ACCO(ACCO) - 2023 Q4 - Annual Report

Part I Item 1. Business ACCO Brands is a global product company with approximately 77% of its 2023 net sales from brands holding top market positions - ACCO Brands is a leading global product company with approximately 77% of its 2023 net sales from brands that are No. 1 or No. 2 in their respective categories[9] - The company's business strategy prioritizes sustainable organic sales growth, expanding customer relationships, improving operating margins, and managing declining product categories[10] - Effective January 1, 2024, the company will reorganize its three operating segments into two, Americas and International, to simplify its structure and reduce costs[15] - As of December 31, 2023, the company had approximately 5,600 employees worldwide and achieved its diversity goal of 33% female leaders at the director level and above[27][28] Sales Percentage by Operating Segment (2021-2023) | Operating Segment | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | ACCO Brands North America | 48% | 51% | 51% | | ACCO Brands EMEA | 30% | 30% | 33% | | ACCO Brands International | 22% | 19% | 16% | Item 1A. Risk Factors The company faces material risks from customer concentration, global economic conditions, foreign currency exposure, supply chain disruptions, and legal challenges - A significant portion of net sales comes from a limited number of large customers, with the top ten accounting for 41.6% of net sales in 2023[46][47] - The company has significant foreign currency exposure, with approximately 57% of its 2023 net sales transacted in currencies other than the U.S. dollar[50] - The company faces risks from its multi-year restructuring and cost savings program aiming for at least $60 million in annualized pre-tax savings by 2026[73][74] - Inflation and changes in the cost of raw materials, transportation, and labor continue to be a risk, which may not be fully mitigated by price increases[77][79] - Goodwill and intangible asset impairment is a recurring risk, with non-cash goodwill impairment charges of $89.5 million in 2023 and $98.7 million in 2022[68][69] - The company faces significant legal and regulatory risks, including ongoing tax assessments in Brazil that could materially affect cash flow[109][110] Item 1C. Cybersecurity The company manages cybersecurity threats through a comprehensive program aligned with the NIST framework and overseen by the Audit Committee - The company's cybersecurity risk management is integrated into its overall enterprise risk management program and is based on the National Institute of Standards and Technology (NIST) cybersecurity framework[124][126] - Governance and oversight are managed by the Audit Committee, which receives regular updates from the Chief Information Officer and the Vice President, Global Cybersecurity[131][132] - The company has not identified any cybersecurity incident that has materially affected or is reasonably likely to materially affect its business, strategy, results of operations, or financial condition[135] Item 2. Properties ACCO Brands operates a global portfolio of owned and leased properties for its manufacturing, distribution, and office functions - The company operates principal facilities across its three segments, North America, EMEA, and International, with a combination of owned and leased properties for manufacturing, distribution, and office use[137][138] - Two manufacturing/distribution facilities, one in Sidney, New York, and one in Arcos de Valdevez, Portugal, are scheduled to be closed in 2024[138][139] Item 3. Legal Proceedings The company faces various legal claims, with the Brazil Tax Assessments posing the most significant potential material risk - The company is party to various lawsuits, mainly concerning alleged patent infringement, which are not expected to have a material adverse effect, with the notable exception of the Brazil Tax Assessments[140][141] - The Brazil Tax Assessments, related to a 2012 acquisition, challenge the tax deduction of goodwill and an adverse outcome could materially affect the company's cash flow[110][141] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, and while no shares were repurchased in 2023, the quarterly dividend was maintained - The company did not repurchase any of its common stock in the open market during the year ended December 31, 2023, with approximately $105.6 million remaining authorized for future repurchases[148][149] Quarterly Dividends Per Share (2021-2023) | Quarter | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | First | $0.075 | $0.075 | $0.065 | | Second | $0.075 | $0.075 | $0.065 | | Third | $0.075 | $0.075 | $0.065 | | Fourth | $0.075 | $0.075 | $0.075 | | Total | $0.300 | $0.300 | $0.270 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, the company experienced a 5.9% sales decline to $1.83 billion amid macroeconomic challenges, but improved gross margins and operating income Consolidated Results of Operations Net sales fell 5.9% to $1.83 billion in 2023 due to volume decline, though gross margin improved significantly, resulting in a net loss of $21.8 million - The 5.9% decrease in net sales was driven by a 13.3% decline in volume, partially offset by a 6.8% increase from global pricing actions and a 0.6% favorable impact from foreign exchange[163] - A non-cash goodwill impairment charge of $89.5 million was recorded for the North America reporting unit in 2023, compared to a $98.7 million charge in 2022[168] Consolidated Financial Performance (2023 vs. 2022) | Metric (in millions) | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,832.8 | $1,947.6 | $(114.8) | (5.9%) | | Gross Profit | $598.3 | $552.3 | $46.0 | 8.3% | | Gross Profit Margin | 32.6% | 28.4% | N/A | 4.2 pts | | Operating Income | $44.7 | $34.8 | $9.9 | 28.4% | | Goodwill Impairment | $89.5 | $98.7 | $(9.2) | (9.3%) | | Net Loss | $(21.8) | $(13.2) | $(8.6) | 65.2% | | Diluted Loss Per Share | $(0.23) | $(0.14) | $(0.09) | 64.3% | Segment Net Sales and Operating Income Segment performance varied, with sales declining in North America and EMEA but increasing in the International segment, which also saw strong profit growth ACCO Brands North America Performance (2023 vs. 2022) | Metric (in millions) | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $887.2 | $998.0 | $(110.8) | (11.1%) | | Segment Operating Loss | $(5.9) | $(4.9) | $(1.0) | 20.4% | ACCO Brands EMEA Performance (2023 vs. 2022) | Metric (in millions) | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $547.2 | $580.3 | $(33.1) | (5.7%) | | Segment Operating Income | $38.7 | $21.7 | $17.0 | 78.3% | ACCO Brands International Performance (2023 vs. 2022) | Metric (in millions) | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $398.4 | $369.3 | $29.1 | 7.9% | | Segment Operating Income | $60.7 | $50.5 | $10.2 | 20.2% | Liquidity and Capital Resources The company maintained adequate liquidity through cash from operations and its credit facility, remaining in compliance with all debt covenants - As of December 31, 2023, the company had $66.4 million in cash and $565.7 million available for borrowing under its revolving credit facility[182] - The company was in compliance with its financial covenants as of December 31, 2023, with a Consolidated Leverage Ratio of 3.42 to 1.00 and an Interest Coverage Ratio of 5.18 to 1.00[188] - In January 2024, the company announced a multi-year restructuring program expected to generate at least $60.0 million in annualized pre-tax cost savings when fully implemented[193] Cash Flow Summary (2023 vs. 2022) | Cash Flow Activity (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Operating Activities | $128.7 | $77.6 | | Investing Activities | $(11.2) | $(9.3) | | Financing Activities | $(117.7) | $(48.3) | Critical Accounting Policies Key policies involving significant management judgment include revenue recognition, goodwill impairment testing, and accounting for employee benefit plans - Customer Program Costs, including rebates and promotional allowances, are a critical estimate recognized as a deduction to gross sales[207] - Goodwill is tested for impairment annually or when a triggering event occurs, which in Q4 2023 led to an $89.5 million impairment charge for the North America reporting unit[215] - Effective January 1, 2023, the Leitz® trade name was changed from an indefinite-lived intangible to an amortizable asset with a 30-year life[212] - Accounting for employee benefit plans requires significant actuarial assumptions, including discount rates and rates of return, which can materially affect recorded obligations and expenses[218] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rate changes, which it manages through hedging and a mixed-rate debt portfolio - The company uses forward foreign currency contracts to mitigate risks from fluctuating currencies, with a notional amount of outstanding contracts at $182.5 million as of December 31, 2023[234] - Interest rate risk is managed through a mix of fixed and variable-rate debt, including $575.0 million in Senior Unsecured Notes with a fixed rate of 4.25%[184][238] Item 8. Financial Statements and Supplementary Data This section presents the consolidated financial statements, which received an unqualified opinion from the independent auditor, KPMG LLP - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[243][244] - KPMG identified two critical audit matters: the write-down of certain finished goods inventory and the goodwill impairment assessment of the North America reporting unit[251] Consolidated Balance Sheet Highlights (As of Dec 31) | (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Assets | | | | Total Current Assets | $855.4 | $882.3 | | Goodwill | $590.0 | $671.5 | | Total Assets | $2,644.8 | $2,794.7 | | Liabilities & Equity | | | | Total Current Liabilities | $542.0 | $589.0 | | Long-term Debt, net | $882.2 | $936.5 | | Total Liabilities | $1,857.8 | $1,984.6 | | Total Stockholders' Equity | $787.0 | $810.1 | Consolidated Statements of (Loss) Income Highlights (Year Ended Dec 31) | (in millions) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Sales | $1,832.8 | $1,947.6 | $2,025.3 | | Gross Profit | $598.3 | $552.3 | $614.9 | | Operating Income | $44.7 | $34.8 | $151.0 | | Goodwill Impairment | $89.5 | $98.7 | $0.0 | | Net (Loss) Income | $(21.8) | $(13.2) | $101.9 | Item 9A. Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of year-end 2023 - Based on an evaluation as of December 31, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[482] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework[486] Part III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 Definitive Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 Definitive Proxy Statement[489] Item 11. Executive Compensation All required information concerning executive compensation is incorporated by reference from the company's 2024 Definitive Proxy Statement - Information regarding executive compensation is incorporated by reference from the company's 2024 Definitive Proxy Statement[491] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides details on equity compensation plans, with other ownership information incorporated by reference from the 2024 Proxy Statement Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 6,625,226 | $9.26 | 7,327,731 | Item 13. Certain Relationships and Related Transactions, and Director Independence All required information concerning related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2024 Definitive Proxy Statement[495] Item 14. Principal Accountant Fees and Services All required information concerning principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 Definitive Proxy Statement[496] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K - This section contains the index to the consolidated financial statements, the financial statement schedule for Valuation and Qualifying Accounts, and the Exhibit Index[497][498][499]