ACCO BRANDS Corp - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form	10-Q



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

For the Quarterly Period Ended June 30, 2019



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

For the transition period from to .

Commission File Number 001-08454

ACCO Brands Corporation

(Exact Name of Registrant as Specified in Its Charter)



Delaware	36-2704017
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

Four Corporate Drive

Lake Zurich, Illinois 60047

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

(847) 541-9500

(Registrant’s Telephone Number, Including Area Code)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ACCO	NYSE

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

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

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



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of July 23, 2019, the registrant had outstanding 97,905,734 shares of Common Stock.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, particularly those anticipating future financial performance, business prospects, growth, operating strategies and similar matters are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which are generally identifiable by the use of the words "will," "believe," "expect," "intend," "anticipate," "estimate," "forecast," "project," "plan," and similar expressions, are subject to certain risks and uncertainties, are made as of the date hereof, and we undertake no duty or obligation to update them. Because actual results may differ materially from those suggested or implied by such forward-looking statements, you should not place undue reliance on them when deciding whether to buy, sell or hold the Company's securities.

Some of the factors that could affect our results or cause plans, actions and results to differ materially from current expectations are detailed in "Part I, Item 1. Business" and "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, and the financial statement line item discussions set forth in "Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Quarterly Report on Form 10-Q and from time to time in our other Securities and Exchange Commission (the "SEC") filings.

Website Access to Securities and Exchange Commission Reports

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

TABLE OF CONTENTS



PART I — FINANCIAL INFORMATION	4
Item 1. Financial Statements	4
Condensed Consolidated Balance Sheets	4
Consolidated Statements of Income	5
Consolidated Statements of Comprehensive Income	6
Condensed Consolidated Statements of Cash Flows	7
Consolidated Statement of Stockholders’ Equity	8
Notes to Condensed Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3. Quantitative and Qualitative Disclosures About Market Risk	42
Item 4. Controls and Procedures	42
PART II — OTHER INFORMATION	44
Item 1. Legal Proceedings	44
Item 1A. Risk Factors	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3. Defaults Upon Senior Securities	44
Item 4. Mine Safety Disclosures	44
Item 5. Other Information	45
Item 6. Exhibits	45
SIGNATURES	46

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ACCO Brands Corporation and Subsidiaries

Condensed Consolidated Balance Sheets



	June 30, 2019			December 31, 2018
(in millions)	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	94.1		$	67.0
Accounts receivable, net	460.5			428.4
Inventories	370.7			340.6
Other current assets	47.9			44.2
Total current assets	973.2			880.2
Total property, plant and equipment	630.6			618.7
Less: accumulated depreciation	(370.6		)	(355.0		)
Property, plant and equipment, net	260.0			263.7
Right of use asset, leases	98.3			—
Deferred income taxes	108.6			115.1
Goodwill	708.3			708.9
Identifiable intangibles, net	771.8			787.0
Other non-current assets	32.6			31.5
Total assets	$	2,952.8		$	2,786.4
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable	$	3.3		$	—
Current portion of long-term debt	45.8			39.5
Accounts payable	200.6			274.6
Accrued compensation	41.8			41.6
Accrued customer program liabilities	88.3			114.5
Lease liabilities	19.8			—
Other current liabilities	101.0			129.0
Total current liabilities	500.6			599.2
Long-term debt, net	1,049.7			843.0
Long-term lease liabilities	87.1			11.0
Deferred income taxes	182.3			176.2
Pension and post-retirement benefit obligations	240.7			257.2
Other non-current liabilities	114.4			110.1
Total liabilities	2,174.8			1,996.7
Stockholders' equity:
Common stock	1.0			1.1
Treasury stock	(38.2		)	(33.9		)
Paid-in capital	1,907.5			1,941.0
Accumulated other comprehensive loss	(458.9		)	(461.7		)
Accumulated deficit	(633.4		)	(656.8		)
Total stockholders' equity	778.0			789.7
Total liabilities and stockholders' equity	$	2,952.8		$	2,786.4

See Notes to Condensed Consolidated Financial Statements (Unaudited).

ACCO Brands Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except per share data)	2019			2018			2019			2018
Net sales	$	518.7		$	498.8		$	912.6		$	904.6
Cost of products sold	352.9			336.4			621.0			614.7
Gross profit	165.8			162.4			291.6			289.9
Operating costs and expenses:
Selling, general and administrative expenses	95.5			100.0			191.4			201.8
Amortization of intangibles	8.9			8.5			18.2			17.8
Restructuring charges	—			2.1			2.7			6.8
Total operating costs and expenses	104.4			110.6			212.3			226.4
Operating income	61.4			51.8			79.3			63.5
Non-operating expense (income):
Interest expense	11.7			9.9			22.1			19.3
Interest income	(1.3		)	(1.4		)	(2.2		)	(2.4		)
Non-operating pension income	(1.4		)	(2.3		)	(2.8		)	(4.5		)
Other expense, net	1.2			1.6			1.0			1.0
Income before income tax	51.2			44.0			61.2			50.1
Income tax expense	15.3			18.3			25.9			14.0
Net income	$	35.9		$	25.7		$	35.3		$	36.1

Per share:
Basic income per share	$	0.35		$	0.24		$	0.35		$	0.34
Diluted income per share	$	0.35		$	0.24		$	0.34		$	0.33

Weighted average number of shares outstanding:
Basic	101.3			106.1			101.8			106.4
Diluted	102.2			108.0			103.3			109.0

See Notes to Condensed Consolidated Financial Statements (Unaudited).

ACCO Brands Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2019			2018			2019			2018
Net income	$	35.9		$	25.7		$	35.3		$	36.1
Other comprehensive income (loss), net of tax:
Unrealized (loss) income on derivative instruments, net of tax benefit (expense) of $0.6 and (1.1) and $1.0 and (1.4), respectively	(1.2		)	2.9			(2.3		)	3.5

Foreign currency translation adjustments, net of tax expense of $3.4 and (0.1) and $(0.4) and (2.8), respectively	5.8			(9.8		)	2.7			(14.1		)

Recognition of deferred pension and other post-retirement items, net of tax benefit of $(1.1) and (2.4) and $(0.7) and (1.5), respectively	3.5			7.7			2.4			5.1
Other comprehensive income (loss), net of tax	8.1			0.8			2.8			(5.5		)

Comprehensive income	$	44.0		$	26.5		$	38.1		$	30.6

See Notes to Condensed Consolidated Financial Statements (Unaudited).

ACCO Brands Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Six Months Ended June 30,
(in millions)	2019			2018
Operating activities
Net income	$	35.3		$	36.1
Amortization of inventory step-up	0.1			—
Loss on disposal of assets	—			0.1
Depreciation	17.5			17.5
Amortization of debt issuance costs	1.0			1.0
Amortization of intangibles	18.2			17.8
Stock-based compensation	5.4			7.2
Loss on debt extinguishment	0.3			0.3
Changes in balance sheet items:
Accounts receivable	(29.7		)	7.8
Inventories	(26.6		)	(74.7		)
Other assets	(9.4		)	(8.4		)
Accounts payable	(74.4		)	60.0
Accrued expenses and other liabilities	(55.6		)	(66.7		)
Accrued income taxes	2.2			(4.5		)
Net cash used by operating activities	(115.7		)	(6.5		)
Investing activities
Additions to property, plant and equipment	(14.7		)	(17.0		)
Proceeds from the disposition of assets	0.3			—
Other assets acquired	(5.2		)	—
Net cash used by investing activities	(19.6		)	(17.0		)
Financing activities
Proceeds from long-term borrowings	325.8			210.4
Repayments of long-term debt	(105.0		)	(54.5		)
(Repayments) borrowings of notes payable, net	(1.4		)	0.3
Payments for debt issuance costs	(3.3		)	—
Dividends paid	(12.2		)	(12.7		)
Repurchases of common stock	(37.9		)	(50.2		)
Payments related to tax withholding for stock-based compensation	(4.3		)	(7.4		)
Proceeds from the exercise of stock options	0.2			6.2
Net cash provided by financing activities	161.9			92.1
Effect of foreign exchange rate changes on cash and cash equivalents	0.5			(6.3		)
Net increase in cash and cash equivalents	27.1			62.3
Cash and cash equivalents
Beginning of the period	67.0			76.9
End of the period	$	94.1		$	139.2

See Notes to Condensed Consolidated Financial Statements (Unaudited).

ACCO Brands Corporation and Subsidiaries

Consolidated Statement of Stockholders' Equity

(Unaudited)



(in millions)	Common Stock			Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Accumulated Deficit			Total
Balance at December 31, 2018	$	1.1		$	1,941.0		$	(461.7	)	$	(33.9	)	$	(656.8	)	$	789.7
Net loss	—			—			—			—			(0.6		)	(0.6		)
Gain on derivative financial instruments, net of tax	—			—			(1.1		)	—			—			(1.1		)
Translation impact	—			—			(3.1		)	—			—			(3.1		)
Pension and post-retirement adjustment, net of tax	—			—			(1.1		)	—			—			(1.1		)
Common stock repurchases	—			(11.0		)	—			—			—			(11.0		)
Stock-based compensation	—			2.0			—			—			—			2.0
Common stock issued, net of shares withheld for employee taxes	—			—			—			(4.3		)	—			(4.3		)
Dividends declared, $.06 per share	—			—			—			—			(6.2		)	(6.2		)
Other	—			(0.1		)	—			—			0.1			—
Cumulative effect due to the adoption of ASU 2016-02	—			—			—			—			0.5			0.5
Balance at March 31, 2019	1.1			1,931.9			(467.0		)	(38.2		)	(663.0		)	764.8
Net income	—			—			—			—			35.9			35.9
Gain on derivative financial instruments, net of tax	—			—			(1.2		)	—			—			(1.2		)
Translation impact	—			—			5.8			—			—			5.8
Pension and post-retirement adjustment, net of tax	—			—			3.5			—			—			3.5
Common stock repurchases	—			(28.3		)	—			—			—			(28.3		)
Stock-based compensation	—			3.6			—			—			—			3.6
Common stock issued, net of shares withheld for employee taxes	—			0.2			—			—			—			0.2
Dividends declared, $.06 per share	—			—			—			—			(6.3		)	(6.3		)
Other	(0.1		)	0.1			—			—			—			—
Balance at June 30, 2019	$	1.0		$	1,907.5		$	(458.9	)	$	(38.2	)	$	(633.4	)	$	778.0

Shares of Capital Stock



	Common Stock		Treasury Stock	Net Shares
Shares at December 31, 2018	106,249,332		3,500,622	102,748,710
Common stock issued, net of shares withheld for employee taxes	1,437,021		458,987	978,034
Common stock repurchases	(1,260,163	)	—	(1,260,163	)
Shares at March 31, 2019	106,426,190		3,959,609	102,466,581
Common stock issued, net of shares withheld for employee taxes	44,180		7,836	36,344
Common stock repurchases	(3,443,914	)	—	(3,443,914	)
Shares at June 30, 2019	103,026,456		3,967,445	99,059,011

See Notes to Condensed Consolidated Financial Statements (Unaudited).

ACCO Brands Corporation and Subsidiaries

Consolidated Statement of Stockholders' Equity

Continued (Unaudited)



(in millions)	Common Stock		Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Accumulated Deficit			Total
Balance at December 31, 2017	$	1.1	$	1,999.7		$	(461.1	)	$	(26.4	)	$	(739.2	)	$	774.1
Net loss	—		—			—			—			10.4			10.4
Gain on derivative financial instruments, net of tax	—		—			0.6			—			—			0.6
Translation impact	—		—			(4.3		)	—			—			(4.3		)
Pension and post-retirement adjustment, net of tax	—		—			(2.6		)	—			—			(2.6		)
Common stock repurchases	—		(9.3		)	—			—			—			(9.3		)
Stock-based compensation	—		3.2			—			—			—			3.2
Common stock issued, net of shares withheld for employee taxes	—		5.2			—			(7.5		)	—			(2.3		)
Dividends declared, $.06 per share	—		0.3			—			—			(6.6		)	(6.3		)
Cumulative effect due to the adoption of ASU 2016-02	—		—			—			—			1.5			1.5
Balance at March 31, 2018	1.1		1,999.1			(467.4		)	(33.9		)	(733.9		)	765.0
Net income	—		—			—			—			25.7			25.7
Gain on derivative financial instruments, net of tax	—		—			2.9			—			—			2.9
Translation impact	—		—			(9.8		)	—			—			(9.8		)
Pension and post-retirement adjustment, net of tax	—		—			7.7			—			—			7.7
Common stock repurchases	—		(41.7		)	—			—			—			(41.7		)
Stock-based compensation	—		3.9			—			—			—			3.9
Common stock issued, net of shares withheld for employee taxes	—		1.0			—			—			—			1.0
Dividends declared, $.06 per share	—		0.2			—			—			(6.6		)	(6.4		)
Balance at June 30, 2018	$	1.1	$	1,962.5		$	(466.6	)	$	(33.9	)	$	(714.8	)	$	748.3

Shares of Capital Stock



	Common Stock		Treasury Stock	Net Shares
Shares at December 31, 2017	109,597,197		2,913,113	106,684,084
Common stock issued, net of shares withheld for employee taxes	2,442,703		580,755	1,861,948
Common stock repurchases	(760,473	)	—	(760,473	)
Shares at March 31, 2018	111,279,427		3,493,868	107,785,559
Common stock issued, net of shares withheld for employee taxes	115,620		1,933	113,687
Common stock repurchases	(3,272,480	)	—	(3,272,480	)
Shares at June 30, 2018	108,122,567		3,495,801	104,626,766

See Notes to Condensed Consolidated Financial Statements (Unaudited).

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

As used in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, 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, 2018.

The Condensed Consolidated Balance Sheet as of June 30, 2019, the related Consolidated Statements of Income and the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018 and Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 are unaudited. The December 31, 2018 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 June 30, 2019 and 2018, and the financial position of the Company as of June 30, 2019. Interim results may not be indicative of results for a full year.

On July 2, 2018, we completed the acquisition (the "GOBA Acquisition") of GOBA Internacional, S.A. de C.V. ("GOBA"), a leading provider of school and craft products in Mexico under the Barrilito^®brand, for a purchase price of $37.2 million, net of cash acquired, and working capital and other adjustments. The GOBA Acquisition has increased the breadth and depth of our distribution throughout Mexico, especially with wholesalers and retailers, and complements our existing office products portfolio with a strong offering of school and craft products. The results of GOBA are included in the ACCO Brands International segment from July 2, 2018.

See "Note 3. Acquisitions" for details on the GOBA Acquisition.

On January 1, 2019, the Company adopted accounting standard ASU No. 2016-02, Leases (Topic 842), applying the transition method in accounting standard ASU 2018-11 Leases (Topic 842), Targeted Improvements. ASU 2018-11 allows an entity to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. For more information, see "Note 2. Recent Accounting Pronouncements and Adopted Accounting Standards" and "Note 5. Leases."

Certain prior year amounts have been reclassified for consistency with the current year presentation in our Condensed Consolidated Balance Sheet, primarily due to the Company's adoption of ASU No. 2016-02, Leases (Topic 842) at the beginning of 2019.

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

2. Recent Accounting Pronouncements and Adopted Accounting Standards

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). While the Company does not expect a material impact to its consolidated financial statements, we are currently in the process of evaluating the adoption of ASU 2018-15. ASU 2018-015 is effective for fiscal years ending after December 15, 2019. Early adoption of the standard is permitted, including adoption in any interim period for which financial statements have not been issued.

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

Recently Adopted Accounting Standards

The cumulative effect of the changes on our January 1, 2019 opening Condensed Consolidated Balance Sheet due to the adoption of ASU 2016-02 was as follows:



(in millions)	Balance at December 31, 2018			Adjustments due to ASU 2016-02			Balance at January 1, 2019
Assets:
Property, plant and equipment, net	$	263.7		$	(0.9	)	$	262.8
Right of use asset, leases	—			90.9			90.9

Liabilities and stockholders' equity:
Current portion of long-term debt	39.5			(0.1		)	39.4
Lease liabilities	—			24.1			24.1
Long-term debt, net	843.0			(0.1		)	842.9
Long-term lease liabilities	11.0			65.6			76.6
Accumulated deficit	(656.8		)	0.5			(656.3		)

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The impact of the adoption of ASU 2016-02 on our Condensed Consolidated Balance Sheet for the period ended June 30, 2019 was as follows:



	Balance at June 30, 2019
(in millions)	As Reported			Balances without adoption of ASU 2016-02			Effect of Change Higher/(Lower)
Condensed Consolidated Balance Sheet:
Assets:
Property, plant and equipment, net	$	260.0		$	260.8		$	(0.8	)
Right of use asset, leases	98.3			—			98.3

Liabilities and stockholders' equity:
Current portion of long-term debt	45.8			45.9			(0.1		)
Lease liabilities	19.8			0.1			19.7
Long-term debt, net	1,049.7			1,049.8			(0.1		)
Long-term lease liabilities	87.1			9.6			77.5
Accumulated deficit	(633.4		)	(633.9		)	0.5

See "Note 5. Leases" for further details and the required disclosures related to ASU 2016-02.

The adoption of ASU 2016-02 did not materially affect our Consolidated Statements of Income or Condensed Consolidated Statements of Cash Flows.

There were no other accounting standards that were adopted in the first half of 2019 that had a material effect on the Company’s financial condition, results of operations or cash flow.

3. Acquisitions

Cumberland Asset Acquisition

On January 31, 2019, the Company completed the purchase of certain assets, including inventory and certain identifiable intangibles, for the Cumberland brand (the "Cumberland Asset Acquisition") in Australia for a purchase price of A$8.2 million (US$6.0 million based on January 31, 2019 exchange rates). The Cumberland Asset Acquisition extends our presence in Australia into new product categories. The Company accounted for the transaction as an asset acquisition, as the set of assets acquired does not meet the criteria to be classified as a business under GAAP. During the six months ended June 30, 2019, transaction costs related to the Cumberland Asset Acquisition were $0.1 million. These costs were reported as selling, general and administrative ("SG&A") expenses in the Company's Consolidated Statements of Income.

The following table summarizes the fair value of assets acquired:



(in millions)	At January 31, 2019
Inventory	$	2.8
Identifiable intangibles	3.2
Fair value of assets acquired	$	6.0

Acquisition of GOBA

On July 2, 2018, the Company completed the GOBA Acquisition. GOBA is a leading provider of school and craft products in Mexico under the Barrilito^®brand. The GOBA Acquisition increased the breadth and depth of our distribution, especially with wholesalers and retailers throughout Mexico, and complements our existing office products portfolio with a strong offering of school and craft products. The results of GOBA are included in the ACCO Brands International segment as of July 2, 2018.

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The purchase price paid at closing was Mex$796.8 million (US$39.9 million based on July 2, 2018 exchange rates), and was later reduced by $0.8 million of working capital adjustments. The purchase price, net of cash acquired of $1.9 million, was $37.2 million. A portion of the purchase price (Mex$115.0 million (US$5.8 million based on July 2, 2018 exchange rates)) is being held in an escrow account for a period of up to 5 years after closing in the event of any claims against the sellers under the stock purchase agreement. The Company may also make claims against the sellers directly, subject to limitations in the stock purchase agreement, if the escrow is depleted. The GOBA Acquisition and related expenses were funded by increased borrowing under our revolving facility.

For accounting purposes, the Company was the acquiring enterprise. The GOBA Acquisition is being accounted for as a purchase business combination. The net sales for GOBA for the three and six months ended June 30, 2019 were $11.9 million and $23.7 million, respectively.

The following table presents the allocation of the consideration given to the fair values of the assets acquired and liabilities assumed at the date of acquisition.



(in millions)	At July 2, 2018
Calculation of Goodwill:
Purchase price, net of working capital adjustment	$	39.1

Plus fair value of liabilities assumed:
Accounts payable and accrued liabilities	10.1
Deferred tax liabilities	3.1
Other non-current liabilities	6.5
Fair value of liabilities assumed	$	19.7

Less fair value of assets acquired:
Cash acquired	1.9
Accounts receivable	30.0
Inventory	7.1
Property, plant and equipment	0.6
Identifiable intangibles	10.3
Deferred tax assets	2.0
Other assets	4.2
Fair value of assets acquired	$	56.1

Goodwill	$	2.7

In the second quarter of 2019, we finalized our fair value estimate of assets acquired and liabilities assumed as of the acquisition date.

During the year ended December 31, 2018, transaction costs related to the GOBA Acquisition were $1.1 million. These costs were reported as interest and SG&A expenses in the Company's Consolidated Statements of Income.

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

4. Long-term Debt and Short-term Borrowings

Notes payable and long-term debt, listed in order of the priority of security interests in assets of the Company, consisted of the following as of June 30, 2019 and December 31, 2018:



(in millions)	June 30, 2019		December 31, 2018
Euro Senior Secured Term Loan A, due May 2024 (floating interest rate of 1.75% at June 30, 2019)	$	287.3	$	—
Euro Senior Secured Term Loan A, due January 2022 (floating interest rate of 1.50% at December 31, 2018)	—		289.0
USD Senior Secured Term Loan A, due May 2024 (floating interest rate of 3.96% at June 30, 2019)	100.0		—
Australian Dollar Senior Secured Term Loan A, due May 2024 (floating interest rate of 3.11% at June 30, 2019)	42.7		—
Australian Dollar Senior Secured Term Loan A, due January 2022 (floating interest rate of 3.56% at December 31, 2018)	—		43.0
U.S. Dollar Senior Secured Revolving Credit Facility, due May 2024 (floating interest rate of 4.13% at June 30, 2019)	224.3		—
U.S. Dollar Senior Secured Revolving Credit Facility, due January 2022 (floating interest rate of 4.36% at December 31, 2018)	—		106.8
Australian Dollar Senior Secured Revolving Credit Facility, due May 2024 (floating interest rate of 3.20% at June 30, 2019)	72.2		—
Australian Dollar Senior Secured Revolving Credit Facility, due January 2022 (floating interest rate of 3.54% at December 31, 2018)	—		73.9
Senior Unsecured Notes, due December 2024 (fixed interest rate of 5.25%)	375.0		375.0
Other borrowings	3.3		0.3
Total debt	1,104.8		888.0
Less:
Current portion	49.1		39.5
Debt issuance costs, unamortized	6.0		5.5
Long-term debt, net	$	1,049.7	$	843.0

The Company entered into the Credit Agreement, dated as of January 27, 2017, among the Company, certain subsidiaries of the Company, Bank of America, N.A., as administrative agent, and the other agents and various lenders party thereto. The Credit Agreement provided for a five-year senior secured credit facility, which consisted of a €300.0 million (US$320.8 million based on January 27, 2017 exchange rates) term loan facility, an A$80.0 million (US$60.4 million based on January 27, 2017 exchange rates) term loan facility, and a US$400.0 million multi-currency revolving credit facility (the "Revolving Facility").

Effective July 26, 2018, the Company entered into the First Amendment (the "First Amendment") to the Credit Agreement among the Company, certain subsidiaries of the Company, Bank of America, N.A., as administrative agent, and the other lenders party thereto. The First Amendment increased the aggregate revolving credit commitments under the Revolving Facility by $100.0 million such that, after giving effect to such increase, the aggregate amount of revolving credit available under the Revolving Facility was $500.0 million. In addition, the First Amendment also affected certain technical amendments to the Credit Agreement, including the addition of provisions relating to LIBOR successor rate procedures if LIBOR becomes unascertainable or is discontinued in the future and to expressly permit certain intercompany asset transfers. The changes related to the provisions to LIBOR successor rate procedures are not expected to have a material effect on the Company.

Effective May 23, 2019, the Company entered into a Second Amendment (the "Second Amendment") to the Credit Agreement. Pursuant to the Second Amendment, the Credit Agreement was amended to, among other things:


•	extend the maturity date to May 23, 2024;


•	increase the aggregate revolving credit commitments under the "Revolving Facility from $500.0 million to $600.0 million;

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)


•	establish a new term loan facility denominated in U.S. Dollars in an aggregate principal amount of $100.0 million (the "USD Term Loan");


•	replace the minimum fixed coverage ratio of 1.25:1.00 with a minimum interest coverage ratio, as calculated under the Credit Agreement, of 3.00:1.00;


•	reflect a more favorable restricted payment covenant, with the consolidated leverage ratio hurdle for unlimited restricted payments (including share repurchases and dividends) as calculated under the Credit Agreement increasing from 2.50x to 3.25x;


•	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.

Effective upon the closing of the Second Amendment, the Company borrowed the entire principal amount committed under the USD Term Loan, which was used to repay revolver borrowings and, in combination with the increase in the Revolving Facility, resulted in $200.0 million of additional liquidity becoming available under the Revolving Facility.

We incurred and capitalized approximately $3.3 million in bank, legal and other fees associated with the Second Amendment.

As of June 30, 2019, there were $296.5 million in borrowings outstanding under the Revolving Facility. The remaining amount available for borrowings as of June 30, 2019 was $286.0 million (allowing for $17.5 million of letters of credit outstanding on that date).

As of and for the periods ended June 30, 2019 and December 31, 2018, the Company was in compliance with all applicable loan covenants.

5. Leases

On January 1, 2019, the Company adopted accounting standard ASU No. 2016-02, Leases (Topic 842), applying the transition method in accounting standard ASU 2018-11 Leases (Topic 842), Targeted Improvements. ASU 2018-11 allows an entity to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company recorded a net increase to beginning retained earnings of $0.5 million as of January 1, 2019 due to the cumulative impact of adopting ASU 2016-02. The impact of adopting ASU 2016-02 on our Condensed Consolidated Balance Sheet was material, but the impact was immaterial for our Consolidated Statements of Income and Condensed Consolidated Statements of Cash Flows.

The Company leases its corporate headquarters, various other facilities for distribution, manufacturing, and offices, and vehicles, forklifts, and other equipment. The Company determines if an arrangement is a lease at inception. Leases are included in "Right of use asset, leases" ("ROU") assets, and the current portion of the lease liability is included in "Lease liabilities" and the non-current portion is included in "Long-term lease liabilities" in the Condensed Consolidated Balance Sheet. The Company currently has an immaterial amount of financing leases and leases with a term of less than 12 months. ROU assets and lease liabilities are recognized based on the present value of lease payments over the lease term. Because most of the Company’s leases do not provide an implicit rate of return, the Company uses its incremental collateralized borrowing rate, on a regional basis, in determining the present value of lease payments. The Company has lease agreements with lease and non-lease components, which are combined for accounting purposes.

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The components of lease expense were as follows:



	Three Months Ended June 30,			Six Months Ended June 30,
(in millions)	2019			2019
Operating lease cost	$	7.0		$	14.0
Sublease income	(0.4		)	(0.8		)
Total lease cost	$	6.6		$	13.2

Other information related to leases was as follows:



	Six Months Ended June 30,
(in millions, except lease term and discount rate)	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	15.4
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	19.5

Weighted average remaining lease term:
Operating leases	7.4 years

Weighted average discount rate:
Operating leases	5.4		%

Future minimum lease payments, net of sub-lease income, for all non-cancelable leases as of June 30, 2019 were as follows:



(in millions)
2019	$	12.8
2020	23.0
2021	19.2
2022	15.4
2023	11.7
2024	10.9
Thereafter	40.1
Total minimum lease payments	133.1
Less imputed interest	26.2
Future minimum payments for leases, net of sublease rental income and imputed interest	$	106.9

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

6. Pension and Other Retiree Benefits

The components of net periodic benefit (income) cost for pension and post-retirement plans for the three and six months ended June 30, 2019 and 2018 were as follows:



	Three Months Ended June 30,
	Pension												Post-retirement
	U.S.						International
(in millions)	2019			2018			2019			2018			2019			2018
Service cost	$	0.3		$	0.4		$	0.3		$	0.5		$	—		$	—
Interest cost	1.9			1.7			3.4			3.3			—			—
Expected return on plan assets	(2.9		)	(3.0		)	(5.2		)	(5.8		)	—			—
Amortization of net loss (gain)	0.5			0.7			0.9			0.9			(0.1		)	(0.1		)
Amortization of prior service cost	0.1			0.1			—			—			—			—
Net periodic benefit income⁽¹⁾	$	(0.1	)	$	(0.1	)	$	(0.6	)	$	(1.1	)	$	(0.1	)	$	(0.1	)

	Six Months Ended June 30,
	Pension												Post-retirement
	U.S.						International
(in millions)	2019			2018			2019			2018			2019			2018
Service cost	$	0.7		$	0.8		$	0.6		$	1.0		$	—		$	—
Interest cost	3.7			3.4			6.8			6.7			0.1			—
Expected return on plan assets	(5.8		)	(5.9		)	(10.3		)	(11.7		)	—			—
Amortization of net loss (gain)	1.0			1.3			1.7			1.8			(0.2		)	(0.2		)
Amortization of prior service cost	0.2			0.2			—			—			—			—
Net periodic benefit income⁽¹⁾	$	(0.2	)	$	(0.2	)	$	(1.2	)	$	(2.2	)	$	(0.1	)	$	(0.2	)


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

We expect to contribute approximately $21.4 million to our defined benefit plans in 2019. For the six months ended June 30, 2019, we have contributed $11.5 million to these plans.

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 and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2019		2018		2019		2018
Stock option compensation expense	$	0.8	$	0.5	$	1.3	$	1.0
RSU compensation expense	1.9		2.0		2.9		2.9
PSU compensation expense	0.7		1.5		1.2		3.3
Total stock-based compensation expense	$	3.4	$	4.0	$	5.4	$	7.2

We generally recognize compensation expense for stock-based awards ratably over the vesting period. Stock-based compensation expense for each of the three and six months ended June 30, 2019 and 2018 includes $1.0 million and $1.0 million, respectively, of expense related to stock awards granted to eligible non-employee directors, which were fully vested on the grant date.

During the second quarter of 2019, the Company's Board of Directors approved stock compensation grants to executive

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

officers, which consisted of 204,981 RSUs and 529,496 PSUs. The Board of Directors also approved the annual stock compensation grant to eligible non-employee directors, which consisted of 119,925 RSUs.

The following table summarizes our unrecognized compensation expense and the weighted-average period over which the expense will be recognized as of June 30, 2019:



	June 30, 2019
	Unrecognized	Weighted Average
	Compensation	Years Expense To Be
(in millions, except weighted average years)	Expense	Recognized Over
Stock options	$5.0	2.2
RSUs	$8.0	2.2
PSUs	$8.3	2.2

8. Inventories

The components of inventories were as follows:



(in millions)	June 30, 2019		December 31, 2018
Raw materials	$	49.1	$	55.4
Work in process	4.9		4.3
Finished goods	316.7		280.9
Total inventories	$	370.7	$	340.6

9. Goodwill and Identifiable Intangible Assets

Goodwill

As more fully described in the Company’s 2018 Annual Report on Form 10-K, we test goodwill for impairment at least annually and on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. The Company performed this annual assessment, on a qualitative basis, as allowed by GAAP, in the second quarter of 2019 and concluded that no impairment existed.

Changes in the net carrying amount of goodwill by segment were as follows:



(in millions)	ACCO Brands North America		ACCO Brands EMEA			ACCO Brands International		Total
(in millions)	ACCO Brands North America		ACCO Brands EMEA			ACCO Brands International		Total
Balance at December 31, 2018	$	375.6	$	165.6		$	167.7	$	708.9
GOBA Acquisition	—		—			0.3		0.3
Foreign currency translation	—		(1.0		)	0.1		(0.9		)
Balance at June 30, 2019	$	375.6	$	164.6		$	168.1	$	708.3

The goodwill balance is net of $215.1 million of accumulated impairment losses, which occurred prior to December 31, 2016.

Identifiable Intangible Assets

Cumberland Asset Acquisition

The valuation of identifiable intangible assets of $3.2 million acquired in the Cumberland Asset Acquisition includes an amortizable trade name and amortizable customer relationships, which have been recorded at their estimated fair values. The fair value of the trade name was determined using the relief from royalty method, which is based on the present value of royalty fees

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

derived from projected revenues. The fair value of the customer relationships was determined using the multi-period excess earnings method which is based on the present value of the projected after-tax cash flows.

The amortizable trade name is expected be amortized over 10 years on a straight-line basis while the customer relationships will be amortized on an accelerated basis over 7 years from January 31, 2019, the date the Cumberland assets were acquired by the Company. The allocation of the identifiable intangibles acquired in the Cumberland Asset Acquisition was as follows:



(in millions)	Fair Value		Remaining Useful Life Ranges
Trade name - amortizable	$	0.8	10 Years
Customer relationships	2.4		7 Years
Total identifiable intangibles acquired	$	3.2

GOBA Acquisition

The valuation of identifiable intangible assets of $10.3 million acquired in the GOBA Acquisition includes an amortizable trade name and amortizable customer relationships, which have been recorded at their estimated fair values. The fair value of the trade name was determined using the relief from royalty method, which is based on the present value of royalty fees derived from projected revenues. The fair value of the customer relationships was determined using the multi-period excess earnings method which is based on the present value of the projected after-tax cash flows.

The amortizable trade name is expected to be amortized over 15 years on a straight-line basis, while the customer relationships will be amortized on an accelerated basis over 10 years from July 2, 2018, the date GOBA was acquired by the Company. The allocation of the identifiable intangibles acquired in the GOBA Acquisition was as follows:



(in millions)	Fair Value		Remaining Useful Life Ranges
Trade name - amortizable	$	3.8	15 Years
Customer relationships	6.5		10 Years
Total identifiable intangibles acquired	$	10.3

The gross carrying value and accumulated amortization by class of identifiable intangible assets as of June 30, 2019 and December 31, 2018 was as follows:



	June 30, 2019								December 31, 2018
(in millions)	Gross Carrying Amounts		Accumulated Amortization				Net Book Value		Gross Carrying Amounts		Accumulated Amortization				Net Book Value
Indefinite-lived intangible assets:
Trade names	$	471.8	$	(44.5	)	⁽¹⁾	$	427.3	$	471.7	$	(44.5	)	⁽¹⁾	$	427.2
Amortizable intangible assets:
Trade names	307.1		(77.3		)		229.8		306.0		(70.5		)		235.5
Customer and contractual relationships	242.5		(132.1		)		110.4		240.2		(120.5		)		119.7
Patents	5.5		(1.2		)		4.3		5.5		(0.9		)		4.6
Subtotal	555.1		(210.6		)		344.5		551.7		(191.9		)		359.8
Total identifiable intangibles	$	1,026.9	$	(255.1	)		$	771.8	$	1,023.4	$	(236.4	)		$	787.0


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

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The Company’s intangible amortization expense was $8.9 million and $8.5 million for the three months ended June 30, 2019 and 2018, respectively and $18.2 million and $17.8 million for the six months ended June 30, 2019 and 2018, respectively.

Estimated amortization expense for amortizable intangible assets as of June 30, 2019 for the current year and the next five years are as follows:



(in millions)	2019		2020		2021		2022		2023		2024
Estimated amortization expense⁽²⁾	$	35.5	$	31.9	$	28.3	$	24.7	$	22.4	$	20.8


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

We test indefinite-lived intangibles for impairment at least annually and on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. We performed this annual assessment, on a qualitative basis, as allowed by GAAP, in the second quarter of 2019 and concluded that no impairment existed.

10. Restructuring

The Company recorded no restructuring expense for the three months ended June 30, 2019. During the six months ended June 30, 2019 we recorded $2.7 million 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 six months ended June 30, 2019 was as follows:



(in millions)	Balance at December 31, 2018		Provision		Cash Expenditures			Balance at June 30, 2019
Employee termination costs⁽¹⁾	$	7.9	$	2.5	$	(5.6	)	$	4.8
Termination of lease agreements⁽²⁾	1.8		0.2		(1.5		)	0.5
Total restructuring liability	$	9.7	$	2.7	$	(7.1	)	$	5.3

(1) We expect the remaining $4.8 million employee termination costs to be substantially paid in the next twelve months.

(2) We expect the remaining $0.5 million termination of lease costs to be substantially paid in the next three months.

The summary of the activity in the restructuring liability for the six months ended June 30, 2018 was as follows:



(in millions)	Balance at December 31, 2017		Provision		Cash Expenditures			Non-cash Items/ Currency Change			Balance at June 30, 2018
Employee termination costs	$	12.0	$	5.0	$	(5.2	)	$	(0.3	)	$	11.5
Termination of lease agreements	0.8		1.6		(1.0		)	(0.1		)	1.3
Other	0.5		0.2		(0.4		)	—			0.3
Total restructuring liability	$	13.3	$	6.8	$	(6.6	)	$	(0.4	)	$	13.1

11. Income Taxes

For the three months ended June 30, 2019, we recorded an income tax expense of $15.3 million on income before taxes of $51.2 million, for an effective rate of 29.9%.

For the three months ended June 30, 2018, we recorded an income tax expense of $18.3 million on income before taxes of $44.0 million, for an effective rate of 41.6%. The high effective tax rate for the period was primarily due to the revaluation of the deferred tax assets and liabilities resulting from the decrease in the Swedish corporate tax rate and non-U.S. losses not benefited, which were deemed not likely to reduce future taxes.

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

For the six months ended June 30, 2019, we recorded an income tax expense of $25.9 million on income before taxes of $61.2 million, for an effective rate of 42.3%. The high effective tax rate for the period is 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, the recording of deferred state taxes on unremitted non-U.S. earnings in the amount of $0.8 million and reserves related to various tax contingencies.

For the six months ended June 30, 2018, we recorded an income tax expense of $14.0 million on income before taxes of $50.1 million, for an effective rate of 27.9%. The tax expense for the six months ended June 30, 2018 included an excess tax benefit resulting from the realization of stock-based compensation related tax deductions, the partial release of the reserve for the Brazil Tax Assessments resulting from the expiration of the statute of limitation for the 2011 tax year, and positive impacts attributable to the U.S. Tax Act and foreign tax refunds. This was partially offset by the revaluation of the deferred tax assets and liabilities resulting from the decrease in the Swedish corporate tax rate.

The U.S. federal statute of limitations remains open for the years 2015 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 (2014 forward), Brazil (2013 forward), Canada (2014 forward), Germany (2014 forward), Sweden (2013 forward) and the U.K. (2017 forward). We are currently under examination in certain foreign jurisdictions.

Immaterial Out-of-Period Adjustment

The $5.6 million tax expense resulting from the increase in the reserve related to uncertain tax positions in connection with the Brazil Tax Assessments that was recorded in the first quarter of 2019 should properly have been recorded in 2018 when the Company decided to appeal an administrative decision to the judicial level. The impact of recording this out-of-period adjustment to our Consolidated Statements of Income in the three months ended March 31, 2019 is a $5.6 million increase in our income tax expense and a $5.6 million decrease to our Net Income, resulting in a Net Loss for the three months ended March 31, 2019; the Company has concluded that this amount would not have been material to its Net Income for the twelve months ended December 31, 2018 or its expected Net Income for the twelve months ended December 31, 2019. Further, the impact of the correction was not material to either our Condensed Consolidated Balance Sheets or our Condensed Consolidated Statements of Cash Flows. This amount is not expected to be paid in cash in the foreseeable future, and would only be paid in the event that we do not ultimately prevail in the case.

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, the Company decided to appeal this decision to the judicial level. In the event we do not prevail at the judicial level, the Company will be required to pay an additional amount 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 reflecting the increased liability bringing the total reserve to $27.5 million for the Second Assessment. 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 these disputes to be uncertain. Since it is not more likely than not that we will prevail, in 2012, we

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

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%, which is the standard penalty. While there is a possibility that a penalty of 150% 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% penalty is not more likely than not as of June 30, 2019. 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 expired in January 2018 and we did not receive an assessment; we therefore reversed $5.6 million of reserves related to 2011 in the first quarter of 2018. During the three months ended June 30, 2019 and 2018, we accrued additional interest as a charge to current income tax expense of $0.3 million and $0.3 million, respectively and for the six months ended June 30, 2019 and 2018, we accrued additional interest of $0.6 million and $0.6 million, respectively. At current exchange rates, our accrual through June 30, 2019, including tax, penalties and interest is $36.1 million.

12. Earnings per Share

Total outstanding shares as of June 30, 2019 and 2018 were 99.1 million and 104.6 million, respectively. Under our stock repurchase program, for the three and six months ended June 30, 2019, we repurchased and retired 3.4 million and 4.7 million shares, respectively. For the three and six months ended June 30, 2018, the shares repurchased and retired was 3.3 million and 4.1 million, respectively. For the six months ended June 30, 2019 and 2018, we acquired 0.5 million and 0.6 million shares, respectively, related to tax withholding for share-based compensation.

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

Our weighted-average shares outstanding for the three and six months ended June 30, 2019 and 2018 was as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
(in millions)	2019	2018	2019	2018
Weighted-average number of shares of common stock outstanding - basic	101.3	106.1	101.8	106.4
Stock options	0.3	1.1	0.4	1.2
Restricted stock units	0.6	0.8	1.1	1.4
Weighted-average shares and assumed conversions - diluted	102.2	108.0	103.3	109.0

Awards of potentially dilutive shares of common stock, which have exercise prices that were higher than the average market price during the period, are not included in the computation of dilutive earnings per share as their effect would have been anti-dilutive. For the three and six months ended June 30, 2019 the number of anti-dilutive shares was approximately 5.6 million and 4.5 million, respectively and for the three and six months ended June 30, 2018, the number of shares was approximately 3.8 million and 3.5 million, respectively.

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

13. Derivative Financial Instruments

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

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

Forward Currency Contracts

We enter into forward foreign currency contracts with third parties to reduce the effect of fluctuating foreign currencies, primarily on foreign denominated inventory purchases and intercompany loans. The majority of the Company’s exposure to local currency movements is in Europe (the Euro, the Swedish krona and the British pound), Australia, Canada, Brazil, and Mexico.

Forward currency contracts are used to hedge foreign denominated inventory purchases for Europe, Australia, Canada, Japan and New Zealand, and are designated as cash flow hedges. Unrealized gains and losses on these contracts are deferred in Accumulated Other Comprehensive Income ("AOCI") until the contracts are settled and the underlying hedged transactions relating to inventory purchases are recognized, at which time the deferred gains or losses will be reported in the "Cost of products sold" line in the "Consolidated Statements of Income." As of June 30, 2019 and December 31, 2018, we had cash-flow-designated foreign exchange contracts outstanding with a U.S. dollar equivalent notional value of $90.2 million and $98.7 million, respectively.

Forward currency contracts used to hedge foreign denominated intercompany loans are not designated as hedging instruments. Gains and losses on these derivative instruments are recognized within "Other expense, net" in the "Consolidated Statements of Income" and are largely offset by the change in the current translated value of the hedged item. The periods of the forward foreign exchange contracts correspond to the periods of the hedged transactions, and do not extend beyond June 2020, except for one relating to intercompany loans which extends to December 2020. As of June 30, 2019 and December 31, 2018, we had undesignated foreign exchange contracts outstanding with a U.S. dollar equivalent notional value of $157.2 million and $113.3 million, respectively.

The following table summarizes the fair value of our derivative financial instruments as of June 30, 2019 and December 31, 2018:



	Fair Value of Derivative Instruments
	Derivative Assets					Derivative Liabilities
(in millions)	Balance Sheet Location	June 30, 2019		December 31, 2018		Balance Sheet Location	June 30, 2019		December 31, 2018
Derivatives designated as hedging instruments:
Foreign exchange contracts	Other current assets	$	0.4	$	3.3	Other current liabilities	$	0.9	$	0.1
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current assets	0.4		0.6		Other current liabilities	0.5		1.7
Foreign exchange contracts	Other non-current assets	11.2		12.7		Other non-current liabilities	11.2		12.7
Total derivatives		$	12.0	$	16.6		$	12.6	$	14.5

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The following tables summarize the pre-tax effect of our derivative financial instruments on the condensed consolidated financial statements for the three and six months ended June 30, 2019 and 2018:



	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 June 30,						Three Months Ended June 30,
(in millions)	2019			2018			2019			2018
Cash flow hedges:
Foreign exchange contracts	$	(0.6	)	$	2.3	Cost of products sold	$	(1.2	)	$	1.7

	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)
	Six Months Ended June 30,						Six Months Ended June 30,
(in millions)	2019			2018			2019			2018
Cash flow hedges:
Foreign exchange contracts	$	(0.4	)	$	2.0	Cost of products sold	$	(2.9	)	$	2.9



	The Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Income
	Location of (Gain) Loss Recognized in Income on Derivatives	Amount of (Gain) Loss Recognized in Income					Amount of (Gain) Loss Recognized in Income
		Three Months Ended June 30,					Six Months Ended June 30,
(in millions)		2019			2018		2019			2018
Foreign exchange contracts	Other expense, net	$	(1.7	)	$	—	$	(0.5	)	$	0.4

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:



Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2	Unadjusted quoted prices in active markets for similar assets or liabilities, or
	Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
	Inputs other than quoted prices that are observable for the asset or liability
Level 3	Unobservable inputs for the asset or liability

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

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

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 June 30, 2019 and December 31, 2018:



(in millions)	June 30, 2019		December 31, 2018
Assets:
Forward currency contracts	$	12.0	$	16.6
Liabilities:
Forward currency contracts	$	12.6	$	14.5

Our forward currency contracts are included in "Other current assets," "Other non-current assets," "Other current liabilities" 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 $1,104.8 million and $888.0 million and the estimated fair value of total debt was $1,107.7 million and $848.6 million at June 30, 2019 and December 31, 2018, 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.

15. Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss) is defined as net (loss) income and other changes in stockholders’ equity from transactions and other events from sources other than stockholders. The components of, and changes in, accumulated other comprehensive income (loss), net of tax were as follows:



(in millions)	Derivative Financial Instruments			Foreign Currency Adjustments			Unrecognized Pension and Other Post-retirement Benefit Costs			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2018	$	2.1		$	(299.2	)	$	(164.6	)	$	(461.7	)
Other comprehensive loss before reclassifications, net of tax	(0.3		)	2.7			0.1			2.5
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax	(2.0		)	—			2.3			0.3
Balance at June 30, 2019	$	(0.2	)	$	(296.5	)	$	(162.2	)	$	(458.9	)

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2019 and 2018 were as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
(in millions)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)						Amount Reclassified from Accumulated Other Comprehensive Income (Loss)						Location on Income Statement
Details about Accumulated Other Comprehensive Income Components													Location on Income Statement
Gain (loss) on cash flow hedges:
Foreign exchange contracts	$	1.2		$	(1.7	)	$	2.9		$	(2.9	)	Cost of products sold
Tax (expense) benefit	(0.2		)	0.5			(0.9		)	0.8			Income tax expense
Net of tax	$	1.0		$	(1.2	)	$	2.0		$	(2.1	)
Defined benefit plan items:
Amortization of actuarial loss	$	(1.3	)	$	(1.5	)	$	(2.5	)	$	(2.9	)	(1)
Amortization of prior service cost	(0.1		)	(0.1		)	(0.2		)	(0.2		)	(1)
Total before tax	(1.4		)	(1.6		)	(2.7		)	(3.1		)
Tax benefit	0.2			0.4			0.4			0.7			Income tax expense
Net of tax	$	(1.2	)	$	(1.2	)	$	(2.3	)	$	(2.4	)

Total reclassifications for the period, net of tax	$	(0.2	)	$	(2.4	)	$	(0.3	)	$	(4.5	)


(1)	These accumulated other comprehensive income 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.

16. Revenue Recognition

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

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

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

Service or Extended Maintenance Agreements ("EMAs") As of December 31, 2018, there was $5.0 million of unearned revenue associated with outstanding EMAs, primarily reported in "Other current liabilities." During the three and six months ended June 30, 2019, $1.3 million and $2.9 million, respectively, of the unearned revenue was recognized. As of June 30, 2019, the amount of unearned revenue was $4.6 million. We expect to recognize approximately $4.0 million of the unearned amount in the next 12 months and $0.6 million in periods beyond the next 12 months.

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The following tables present our net sales disaggregated by regional geography⁽¹⁾, based upon our reporting business segments and our net sales disaggregated by the timing of revenue recognition for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2019		2018		2019		2018
United States	$	270.6	$	245.7	$	410.6	$	390.1
Canada	37.3		37.1		57.7		58.3
ACCO Brands North America	307.9		282.8		468.3		448.4

ACCO Brands EMEA⁽²⁾	128.3		140.5		274.8		295.0

Australia/N.Z.	30.7		37.6		63.6		77.4
Latin America	40.4		25.6		82.7		59.1
Asia-Pacific	11.4		12.3		23.2		24.7
ACCO Brands International	82.5		75.5		169.5		161.2
Net sales	$	518.7	$	498.8	$	912.6	$	904.6

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

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



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2019		2018		2019		2018
Product and services transferred at a point in time	$	491.3	$	485.8	$	864.7	$	878.7
Product and services transferred over time	27.4		13.0		47.9		25.9
Net sales	$	518.7	$	498.8	$	912.6	$	904.6

17. Information on Business Segments

The Company has three operating business segments each of which is comprised of different geographic regions. The Company's three segments are as follows:



Operating Segment		Geography
ACCO Brands North America		United States and Canada
ACCO Brands EMEA		Europe, Middle East and Africa
ACCO Brands International		Australia/N.Z., Latin America and Asia-Pacific

Each of the Company's three operating segments designs, markets, sources, manufactures and sells recognized consumer and other end-user demanded branded products used in businesses, schools and homes. Product designs are tailored based on end-user preferences in each geographic region.

Our product categories include storage and organization; stapling; punching; laminating, binding and shredding machines and related consumable supplies; whiteboards; notebooks; calendars; computer accessories; and do-it-yourself tools, among others. Our portfolio of consumer and other end-user demanded brands includes both globally and regionally recognized brands.

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Customers

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

ACCO Brands North America

The ACCO Brands North America segment is comprised of the United States and Canada where the Company is a leading branded supplier of consumer and business products under brands such as AT-A-GLANCE^®, Five Star^®, GBC^®, Hilroy^®, Kensington^®, Mead^®, Quartet^®, and Swingline^®.The ACCO Brands North America segment designs, sources or manufactures and distributes school notebooks, calendars, whiteboards, storage and organization products (such as three-ring binders, sheet protectors and indexes), stapling, punching, laminating, binding and shredding products, and computer accessories, among others, which are primarily used in schools, homes and businesses. The majority of revenue in this segment is related to consumer and home products and is associated with the "back-to-school" season and year-end calendar purchases. We expect sales of consumer products to become an increasingly greater percentage of our revenue as demand for consumer products is faster growing than most business-related products.

ACCO Brands EMEA

The ACCO Brands EMEA segment is comprised largely of Europe, but also includes export sales to the Middle East and Africa. The Company is a leading branded supplier of consumer and business products under brands such as Derwent^®, Esselte^®, GBC^®, Kensington^®, Leitz^®, NOBO^®, Rapid^®, and Rexel^®.The ACCO Brands EMEA segment designs, manufactures or sources and distributes storage and organization products (such as lever-arch binders, sheet protectors and indexes), stapling, punching, laminating, binding and shredding products, do-it-yourself tools, and computer accessories, among others, which are primarily used in businesses, homes and schools.

ACCO Brands International

The ACCO Brands International segment is comprised of Australia/N.Z., Latin America and Asia-Pacific where the Company is a leading branded supplier of consumer and business products under brands such as Artline^®, Barrilito^®, GBC^®, Kensington^®, Marbig^®, Quartet^®, Rexel^®, Tilibra^®, and Wilson Jones^®, among others. The ACCO Brands International segment designs, sources or manufactures and distributes school notebooks, calendars, whiteboards, storage and organization products (such as three-ring binders, sheet protectors and indexes), stapling, punching, laminating, binding and shredding products, writing instruments, and janitorial supplies, among others, which are primarily used in schools, businesses and homes. The majority of revenue in this segment is related to consumer products and is associated with the "back-to-school" season and year-end calendar purchases. We expect sales of consumer products to become an increasingly greater percentage of our revenue as demand for consumer products is faster growing than most business-related products.

Net sales by business segment for the three and six months ended June 30, 2019 and 2018 were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2019		2018		2019		2018
ACCO Brands North America	$	307.9	$	282.8	$	468.3	$	448.4
ACCO Brands EMEA	128.3		140.5		274.8		295.0
ACCO Brands International	82.5		75.5		169.5		161.2
Net sales	$	518.7	$	498.8	$	912.6	$	904.6

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Operating income by business segment for the three and six months ended June 30, 2019 and 2018 was as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2019			2018			2019			2018
ACCO Brands North America	$	60.6		$	51.5		$	67.4		$	54.4
ACCO Brands EMEA	7.4			8.4			23.3			22.5
ACCO Brands International	4.1			3.3			9.7			9.1
Segment operating income	72.1			63.2			100.4			86.0
Corporate	(10.7		)	(11.4		)	(21.1		)	(22.5		)
Operating income⁽¹⁾	61.4			51.8			79.3			63.5
Interest expense	11.7			9.9			22.1			19.3
Interest income	(1.3		)	(1.4		)	(2.2		)	(2.4		)
Non-operating pension income	(1.4		)	(2.3		)	(2.8		)	(4.5		)
Other expense, net	1.2			1.6			1.0			1.0
Income before income tax	$	51.2		$	44.0		$	61.2		$	50.1


(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.

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.

Other Pending Litigation

We are party to various lawsuits and regulatory proceedings, primarily related to alleged patent infringement and employee terminations 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 otherwise 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.

ACCO Brands Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

19. Subsequent Events

Dividends

On July 31, 2019, the Company's Board of Directors declared a cash dividend of $0.06 per share on its common stock. The dividend is payable on September 18, 2019 to stockholders of record as of the close of business on August 23, 2019. The declaration and payment of future dividends will be at the discretion of the Board of Directors and will be dependent upon, among other things, the Company's financial position, results of operations, cash flows, debt covenant compliance, anticipated liquidity needs, and other factors.

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

INTRODUCTION

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended June 30, 2019 and 2018 should be read in conjunction with the unaudited condensed consolidated financial statements of ACCO Brands Corporation and the accompanying notes contained therein.

Overview of the Company

ACCO Brands is a designer, marketer and manufacturer of recognized consumer and other end-user demanded brands used in businesses, schools, and homes. Our widely known brands include AT-A-GLANCE^®, Barrilito^®, Derwent^®, Esselte^®, Five Star^®, GBC^®, Hilroy^®, Kensington^®,Leitz^®, Marbig^®, Mead^®, NOBO^®, Quartet^®, Rapid^®, Rexel^®, Swingline^®, Tilibra^® and Wilson Jones^®. More than 75% of our net sales come from brands that occupy the number-one or number-two positions in the select product categories in which we compete. We distribute our products through a wide variety of retail and commercial channels to ensure that our products are readily and conveniently available for purchase by consumers and other end-users, wherever they prefer to shop. These channels include mass retailers, e-tailers, discount, drug/grocery and variety chains; warehouse clubs; hardware and specialty stores; independent office product dealers; office superstores; wholesalers; and contract stationers. Our products are sold primarily in the U.S., Europe, Australia, Canada, Brazil and Mexico. For the year ended December 31, 2018, approximately 42% of our net sales were in the U.S.; down from 45% in 2017. This decrease was primarily the result of the Esselte and GOBA acquisitions, which further extended our geographic reach.

The Company's strategy is to grow its global portfolio of consumer brands, increase its presence in faster growing geographies and channels and diversify its customer base. We plan to supplement organic growth globally with strategic acquisitions in both existing and adjacent product categories. The Company continues to focus on leveraging its cost structure through synergies and productivity savings to drive long-term profit improvement and on strong free cash flow generation.

In furtherance of our strategy, we have transformed our business by acquiring companies with consumer and other end-user demanded brands, and by continuing to diversify our distribution channels. In 2012, we acquired the Mead Consumer and Office Products business ("Mead C&OP"), which substantially increased our presence in North America and Brazil in school and calendar products with well-known consumer brands. In 2016, we purchased the remaining equity interest in Pelikan Artline from our joint venture partner, which enhanced our competitive position in school and business products in Australia and New Zealand and added new categories, including writing instruments and janitorial supplies. In early 2017, we acquired Esselte Group Holdings AB ("Esselte"), which more than doubled our presence in Europe and added several iconic business brands, a significant base of independent dealer customers, and a new product category of do-it-yourself hardware tools. On July 2, 2018, we completed the acquisition of GOBA Internacional, S.A. de C.V. in Mexico to extend our presence into new categories. Together these acquisitions have meaningfully expanded our portfolio of well-known end-user demanded brands, enhanced our competitive position from both a product and channel perspective, and added scale to our business operations.

Today our Company is a global enterprise focused on developing innovative branded consumer products for use in businesses, schools and homes. We believe our leading product category positions provide the scale to enable us to invest in marketing and product innovation to drive profitable growth. We expect to derive much of our growth, over the long term, in faster-growing emerging geographies such as Latin America and parts of Asia, the Middle East and Eastern Europe, which exhibit growing demand for our product categories. In all of our markets, we see opportunities to grow sales through share gains, channel expansion and innovative products.

Acquisitions

GOBA Internacional, S.A. de C.V. Acquisition

For further information on the GOBA Acquisition, see "Note 3. Acquisitions" to the condensed consolidated financial statements contained in Item 1. of this report.

Foreign Exchange Rates

The quarterly and year-to-date average foreign exchange rates have declined overall relative to the prior-year periods as follows for our major currencies relative to the U.S. dollar as follows:



	2019 2^ND QTR Average Versus 2018 2^ND QTR Average	2019 YTD Average Versus 2018 YTD Average
Currency	Increase/(Decline)	Increase/(Decline)
Euro	(6)%	(7)%
Australian dollar	(8)%	(9)%
Canadian dollar	(4)%	(4)%
Brazilian real	(8)%	(11)%
Swedish krona	(8)%	(10)%
British pound	(6)%	(6)%
Mexican peso	1%	(1)%
Japanese yen	(1)%	(1)%

Overview of Performance

Our results for the three months ended June 30, 2019 reflect the positive impact of price increases and cost savings, primarily in our North America segment where net sales and operating income were up 8.9% and 17.7%, respectively. The price increases and cost savings initiatives were commenced in late 2018 and early 2019 in order to offset the negative impact of inflationary increases in input costs, as well as increased tariffs that increased our cost of goods sold and reduced our gross profit margins during the second half of 2018. The results also include the benefit of the GOBA Acquisition which contributed $11.9 million of net sales and $1.7 million of operating income to our International segment. Conversely, foreign currency translation negatively impacted our net sales by $14.1 million and our operating income by $0.8 million.

Operating cash flow for the six months ended June 30, 2019, decreased by $109.2 million compared with the prior-year period primarily due to payments for inventory in the first half of 2019 that was purchased earlier than normal. These inventory purchases were primarily in the U.S. in order to secure paper supply and pricing for the 2019 back-to-school season and to mitigate the anticipated additional inflationary cost increases and tariffs on purchased finished goods sourced from China.

Consolidated Results of Operations for the Three Months Ended June 30, 2019 and June 30, 2018



	Three Months Ended June 30,						Amount of Change
(in millions, except per share data)	2019			2018			$			%/pts
Net sales	$	518.7		$	498.8		$	19.9		4.0	%
Cost of products sold	352.9			336.4			16.5			4.9	%
Gross profit	165.8			162.4			3.4			2.1	%
Gross profit margin	32.0		%	32.6		%				(0.6)		pts
Selling, general and administrative expenses	95.5			100.0			(4.5		)	(4.5	)%
Amortization of intangibles	8.9			8.5			0.4			4.7	%
Restructuring charges	—			2.1			(2.1		)	(100.0	)%
Operating income	61.4			51.8			9.6			18.5	%
Operating income margin	11.8		%	10.4		%				1.4		pts
Interest expense	11.7			9.9			1.8			18.2	%
Interest income	(1.3		)	(1.4		)	(0.1		)	(7.1	)%
Non-operating pension income	(1.4		)	(2.3		)	(0.9		)	(39.1	)%
Other expense, net	1.2			1.6			(0.4		)	(25.0	)%
Income tax expense	15.3			18.3			(3.0		)	(16.4	)%
Effective tax rate	29.9		%	41.6		%				(11.7)		pts
Net income	35.9			25.7			10.2			39.7	%
Weighted average number of diluted shares outstanding:	102.2			108.0			(5.8		)	(5.4	)%
Diluted income per share	$	0.35		$	0.24		$	0.11		45.8	%

Net Sales

Net sales of $518.7 million, including $11.9 million attributable to GOBA, increased $19.9 million, or 4.0%, from $498.8 million in the prior-year period, primarily due to price increases in the North America segment. This was partially offset by the negative impact of foreign currency translation, which reduced net sales by $14.1 million, or 2.8%, in the current-year period. Comparable net sales, excluding the sales from GOBA and foreign currency translation, increased 4.4%, primarily due to price increases.

Cost of Products Sold

Cost of products sold includes all manufacturing, product sourcing and distribution costs, including depreciation related to assets used in the manufacturing, procurement and distribution process, allocation of certain information technology costs supporting those processes, inbound and outbound freight, shipping and handling costs, purchasing costs associated with materials and packaging used in the production processes, and inventory valuation adjustments. Cost of products sold of $352.9 million, including $8.2 million attributable to GOBA, increased $16.5 million, or 4.9%, from $336.4 million in the prior-year period. Foreign currency translation reduced cost of products sold by $9.8 million, or 2.9%, in the current-year period. Excluding GOBA and foreign currency translation, cost of products sold increased primarily due to cost increases in North America and Europe, which were partially offset by cost savings.

Gross Profit

We believe that gross profit and gross profit margin provide enhanced shareholder understanding of our underlying operating profit drivers. Gross profit of $165.8 million, including $3.7 million attributable to GOBA, increased $3.4 million, or 2.1%, from $162.4 million in the prior-year period. Foreign currency translation reduced gross profit by $4.3 million, or 2.6%, in the current-year period. Excluding GOBA and foreign currency translation, gross profit increased primarily due to higher net sales in the North America segment.

Gross profit as a percent of net sales decreased to 32.0% from 32.6%, primarily due to unfavorable product mix in the EMEA and International segments.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") include advertising, marketing, selling (including commissions), research and development, customer service, depreciation related to assets outside the manufacturing and distribution processes and all other general and administrative expenses outside the manufacturing and distribution functions (e.g., finance, human resources, and information technology). SG&A of $95.5 million, including $1.6 million attributable to GOBA, decreased $4.5 million, or 4.5%, from $100.0 million in the prior-year period. Foreign currency translation reduced SG&A by $3.1 million, or 3.1%, in the current-year period. The prior-year period included $1.9 million of integration costs primarily related to the Esselte acquisition. Excluding GOBA, integration costs, and foreign currency translation, SG&A decreased slightly due to cost savings.

SG&A as a percentage of net sales decreased to 18.4% from 20.0% in the prior-year period, primarily due to higher net sales.

Restructuring Charges

Restructuring charges were $2.1 million in the prior-year period. The charges in the prior-year period primarily related to changes to the operating structure in the North America segment.

Operating Income

Operating income of $61.4 million, including $1.7 million attributable to GOBA, increased $9.6 million, or 18.5%, from $51.8 million in the prior-year period. Foreign currency translation reduced operating income by $0.8 million, or 1.5% in the current-year period. Excluding GOBA, restructuring charges, integration costs, and foreign currency translation, operating income increased primarily due to cost savings and higher net sales.

Interest Expense and Non-Operating Pension Income

Interest expense of $11.7 million increased $1.8 million, or 18.2%, from $9.9 million in the prior-year period. The increase was primarily due to higher average debt outstanding and higher interest rates on our variable rate debt in the current-year period.

Non-operating pension income of $1.4 million decreased $0.9 million, or 39.1% from $2.3 million in the prior-year period. The decrease is due to lower expected rates of return on plan assets in our foreign plans.

Income Taxes

For the current-year period, income tax expense was $15.3 million on income before taxes of $51.2 million, or an effective tax rate of 29.9%. For the prior-year period, income tax expense was $18.3 million on income before taxes of $44.0 million, or an effective tax rate of 41.6%. The high effective tax rate in the prior-year period was primarily due to the revaluation of the deferred tax assets and liabilities resulting from the decrease in the Swedish corporate tax rate and other non-U.S. losses not benefited, which were deemed not likely to reduce future taxes.

Net Income/Diluted Income per Share

For the current-year period, the Company reported net income of $35.9 million compared with $25.7 million in net income in the prior-year period. Foreign currency translation reduced net income by $0.9 million, or 3.5% in the current-year period. Diluted income per share was $0.35, compared with $0.24 in the prior-year period. The increase in net income and diluted income per share was driven by improved operating performance, fewer outstanding shares, and the GOBA acquisition, partially offset by the impact of negative foreign exchange.

Segment Net Sales and Operating Income for the Three Months Ended June 30, 2019 and June 30, 2018



	Three Months Ended June 30, 2019						Amount of Change Compared to the Three Months Ended June 30, 2018
	Net Sales		Segment Operating Income (A)		Segment Operating Income Margin		Net Sales			Net Sales	Segment Operating Income (A)			Segment Operating Income		Margin Points
							Net Sales			Net Sales	Segment Operating Income (A)			Segment Operating Income
(in millions)							$			%	$			%
ACCO Brands North America	$	307.9	$	60.6	19.7	%	$	25.1		8.9%	$	9.1		17.7	%	150
ACCO Brands EMEA	128.3		7.4		5.8	%	(12.2		)	(8.7)%	(1.0		)	(11.9	)%	(20	)
ACCO Brands International	82.5		4.1		5.0	%	7.0			9.3%	0.8			24.2	%	60
Total	$	518.7	$	72.1			$	19.9			$	8.9

	Three Months Ended June 30, 2018
	Net Sales		Segment Operating Income (A)		Segment Operating Income Margin

(in millions)
ACCO Brands North America	$	282.8	$	51.5	18.2	%
ACCO Brands EMEA	140.5		8.4		6.0	%
ACCO Brands International	75.5		3.3		4.4	%
Total	$	498.8	$	63.2

(A) Segment operating income excludes corporate costs. See "Part I, Item 1. Note 17. Information on Business Segments," for a reconciliation of total "Segment operating income" to "Income before income tax."

ACCO Brands North America

ACCO Brands North America net sales of $307.9 million increased $25.1 million, or 8.9%, from $282.8 million in the prior-year period primarily due to price increases, as well as higher back-to-school shipments, which were partially offset by foreign currency translation, which reduced net sales by $1.3 million, or 0.5%, in the current-year period. Comparable net sales, excluding foreign currency translation, increased 9.4%, primarily due to price increases of 7.9%, as well as higher back-to-school shipments.

ACCO Brands North America operating income of $60.6 million increased $9.1 million, or 17.7%, from $51.5 million in the prior-year period, and operating income margin increased to 19.7% from 18.2%. Operating income and margin increased, due to higher net sales and cost savings, partially offset by inflationary cost increases and tariffs.

Tariffs on finished goods we import from China increased in May 2019, which will negatively impact our cost of products sold, starting in the third quarter of 2019, when sales of the associated products are recognized. The Company has announced an August 2019 price increase, which we expect to fully offset the impact of the increased tariffs. Should tariff rates on purchased finished goods we source from China increase again, or should we experience additional input cost inflation, this could have a material adverse impact on our cost of goods sold, margins and cash flow. We intend to continue to increase prices, if necessary, to recover any increased costs, which may result in a decrease in sales. In such circumstances, the cash flow and cost of goods sold impacts of the increased tariffs are likely to occur before we are able to implement price increases due to our contractual obligation to provide our customers with advance notice of price increases.

ACCO Brands EMEA

ACCO Brands EMEA net sales of $128.3 million decreased $12.2 million, or 8.7%, from $140.5 million in the prior-year period primarily due to foreign currency translation, which reduced net sales by $8.9 million, or 6.3%, in the current-year period. Comparable net sales, excluding foreign currency translation, decreased 2.4% primarily due to timing of both the Easter holiday in the current year and orders shipped early in the prior year ahead of our distribution center move.

ACCO Brands EMEA operating income of $7.4 million decreased $1.0 million, or 11.9%, from $8.4 million in the prior-year period and operating income margin decreased to 5.8% from 6.0%. Foreign currency translation reduced operating income by $0.5 million, or 6.0%, in the current-year period. Excluding foreign currency translation, operating income decreased primarily due to lower comparable net sales and lower gross margin due to adverse product mix and additional product warranty and distribution costs.

ACCO Brands International

ACCO Brands International net sales of $82.5 million, increased $7.0 million, or 9.3%, from $75.5 million in the prior-year as the addition of $11.9 million in net sales from GOBA was partially offset by foreign currency translation, which reduced net sales by $3.9 million, or 5.2% in the current-year period. Comparable net sales, excluding GOBA and foreign currency translation, decreased 1.3% primarily due to lower sales in Australia, primarily from lost placements, partially offset by growth in Brazil and Mexico.

ACCO Brands International operating income of $4.1 million, including $1.7 million attributable to GOBA, increased $0.8 million, or 24.2%, from $3.3 million in the prior-year period and operating income margin increased to 5.0% from 4.4%. Excluding GOBA, operating income decreased due to lower comparable net sales and lower gross margin due to adverse product mix.

Consolidated Results of Operations for the Six Months Ended June 30, 2019 and June 30, 2018



	Six Months Ended June 30,						Amount of Change
(in millions, except per share data)	2019			2018			$			%/pts
Net sales	$	912.6		$	904.6		$	8.0		0.9	%
Cost of products sold	621.0			614.7			6.3			1.0	%
Gross profit	291.6			289.9			1.7			0.6	%
Gross profit margin	32.0		%	32.0		%				0.0		pts
Selling, general and administrative expenses	191.4			201.8			(10.4		)	(5.2	)%
Amortization of intangibles	18.2			17.8			0.4			2.2	%
Restructuring charges	2.7			6.8			(4.1		)	(60.3	)%
Operating income	79.3			63.5			15.8			24.9	%
Operating income margin	8.7		%	7.0		%				1.7		pts
Interest expense	22.1			19.3			2.8			14.5	%
Interest income	(2.2		)	(2.4		)	(0.2		)	(8.3	)%
Non-operating pension income	(2.8		)	(4.5		)	(1.7		)	(37.8	)%
Other expense, net	1.0			1.0			—			NM
Income tax expense	25.9			14.0			11.9			85.0	%
Effective tax rate	42.3		%	27.9		%				14.4		pts
Net income	35.3			36.1			(0.8		)	(2.2	)%
Weighted average number of diluted shares outstanding:	103.3			109.0			(5.7		)	(5.2	)%
Diluted income per share	$	0.34		$	0.33		$	0.01		3.0	%

Net Sales

Net sales of $912.6 million, including $23.7 million attributable to GOBA, increased $8.0 million, or 0.9%, from $904.6 million in the prior-year period. Growth in the North America segment was more than offset by foreign currency translation, which reduced net sales by $35.7 million, or 3.9%, in the current-year period. Comparable net sales, excluding the sales from GOBA and foreign currency translation, increased, 2.2%, primarily due to price increases in the North America segment.

Cost of Products Sold

Cost of products sold of $621.0 million, including $15.6 million attributable to GOBA, increased $6.3 million, or 1.0%, from $614.7 million in the prior-year period. Foreign currency translation reduced cost of products sold by $24.4 million, or 4.0%, in the current-year period. Excluding GOBA and foreign currency translation, cost of products sold increased primarily due to cost increases in North America and Europe.

Gross Profit

Gross profit of $291.6 million, including $8.1 million attributable to GOBA, increased $1.7 million, or 0.6%, from $289.9 million in the prior-year period. Foreign currency translation reduced gross profit by $11.3 million, or 3.9%, in the current-year period. Excluding GOBA and foreign currency translation, gross profit increased primarily from higher net sales in the North America segment.

Gross profit as a percent of net sales was flat compared to the prior period.

Selling, General and Administrative Expenses

SG&A of $191.4 million, including $3.3 million attributable to GOBA, decreased $10.4 million, or 5.2%, from $201.8 million in the prior-year period. Foreign currency translation reduced SG&A by $7.4 million, or 3.7%, in the current-year period. The current-year period includes $0.5 million of integration and transaction costs related to the Cumberland asset and GOBA acquisitions. The prior-year period included $3.5 million in integration costs related primarily to the Esselte acquisition. Excluding GOBA, transaction and integration costs, and foreign currency translation, SG&A decreased due to cost savings.

SG&A as a percentage of net sales decreased to 21.0% from 22.3% in the prior-year period, primarily due to cost savings.

Restructuring Charges

Restructuring charges of $2.7 million decreased $4.1 million, or 60.3%, from $6.8 million in the prior-year period. The current-year period charges related to severance costs associated with cost reduction initiatives in the operating structure of our North America and International segments. The prior-year period charges primarily related to Esselte integration activities and changes in the operating structure of the North America segment.

Operating Income

Operating income of $79.3 million, including $4.0 million attributable to GOBA, increased $15.8 million, or 24.9%, from $63.5 million in the prior-year period. Foreign currency translation reduced operating income by $3.0 million, or 4.7%, in the current-year period. Excluding GOBA, restructuring charges, integration and transaction costs, and foreign currency translation, operating income increased primarily due to cost savings and higher net sales.

Interest Expense and Non-Operating Pension Income

Interest expense of $22.1 million increased $2.8 million, or 14.5%, from $19.3 million in the prior-year period. The increase was primarily due to higher average debt outstanding and higher interest rates on our variable rate debt in the current-year period.

Non-operating pension income of $2.8 million decreased $1.7 million, or 37.8% from $4.5 million in the prior-year period. The decrease is due to lower expected rates of return on plan assets in our foreign plans.

Income Taxes

For the current-year period, income tax expense was $25.9 million on income before taxes of $61.2 million, or an effective tax rate of 42.3%. The high effective tax rate was due to the Company recording additional reserves for uncertain tax positions in connection with the Brazil Tax Assessments ($5.6 million), the recording of deferred state taxes on unremitted non-U.S. earnings ($0.8 million) and the recording of reserves related to various tax contingencies. The increase of $5.6 million in the reserve related to uncertain tax positions in connection with the Brazil Tax Assessments was recorded in the first quarter of 2019 though the increase should properly have been recorded in 2018 when the Company decided to appeal an administrative decision to the judicial level.

For the prior-year period, income tax expense was $14.0 million on income before taxes of $50.1 million, or an effective tax rate of 27.9%. The low effective tax rate in the prior-year period was due to a $5.6 million benefit resulting from the partial release of the reserve for the Brazil Tax Assessments due to the expiration of the statute of limitations for the 2011 tax year.

See "Note 11. Income Taxes -Brazil Tax Assessments" to the condensed consolidated financial statements contained in Item 1. of this report for additional details on the Brazil Tax Assessments.

Net Income/Diluted Income per Share

For the current-year period, the Company reported net income of $35.3 million compared with $36.1 million in net income in the prior-year period. Net income decreased primarily due to foreign currency translation, which reduced net income by $1.3 million, or 3.6%, in the current-year period. Excluding foreign currency translation, net income increased slightly. Diluted income per share was $0.34, compared with $0.33 in the prior-year period. Diluted income per share increased due to the reduction in shares outstanding as a result of our share buyback program.

Segment Net Sales and Operating Income for the Six Months Ended June 30, 2019 and June 30, 2018



	Six Months Ended June 30, 2019						Amount of Change Compared to the Six Months Ended June 30, 2018
	Net Sales		Segment Operating Income (A)		Segment Operating Income Margin		Net Sales			Net Sales	Segment Operating Income (A)		Segment Operating Income		Margin Points
							Net Sales			Net Sales	Segment Operating Income (A)		Segment Operating Income
(in millions)							$			%	$		%
ACCO Brands North America	$	468.3	$	67.4	14.4	%	$	19.9		4.4%	$	13.0	23.9	%	230
ACCO Brands EMEA	274.8		23.3		8.5	%	(20.2		)	(6.8)%	0.8		3.6	%	90
ACCO Brands International	169.5		9.7		5.7	%	8.3			5.1%	0.6		6.6	%	10
Total	$	912.6	$	100.4			$	8.0			$	14.4

	Six Months Ended June 30, 2018
	Net Sales		Segment Operating Income (A)		Segment Operating Income Margin

(in millions)
ACCO Brands North America	$	448.4	$	54.4	12.1	%
ACCO Brands EMEA	295.0		22.5		7.6	%
ACCO Brands International	161.2		9.1		5.6	%
Total	$	904.6	$	86.0

ACCO Brands North America

ACCO Brands North America net sales of $468.3 million increased $19.9 million, or 4.4%, from $448.4 million in the prior-year period primarily due to price increases, which were partially offset by some lost placements as well as foreign currency translation, which reduced net sales by $2.3 million, or 0.5%, in the current-year period. Comparable net sales, excluding foreign currency translation, increased 4.9%, primarily due to price increases.

ACCO Brands North America operating income of $67.4 million increased $13.0 million, or 23.9%, from $54.4 million in the prior-year period, and operating income margin increased to 14.4% from 12.1%. Operating income and margin increased primarily due to higher net sales, partially offset by inflationary cost increases and tariffs.

ACCO Brands EMEA

ACCO Brands EMEA net sales of $274.8 million decreased $20.2 million, or 6.8%, from $295.0 million in the prior-year period due to foreign currency translation, which reduced net sales by $22.4 million, or 7.6%, in the current-year period. Comparable net sales, excluding foreign currency translation, increased 0.8% primarily due to growth in sales of computer products.

ACCO Brands EMEA operating income of $23.3 million increased $0.8 million, or 3.6%, from $22.5 million in the prior-year period, and operating income margin increased to 8.5% from 7.6%. Foreign currency translation reduced operating income by $2.1 million, or 9%, in the current-year period. Excluding foreign currency translation, operating income increased primarily due to $5.0 million in lower restructuring charges and integration costs as well as the cost savings achieved, partially offset by additional product warranty and distribution costs.

ACCO Brands International

ACCO Brands International net sales of $169.5 million increased $8.3 million, or 5.1%, from $161.2 million in the prior-year as the addition of $23.7 million in net sales from GOBA was partially offset by foreign currency translation, which reduced net sales by $11.0 million, or 6.8%, in the current-year period. Comparable net sales, excluding GOBA and foreign currency translation, decreased 2.8% primarily due to lower net sales in Australia from lost placement, which was partially offset by growth in Mexico and Brazil.

ACCO Brands International operating income of $9.7 million, including $4.0 million attributable to GOBA, increased $0.6 million, or 6.6%, from $9.1 million in the prior-year period and operating income margin increased to 5.7% from 5.6%. Foreign currency translation reduced operating income by $0.6 million, or 6.6%, in the current-year period. Excluding GOBA and foreign currency translation, operating income decreased primarily due to lower comparable net sales.

SUPPLEMENTAL NON-GAAP FINANCIAL MEASURE

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles in the U.S. ("GAAP"), we provide investors with the non-GAAP financial measure comparable net sales.

We provide comparable net sales change in order to facilitate comparisons of our historical sales results as well as to highlight the underlying sales trends in our business. We use comparable net sales in the internal evaluation and management of our business. We believe this measure provides management and investors with a more complete understanding of our underlying sales results and trends, and enhances the overall understanding of our past sales performance and our future prospects.

We calculate comparable net sales by excluding the effect of acquisitions and by translating the current-period foreign operation net sales at prior-year currency rates.

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



	Amount of Change - Three Months Ended June 30, 2019 compared to the Three Months Ended June 30, 2018
	$ Change - Net Sales
		Non-GAAP
	GAAP				Comparable
	Net Sales		Currency		Net Sales
(in millions)	Change		Translation	Acquisition	Change
ACCO Brands North America	$25.1		$(1.3)	$—	$26.4
ACCO Brands EMEA	(12.2)		(8.9)	—	(3.3)
ACCO Brands International	7.0		(3.9)	11.9	(1.0)
Total	$19.9		$(14.1)	$11.9	$22.1

	% Change - Net Sales
		Non-GAAP
	GAAP				Comparable
	Net Sales		Currency		Net Sales
	Change		Translation	Acquisition	Change
ACCO Brands North America	8.9%		(0.5)%	—%	9.4%
ACCO Brands EMEA	(8.7)%		(6.3)%	—%	(2.4)%
ACCO Brands International	9.3%		(5.2)%	15.8%	(1.3)%
Total	4.0%		(2.8)%	2.4%	4.4%

	Amount of Change - Six Months Ended June 30, 2019 compared to the Six Months Ended June 30, 2018
	$ Change - Net Sales
		Non-GAAP
	GAAP				Comparable
	Net Sales		Currency		Net Sales
(in millions)	Change		Translation	Acquisition	Change
ACCO Brands North America	$19.9		$(2.3)	$—	$22.2
ACCO Brands EMEA	(20.2)		(22.4)	—	2.2
ACCO Brands International	8.3		(11.0)	23.7	(4.4)
Total	$8.0		$(35.7)	$23.7	$20.0

	% Change - Net Sales
		Non-GAAP
	GAAP				Comparable
	Net Sales		Currency		Net Sales
	Change		Translation	Acquisition	Change
ACCO Brands North America	4.4%		(0.5)%	—%	4.9%
ACCO Brands EMEA	(6.8)%		(7.6)%	—%	0.8%
ACCO Brands International	5.1%		(6.8)%	14.7%	(2.8)%
Total	0.9%		(3.9)%	2.6%	2.2%

Liquidity and Capital Resources

Our primary liquidity needs are to service indebtedness, fund capital expenditures, our acquisition strategy and support working capital requirements. Our principal sources of liquidity are cash flows from operating activities, cash and cash equivalents held and seasonal borrowings under our $600 million multi-currency revolving credit facility (the "Revolving Facility"). As of June 30, 2019, there were $296.5 million in borrowings under our Revolving Facility and the amount available for borrowings was $286.0 million (allowing for $17.5 million of letters of credit outstanding on that date).

We maintain adequate financing arrangements at market rates. Effective May 23, 2019, the Company amended the Credit Agreement covering its bank debt to extend the maturities until 2024. Among other things, the amendment also enhanced the

Company’s liquidity by increasing the aggregate revolving credit commitments under the Revolving Facility from $500.0 million to $600.0 million, establishing a new term loan facility denominated in U.S. dollars in the aggregate principal amount of $100.0 million (the "USD Term Loan"), eliminating the requirement to make annual principal prepayments of excess cash flow, reducing the amortization payments for the term loans, and increasing the consolidated leverage ratio hurdle for unlimited restricted payments (including share repurchases and dividends) as calculated under the Credit Agreement from 2.50x to 3.25x. Effective upon the closing of the amendment, the Company borrowed the entire principal amount of the USD Term Loan, which was used to repay revolver borrowings and, in combination with the increase in the Revolving Facility, resulted in $200.0 million of additional liquidity available under the Revolving Facility.

Because of the seasonality of our business, we typically generate much of our cash flow in the third and fourth quarters, as accounts receivables are collected, and we typically use cash in the second quarter to fund working capital in order to support the North America back-to-school season. We had a different cash flow pattern in the first half 2019, with a large cash outflow in the first quarter and a lower outflow in the second quarter when compared with 2018 resulting from our decision to purchase raw materials and finished goods earlier than normal. We still anticipate generating significantly higher cash flow in the third and fourth quarters of 2019 than we did in 2018 due to the payments for inventory having occurred much earlier in 2019 than in 2018. Our Brazilian business is also highly seasonal due to the timing of the back-to-school season, which coincides with the calendar year-end in the fourth quarter. Due to various tax laws, it is costly to transfer short-term working capital in and out of Brazil; therefore, our normal practice is to hold seasonal cash requirements in Brazil, and invest it in short-term Brazilian government securities. Consolidated cash and cash equivalents was $94.1 million as of June 30, 2019, approximately $76 million of which was held in Brazil.

Our priorities for cash flow use over the near term, after funding business operations, including restructuring expenses, are funding strategic acquisitions, debt reduction, dividends and share repurchases.

The current senior secured credit facilities have a weighted average interest rate of 3.01% as of June 30, 2019 and our senior unsecured notes have a fixed interest rate of 5.25%.

Cash Flow for the Six Months Ended June 30, 2019 and June 30, 2018

Cash Flow from Operating Activities

Cash used by operating activities during the six months ended June 30, 2019 of $115.7 million was $109.2 million more than the $6.5 million used in the 2018 period, and was the result of a more substantial use of cash to fund net working capital (accounts receivable, inventories, and accounts payable) requirements in 2019.

The table below shows our cash flow from accounts receivable, inventories and accounts payable for the six months ended June 30, 2019 and 2018:



	Six Months Ended
(in millions)	June 30, 2019			June 30, 2018
Accounts receivable	$	(29.7	)	$	7.8
Inventories	(26.6		)	(74.7		)
Accounts payable	(74.4		)	60.0
Cash flow provided by net working capital	$	(130.7	)	$	(6.9	)


•	Accounts receivable used $29.7 million in the 2019 period versus a contribution of $7.8 million in the prior-year period, a result of strong second quarter sales in North America and lower year-to-date collections due to starting the year with lower accounts receivables from the fourth quarter of 2018.


•	Inventories used $26.6 million during the first six months, which compares favorably with the $74.7 million used in the prior-year period due to advanced purchases of materials to secure supply and mitigate the risk of anticipated inflation, including tariffs, which reduced purchases in 2019 to support second quarter volume, including "back-to-school".


•	Accounts payable used cash of $74.4 million during the first six months of 2019, which compares unfavorably with $60.0 million contributed in the prior-year period. The earlier inventory purchases that occurred in both the fourth quarter of 2018 and the first quarter of 2019 accelerated the usual timing of payments.


•	Cash used to pay interest was $4 million more than the prior year due to higher borrowings, while pension contributions, tax and restructuring payments were collectively in-line with payments made during the prior-year period.

Partially offsetting the adverse change in cash flow from working capital were payments of customer incentives which were

$18 million less than the prior-year period, primarily due to the settlement of disputed amounts which occurred in the prior year. Additionally, annual and long-term employee incentive payments related to our 2018 performance that were made in the first quarter were approximately $12 million less than those in the prior-year period.

Cash Flow from Investing Activities

Cash used by investing activities was $19.6 million and $17.0 million for the six months ended June 30, 2019 and 2018, respectively. The 2019 cash outflow includes $5.2 million of purchase price paid to acquire certain Cumberland assets in Australia, and is net of receipt of the final purchase price adjustment associated with the GOBA Acquisition. For further details, see "Note 3. Acquisitions" to the condensed consolidated financial statements contained in Item 1. of this report. Capital expenditures were $14.7 million and $17.0 million for the six months ended June 30, 2019 and 2018, respectively.

Cash Flow from Financing Activities

Cash provided by financing activities was $161.9 million for the six months ended June 30, 2019, compared with $92.1 million for the same period of 2018. Cash sourced in 2019 includes incremental net borrowings of $219.4 million, partially offset by $42.0 million for repurchases of our common stock and payments related to tax withholding for stock-based compensation, and $12.2 million for the payment of dividends to stockholders.

Cash provided by financing activities for the six months ended June 30, 2018 was $92.1 million and reflects incremental net borrowings of $156.2 million, partially offset by $51.4 million for repurchases of our common stock and payments related to tax withholding for stock-based compensation, net of proceeds received from the exercise of stock options, and $12.7 million for the payment of dividends to stockholders.

Credit Facilities and Notes Covenants

As of and for the periods ended June 30, 2019 and December 31, 2018, the Company was in compliance with all applicable loan covenants.

Guarantees and Security

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

Adequacy of Liquidity Sources

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes to Foreign Exchange Risk Management or Interest Rate Risk Management in the quarter ended June 30, 2019 or through the date of this report.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision of the Chief Executive Officer and the Chief Financial Officer, and with the participation of our Disclosure Committee, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2019.

(b) Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are various claims, lawsuits and pending actions against us incidental to our operations, including the income tax assessments against our Brazilian subsidiary, Tilibra Produtos de Papelaria Ltda (the "Brazil Tax Assessments"), which is more fully described in our Annual Report on Form 10-K for the year ended December 31, 2018 and in "Part I, Item 1. Note 11. Income Taxes - Brazil Tax Assessments" to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q. It is the opinion of management that (other than the Brazil Tax Assessments) the ultimate resolution of these matters will not have a material adverse effect on our consolidated 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.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018.

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

(a) Not applicable.

(b) Not applicable.

The following table provides information about our purchases of equity securities during the quarter ended June 30, 2019:



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⁾
April 1, 2019 to April 30, 2019	445,347	$	8.80	445,347	$	94,007,354
May 1, 2019 to May 31, 2019	1,221,882	8.00		1,221,882	84,235,759
June 1, 2019 to June 30, 2019	1,899,750	7.68		1,899,750	69,637,210
Total	3,566,979	$	7.93	3,566,979	$	69,637,210

(1) On February 14, 2018, the Company announced that its Board of Directors had approved an authorization to repurchase up to $100 million in shares of its common stock.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit

Number Description of Exhibit


3.1	Restated Certificate of Incorporation of ACCO Brands Corporation, as amended *


10.1	Second Amendment to Third Amended and Restated Credit Agreement, dated as of May 23, 2019, among the Company, certain subsidiaries of the Company, Bank of America, N.A., as administrative agent, and the other lenders party thereto. (incorporated by reference to Exhibit 10.1 to ACCO Brands Corporation's Current Report on Form 8-K filed with the SEC on May 23, 2019 (File No. 001-08454))


10.2	2019 ACCO Brands Corporation Incentive Plan (incorporated by reference to Exhibit 99 to the Company’s Registration Statement on Form S-8 filed with the SEC on May 21, 2019)


10.3	Form of Directors Restricted Stock Unit Award Agreement under the 2019 ACCO Brands Corporation Incentive Plan *


10.4	Form of Restricted Stock Unit Award Agreement under the 2019 ACCO Brands Corporation Incentive Plan *


10.5	Form of Performance Stock Unit Award Agreement under the 2019 ACCO Brands Corporation Incentive Plan*


10.6	Form of Nonqualified Stock Option Award Agreement under the 2019 ACCO Brands Corporation Incentive Plan *


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


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


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


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


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

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document


104	Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document



*	Filed herewith.



**	Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



REGISTRANT:

ACCO BRANDS CORPORATION

By:	/s/ 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/ Kathleen D. Hood
Kathleen D. Hood
Senior Vice President and Chief Accounting Officer (principal accounting officer)

Date: July 31, 2019