduce their indirect tax base (i.e. the gross ICMS collected or the net ICMS paid). The appeal also requests a modulation of the decision’s effects, which may limit its retrospective impact on taxpayers, including Tilibra. Tilibra has paid and continues to pay these indirect taxes on a tax base which includes the gross ICMS collected. It has also filed legal actions in Brazil to request reimbursement of these excess tax payments by way of future credits ("Tax Credits") and for permission to exclude the gross ICMS collected from the tax base in future periods. Tilibra’s legal actions cover various time periods and some have been finally decided in a court of law in favor of Tilibra, while others are still pending a final decision. Due to the uncertainties associated with the scope of the application of the Brazilian Supreme Court’s ruling, taking into account the Brazilian tax authority’s appeal and request for modulation, the Company has and will recognize income only for the amount of Tax Credits actually monetized, which will occur when Tilibra receives a cash flow benefit from applying the Tax Credits against various taxes payable in Brazil. The benefit of the Tax Credits realized by the Company has and will be recorded in the Consolidated Statements of Operations in the line item "Other income, net." Tilibra has received final decisions for Tax Credits in the amount of $4.3 million, of which $3.3 million was offset against Brazilian taxes in the fourth quarter of 2019, with the balance used during the first quarter of 2020. This amount of Tax Credits assumes that only the net amount of ICMS paid can be excluded from the tax base. The total value of these Tax Credits was recorded as a gain in Tilibra’s local statutory accounts during the third quarter of 2019, resulting in Brazilian federal taxes payable of approximately $1.6 million. Final decisions in the remaining legal actions Tilibra has filed may result in additional Tax Credits that could be monetized in future periods. Further, a favorable decision in the leading case by the Brazilian Supreme Court on the methodology to compute the Tax Credits (i.e. gross ICMS collected) would result in additional Tax Credits being available to Tilibra. The amount of these additional Tax Credits may be material. Foroni, in years prior to acquisition, also filed legal actions in Brazil to recover these excess indirect tax payments; however all of Foroni's claims are still pending a final decision. In the event any Tax Credits are recovered on behalf of Foroni, in accordance with the terms of the quota purchase agreement we are required to remit such recovery to the former owners of Foroni on a net income tax paid basis and therefore will not recognize any benefit in the Consolidated Statements of Operations. 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. Environmental We are subject to national, state, provincial and/or local environmental laws and regulations concerning the discharge of materials into the environment and the handling, disposal and clean-up of waste materials and other items relating to the protection of the environment. This includes environmental laws and regulations that affect the design and composition of certain of our products. It is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that we may undertake in the future. In the opinion of our management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect upon our capital expenditures, financial condition and results of operations or competitive position.
|
Consolidated Statements of Comprehensive Loss (Unaudited) (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Statement of Comprehensive Income [Abstract] | ||
Unrealized income (loss) on derivative instruments, net of tax (expense) benefit of $(0.9) and $0.4, respectively | $ (0.9) | $ 0.4 |
Foreign currency translation adjustments, net of tax benefit (expense) of $2.1 and $(3.8), respectively | 2.1 | (3.8) |
Recognition of deferred pension and other post-retirement items, net of tax (expense) benefit of $(2.4) and $0.4, respectively | $ (2.4) | $ 0.4 |
Basis Of Presentation |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis Of Presentation | 1. Basis of Presentation As used in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, 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, 2019. The Condensed Consolidated Balance Sheet as of March 31, 2020, the related Consolidated Statements of Operations, the Consolidated Statements of Comprehensive Loss, and the Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2020 and 2019 and Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 are unaudited. The December 31, 2019 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all annual disclosures required by GAAP. The above referenced 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 results of operations and cash flows for the interim periods ended March 31, 2020 and 2019, and the financial position of the Company as of March 31, 2020. Interim results may not be indicative of results for a full year. Effective August 1, 2019, we completed the acquisition (the "Foroni Acquisition") of Indústria Gráfica Foroni Ltda. ("Foroni"), a leading provider of Foroni® branded notebooks and paper-based school and office products in Brazil. The purchase price was $41.5 million inclusive of working capital adjustments. The Foroni Acquisition advanced our strategy to expand in faster growing geographies and product categories, add consumer-centric brands and diversify our customer base. The results of Foroni are included in the ACCO Brands International segment effective August 1, 2019. See "Note 3. Acquisitions" for details on the Foroni acquisition. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Actual results could differ from those estimates.
|
Derivative Financial Instruments (Fair Value of Derivative Instruments) (Details) - USD ($) $ in Millions |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Derivatives, Fair Value [Line Items] | ||
Derivative Assets | $ 13.0 | $ 8.0 |
Derivative Liabilities | 5.6 | 9.5 |
Foreign exchange contracts | Derivatives designated as hedging instruments | Other current assets | ||
Derivatives, Fair Value [Line Items] | ||
Derivative Assets | 3.7 | 0.4 |
Foreign exchange contracts | Derivatives designated as hedging instruments | Other current liabilities | ||
Derivatives, Fair Value [Line Items] | ||
Derivative Liabilities | 0.4 | 0.9 |
Foreign exchange contracts | Derivatives not designated as hedging instruments | Other current assets | ||
Derivatives, Fair Value [Line Items] | ||
Derivative Assets | 5.3 | 7.6 |
Foreign exchange contracts | Derivatives not designated as hedging instruments | Other current liabilities | ||
Derivatives, Fair Value [Line Items] | ||
Derivative Liabilities | 1.2 | 8.6 |
Foreign exchange contracts | Derivatives not designated as hedging instruments | Other Noncurrent Assets | ||
Derivatives, Fair Value [Line Items] | ||
Derivative Assets | 4.0 | 0.0 |
Foreign exchange contracts | Derivatives not designated as hedging instruments | Other Noncurrent Liabilities | ||
Derivatives, Fair Value [Line Items] | ||
Derivative Liabilities | $ 4.0 | $ 0.0 |
Leases (Lease Expense) (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Leases [Abstract] | ||
Operating lease cost | $ 7.3 | $ 7.0 |
Sublease income | (0.4) | (0.4) |
Lease, Cost | $ 6.9 | $ 6.6 |
Acquisitions (Narrative) (Details) R$ in Millions, $ in Millions |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Aug. 01, 2019
USD ($)
|
Aug. 01, 2019
BRL (R$)
|
Mar. 31, 2020
USD ($)
|
Dec. 31, 2019
USD ($)
|
|
Business Acquisition [Line Items] | ||||
Goodwill | $ 717.7 | $ 718.6 | ||
Industria Grafica Foroni Ltda | ||||
Business Acquisition [Line Items] | ||||
Payments to acquire business, gross | $ 41.5 | R$ 157.2 | ||
Debt | 7.6 | |||
Revenue of acquired business since acquisition date | 14.4 | |||
Goodwill | 9.3 | |||
Business acquisition, consideration held in escrow | $ 6.6 | R$ 25.0 | ||
Selling, General and Administrative Expenses | Industria Grafica Foroni Ltda | ||||
Business Acquisition [Line Items] | ||||
Transaction related costs | $ 0.2 | $ 1.5 | ||
Maximum | Industria Grafica Foroni Ltda | ||||
Business Acquisition [Line Items] | ||||
Escrow period | 6 years | 6 years |
Commitments And Contingencies Narrative (Details) - USD ($) $ in Millions |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2020 |
Dec. 31, 2019 |
Sep. 30, 2019 |
Mar. 31, 2019 |
|
Loss Contingencies [Line Items] | ||||
Income tax expense | $ 3.1 | $ 10.6 | ||
Foreign Tax Authority | Secretariat of the Federal Revenue Bureau of Brazil | ||||
Loss Contingencies [Line Items] | ||||
Brazil Tax Credits | $ 3.3 | $ 4.3 | ||
Income tax expense | $ 1.6 |
Revenue Recognition (Unearned Revenue) (Details) $ in Millions |
Mar. 31, 2020
USD ($)
|
---|---|
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-04-01 | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Unearned revenue | $ 4.7 |
Expected timing of satisfaction | 12 months |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-04-01 | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Unearned revenue | $ 0.7 |
Expected timing of satisfaction | 12 months |
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Stock-Based Compensation (Unrecognized Compensation Expense) (Details) $ in Millions |
3 Months Ended |
---|---|
Mar. 31, 2020
USD ($)
| |
Stock options | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Unrecognized Compensation Expense | $ 6.9 |
Weighted Average Years Expense To Be Recognized Over | 2 years 4 months 24 days |
Restricted stock units | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Unrecognized Compensation Expense | $ 9.3 |
Weighted Average Years Expense To Be Recognized Over | 2 years 3 months 18 days |
Performance stock units | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Unrecognized Compensation Expense | $ 3.2 |
Weighted Average Years Expense To Be Recognized Over | 2 years 6 months |
Goodwill And Identifiable Intangibles (Acquired Finite-Lived Intangibles) (Details) - Industria Grafica Foroni Ltda $ in Millions |
Aug. 01, 2019
USD ($)
|
---|---|
Acquired Finite-Lived Intangible Assets [Line Items] | |
Identifiable intangibles | $ 11.1 |
Trade Names | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Identifiable intangibles | $ 11.1 |
Finite-lived intangible asset, useful life | 23 years |
Derivative Financial Instruments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value | The following table summarizes the fair value of our derivative financial instruments as of March 31, 2020 and December 31, 2019:
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Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance | 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, 2020 and 2019:
|
Inventories (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Inventory | The components of inventories were as follows:
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Restructuring |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring | 10. Restructuring The Company recorded $0.3 million and $2.7 million of restructuring expense for the three months ended March 31, 2020 and 2019, respectively. The restructuring expenses are primarily for severance costs related to cost reduction initiatives in our North America and International segments. The summary of the activity in the restructuring liability for the three months ended March 31, 2020, was as follows:
(1) We expect the remaining $8.6 million employee termination costs to be substantially paid in the next twelve months. (2) We expect the remaining $0.1 million termination of lease costs to be substantially paid in the next three months. (3) We expect the remaining $0.4 million of other costs to be substantially paid in the next six months. The summary of the activity in the restructuring liability for the three months ended March 31, 2019, was as follows:
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Recent Accounting Pronouncements |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Recent Accounting Pronouncements | 2. Recent Accounting Pronouncements and Adopted Accounting Standards Recent Accounting Pronouncements In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 is effective for annual periods, and interim periods within those years, beginning after December 15, 2020. The Company is currently evaluating the effects the standard will have on its consolidated financial statements. There are 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 In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, an accounting standard that requires companies to utilize an impairment model (current expected credit loss, or "CECL") for most financial assets measured at amortized cost and certain other financial instruments, which include, but are not limited to, trade and other receivables. This accounting standard replaced the incurred loss model with a model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate those losses. Effective January 1, 2020, the Company adopted this standard. As of March 31, 2020 the adoption of this standard did not have a material impact on our condensed consolidated financial statements. There were no other accounting standards that were adopted in the first three months of 2020 that had a material effect on the Company’s financial condition, results of operations or cash flow.
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Pension And Other Retiree Benefits |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension And Other Retiree Benefits | 6. 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, 2020 and 2019 were as follows:
We expect to contribute approximately $19.5 million to our defined benefit plans in 2020. For the three months ended March 31, 2020, we have contributed $5.7 million to these plans.
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Information On Business Segments (Operating Income by Segment) (Details) - USD ($) $ in Millions |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|||
Segment Reporting Information [Line Items] | ||||
Operating income | [1] | $ 17.4 | $ 17.9 | |
Interest expense | 8.6 | 10.4 | ||
Interest income | (0.3) | (0.9) | ||
Non-operating pension income | (1.5) | (1.4) | ||
Other income, net | (0.5) | (0.2) | ||
Income before income tax | 11.1 | 10.0 | ||
Operating Segment | ||||
Segment Reporting Information [Line Items] | ||||
Operating income | [1] | 25.5 | 28.3 | |
Corporate | ||||
Segment Reporting Information [Line Items] | ||||
Operating income | [1] | (8.1) | (10.4) | |
ACCO Brands North America | Operating Segment | ||||
Segment Reporting Information [Line Items] | ||||
Operating income | [1] | 7.6 | 6.8 | |
ACCO Brands EMEA | Operating Segment | ||||
Segment Reporting Information [Line Items] | ||||
Operating income | [1] | 12.0 | 15.9 | |
ACCO Brands International | Operating Segment | ||||
Segment Reporting Information [Line Items] | ||||
Operating income | [1] | $ 5.9 | $ 5.6 | |
|
Revenue Recognition Service or Extended Maintenance Agreements (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Dec. 31, 2019 |
|
Disaggregation of Revenue [Line Items] | ||
Unearned revenue associated with outstanding contracts | $ 5.4 | $ 5.5 |
Revenue recognized | $ 2.8 |
Stock-Based Compensation (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock-based compensation expense (income) | $ 0.9 | $ 2.0 |
Stock options | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share Granted in Period, Gross | 1,402,829 | |
Stock-based compensation expense (income) | $ 0.8 | 0.5 |
Restricted stock units | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share Granted in Period, Gross | 600,014 | |
Stock-based compensation expense (income) | $ 1.0 | 1.0 |
Performance stock units | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share Granted in Period, Gross | 918,911 | |
Stock-based compensation expense (income) | $ (0.9) | $ 0.5 |
Goodwill And Identifiable Intangibles (Intangible Assets) (Details) - USD ($) $ in Millions |
Mar. 31, 2020 |
Dec. 31, 2019 |
||
---|---|---|---|---|
Intangible Assets [Line Items] | ||||
Amortizable intangible assets, Gross Carrying Amounts | $ 546.7 | $ 563.2 | ||
Amortizable intangible assets, Accumulated Amortization | (230.5) | (227.4) | ||
Amortizable intangible assets, Net Book Value | 316.2 | 335.8 | ||
Total identifiable intangibles, Gross Carrying Amounts | 1,000.9 | 1,030.5 | ||
Total identifiable intangibles, Accumulated Amortization | (275.0) | (271.9) | ||
Total identifiable intangibles, Net Book Value | 725.9 | 758.6 | ||
Trade Names | ||||
Intangible Assets [Line Items] | ||||
Amortizable intangible assets, Gross Carrying Amounts | 308.4 | 316.7 | ||
Amortizable intangible assets, Accumulated Amortization | (85.8) | (83.7) | ||
Amortizable intangible assets, Net Book Value | 222.6 | 233.0 | ||
Customer and contractual relationships | ||||
Intangible Assets [Line Items] | ||||
Amortizable intangible assets, Gross Carrying Amounts | 232.9 | 241.0 | ||
Amortizable intangible assets, Accumulated Amortization | (143.2) | (142.3) | ||
Amortizable intangible assets, Net Book Value | 89.7 | 98.7 | ||
Patents | ||||
Intangible Assets [Line Items] | ||||
Amortizable intangible assets, Gross Carrying Amounts | 5.4 | 5.5 | ||
Amortizable intangible assets, Accumulated Amortization | (1.5) | (1.4) | ||
Amortizable intangible assets, Net Book Value | 3.9 | 4.1 | ||
Trade Names | ||||
Intangible Assets [Line Items] | ||||
Indefinite-lived intangible assets, gross carrying amount | 454.2 | 467.3 | ||
Indefinite lived intangible asset accumulated amortization prior to the adoption of authoritative guidance | [1] | (44.5) | (44.5) | |
Indefinite-lived intangible assets, Net Book Value | $ 409.7 | $ 422.8 | ||
|
Earnings Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Weighted Average Number of Shares | Our weighted-average shares outstanding for the three months ended March 31, 2020 and 2019 was as follows:
|
Stock-Based Compensation (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan | 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, 2020 and 2019:
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Schedule of Unrecognized Compensation Cost, Nonvested Awards | The following table summarizes our unrecognized compensation expense and the weighted-average period over which the expense will be recognized as of March 31, 2020:
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Acquisitions |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | 3. Acquisitions Acquisition of Foroni Effective August 1, 2019, we completed the acquisition of Foroni, a leading provider of Foroni® branded notebooks and paper-based school and office products in Brazil. The Foroni Acquisition advanced our strategy to expand in faster growing geographies and product categories, add consumer-centric brands and diversify our customer base. The results of Foroni are included in the ACCO Brands International segment effective August 1, 2019. The purchase price was R$157.2 million (US$41.5 million based on July 31, 2019, exchange rates) inclusive of working capital adjustments. We also assumed $7.6 million in debt. A portion of the purchase price (R$25.0 million or US$6.6 million based on July 31, 2019 exchange rates) is being held in an escrow account for a period of up to 6 years after closing in the event of any claims against the sellers under the quota purchase agreement. The Company may also make claims against the sellers directly, subject to limitations in the quota purchase agreement, if the escrow is depleted. The Foroni Acquisition and related expenses were funded by cash on hand. For accounting purposes, the Company was the acquiring enterprise. The Foroni Acquisition is being accounted for as a purchase business combination and Foroni's results are included in the Company’s condensed consolidated financial statements as of August 1, 2019. The net sales for Foroni for the three months ended March 31, 2020 were $14.4 million. The following table presents the preliminary allocation of the consideration given to the fair values of the assets acquired and liabilities assumed at the date of acquisition:
We are continuing our review of our fair value estimate of assets acquired and liabilities assumed during the measurement period, which will conclude as soon as we receive the information we are seeking about facts and circumstances that existed as of the acquisition date or learn that more information is not available. This measurement period will not exceed one year from the acquisition date. The excess of the purchase price over the fair value of net assets acquired is allocated to goodwill. The preliminary goodwill of $9.3 million is primarily attributable to synergies expected to be realized from facility integration, headcount reduction and other operational streamlining activities, and from the existence of an assembled workforce. Our fair value estimate of assets acquired and liabilities assumed is pending the completion of several elements, including the fair value of the assets acquired and liabilities assumed and the final review by our management. The primary areas that are not yet finalized relate to inventory, intangible assets, property and equipment, reserves and liabilities, and income and other taxes. Accordingly, there could be material adjustments to our condensed consolidated financial statements, including changes in our amortization and depreciation expense related to the valuation of intangible assets and property and equipment acquired and their respective useful lives, among other adjustments. The final determination of the purchase price, fair values and resulting goodwill may differ significantly from what is reflected in these condensed consolidated financial statements. During the year ended December 31, 2019, transaction costs related to the Foroni Acquisition were $1.5 million, and for the quarter ending March 31, 2020, they were $0.2 million. These costs were reported as selling, general and administrative ("SG&A") expenses in the Company's Consolidated Statements of Operations.
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Stock-Based Compensation |
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | 7. 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, 2020 and 2019:
We generally recognize compensation expense for stock-based awards ratably over the vesting period. During the first quarter of 2020, the Company's Board of Directors approved stock compensation grants which consisted of 1,402,829 stock options, 600,014 RSUs and 918,911 PSUs. The following table summarizes our unrecognized compensation expense and the weighted-average period over which the expense will be recognized as of March 31, 2020:
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Income Taxes |
3 Months Ended |
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Mar. 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | 11. Income Taxes For the three months ended March 31, 2020, we recorded an income tax expense of $3.1 million on income before taxes of $11.1 million, for an effective rate of 27.9 percent. The decrease in effective tax rate for the period was primarily due to a reduction in nondeductible interest expense in the current year, and an increase in reserves for uncertain tax positions in the prior year. For the three months ended March 31, 2019, we recorded an income tax expense of $10.6 million on income before taxes of $10.0 million, for an effective rate of 106.0 percent. The high effective tax rate for the quarter was primarily due to the Company increasing its reserves for uncertain tax positions in connection with the Brazil Tax Assessments (see Brazil Tax Assessments below) in the amount of $5.6 million and the recording of deferred state taxes on unremitted non-U.S. earnings in the amount of $0.8 million and other reserves related to various tax contingencies. The U.S. federal statute of limitations remains open for the years 2016 and forward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from 2 to 5 years. Years still open to examination by foreign tax authorities in major jurisdictions include Australia (2015 forward), Brazil (2014 forward), Canada (2015 forward), Germany (2015 forward), Sweden (2015 forward) and the U.K. (2018 forward). We are currently under examination in certain foreign jurisdictions. 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 Tilibra Produtos de Papelaria Ltda. ("Tilibra"). In December of 2012, the Federal Revenue Department of the Ministry of Finance of Brazil ("FRD") issued a tax assessment against Tilibra, challenging the tax deduction of goodwill from Tilibra's taxable income for the year 2007 (the "First Assessment"). A second assessment challenging the deduction of goodwill from Tilibra'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"). Tilibra is disputing both of the tax assessments. The final administrative appeal of the Second Assessment was decided against the Company in 2017. In 2018, we decided to appeal this decision to the 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. The First Assessment is still being challenged through established administrative procedures. We believe we have meritorious defenses and intend to vigorously contest both of the assessments; however, there can be no assurances that we will ultimately prevail. The ultimate outcome will not be determined until the Brazilian tax appeal process is complete, which is expected to take a number of 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 this dispute 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. Included in this reserve is an assumption of penalties at 75 percent, which is the standard penalty. While there is a possibility that a penalty of 150 percent could be imposed in connection with the First Assessment, based on the facts in our case and existing precedent, we believe the likelihood of a 150 percent penalty is not more likely than not as of March 31, 2020. 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. The time limit for issuing an assessment for 2011 and 2012 expired in January 2018 and January 2019, respectively. Since we did not receive an assessments for either of these periods, we reversed the amounts previously accrued, including $5.6 million related to 2011, which was reversed in the first quarter of 2018. During the three months ended March 31, 2020 and 2019, we accrued additional interest as a charge to current income tax expense of $0.1 million and $0.3 million, respectively. At current exchange rates, our accrual through March 31, 2020, including tax, penalties and interest is $27.0 million (reported in "Other non-current liabilities").
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Label | Element | Value |
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Accounting Standards Update 2016-02 [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ 500,000 |
Accounting Standards Update 2016-02 [Member] | Retained Earnings [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ 500,000 |
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