ACCO Brands Corporation — FY2021 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2021, compared primarily with FY2020. ACCO designs, markets and manufactures branded consumer, school, technology and office products. It reports three segments: North America, EMEA and International. PowerA, acquired in December 2020, expanded its gaming-accessories business and contributed materially to 2021 results.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $2,025.3 million | $1,655.2 million |
| Gross profit / margin | $614.9 million / 30.4% | $492.4 million / 29.7% |
| Operating income / margin | $151.0 million / 7.5% | $112.4 million / 6.8% |
| Net income | $101.9 million | $62.0 million |
| Diluted earnings per share | $1.05 | $0.65 |
| Operating cash flow | $159.6 million | $119.2 million |
| Capital expenditures | $21.2 million | $15.3 million |
- Reported sales grew 22.4%. PowerA added $249.6 million and favorable foreign exchange added $38.1 million. Comparable sales, excluding acquisition and currency effects, rose 5.0%, with higher prices and volume contributing equally.
- Gross margin increased 0.7 percentage points; operating margin increased 0.7 points. Operating income included a $19.0 million increase in PowerA contingent-consideration fair value and higher acquisition-related amortization.
- The effective tax rate fell to 8.5% from 21.1%, primarily reflecting tax-reserve and deferred-tax adjustments. Management described the rate as unusually low.
- Year-end cash was $41.2 million. Total debt was $1,006.7 million, versus $1,136.6 million a year earlier. The company reported $550.6 million available under its $600 million revolving facility, a 3.30x consolidated leverage ratio and covenant compliance.
- Current liabilities were $708.6 million and current assets were $924.9 million. Inventory rose to $428.0 million from $305.1 million, reflecting supply-chain precautions, higher sales and PowerA growth.
Changes and segment results
North America sales increased 26.8% to $1,042.4 million; comparable sales rose 1.6%. EMEA sales increased 26.5% to $662.9 million; comparable sales rose 15.1%, led by volume recovery and market-share gains. International sales increased 3.5% to $320.0 million, but comparable sales declined 3.3%, with ongoing pandemic-related weakness in parts of Latin America.
Profitability improved overall, though EMEA operating margin declined to 9.3% from 9.8% as logistics and commodity inflation outpaced pricing. North America and International margins improved. Results also reflect the normalization of expenses after temporary pandemic-related cost reductions in 2020.
Outlook, risks and unusual items
- Management reported a steadily improving business environment through 2021 and anticipated continued recovery into 2022 and beyond. The filing provides no specific quantified FY2022 revenue or earnings guidance.
- Management expected inflation, higher logistics costs, global supply-chain disruptions and foreign-exchange headwinds to continue into 2022. Price increases were implemented and further increases planned, but may not fully or promptly offset costs.
- Microchip shortages constrained availability of technology products and gaming consoles, contributing to back orders and lost sales. COVID-19-related school and office closures continued to weigh on demand, particularly in Brazil and Mexico.
- Key business risks include customer concentration (top ten customers were 45% of sales; Walmart and Amazon each about 9%), competitive pressure and channel shifts, foreign-currency exposure, secular declines in paper-based products, and dependence on gaming intellectual-property licenses.
- The company recorded $6.0 million in restructuring charges. Other notable items included a $9.8 million debt call premium, $3.7 million debt-issuance-cost write-off, and $10.7 million in Brazilian tax credits, partly offset by $3.6 million of related income-tax expense.
- Brazil tax assessments remain contested; the recorded accrual was $27.1 million at year-end. An adverse final outcome could materially affect cash flow in the settlement year. The filing states the appeals may take years.
- Goodwill and identifiable intangible assets totaled approximately $1.7 billion. No impairment was recorded, but management identified International-segment goodwill as potentially at risk if recovery or operating performance falls short of assumptions.
- Pension and post-retirement obligations were $222.3 million, down from $317.1 million, principally due to higher discount rates and investment returns. The multi-employer pension plan is in critical and declining status.
Investor verification priorities
- Separate underlying growth from PowerA acquisition effects and currency translation; confirm the durability of 5.0% comparable-sales growth.
- Track whether pricing offsets inflation, freight and other supply-chain costs without materially reducing volume or margins.
- Monitor working-capital conversion, especially the increase in inventory and receivables, and seasonal cash-flow performance.
- Review debt reduction, leverage, covenant headroom and the capacity to sustain dividends while funding business needs.
- Follow developments in the Brazil tax appeals and remaining tax-credit cases, as well as International-segment impairment assumptions and pension funding exposure.