ACCO BRANDS Corp (ACCO)

ITEM 7. 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 should be read in conjunction with the consolidated financial statements of ACCO Brands Corporation and the accompanying notes contained in Part II, Item 8. and the relevant risks outlined in Part I, Item 1A. Risk Factors of this report. The following discussion and analysis are for the year ended December 31, 2024, compared with the same period in 2023 unless otherwise stated. For a discussion and analysis of the year ended December 31, 2023, compared with the same period in 2022, please refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the "SEC") on February 23, 2024.

Overview of the Company

ACCO Brands is a leading global consumer, technology and business branded products company, providing well-known brands and innovative product solutions used in schools, homes and at work. These brands include At-A-Glance, Barrilito, Esselte, Five Star, Foroni, GBC, Hilroy, Kensington, Leitz, Mead, PowerA, Quartet, Rapid, Swingline, Tilibra and other. Our products are sold primarily in the U.S., Europe, Australia, Canada, Brazil and Mexico.

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

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

Overview of 2024 Financial Performance

During 2024, the Company was impacted by soft global demand, reflecting weak consumer and business spending due to a weak macroeconomic environment and geopolitical uncertainties. We expect these collective global trends to continue to impact our financial results.

In 2024, our net sales decreased $166.6 million, or 9.1 percent, compared to the prior year. Globally, demand was softer for certain office related products. In addition, the decline in sales reflects lower back-to-school purchases by our customers in our Americas operating segment, as well as the exit of lower margin business, primarily in North America. These declines were partially offset by growth in the technology accessories categories. Gross margin increased 70 basis points compared to the prior-year period, primarily due to the impact of cost reduction actions, partly offset by the impact of volume declines.

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We reported an operating loss of $37.0 million in 2024 compared to operating income of $44.7 million in 2023. The decrease was primarily due to higher non-cash goodwill and intangible asset impairment charges compared to the prior year, partly offset by lower restructuring charges.

We reported a net loss of $101.6 million, or $(1.06) per share, compared to a net loss of $21.8 million, or $(0.23) per share in the prior year. The reported net loss reflects higher non-cash goodwill and intangible asset impairment charges and lower benefits from discrete tax items.

Operating cash flows for the year provided cash of $148.2 million and $128.7 million in 2024 and 2023, respectively. Our seasonal operating cash flow followed our historic pattern of outflow in the first half followed by strong inflows in both quarters of the second half.

Consolidated Results of Operations for the Years Ended December 31, 2024 and 2023

(1)
See reconciliation to GAAP contained in Part II, Item 7. "Supplemental Non-GAAP Financial Measures."

Net Sales

For the year ended December 31, 2024, net sales decreased $166.6 million, or 9.1 percent, including $19.3 million, or 1.1 percent, from adverse foreign exchange. Comparable net sales decreased 8.0 percent. The sales decline was driven by lower volume, which was down 7.9 percent, primarily due to softer global business and consumer demand for certain office related product categories, lower back-to-school purchases by our customers in our Americas operating segment, and the exit of lower margin business primarily in North America which accounted for approximately 2.0 percent of the decline. These declines were partly offset by growth in the technology accessories categories.

Gross Profit

For the year ended December 31, 2024, gross profit decreased $42.9 million, or 7.2 percent, primarily due to volume declines partly offset by the positive impact of cost reductions, including productivity, product mix and sourcing actions. Gross profit margin improved 70 basis points. Adverse foreign exchange reduced gross profit by $6.2 million, or 1.0 percent.

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Selling, General and Administrative Expenses

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

For the year ended December 31, 2024, SG&A decreased $27.8 million, or 7.1 percent, primarily due to the impact of global cost reduction actions and lower incentive compensation expense, partly offset by people cost inflation. Favorable foreign exchange reduced SG&A by $2.3 million, or 0.6 percent.

Restructuring Charges

For the year ended December 31, 2024, restructuring charges were $16.8 million compared with $27.2 million in 2023. Restructuring expense in both years primarily relates to severance and other costs associated with our continuing footprint rationalization and cost reduction programs.

Goodwill/Intangible Impairment

For the year ended December 31, 2024, we recorded non-cash impairment charges of $165.2 million related to goodwill and an indefinite-lived trade name, compared to a non-cash goodwill impairment charge of $89.5 million in the prior year. Future events may occur that could further impair our goodwill or indefinite-lived intangible assets.

See "Note 9. Goodwill and Identifiable Intangible Assets" to the consolidated financial statements contained in Part II, Item 8. of this report for more information.

Operating (Loss) Income

For the year ended December 31, 2024, we reported an operating loss of $37.0 million compared to income of $44.7 million in the prior year. The decline was primarily due to higher non-cash impairment charges of $75.7 million and lower gross profit, partly offset by lower SG&A and lower restructuring expenses as noted above. Foreign exchange reduced operating loss $3.3 million, or 7.4 percent.

Interest Expense

For the year ended December 31, 2024, interest expense decreased $6.0 million, primarily due to lower variable interest rates on lower variable debt balances versus the prior year. The weighted average interest rate on $264.7 million of outstanding variable rate debt as of December 31, 2024 decreased to 5.15 percent from 6.38 percent in the prior year.

Non-operating pension expense

For the year ended December 31, 2024, non-operating pension expense was $6.1 million compared to $1.8 million for the year ended December 31, 2023. The increase of $4.3 million was primarily due to a settlement charge of $4.5 million resulting from the wind-up of the ACCO Brands Canada Salaried and Hourly pension plans which was completed in the second quarter of 2024.

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Other (Income) Expense, Net

For the year ended December 31, 2024, we reported other income of $0.9 million, compared to other expense of $4.5 million for the year ended December 31, 2023. The current year income includes a gain on the sale of property of $1.3 million partially offset by the write-off of debt issuance costs of $1.0 million. The prior year included $5.1 million of expense related to exiting certain product lines.

Income Tax Expense

For the year ended December 31, 2024, we recorded income tax expense of $14.3 million on loss before taxes of $87.3 million. This compared with an income tax expense of $8.7 million on loss before taxes of $13.1 million for the year ended December 31, 2023. The increase in tax expense was primarily due to an income tax benefit from the release of certain unrecognized tax benefits related to the Brazil Tax Assessments in 2023 of $13.3 million which did not repeat, partly offset by a reduction in pretax book income.

See "Note 11. Income Taxes" to the Consolidated Financial Statements contained in Part II, Item 8. of this report for more information.

Net Loss/Diluted Loss per Share

For the year ended December 31, 2024, net loss was $101.6 million, or $(1.06) per share, compared to $21.8 million, or $(0.23) per share, in the prior year. The increase in the net loss was primarily due to the higher non-cash impairment charges related to our intangible assets.

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Segment Net Sales and Operating (Loss) Income for the Years Ended December 31, 2024 and 2023

ACCO Brands Americas

(1)
Segment operating (loss) income excludes corporate costs. See "Part II, Item 8. Note 17. Information on Operating Segments" for a reconciliation of total "Segment operating (loss) income" to "(Loss) income before income tax."

(2)
See reconciliation to GAAP contained in Part II, Item 7. "Supplemental Non-GAAP Financial Measure."

For the year ended December 31, 2024, net sales decreased $135.8 million, or 12.0 percent, as a result of lower volume of $105.0 million, or 9.2 percent, and price decreases which reduced sales by $14.0 million, or 1.2 percent. The volume decline was primarily due to softer business and consumer demand for our back-to-school and office products as well as from the exit of lower margin business primarily in North America which accounted for approximately 3.0 percent. The decline was partly offset by growth in technology accessories. Adverse foreign exchange reduced net sales $16.7 million, or 1.5 percent.

For the year ended December 31, 2024, operating loss was $45.5 million compared to operating income of $43.9 million in the prior year. The operating loss in the current year included non-cash intangible asset impairment charges totaling $165.2 million versus $89.5 million in the prior year. The decline in operating results reflects the impact of lower sales volume, partly offset by lower SG&A and lower restructuring expenses. The lower SG&A reflects our cost reduction initiatives and reduced incentive compensation. Adverse foreign exchange reduced operating loss $2.8 million or 6.4 percent.

ACCO Brands International

(1)
Segment operating income excludes corporate costs. See "Part II, Item 8. Note 17. Information on Operating Segments" for a reconciliation of total "Segment operating (loss) income" to "(Loss) income before income tax."

(2)
See reconciliation to GAAP contained in Part II, Item 7. "Supplemental Non-GAAP Financial Measure."

For the year ended December 31, 2024, net sales decreased $30.8 million, or 4.4 percent, primarily due to lower volume of $39.7 million, or 5.7 percent, partly offset by price increases which added $11.5 million, or 1.6 percent. The lower volume reflects reduced business and consumer demand for our office products, partly offset by growth in technology accessories. Adverse foreign exchange reduced sales $2.6 million, or 0.4 percent.

For the year ended December 31, 2024, operating income increased $4.5 million, or 9.1 percent, primarily due to price increases and cost reduction actions, partly offset by the impact of lower volume. Adverse foreign exchange reduced operating income by $0.5 million, or 1.0 percent.

Liquidity and Capital Resources

Our primary liquidity needs are to support our working capital requirements, service indebtedness and fund capital expenditures, dividends, stock repurchases and acquisitions. Our principal sources of liquidity are cash flows from operating activities, cash and cash equivalents held and seasonal borrowings under our $467.5 million multi-currency revolving credit facility (the "Revolving Facility"). As of December 31, 2024, there was $126.3 million in borrowings outstanding under the

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Revolving Facility ($34.4 million reported in "Current portion of long-term debt" and $91.9 million reported in "Long-term debt, net"), and the amount available for borrowings was $329.6 million (allowing for $11.6 million of letters of credit outstanding on that date). We had $74.1 million in cash on hand as of December 31, 2024.

Because of the seasonality of our business, generally our operating cash flow is generated in the second half of the year, as the cash inflows in the first and second quarters are consumed building working capital and making our annual performance-based compensation payments when earned. Our third and fourth quarter cash flows come from completing the working capital cycle.

Debt

The $264.7 million of debt currently outstanding under our senior secured credit facilities has a weighted average interest rate of 5.15 percent as of December 31, 2024 and the $575.0 million outstanding principal amount of our senior unsecured notes due March 2029 ("Senior Unsecured Notes") has a fixed interest rate of 4.25 percent.

Our Third Amended and Restated Credit Agreement was amended by the seventh amendment effective October 30, 2024, (as amended, the "Credit Agreement") and currently provides for a senior secured credit facility, which consists of a €184.8 million (US$200.0 million based on October 30, 2024 exchange rates) term loan facility, and a US$467.5 million multi-currency revolving credit facility (the "Revolving Facility").

The current pricing for borrowings under the Credit Agreement is as follows:

As of December 31, 2024, the applicable rate on Euro, Australian and Canadian dollar loans was 2.00 percent and the applicable rate on Base Rate loans was 1.00 percent. Undrawn amounts under the Revolving Facility are subject to a commitment fee rate of 0.25 percent to 0.375 percent per annum, depending on the Company's Consolidated Leverage Ratio. As of December 31, 2024, the commitment fee rate was 0.35 percent.

Financial Covenants

The current financial covenants under the Credit Agreement are as follows:

•
Minimum Interest Coverage Ratio (as defined in the Credit Agreement) of 3.00:1.00; and

•
Maximum Consolidated Leverage Ratio financial covenant for all first and second fiscal quarters is 4.50x dropping to 4.00x for all third and fourth fiscal quarters.

As of December 31, 2024, our Consolidated Leverage Ratio was approximately 3.38 to 1.00 versus our maximum covenant of 4.00 to 1.00. Our Interest Coverage Ratio was approximately 5.35 to 1.00 versus the minimum covenant of 3.00 to 1.00.

Other Covenants and Restrictions

The Credit Agreement contains customary affirmative and negative covenants as well as events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults, certain bankruptcy or insolvency events, certain ERISA-related events, changes in control or ownership and invalidity of any loan document. The Credit Agreement

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also establishes limitations on the aggregate amount of Permitted Acquisitions and Investments (each as defined in the Credit Agreement) that the Company and its subsidiaries may make during the term of the Credit Agreement.

As of and for the periods ended December 31, 2024 and December 31, 2023, the Company was in compliance with all applicable loan covenants under the Credit Agreement and the Senior Unsecured Notes.

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.

For further information, see "Note 3. Long-term Debt and Short-term Borrowings" to the consolidated financial statements contained in Part II, Item 8. of this report.

Restructuring

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

During 2024, the Company announced a multi-year restructuring and cost savings program, with anticipated annualized pre-tax cost savings of at least $60.0 million when fully realized. Given the macro uncertainties, the Company has increased its savings target by $40.0 million and now anticipates the multi-year program to yield approximately $100.0 million in annualized savings by the end of 2026. The program incorporates initiatives to simplify and delayer the Company's operating structure and reduce costs through headcount reductions, supply chain optimization, global footprint rationalization, and better leveraging the Company's sourcing capabilities.

During the year ended December 31, 2024, the Company recorded $16.8 million in restructuring expenses: $6.5 million of restructuring expense for our Americas segment; $6.9 million for our International segment; and $3.4 million for Corporate. Restructuring charges in 2024 were primarily for severance costs related to cost reduction initiatives.

For further information, see "Note 10. Restructuring" to the consolidated financial statements contained in Part II, Item 8. of this report.

Cash Flow for the Years Ended December 31, 2024 and 2023

During the year ended December 31, 2024, our cash and cash equivalents increased $7.7 million compared to an increase of $4.2 million during the prior year. The following table summarizes our cash flows for the periods presented:

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Cash Flow from Operating Activities

Cash provided by operating activities during the twelve months ended December 31, 2024, was driven by cash inflows of $143.8 million (excluding the non-cash impacts primarily of amortization of intangibles, depreciation, stock-based compensation expense, and non-cash goodwill and intangible asset impairment charges that are included in our net loss). Cash provided by trade working capital was $75.3 million, which includes accounts receivable, inventory and accounts payable. This was partially offset by a net cash outflow of $70.9 million for all other assets and liabilities.

Cash provided by operating activities during the twelve months ended December 31, 2023, was driven by inflows of $141.2 million (excluding the non-cash impacts primarily of amortization of intangibles, depreciation, stock-based compensation expense, and non-cash goodwill impairment charges that are included in our net loss). This was partially offset by cash used by trade working capital of $21.1 million, which includes accounts receivable, inventory and accounts payable. In addition, there was a net cash inflow of $8.6 million for all other assets and liabilities.

Cash Flow from Investing Activities

Cash used by investing activities during the twelve months ended December 31, 2024, was primarily due to capital expenditures partly offset by proceeds of $2.0 million from the sale of our facility in the Czech Republic and $1.4 million from the sale of machinery and equipment at our Sidney, NY facility which closed during 2024.

Cash used by investing activities during the twelve months ended December 31, 2023, was primarily due to capital expenditures partially offset by proceeds of $2.2 million from the sale of our facility in Japan.

Cash Flow from Financing Activities

Cash used by financing activities during the twelve months ended December 31, 2024, was primarily due to debt repayments exceeding borrowings, dividend payments, and cash used to repurchase common stock.

Cash used by financing activities during the twelve months ended December 31, 2023, was primarily due to debt repayments exceeding borrowings and dividend payments.

Capitalization

The Company had 92.9 million and 94.9 million shares of common stock outstanding as of December 31, 2024, and 2023, respectively.

Adequacy of Liquidity Sources

Based on our 2025 business plan and current forecasts, we believe that cash flow from operations, our current cash balance and borrowings available under our Revolving Facility will be adequate to support our requirements for working capital, capital expenditures, dividend payments, share repurchases and debt service in both the short and long-term. Our future operating performance is dependent on many factors, some of which are beyond our control, including prevailing economic, financial and industry conditions. For further information on these risks, see "Part I, Item1A. Risk Factors" of this report.

Off-Balance-Sheet Arrangements and Contractual Financial Obligations

The Company does not have any material off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Our contractual obligations and related payments by period as of December 31, 2024 were as follows:

(1)
Interest calculated at December 31, 2024, rates for variable rate debt.

(2)
For further information on leases, see "Note 4. Leases" to the consolidated financial statements contained in Part II, Item 8. of this report.

(3)
Purchase obligations primarily consist of contracts and non-cancelable purchase orders for raw materials and finished goods.

(4)
The U.S. Tax Cuts and Jobs Act requires companies to pay a one-time Transition Toll Tax, which is payable over eight years.

(5)
Other long-term liabilities consist of estimated expected employer contributions to pension and post-retirement plans for 2024, along with estimated future payments to these plans that are not paid from assets held in a plan trust.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at December 31, 2024, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $20.7 million of unrecognized tax benefits have been excluded from the contractual obligations table above. For further information, see "Note 11. Income Taxes" to the consolidated financial statements contained in Part II, Item 8. of this report.

Critical Accounting Estimates

Our financial statements are prepared in conformity with generally accepted accounting principles in the U.S. ("GAAP"). Preparation of our financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses presented for each reporting period in the financial statements and the related accompanying notes. Actual results could differ significantly from those estimates. We regularly review our assumptions and estimates, which are based on historical experience and, where appropriate, current business trends. We believe that the following discussion addresses our critical accounting policies, which require significant, subjective and complex judgments to be made by our management.

Revenue Recognition

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

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

For our products, we transfer control and recognize a sale primarily when we either ship the product from our manufacturing facility or distribution center, or upon delivery to a customer-specified location depending upon the terms in the customer agreement. In addition, we recognize revenue for private label products as the product is manufactured (or over time) when a contract has an enforceable right to payment. For consignment arrangements, revenue is not recognized until the products are sold to the end customer.

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Customer programs and incentives ("Customer Program Costs") are a common practice in our industry. We incur Customer Program Costs to obtain favorable product placement, to promote sell-through of products and to maintain competitive pricing. The amount of consideration we receive and revenue we recognize is impacted by Customer Program Costs, including sales rebates; in-store promotional allowances; shared media and customer catalog allowances; other cooperative advertising arrangements; freight allowance programs offered to our customers; allowances for discounts and reserves for returns. We recognize Customer Program Costs, primarily as a deduction to gross sales, at the time that the associated revenue is recognized. Customer Program Costs are based on management's best estimates using the most likely amount method and are an amount that is probable of not being reversed. In the absence of a signed contract, estimates are based on historical or projected experience for each program type or customer. We adjust our estimate of revenue when the most likely amount of consideration we expect to receive changes.

Inventories

Inventories are priced at the lower of cost (principally first-in, first-out) or net realizable value. When necessary, the write-down of inventory to its net realizable value is recorded for obsolete or slow-moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions and specific identification of items, such as product discontinuance or engineering/material changes. These estimates could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from our expectations.

Identifiable Intangible Assets

Identifiable intangible assets are comprised primarily of indefinite-lived and amortizable intangible assets acquired and arising from the application of purchase accounting. Indefinite-lived intangible assets are not amortized but are evaluated at least annually to determine whether the indefinite useful life is appropriate. Our ACCO® trade name has been assigned an indefinite life as we currently anticipate that this trade name will contribute cash flows to ACCO Brands indefinitely. Amortizable intangible assets are amortized over their useful lives of 5, 7, 10, 15, 23 or 30 years.

We test indefinite-lived intangibles for impairment annually, during the second quarter, and during any interim period when market or business events indicate there may be a potential adverse impact on a particular intangible. The test may be on a qualitative or quantitative basis as allowed by GAAP. We consider the implications of both external factors (e.g., market growth, pricing, competition and technology) and internal factors (e.g., product costs, margins, support expenses and capital investment) and their potential impact on cash flows in both the near and long term, as well as their impact on any identifiable intangible asset associated with the business. Based on recent business results, consideration of significant external and internal factors, and the resulting business projections, indefinite-lived intangible assets are reviewed to determine whether they are likely to remain indefinite-lived, or whether a finite life is more appropriate. In addition, based on events in the period and future expectations, management considers whether the potential for impairment exists.

During the second quarter, we identified a triggering event for our indefinite-lived trade names within our Americas reporting unit indicating that it was more likely than not that an impairment loss had been incurred. The triggering event was a decline in forecasted cash flows within certain product categories. Accordingly, as of May 31, 2024, we completed an impairment assessment, on a quantitative basis, for our indefinite-lived trade names utilizing a relief-from-royalty discounted cash flows approach. The result of our assessment was that the fair value of the Five Star® indefinite-lived trade name did not exceed its carrying value resulting in an impairment charge of $37.7 million. The result of our assessment of the Swingline® and ACCO® indefinite-lived trade names was that the fair value of each exceeded its carrying value and we concluded that no impairment existed.

We believe the assumptions used in our impairment analysis are appropriate and result in reasonable estimates of the implied fair value of each our indefinite-lived trade names. However, given the economic environment and the uncertainties regarding

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the impact on our business, there can be no assurance that our estimates and assumptions, made for purposes of our indefinite-lived intangible impairment testing, will prove to be an accurate prediction of the future.

As of June 1, 2024, we changed our Five Star® and Swingline® indefinite-lived trade names to amortizable intangible assets as they no longer met the indefinite-lived criteria. We began amortizing both trade names on a straight-line basis over a life of 30 years as of June 1, 2024.

Goodwill

Goodwill has been recorded on our balance sheet and represents the excess of the cost of an acquisition when compared with the fair value of the net assets acquired. The authoritative guidance on goodwill and other intangible assets requires that goodwill be tested for impairment at a reporting unit level. We have determined that our reporting units are ACCO Brands Americas and ACCO Brands International.

We test goodwill for impairment at least annually, during the second quarter, or any interim period when market or business events indicate there may be a potential adverse impact on goodwill. As permitted by GAAP, we may perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test as required by GAAP.

During the second quarter, we identified triggering events within our Americas reporting unit indicating that it was more likely than not that an impairment loss had been incurred. The triggering events included a decline in forecasted cash flows within specific product categories, and a decline in our stock price. Accordingly, as of May 31, 2024, we completed an impairment assessment, on a quantitative basis, of goodwill for both the Americas and International reporting units. The result of our assessment was that the fair value of the Americas reporting unit did not exceed its carrying value resulting in an impairment charge of $127.5 million. The result of our assessment was that the fair value of the International reporting unit exceeded its carrying value and we concluded that no impairment existed.

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

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

Employee Benefit Plans

We provide a range of benefits to our employees and retired employees, including pension, post-retirement, post-employment and health care benefits. We record annual amounts relating to these plans based on calculations specified by GAAP, which include various actuarial assumptions, including discount rates, assumed rates of return, mortality rate tables, compensation increases, turnover rates and health care cost trends. Actuarial assumptions are reviewed on an annual basis and modifications to these assumptions are made based on current rates and trends when it is deemed appropriate. As required by GAAP, the effect of our modifications and unrecognized actuarial gains and losses are generally recorded to a separate component of accumulated other comprehensive income (loss) ("AOCI") in stockholders’ equity and amortized over future periods. We believe that the assumptions utilized in recording our obligations under the plans are reasonable based on our experience. The actuarial assumptions used to record our plan obligations could differ materially from actual results due to changing economic and market

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conditions, higher or lower withdrawal rates or other factors which may impact the amount of retirement-related benefit expense recorded by us in future periods.

The discount rate assumptions used to determine the pension and post-retirement obligations of the benefit plans are based on a spot-rate yield curve that matches projected future benefit payments with the appropriate interest rate applicable to the timing of the projected future benefit payments. For the majority of the obligations, the assumed discount rates reflect market rates for high-quality corporate bonds currently available and were determined by constructing a yield curve based on a large population of high-quality corporate bonds. Where the corporate bond market is not sufficiently deep, government bond yields are used instead. The resulting discount rates reflect the matching of plan liability cash flows to the yield curves.

For the ACCO Europe Pension Plan, the Company’s discount rate assumption methodology was based on the yield curve that uses a dataset of bonds rated AA by at least one of the main rating agencies.

The expected long-term rate of return on plan assets reflects management’s expectations of long-term average rates of return on funds invested based on our investment profile to provide for benefits included in the projected benefit obligations. The expected return is based on the outlook for inflation, fixed income returns and equity returns, while also considering historical returns over the last 10 years, asset allocation and investment strategy.

We estimate the service and interest components of net periodic benefit cost (income) for pension and post-retirement benefits utilizing a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

At the end of each calendar year an actuarial evaluation is performed to determine the funded status of our pension and post-retirement obligations and any actuarial gain or loss is recognized in AOCI and then amortized into the income statement in future periods, based on the average remaining lifetime or average remaining service expected.

We recognized pension expense of $7.1 million and $2.8 million for the years ended December 31, 2024, and 2023,respectively and pension income of $3.1 million for the year ended December 31, 2022. Post-retirement income was $0.4 million, $0.3 million, and $0.4 million for the years ended December 31, 2024, 2023, and 2022, respectively. The increase in pension expense was primarily due to settlement costs and changes in discount rates.

The weighted average assumptions used to determine benefit obligations for the years ended December 31, 2024, 2023, and 2022 were as follows:

The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, 2024, 2023 and 2022 were as follows:

In 2025, we expect pension expense of approximately $3.0 million. and post-retirement income $0.2 million of approximately.

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A 25-basis point decrease (0.25 percent) in our discount rate assumption would lead to a decrease in our pension and post-retirement expense of approximately $0.6 million for 2025. A 25-basis point change in our long-term rate of return assumption would lead to an increase or decrease in pension and post-retirement expense of approximately $1.1 million for 2025.

Pension and post-retirement liabilities of $117.2 million as of December 31, 2024, decreased from $157.6 million at December 31, 2023. The decrease was primarily due to updated assumptions and foreign exchange, partly offset by cash contributions.

Income Taxes

Deferred tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce deferred tax assets to an amount that is more likely than not to be realized. Facts and circumstances may change and cause us to revise our conclusions regarding our ability to realize certain net operating losses and other deferred tax attributes.

The amount of income taxes that we pay is subject to ongoing audits by federal, state and foreign tax authorities. Our estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. We believe that we have adequately provided for reasonably foreseeable outcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period any assessments are received, revised or resolved.

Recently Adopted Accounting Standards

For information on recently adopted accounting pronouncements, see "Note 2. Significant Accounting Policies, Recent Accounting Pronouncements and Adopted Accounting Standards" to the consolidated financial statements contained in Part II, Item 8. of this report.

SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES

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

We use comparable sales both to explain our results to stockholders and the investment community and in the internal evaluation and management of our business. We believe comparable sales provide management and investors with a more complete understanding of our underlying operational results and trends, facilitate meaningful period-to-period comparisons and enhance an overall understanding of our past and future financial performance. Comparable sales should not be considered in isolation or as a substitute for, or superior to, GAAP net sales and should be read in connection with the Company's consolidated financial statements presented in accordance with GAAP and contained in Part II, Item 8 of this report.

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

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ITEM 7. 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 should be read in conjunction with the consolidated financial statements of ACCO Brands Corporation and the accompanying notes contained in Item 8. of this report. The following discussion and analysis are for the year ended December 31, 2023, compared with the same period in 2022 unless otherwise stated. For a discussion and analysis of the year ended December 31, 2022 compared with the same period in 2021, please refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the "SEC") on February 24, 2023.

Overview of the Company

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

ACCO Brands has three operating business segments based in different geographic regions: North America, EMEA, and International. Each business segment designs, markets, sources, manufactures, and sells recognized consumer, technology and business branded products used in schools, homes and at work. Product designs are tailored to end-user preferences in each geographic region, and where possible, leverage common engineering, design, and sourcing.

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

Overview of 2023 Financial Performance

During 2023, the Company continued to be impacted by softening global demand, reflecting a weaker macroeconomic environment. Inflationary pressures and higher interest rates have reduced both business and consumer discretionary spending, especially business IT spending. Lower than anticipated return to office trends also impacted year over year demand. In addition, major retailers in North America continued to focus on maintaining lower inventory levels.

In 2023, our net sales decreased $114.8 million, or 5.9 percent, compared to the prior year. The decrease was due to reduced volumes, reflecting the challenging macroeconomic environment, which led to lower global technology spending, and lower than anticipated return to office trends, partly offset by the benefit of global price increases, and favorable foreign exchange. Gross margin increased 420 basis points, or $46.0 million, compared to the prior-year period, primarily due to the cumulative effect of global price increases and cost reduction actions.

We reported operating income of $44.7 million in 2023 compared to $34.8 million in 2022. The increase was primarily due to the higher gross margin, and a lower non-cash goodwill impairment charge compared to the prior year, partially offset by higher restructuring charges and SG&A expenses,

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We reported a net loss of $21.8 million, or $(0.23) per share, compared to a net loss of $13.2 million, or $(0.14) per share in the prior year. The reported net loss reflects higher interest and non-operating pension expenses.

Our operating cash flow for the year was cash provided of $128.7 million, compared to $77.6 million of cash provided in the prior year. Our seasonal operating cash flow followed our historic pattern of outflow in the first half followed by strong inflows in both quarters of the second half.

Consolidated Results of Operations for the Years Ended December 31, 2023 and 2022

Net Sales

For the year ended December 31, 2023, net sales decreased $114.8 million, or 5.9 percent. Favorable foreign exchange increased sales $11.3 million, or 0.6 percent. Comparable net sales decreased 6.5 percent. The sales declines were driven by lower volume of 13.3 percent across all three segments due to the challenging macroeconomic environment, lower than anticipated return to office trends and tight inventory management by our customers primarily in North America. Sales of technology accessories were most negatively impacted. The volume decline more than offset the benefit of global price increases which added 6.8 percent.

Cost of Products Sold

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

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For the year ended December 31, 2023, cost of products sold decreased $160.8 million, or 11.5 percent, primarily due to lower net sales and the favorable impact of global restructuring and cost reduction initiatives. Adverse foreign exchange increased cost of products sold by $5.3 million, or 0.4 percent.

Cost of products sold remains high from the inflationary impacts over the last few years. We are beginning to see moderating inflation, but there can be no assurance that it will abate.

Gross Profit

For the year ended December 31, 2023, gross profit increased $46.0 million, or 8.3 percent. Gross profit margin increased 420 basis points reflecting the cumulative effect of global price increases and lower cost of goods. Favorable foreign exchange increased gross profit by $6.0 million, or 1.1 percent.

Selling, General and Administrative Expenses

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

For the year ended December 31, 2023, SG&A increased $16.8 million, or 4.5 percent, primarily due to higher people costs, including higher incentive compensation expense, partially offset by the impact of cost reduction actions. Adverse foreign exchange, increased SG&A by $1.4 million, or 0.4 percent.

Restructuring Charges

For the year ended December 31, 2023, restructuring charges were $27.2 million compared with $9.6 million in 2022. The higher restructuring expense in the current year was primarily for severance costs and other costs associated with our continuing footprint rationalization and cost reduction programs.

Change in Fair Value of Contingent Consideration

In the prior year, the change in fair value of contingent consideration from the PowerA earnout resulted in a benefit of $9.0 million that did not repeat.

Goodwill Impairment

For the year ended December 31, 2023, we recorded a non-cash goodwill impairment charge of $89.5 million for our North America reporting unit compared to $98.7 million in the prior year. Our goodwill balance could be at risk of further impairment if operating performance is not as expected.

See "Note 9. Goodwill and Identifiable Intangible Assets" to the consolidated financial statements contained in Part II, Item 8. of this report for more information.

Operating Income

For the year ended December 31, 2023, operating income increased $9.9 million to $44.7 million compared to $34.8 million in the prior year. The increase in operating income was primarily due to higher gross profit of $46.0 million and a lower non-cash goodwill impairment charge of $9.2 million, partially offset by a $17.6 million increase in restructuring expense and a $16.8 million increase in SG&A expense. Foreign exchange increased operating income $4.1 million, or 11.8 percent.

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Interest Expense

For the year ended December 31, 2023, interest expense increased $13.0 million, primarily due to higher variable interest rates versus the prior year. The weighted average interest rate on $350.6 million of outstanding variable rate debt as of December 31, 2023, increased to 6.38 percent from 4.90 percent in the prior year. We expect higher interest expense to continue given the current interest rate environment.

Non-operating pension (expense) income

For the year ended December 31, 2023, non-operating pension expense was $1.8 million compared to income of $4.5 million for the year ended December 31, 2022. The increase in expense of $6.3 million was due to changes in assumptions used in our annual pension valuation, including higher interest rates.

Other Expense (Income), Net

For the year ended December 31, 2023, we reported other expense of $4.5 million, compared to other income of $12.9 million for the year ended December 31, 2022. The increase in expense of $17.4 million was primarily due to a $5.1 million charge in 2023 related to exiting certain product lines and a $9.9 million reduction in Brazil tax credits compared to the prior year.

Income Tax Expense

For the year ended December 31, 2023, we recorded income tax expense of $8.7 million on loss before taxes of $13.1 million. This compared with an income tax expense of $28.1 million on income before taxes of $14.9 million for the year ended December 31, 2022. The reduction in income tax expense was due primarily to the reduction in pretax book income, tax law changes allowing Brazilian taxes paid to be creditable for U.S. tax purposes of $6.3 million, and release of unrecognized tax benefits related to the Brazil Tax Assessments of $13.3 million.

See "Note 11. Income Taxes" to the Consolidated Financial Statements contained in Part II, Item 8. of this report for more information.

Net Income (Loss)/Diluted Income (Loss) per Share

For the year ended December 31, 2023, net loss was $21.8 million, or $(0.23) per share, compared to a net loss of $13.2 million, or $(0.14) per share, in the prior year.

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Segment Net Sales and Operating Income for the Years Ended December 31, 2023 and 2022

ACCO Brands North America

(1)
Segment operating loss for North America includes goodwill impairment charges but excludes corporate costs. See "Note 17. Information on Business Segments" to the consolidated financial statements contained in Part II, Item 8. of this report for a reconciliation of total "Segment operating (loss) income" to "(Loss) income before income tax."

(2)
See reconciliation to GAAP, contained in Part II, Item 7. "Supplemental Non-GAAP Financial Measures" of this report.

For the year ended December 31, 2023, net sales decreased $110.8 million, or 11.1 percent. Price increases added $44.1 million, or 4.4 percent, but were more than offset by volume which decreased $151.1 million, or 15.1 percent. The volume decline was due to a weaker macroeconomic environment, lower than anticipated return to office trends and retailers maintaining lower inventory levels, which resulted in lower demand for technology accessories and office products. Adverse foreign exchange reduced net sales $3.9 million, or 0.4 percent.

For the year ended December 31, 2023, operating loss increased $1.0 million to $5.9 million from $4.9 million in the prior year. The increase in operating loss was due to higher restructuring charges of $11.4 million related to our cost reduction and productivity programs, partly offset by a lower non-cash goodwill impairment charge in the current year of $89.5 million versus $98.7 million in the prior year.

ACCO Brands EMEA

(1)
Segment operating income for EMEA excludes corporate costs. See "Note 17. Information on Business Segments" to the consolidated financial statements contained in Part II, Item 8. of this report for a reconciliation of total "Segment (loss) operating income" to "(Loss) income before income tax."

(2)
See reconciliation to GAAP, contained in Part II, Item 7. "Supplemental Non-GAAP Financial Measures" of this report.

For the year ended December 31, 2023, net sales decreased $33.1 million, or 5.7 percent. Favorable foreign exchange increased sales $5.5 million, or 1.0 percent. Comparable sales decreased 6.7 percent mainly due to lower volume, which was down $99.2 million, or 17.1 percent. The lower volume was partly offset by price increases of $60.6 million, or 10.4 percent. The lower volume reflects reduced demand, especially for technology accessories, due to a weaker macroeconomic environment.

For the year ended December 31, 2023, operating income increased $17.0 million, or 78.3 percent. Operating income increased primarily due to the cumulative effect of price increases and cost savings actions, which more than offset a $5.5 million increase in restructuring charges, negative fixed cost leverage and higher incentive compensation. Favorable foreign exchange increased operating income by $1.2 million, or 5.5 percent.

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ACCO Brands International

(1)
Segment operating income for International excludes corporate costs. See "Note 17. Information on Business Segments" to the consolidated financial statements contained in Part II, Item 8. of this report for a reconciliation of total "Segment operating (loss) income" to "(Loss) income before income tax."

(2)
See reconciliation to GAAP, contained in Part II, Item 7. "Supplemental Non-GAAP Financial Measures" of this report.

For the year ended December 31, 2023, net sales increased $29.1 million, or 7.9 percent. Favorable foreign exchange increased sales $9.7 million, or 2.6 percent. Comparable sales increased 5.3 percent, primarily due to price increases which added $27.6 million, or 7.5 percent, partly offset by lower volume of $8.1 million, or 2.2 percent. The lower volume reflects reduced demand due to a weaker macroeconomic environment in Australia and Asia, especially for technology accessories, partially offset by volume growth in Latin America.

For the year ended December 31, 2023, operating income increased $10.2 million, or 20.2 percent, primarily due to pricing and cost actions, partially offset by an increase in go-to-market spending, and people costs, including incentive compensation. Favorable foreign exchange increased operating income by $3.3 million, or 6.5 percent.

Liquidity and Capital Resources

Our primary liquidity needs are to support our working capital requirements, service indebtedness and fund capital expenditures, dividends, repurchase stock, and acquisitions. 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 December 31, 2023, there was $21.6 million in borrowings outstanding under the Revolving Facility ($7.3 million reported in "Current portion of long-term debt" and $14.3 million reported in "Long-term debt, net"), and the amount available for borrowings was $565.7 million (allowing for $12.7 million of letters of credit outstanding on that date). We had $66.4 million in cash on hand as of December 31, 2023.

Because of the seasonality of our business, all our operating cash flow is generated in the second half of the year, as the cash inflows in the first and second quarters are consumed building working capital and for making our annual performance-based compensation payments, when earned. Our third and fourth quarter cash flow comes from completing the working capital cycle. Our 2023 operating cash flow followed our historical seasonal pattern.

Debt

The $350.6 million of debt currently outstanding under our senior secured credit facilities has a weighted average interest rate of 6.75 percent as of December 31, 2023, and the $575.0 million outstanding principal amount of our senior unsecured notes due March 2029 ("Senior Unsecured Notes") has a fixed interest rate of 4.25 percent.

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Effective November 7, 2022, the Company entered into a Sixth Amendment (the "Sixth Amendment") to its Third Amended and Restated Credit Agreement, as amended, among the Company, certain subsidiaries of the Company, Bank of America, N.A., as administrative agent, and the other lenders party thereto (the "Credit Agreement"). Pursuant to the Sixth Amendment, the Credit Agreement was amended to, among other things:

•
increase the maximum Consolidated Leverage Ratio financial covenant from then current levels for each of the five fiscal quarters beginning December 31, 2022, and ending December 31, 2023, as follows:

•
modify the maximum Consolidated Leverage Ratio financial covenant for all first and second fiscal quarters after December 31, 2023, from the current level of 4.00x to 4.50x, while maintaining the current level of 4.00x for all third and fourth fiscal quarters;

•
limit the maximum Consolidated Leverage Ratio to 5.00:1.00 at any time, thereby capping any material acquisition step ups for the fiscal quarters ending March 31, 2023, June 30, 2023 and September 30, 2023;

•
increase the Company’s flexibility under the restricted payments baskets; and

•
change the U.S. dollar reference rate from LIBOR-based pricing to SOFR-based pricing, with no changes to existing margins.

The current maturity of the Credit Agreement, as amended, is March 31, 2026.

Financial Covenants

As of December 31, 2023, our Consolidated Leverage Ratio was approximately 3.42 to 1.00 versus our maximum covenant of 4.25 to 1.00. Our Interest Coverage Ratio was approximately 5.18 to 1.00 versus the minimum covenant of 3.00 to 1.00.

Other Covenants and Restrictions

The Credit Agreement, as amended, contains customary affirmative and negative covenants as well as events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults, certain bankruptcy or insolvency events, certain ERISA-related events, changes in control or ownership and invalidity of any loan document. The Credit Agreement, as amended, also establishes limitations on the aggregate amount of Permitted Acquisitions and Investments (each as defined in the Credit Agreement, as amended) that the Company and its subsidiaries may make during the term of the Credit Agreement, as amended.

As of and for the periods ended December 31, 2023 and December 31, 2022, the Company was in compliance with all applicable loan covenants under its senior secured credit facilities and the Senior Unsecured Notes.

Guarantees and Security

Generally, obligations under the Credit Agreement, as amended, 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.

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For further information, see "Note 3. Long-term Debt and Short-term Borrowings" to the consolidated financial statements contained in Part II. Item 8. of this report.

Restructuring

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

During the year ended December 31, 2023, the Company recorded $27.2 million in restructuring expenses: $16.7 million of restructuring expense for our North America segment; $8.9 million for our EMEA segment; $1.0 million for our International segment; and $0.6 million for Corporate. Restructuring charges in 2023 were primarily for severance costs related to cost reduction initiatives.

On January 30, 2024, the Company announced a multi-year restructuring and cost savings program, with anticipated annualized pre-tax cost savings of at least $60.0 million. The program incorporates initiatives to simplify and delayer the Company's operating structure and reduce costs through headcount reductions, supply chain optimization, global footprint rationalization, and better leveraging the Company's sourcing capabilities. As a result of these actions, the Company will improve its speed of execution and bring key leaders closer to customers.

For further information, see "Note 10. Restructuring" to the consolidated financial statements contained in Part II. Item 8. of this report.

Cash Flow for the Years Ended December 31, 2023 and 2022

During the year ended December 31, 2023, our cash and cash equivalents increased $4.2 million compared to an increase of $21.0 million during the prior year. The following table summarizes our cash flows for the periods presented:

Cash Flow from Operating Activities

Cash provided by operating activities during the twelve months ended December 31, 2023, increased $51.1 million compared to the prior year. The increase in cash provided by operating activities was driven by lower cash payments for operating expenses in 2023 compared to the prior year, which was partially offset by higher cash payments for interest and taxes and an increase in cash used for investments in our trade working capital, which includes accounts receivable, inventory and accounts payable.

Cash Flow from Investing Activities

Cash used by investing activities during the twelve months ended December 31, 2023, increased $1.9 million compared to the prior year. The increase was primarily due to proceeds from the sale of our Ogdensburg, New York facility of $6.6 million in

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the prior year, exceeding proceeds from the sale of our facility in Japan of $2.2 million in the current year. Partially offsetting this was a reduction in capital expenditures of $2.7 million.

Cash Flow from Financing Activities

Cash used by financing activities during the twelve months ended December 31, 2023, increased $69.4 million compared to the prior year. During the current year we used $87.5 million of cash to pay down our net borrowings and during the prior year we had a cash inflow from an increase in debt of $16.9 million. During the prior year we used cash to repurchase shares of $19.4 million and paid a contingent earnout of $17.8 million.

Capitalization

The Company had 94.9 million and 94.3 million shares of common stock outstanding as of December 31, 2023, and 2022, respectively.

Adequacy of Liquidity Sources

Based on our 2024 business plan and current forecasts, we believe that cash flow from operations, our current cash balance and borrowings available under our Revolving Facility will be adequate to support our requirements for working capital, capital expenditures, dividend payments, share repurchases and debt service in both the short and long-term. Our future operating performance is dependent on many factors, some of which are beyond our control, including prevailing economic, financial and industry conditions. For further information on these risks, see "Part I, Item1A. Risk Factors" of this report.

Off-Balance-Sheet Arrangements and Contractual Financial Obligations

The Company does not have any material off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Our contractual obligations and related payments by period as of December 31, 2023 were as follows:

(1)
Interest calculated at December 31, 2023, rates for variable rate debt.

(2)
For further information on leases, see "Note 4. Leases" to the consolidated financial statements contained in Item 8. of this report.

(3)
Purchase obligations primarily consist of contracts and non-cancelable purchase orders for raw materials and finished goods.

(4)
The U.S. Tax Cuts and Jobs Act requires companies to pay a one-time Transition Toll Tax, which is payable over eight years.

(5)
Other long-term liabilities consist of estimated expected employer contributions for 2024, along with estimated future payments for pension and post-retirement plans that are not paid from assets held in a plan trust.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at December 31, 2023, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $28.0 million of unrecognized tax benefits have been excluded from the contractual obligations

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table above. For further information, see "Note 11. Income Taxes" to the consolidated financial statements contained in Part II. Item 8. of this report.

Critical Accounting Policies

Our financial statements are prepared in conformity with generally accepted accounting principles in the U.S. ("GAAP"). Preparation of our financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses presented for each reporting period in the financial statements and the related accompanying notes. Actual results could differ significantly from those estimates. We regularly review our assumptions and estimates, which are based on historical experience and, where appropriate, current business trends. We believe that the following discussion addresses our critical accounting policies, which require significant, subjective and complex judgments to be made by our management.

Revenue Recognition

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

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

For our products, we transfer control and recognize a sale primarily when we either ship the product from our manufacturing facility or distribution center, or upon delivery to a customer-specified location depending upon the terms in the customer agreement. In addition, we recognize revenue for private label products as the product is manufactured (or over time) when a contract has an enforceable right to payment. For consignment arrangements, revenue is not recognized until the products are sold to the end customer.

Customer programs and incentives ("Customer Program Costs") are a common practice in our industry. We incur Customer Program Costs to obtain favorable product placement, to promote sell-through of products and to maintain competitive pricing. The amount of consideration we receive and revenue we recognize is impacted by Customer Program Costs, including sales rebates; in-store promotional allowances; shared media and customer catalog allowances; other cooperative advertising arrangements; freight allowance programs offered to our customers; allowances for discounts and reserves for returns. We recognize Customer Program Costs, primarily as a deduction to gross sales, at the time that the associated revenue is recognized. Customer Program Costs are based on management's best estimates using the most likely amount method and is an amount that is probable of not being reversed. In the absence of a signed contract, estimates are based on historical or projected experience for each program type or customer. We adjust our estimate of revenue when the most likely amount of consideration we expect to receive changes.

Inventories

Inventories are priced at the lower of cost (principally first-in, first-out) or net realizable value. When necessary, the write-down of inventory to its net realizable value is recorded for obsolete or slow-moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions and specific identification of items, such as product discontinuance or engineering/material changes. These estimates could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from our expectations.

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Intangible Assets

Intangible assets are comprised primarily of indefinite-lived and amortizable intangible assets acquired and arising from the application of purchase accounting. Indefinite-lived intangible assets are not amortized, but are evaluated at least annually to determine whether the indefinite useful life is appropriate. Certain of our trade names have been assigned an indefinite life as we currently anticipate that these trade names will contribute cash flows to ACCO Brands indefinitely. Amortizable intangible assets are amortized over their useful lives.

We test indefinite-lived intangibles for impairment annually, during the second quarter, and during any interim period when market or business events indicate there may be a potential adverse impact on a particular intangible. The test may be on a qualitative or quantitative basis as allowed by GAAP. We consider the implications of both external factors (e.g., market growth, pricing, competition, and technology) and internal factors (e.g., product costs, margins, support expenses, and capital investment) and their potential impact on cash flows in both the near and long term, as well as their impact on any identifiable intangible asset associated with the business. Based on recent business results, consideration of significant external and internal factors, and the resulting business projections, indefinite-lived intangible assets are reviewed to determine whether they are likely to remain indefinite-lived, or whether a finite life is more appropriate. In addition, based on events in the period and future expectations, management considers whether the potential for impairment exists. Finite lived intangibles are amortized over 5, 7, 10, 15, 23 or 30 years.

Effective January 1, 2023, we changed the indefinite-lived Leitz® trade name to an amortizable intangible asset and began amortizing the trade name on a straight-line basis over a life of 30 years. The change was made as a result of decisions regarding the Company's future use of the trade name.

Goodwill

Goodwill has been recorded on our balance sheet and represents the excess of the cost of an acquisition when compared with the fair value of the net assets acquired. The authoritative guidance on goodwill and other intangible assets requires that goodwill be tested for impairment at a reporting unit level. We have determined that our reporting units are North America, EMEA and International.

We test goodwill for impairment annually, during the second quarter, or any interim period when market or business events indicate there may be a potential adverse impact on goodwill. As permitted by GAAP, we may perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test as required by GAAP. We performed our annual assessment in the second quarter of 2023, on a qualitative basis, and concluded that it was not more likely than not that the fair value of any reporting unit was less than its carrying amount.

During the fourth quarter of 2023, our forecasted cash flows for our North America reporting unit further declined, including lower demand for our technology accessories, due to a weaker macroeconomic environment, as well as tight inventory management by retail customers. As a result, we identified a triggering event indicating it was more likely than not that an impairment loss had been incurred. Accordingly, as of December 31, 2023, we completed an impairment assessment, on a quantitative basis, for goodwill for each of our three reporting units. The result of our assessment was that the fair value of the North America reporting unit did not exceed its carrying value resulting in an impairment charge of $89.5 million. The result of our assessments for the International and EMEA reporting units was that the fair value of each exceeded its carrying values by approximately ten percent and greater than fifty percent, respectively, and we concluded that no impairment existed.

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

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

Employee Benefit Plans

We provide a range of benefits to our employees and retired employees, including pension, post-retirement, post-employment and health care benefits. We record annual amounts relating to these plans based on calculations specified by GAAP, which include various actuarial assumptions, including discount rates, assumed rates of return, mortality rate tables, compensation increases, turnover rates and health care cost trends. Actuarial assumptions are reviewed on an annual basis and modifications to these assumptions are made based on current rates and trends when it is deemed appropriate. As required by GAAP, the effect of our modifications and unrecognized actuarial gains and losses are generally recorded to a separate component of accumulated other comprehensive income (loss) ("AOCI") in stockholders’ equity and amortized over future periods. We believe that the assumptions utilized in recording our obligations under the plans are reasonable based on our experience. The actuarial assumptions used to record our plan obligations could differ materially from actual results due to changing economic and market conditions, higher or lower withdrawal rates or other factors which may impact the amount of retirement-related benefit expense recorded by us in future periods.

The discount rate assumptions used to determine the pension and post-retirement obligations of the benefit plans are based on a spot-rate yield curve that matches projected future benefit payments with the appropriate interest rate applicable to the timing of the projected future benefit payments. For the majority of the obligations, the assumed discount rates reflect market rates for high-quality corporate bonds currently available and were determined by constructing a yield curve based on a large population of high-quality corporate bonds. Where the corporate bond market is not sufficiently deep, government bond yields are used instead. The resulting discount rates reflect the matching of plan liability cash flows to the yield curves.

For the ACCO Europe Pension Plan, the Company’s discount rate assumption methodology was based on the yield curve that uses a dataset of bonds rated AA by at least one of the main rating agencies.

The expected long-term rate of return on plan assets reflects management’s expectations of long-term average rates of return on funds invested based on our investment profile to provide for benefits included in the projected benefit obligations. The expected return is based on the outlook for inflation, fixed income returns and equity returns, while also considering historical returns over the last 10 years, asset allocation and investment strategy.

We estimate the service and interest components of net periodic benefit cost (income) for pension and post-retirement benefits utilizing a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

At the end of each calendar year an actuarial evaluation is performed to determine the funded status of our pension and post-retirement obligations and any actuarial gain or loss is recognized in AOCI and then amortized into the income statement in future periods, based on the average remaining lifetime or average remaining service expected.

Pension expense was $2.8 million and pension income was $3.1 million and $5.4 million for the years ended December 31, 2023, 2022, and 2021, respectively. Post-retirement income was $0.3 million for the year ended December 31, 2023, and $0.4 million for each of the years ended December 31, 2022 and 2021. The increase in pension expense was due to higher discount rates in our pension plans.

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The weighted average assumptions used to determine benefit obligations for the years ended December 31, 2023, 2022, and 2021 were as follows:

The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, 2023, 2022 and 2021 were as follows:

In 2024, we expect pension income of approximately $0.3 million and post-retirement expense of approximately $2.5 million.

A 25-basis point decrease (0.25 percent) in our discount rate assumption would lead to a decrease in our pension and post-retirement expense of approximately $0.2 million for 2024. A 25-basis point change in our long-term rate of return assumption would lead to an increase or decrease in pension and post-retirement expense of approximately $1.2 million for 2024.

Pension and post-retirement liabilities of $157.6 million as of December 31, 2023, increased from $155.5 million at December 31, 2022. The increase was primarily due to updated assumptions and foreign exchange, partly offset by cash contributions.

Income Taxes

Deferred tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce deferred tax assets to an amount that is more likely than not to be realized. Facts and circumstances may change and cause us to revise our conclusions regarding our ability to realize certain net operating losses and other deferred tax attributes.

The amount of income taxes that we pay is subject to ongoing audits by federal, state and foreign tax authorities. Our estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. We believe that we have adequately provided for reasonably foreseeable outcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period any assessments are received, revised or resolved.

Recently Adopted Accounting Standards

For information on recently adopted accounting pronouncements, see "Note 2. Significant Accounting Policies, Recent Accounting Pronouncements and Adopted Accounting Standards" to the consolidated financial statements contained in Part II. Item 8. of this report.

SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including comparable sales. Comparable sales represent net sales excluding the impact of

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material acquisitions and with current-period foreign operation sales translated at prior-year currency rates. We sometimes refer to comparable sales as comparable net sales.

We use comparable sales both to explain our results to stockholders and the investment community and in the internal evaluation and management of our business. We believe comparable sales provide management and investors with a more complete understanding of our underlying operational results and trends, facilitate meaningful period-to-period comparisons and enhance an overall understanding of our past and future financial performance. Comparable sales should not be considered in isolation or as a substitute for, or superior to, GAAP net sales and should be read in connection with the Company's consolidated financial statements presented in accordance with GAAP and contained in Part II. Item 8 of this report.

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

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ITEM 7. 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 should be read in conjunction with the consolidated financial statements of ACCO Brands Corporation and the accompanying notes contained in Item 8. of this report. The following discussion and analysis are for the year ended December 31, 2022, compared with the same period in 2021 unless otherwise stated. For a discussion and analysis of the year ended December 31, 2021 compared with the same period in 2020, please refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the "SEC") on February 23, 2022.

Overview of the Company

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

ACCO Brands has three operating business segments based in different geographic regions: North America, EMEA, and International. Each business segment designs, markets, sources, manufactures, and sells recognized consumer, technology and business branded products used in schools, homes and at work. Product designs are tailored to end-user preferences in each geographic region, and where possible, leverage common engineering, design, and sourcing.

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

Overview of 2022 Financial Performance

Our net sales decreased $77.7 million, or 3.8 percent in 2022, including 4.6 percent from adverse foreign exchange. Comparable net sales increased 0.8 percent. Price increases added 8.0 percent while volume declined 7.2 percent. Our EMEA and North America segments reported sales declines of 12.5 percent and 4.3 percent, respectively, which was partially offset by 15.4 percent sales growth in our International segment. Volume declines reflect weaker sales of gaming accessories in North America, and lower demand in both North America and EMEA due to the challenging macroeconomic environment in the second half.

Operating income was $34.8 million compared to $151.0 million in 2021, with the decline primarily due to the non-cash goodwill impairment charge of $98.7 million related to the North America segment, partially offset by the favorable change in fair value of $28.0 million related to the PowerA contingent earnout. The decline in operating income also reflects the impact of inflation that exceeded the benefit of price increases and reduced volumes, partially offset by reduced SG&A expense, which includes lower incentive compensation expense.

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We reported a net loss of $13.2 million, or ($0.14) per share compared to net income of $101.9 million, or $1.05 per share in the prior year. The current year net loss reflects the decline in operating income which includes a non-cash goodwill impairment charge.

Our operating cash flow for the year was cash provided of $77.6 million, compared to $159.6 million of cash provided in the prior year with the shortfall due to lower net income. Although down, our seasonal operating cash flow followed our historic pattern of outflow in the first half followed by strong inflows in both quarters of the second half.

We have seen most foreign currencies significantly weaken against the U.S. dollar, which has also adversely affected the sales, profitability and cash flow of our foreign operations which transact business in their local currency. We expect foreign currency fluctuations to continue to impact our results.

We experienced high levels of inflation in our cost of products that continued to escalate throughout the year. We responded by increasing our selling prices but typically the impact of price increases lag the inflationary increase. We expect the timing of inflation and pricing actions to continue to impact our results.

Consolidated Results of Operations for the Years Ended December 31, 2022 and 2021

Net Sales

For the year ended December 31, 2022, net sales decreased $77.7 million, or 3.8 percent. Adverse foreign exchange reduced sales $93.9 million, or 4.6 percent. Comparable net sales increased 0.8 percent. Higher prices across all segments, which added 8.0 percent, were partly offset by lower sales volume of 7.2 percent. The lower volume was driven by North America and EMEA due to challenging macroeconomic conditions in the second half, and lower demand for gaming accessories in North America, partly offset by higher sales volume in International.

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Cost of Products Sold

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

For the year ended December 31, 2022, cost of products sold decreased $15.1 million, or 1.1 percent, due to foreign exchange and reduced sales, partially offset by increased inflation specifically related to inbound and outbound freight, purchased finished goods and raw materials. Foreign exchange reduced cost of products sold $69.6 million, or 4.9 percent.

Gross Profit

For the year ended December 31, 2022, gross profit decreased $62.6 million, or 10.2 percent. Gross profit margin decreased 200 basis points. The reduction in gross profit reflects the decline in sales volume. The decrease in the gross profit margin is primarily due to the cumulative impact of inflationary costs which exceeded our sales price increases. Foreign exchange reduced gross profit $24.3 million, or 4.0 percent.

Selling, General and Administrative Expenses

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

For the year ended December 31, 2022, SG&A decreased $15.9 million, or 4.0 percent, primarily due to lower incentive compensation and the favorable impact of foreign exchange, partially offset by increased sales and marketing expense.

Restructuring Charges

For the year ended December 31, 2022, restructuring charges were $9.6 million compared with $6.0 million in 2021. The current year restructuring expense was primarily for severance costs in North America and EMEA related to cost reduction initiatives. Prior year restructuring expense was primarily related to severance costs in North America and International.

Change in Fair Value of Contingent Consideration

For the year ended December 31, 2022, the change in fair value of contingent consideration related to the earnout for the PowerA acquisition was a favorable change of $28.0 million, due to the reversal of prior period accruals. The PowerA financial results did not warrant any additional earnout payments.

Goodwill Impairment

For the twelve months ended December 31, 2022, we recorded a non-cash goodwill impairment charge of $98.7 million for our North America reporting unit. Our goodwill balance could be at risk of further impairment if operating performance is not as expected.

See "Note 10. Goodwill and Identifiable Intangible Assets" to the consolidated financial statements contained in Part II, Item 8. of this report for more information.

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Operating Income

For the year ended December 31, 2022, operating income decreased $116.2 million to $34.8 million compared to $151.0 million in the prior year, primarily due to the non-cash goodwill impairment charge of $98.7 million for our North America reporting unit, partly offset by the favorable change in our contingent earnout expense of $28.0 million. The decrease reflects the lower gross profit, higher restructuring expense and adverse foreign exchange of $6.3 million. This was partially offset by lower SG&A expenses.

Interest (Income) Expense

For the year ended December 31, 2022, interest income increased $6.4 million due to higher cash balances and increased interest rates in Brazil. Interest expense was similar to prior year with significantly higher rates on our variable debt mitigated by the impact of lower rates due to the bond refinancing.

Other (Income) Expense, Net

For the year ended December 31, 2022, other (income) expense, net increased $16.0 million primarily due to charges of $13.5 million related to the refinancing of our debt in the prior year that did not recur, and a $3.5 million gain on the sale of our Ogdensburg, New York facility in 2022.

Income Tax Expense

For the year ended December 31, 2022, we recorded income tax expense of $28.1 million on income before taxes of $14.9 million. This reflects no income tax benefit on the non-deductible goodwill impairment charge of $98.7 million. This compared with an income tax expense of $9.5 million on income before taxes of $111.4 million for the twelve months ended December 31, 2021 which included a $15.5 million benefit from the reversal of a valuation allowance.

See "Note 12. Income Taxes" to the Consolidated Financial Statements contained in Part II, Item 8. of this report for more information.

Net (Loss) Income/Diluted (Loss) Income per Share

For the year ended December 31, 2022, net loss was $13.2 million, or ($0.14) per share, compared to net income of $101.9 million, or $1.05 per share, in the prior year. The current year net loss reflects the decline in operating income which includes a non-cash goodwill impairment charge.

Segment Net Sales and Operating Income for the Years Ended December 31, 2022 and 2021

ACCO Brands North America

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(1)
Segment operating income for North America includes goodwill impairment charges but excludes corporate costs. See "Note 18. Information on Business Segments" to the consolidated financial statements contained in Part II, Item 8. of this report for a reconciliation of total "Segment operating income" to "Income before income tax."

(2)
See reconciliation to GAAP, contained in Part II, Item 7. "Supplemental Non-GAAP Financial Measures" of this report.

For the year ended December 31, 2022, net sales decreased $44.4 million, or 4.3 percent. Decreased volume of $100.5 million, or 9.6 percent, was partly offset by sales price increases which added $60.3 million, or 5.8 percent. The volume decline is primarily due to lower sales of gaming accessories from lower industry-wide demand and the continued impact of semiconductor chip shortages. The lower sales of gaming accessories were partly offset by increases in sales of business and school products and computer accessories. Sales were also negatively impacted by lower inventory replenishment by our retailer customers during the second half of the year due to the challenging macroeconomic environment.

For the year ended December 31, 2022, operating loss was $4.9 million compared to operating income of $121.9 million, primarily due to the non-cash goodwill impairment charge of $98.7 million. The decrease in operating results and operating margin was also impacted by lower sales volume and higher inflation on raw materials, finished goods and inbound and outbound freight costs.

ACCO Brands EMEA

(1)
Segment operating income excludes corporate costs. See "Note 18. Information on Business Segments" to the consolidated financial statements contained in Part II, Item 8. of this report for a reconciliation of total "Segment operating income" to "Income before income tax."

(2)
See reconciliation to GAAP, contained in Part II, Item 7. "Supplemental Non-GAAP Financial Measures" of this report.

For the year ended December 31, 2022, net sales decreased $82.6 million, or 12.5 percent. Adverse foreign exchange reduced sales by $78.2 million, or 11.8 percent. Comparable net sales decreased 0.7 percent, reflecting lower volume of $67.0 million, or 10.1 percent, primarily from reduced demand for business products due to a challenging macroeconomic environment. Price increases partly offset the lower volume, adding $62.7 million, or 9.5 percent.

For the year ended December 31, 2022, operating income decreased $40.0 million, or 64.8 percent. Adverse foreign exchange reduced operating income by $4.8 million, or 7.8 percent. Operating income and operating margin decreased due to lower sales volume, higher costs for raw materials and freight due to inflation that exceeded the impact of price increases and negative fixed cost leverage.

ACCO Brands International

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(1)
Segment operating income excludes corporate costs. See "Note 18. Information on Business Segments" to the consolidated financial statements contained in Part II, Item 8. of this report for a reconciliation of total "Segment operating income" to "Income before income tax."

(2)
See reconciliation to GAAP, contained in Part II, Item 7. "Supplemental Non-GAAP Financial Measures" of this report.

For the year ended December 31, 2022, net sales increased $49.3 million, or 15.4 percent. Adverse foreign exchange reduced sales $11.4 million, or 3.6 percent. Comparable net sales increased 19.0 percent, due to price increases, which added $38.9 million or 12.2 percent, and increased volume of $21.7 million, or 6.8 percent, primarily in Latin America due to a return to in-person education and work.

For the year ended December 31, 2022, operating income increased $18.9 million, or 59.8 percent. The increase in operating income was due to higher sales volumes, pricing, and improved expense leverage. Foreign exchange reduced operating income $1.3 million.

Liquidity and Capital Resources

Our primary liquidity needs are to support our working capital requirements, service indebtedness and fund capital expenditures, dividends, repurchase stock, and acquisitions. 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 December 31, 2022, there was $72.8 million in borrowings outstanding under the Revolving Facility ($23.6 million reported in "Current portion of long-term debt" and $49.2 million reported in "Long-term debt, net"), and the amount available for borrowings was $517.8 million (allowing for $9.4 million of letters of credit outstanding on that date). We had $62.2 million cash on hand as of December 31, 2022.

Effective November 7, 2022, we entered into an amendment to our bank credit agreement, which increases our maximum consolidated leverage ratio financial covenant ("Consolidated Leverage Ratio"), beginning with the fourth quarter of 2022 through December 2023 and for the first and second quarters of each year thereafter, and favorably amends several other items. As of December 31, 2022, our Consolidated Leverage Ratio was approximately 4.16 to 1.00 versus our maximum covenant of 4.50 to 1.00. We have no debt maturities before March 2026.

The $429.9 million of debt currently outstanding under our senior secured credit facilities has a weighted average interest rate of 4.90 percent as of December 31, 2022, and the $575.0 million outstanding principal amount of our senior unsecured notes due March 2029 ("Senior Unsecured Notes") has a fixed interest rate of 4.25 percent.

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Summary of Cash Flow by Quarter and Full-Year for 2022 and 2021

Because of the seasonality of our business, all our operating cash flow is generated in the second half of the year, as the cash inflows in the first and second quarters are consumed building working capital and for making our annual performance-based compensation payments, when earned. Our third and fourth quarter cash flow comes from completing the working capital cycle. Although down, our 2022 operating cash flow followed our historical seasonal pattern.

Consolidated cash and cash equivalents were $62.2 million as of December 31, 2022, approximately $43.3 million of which was held in Brazil. Our Brazilian business is 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 them in short-term Brazilian government securities.

Debt

Effective November 7, 2022, the Company entered into a Sixth Amendment (the "Sixth Amendment") to its Third Amended and Restated Credit Agreement, as amended, among the Company, certain subsidiaries of the Company, Bank of America, N.A., as administrative agent, and the other lenders party thereto (the "Credit Agreement"). Pursuant to the Sixth Amendment, the Credit Agreement was amended to, among other things:

•
increase the maximum Consolidated Leverage Ratio financial covenant from then current levels for each of the five fiscal quarters beginning December 31, 2022, and ending December 31, 2023, as follows:

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•
modify the maximum Consolidated Leverage Ratio financial covenant for all first and second fiscal quarters after December 31, 2023, from the current level of 4.00x to 4.50x, while maintaining the current level of 4.00x for all third and fourth fiscal quarters;

•
limit the maximum Consolidated Leverage Ratio to 5.00:1.00 at any time, thereby capping any material acquisition step ups for the fiscal quarters ending March 31, 2023, June 30, 2023 and September 30, 2023;

•
increase the Company’s flexibility under the restricted payments baskets;

•
remove the anti-cash hoarding provision; and

•
change the U.S. dollar reference rate from LIBOR-based pricing to SOFR-based pricing, with no changes to existing margins.

The current maturity of the Credit Agreement, as amended, is March 31, 2026.

Financial Covenants

As of December 31, 2022, our Consolidated Leverage Ratio was approximately 4.16 to 1.00 versus our maximum covenant of 4.50 to 1.00. Our Interest Coverage Ratio was approximately 6.56 to 1.00 versus the minimum covenant of 3.00 to 1.00.

Other Covenants and Restrictions

The Credit Agreement, as amended, contains customary affirmative and negative covenants as well as events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults, certain bankruptcy or insolvency events, certain ERISA-related events, changes in control or ownership and invalidity of any loan document. The Credit Agreement, as amended, also establishes limitations on the aggregate amount of Permitted Acquisitions and Investments (each as defined in the Credit Agreement, as amended) that the Company and its subsidiaries may make during the term of the Credit Agreement, as amended.

As of and for the periods ended December 31, 2022 and December 31, 2021, the Company was in compliance with all applicable loan covenants under its senior secured credit facilities and the Senior Unsecured Notes.

Guarantees and Security

Generally, obligations under the Credit Agreement, as amended, 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.

For further information, see "Note 4. Long-term Debt and Short-term Borrowings" to the consolidated financial statements contained in Part II. Item 8. of this report.

Restructuring and Integration Activities

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

During the year ended December 31, 2022, the Company recorded $9.6 million in restructuring expenses: $5.3 million of restructuring expense for our North America segment; $3.4 million for our EMEA segment; $0.7 million for our International segment; and $0.2 million for Corporate. Restructuring charges in 2022 were primarily for severance costs related to cost reduction initiatives which are expected to generate approximately $13.0 million of savings in our North America and EMEA

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segments, the majority of which will be realized in the next twelve months. For further information, see "Note 11. Restructuring" to the consolidated financial statements contained in Part II. Item 8. of this report.

In addition, during the year ended December 31, 2021, the Company recorded an aggregate $2.6 million in integration and transaction expenses related to the acquisitions of PowerA and Foroni.

Cash Flow for the Years Ended December 31, 2022 and 2021

Cash Flow from Operating Activities

Cash provided by operating activities during the year ended December 31, 2022 was $77.6 million, a decrease of $82.0 million compared to cash provided by operating activities of $159.6 million during the prior year. The decrease in cash provided by operating activities was primarily driven by lower net income of $115.1 million, partially offset by non-cash add backs of $70.5 million, which includes a goodwill impairment charge. Cash provided by operating activities was also down due to higher annual incentive payments of $15.3 million, a contingent earnout payment of $9.2 million, an increase in cash used for customer programs, income taxes, and higher payments related to all other current and non-current liabilities, partially offset by lower investments in trade working capital of $67.0 million.

The table below shows our cash flow provided (used) by accounts receivable, inventories and accounts payable for the years ended December 31, 2022 and 2021:

•
Accounts receivable was a source of cash of $31.6 million during the twelve months ended December 31, 2022, a favorable change of $109.2 million compared to a use of cash of $77.6 million during the twelve months ended December 31, 2021. The $109.2 million favorable change was due to increased recovery of past due accounts and a reduction of accounts receivable due to lower sales in the current year. The prior year included an increase in accounts receivable due to the acquisition of PowerA.

•
Inventories was a source of cash of $23.2 million during the twelve months ended December 31, 2022, a favorable change of $155.0 million when compared with the $131.8 million cash used during the twelve months ended December 31, 2021. The favorable change was primarily driven by a reduction in inventory levels when compared to the prior year during which significant safety stock was purchased to mitigate supply chain issues. These reductions are partly offset by higher costs driven by inflation on raw materials and finished goods.

•
Accounts payable was a use of cash of $66.0 million during the twelve months ended December 31, 2022, an unfavorable change of $197.2 million when compared to a source of cash of $131.2 million during the twelve months ended December 31, 2021. The $197.2 million unfavorable change was due to lower inventory purchases in 2022 and a higher level of accounts payable at the end of the prior year.

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Cash Flow from Investing Activities

Cash used by investing activities was $9.3 million and $5.8 million for the twelve months ended December 31, 2022 and 2021, respectively. Cash provided by acquisitions decreased by $15.4 million primarily because the prior year period included a working capital adjustment received from the seller of PowerA that did not recur. Partially offsetting this were proceeds from the sale of our Ogdensburg, New York facility of $6.6 million and lower cash used for capital expenditures of $4.7 million.

Cash Flow from Financing Activities

Cash used by financing activities was $48.3 million for the twelve months ended December 31, 2022, a decrease of cash used of $98.9 million, compared with cash used of $147.2 million by financing activities during the prior year. The decrease of $98.9 million primarily relates to an increase in cash provided by our incremental net borrowings of $119.8 million, compared to the prior year. In addition, cash outflows related to our debt refinancing decreased $19.1 million compared to the prior year. Partly offsetting the cash provided by financing activities were uses of cash for share repurchases of $19.4 million and increases in the contingent earnout payment of $17.4 million and dividends paid of $2.8 million, compared to the prior year.

Capitalization

The Company had 94.3 million and 95.8 million shares of common stock outstanding as of December 31, 2022, and 2021, respectively.

Adequacy of Liquidity Sources

Based on our 2023 business plan and current forecasts, we believe that cash flow from operations, our current cash balance and borrowings available under our Revolving Facility will be adequate to support our requirements for working capital, capital expenditures, dividend payments, share repurchases and debt service in both the short and long-term. Our future operating performance is dependent on many factors, some of which are beyond our control, including prevailing economic, financial and industry conditions. For further information on these risks, see "Part I, Item1A. Risk Factors" of this report.

Off-Balance-Sheet Arrangements and Contractual Financial Obligations

The Company does not have any material off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Our contractual obligations and related payments by period as of December 31, 2022 were as follows:

(1)
Interest calculated at December 31, 2022, rates for variable rate debt.

(2)
For further information on leases, see "Note 5. Leases" to the consolidated financial statements contained in Item 8. of this report.

(3)
Purchase obligations primarily consist of contracts and non-cancelable purchase orders for raw materials and finished goods.

(4)
The U.S. Tax Cuts and Jobs Act requires companies to pay a one-time Transition Toll Tax, which is payable over eight years.

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(5)
Other long-term liabilities consist of estimated expected employer contributions for 2023, along with estimated future payments, for pension and post-retirement plans that are not paid from assets held in a plan trust.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at December 31, 2022, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $39.1 million of unrecognized tax benefits have been excluded from the contractual obligations table above. For further information, see "Note 12. Income Taxes" to the consolidated financial statements contained in Part II. Item 8. of this report.

Critical Accounting Policies

Our financial statements are prepared in conformity with generally accepted accounting principles in the U.S. ("GAAP"). Preparation of our financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses presented for each reporting period in the financial statements and the related accompanying notes. Actual results could differ significantly from those estimates. We regularly review our assumptions and estimates, which are based on historical experience and, where appropriate, current business trends. We believe that the following discussion addresses our critical accounting policies, which require significant, subjective and complex judgments to be made by our management.

Revenue Recognition

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

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

For our products, we transfer control and recognize a sale primarily when we either ship the product from our manufacturing facility or distribution center, or upon delivery to a customer-specified location depending upon the terms in the customer agreement. In addition, we recognize revenue for private label products as the product is manufactured (or over time) when a contract has an enforceable right to payment. For consignment arrangements, revenue is not recognized until the products are sold to the end customer.

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Customer programs and incentives ("Customer Program Costs") are a common practice in our industry. We incur Customer Program Costs to obtain favorable product placement, to promote sell-through of products and to maintain competitive pricing. The amount of consideration we receive and revenue we recognize is impacted by Customer Program Costs, including sales rebates; in-store promotional allowances; shared media and customer catalog allowances; other cooperative advertising arrangements; freight allowance programs offered to our customers; allowances for discounts and reserves for returns. We recognize Customer Program Costs, primarily as a deduction to gross sales, at the time that the associated revenue is recognized. Customer Program Costs are based on management's best estimates using the most likely amount method and is an amount that is probable of not being reversed. In the absence of a signed contract, estimates are based on historical or projected experience for each program type or customer. We adjust our estimate of revenue when the most likely amount of consideration we expect to receive changes.

Inventories

Inventories are priced at the lower of cost (principally first-in, first-out) or net realizable value. When necessary, the write-down of inventory to its net realizable value is recorded for obsolete or slow-moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions and specific identification of items, such as product discontinuance or engineering/material changes. These estimates could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from our expectations.

Intangible Assets

Intangible assets are comprised primarily of indefinite-lived and amortizable intangible assets acquired and arising from the application of purchase accounting. Indefinite-lived intangible assets are not amortized, but are evaluated at least annually to determine whether the indefinite useful life is appropriate. Certain of our trade names have been assigned an indefinite life as we currently anticipate that these trade names will contribute cash flows to ACCO Brands indefinitely. Amortizable intangible assets are amortized over their useful lives.

We test indefinite-lived intangibles for impairment annually, during the second quarter, and during any interim period when market or business events indicate there may be a potential adverse impact on a particular intangible. The test may be on a qualitative or quantitative basis as allowed by GAAP. We consider the implications of both external factors (e.g., market growth, pricing, competition, and technology) and internal factors (e.g., product costs, margins, support expenses, and capital investment) and their potential impact on cash flows in both the near and long term, as well as their impact on any identifiable intangible asset associated with the business. Based on recent business results, consideration of significant external and internal factors, and the resulting business projections, indefinite-lived intangible assets are reviewed to determine whether they are likely to remain indefinite-lived, or whether a finite life is more appropriate. In addition, based on events in the period and future expectations, management considers whether the potential for impairment exists. Finite lived intangibles are amortized over 5, 7, 10, 15, 23 or 30 years.

We performed our annual assessment, in the second quarter of 2022, on a qualitative basis, and concluded that it was not more likely than not that the fair value of any indefinite-lived intangible was less than its carrying amount. During 2022, our revenue generated from our Leitz indefinite-lived trade name declined. Accordingly, as of August 31, 2022, we completed an impairment assessment, on a quantitative basis, for our Leitz indefinite-lived trade name. The result of our assessment was that the fair value of the Leitz indefinite-lived trade name exceeded its carrying value by less than five percent and we concluded that no impairment existed. In addition, we have not identified a triggering event through December 31, 2022 that more likely than not would result in impairment.

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Goodwill

Goodwill has been recorded on our balance sheet and represents the excess of the cost of an acquisition when compared with the fair value of the net assets acquired. The authoritative guidance on goodwill and other intangible assets requires that goodwill be tested for impairment at a reporting unit level. We have determined that our reporting units are North America, EMEA and International.

We test goodwill for impairment annually, during the second quarter, or any interim period when market or business events indicate there may be a potential adverse impact on goodwill. As permitted by GAAP, we may perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test as required by GAAP. We performed our annual assessment in the second quarter of 2022, on a quantitative basis, and concluded that it was not more likely than not that the fair value of any reporting unit was less than its carrying amount.

During the third quarter of 2022, our market capitalization declined further compared to the second quarter of 2022. In addition, our forecasted cash flows for our North America and EMEA reporting units decreased due to lower inventory replenishment by major retailers, lower sales of gaming accessories, and a challenging demand environment in several countries within EMEA. As a result, we identified a triggering event indicating it was more likely than not that an impairment loss had been incurred. Accordingly, as of August 31, 2022, we completed a goodwill impairment assessment, on a quantitative basis, for goodwill for each of our three reporting units. The result of our assessment was that the fair value of the North America reporting unit did not exceed its carrying value resulting in an impairment charge of $98.7 million. The result of our assessment for the International and EMEA reporting units was that the fair value of each exceeded its carrying values by greater than ten percent and fifty percent, respectively, and we concluded that no impairment existed.

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

The implied fair values of all three of our reporting units, more likely than not, exceed their carrying values at December 31, 2022. In addition, we have not identified a triggering event that would cause us to perform another quantitative goodwill impairment analysis. We believe the assumptions used in our goodwill impairment analysis are appropriate and result in reasonable estimates of the implied fair value of each reporting unit. However, given the economic environment and the uncertainties regarding the impact on our business, there can be no assurance that our estimates and assumptions, made for purposes of our goodwill impairment testing, will prove to be an accurate prediction of the future. If our assumptions regarding future performance are not achieved, we may be required to record additional goodwill impairment charges in future periods.

Employee Benefit Plans

We provide a range of benefits to our employees and retired employees, including pension, post-retirement, post-employment and health care benefits. We record annual amounts relating to these plans based on calculations specified by GAAP, which include various actuarial assumptions, including discount rates, assumed rates of return, mortality rate tables, compensation increases, turnover rates and health care cost trends. Actuarial assumptions are reviewed on an annual basis and modifications to these assumptions are made based on current rates and trends when it is deemed appropriate. As required by GAAP, the effect of our modifications and unrecognized actuarial gains and losses are generally recorded to a separate component of accumulated other comprehensive income (loss) ("AOCI") in stockholders’ equity and amortized over future periods. We believe that the assumptions utilized in recording our obligations under the plans are reasonable based on our experience. The actuarial assumptions used to record our plan obligations could differ materially from actual results due to changing economic and market conditions, higher or lower withdrawal rates or other factors which may impact the amount of retirement-related benefit expense recorded by us in future periods.

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The discount rate assumptions used to determine the pension and post-retirement obligations of the benefit plans are based on a spot-rate yield curve that matches projected future benefit payments with the appropriate interest rate applicable to the timing of the projected future benefit payments. For the majority of the obligations, the assumed discount rates reflect market rates for high-quality corporate bonds currently available and were determined by constructing a yield curve based on a large population of high quality corporate bonds. Where the corporate bond market is not sufficiently deep, government bond yields are used instead. The resulting discount rates reflect the matching of plan liability cash flows to the yield curves.

For the ACCO Europe Pension Plan, the Company’s discount rate assumption methodology was based on the yield curve that uses a dataset of bonds rated AA by at least one of the main rating agencies.

The expected long-term rate of return on plan assets reflects management’s expectations of long-term average rates of return on funds invested based on our investment profile to provide for benefits included in the projected benefit obligations. The expected return is based on the outlook for inflation, fixed income returns and equity returns, while also considering historical returns over the last 10 years, asset allocation and investment strategy.

We estimate the service and interest components of net periodic benefit cost (income) for pension and post-retirement benefits utilizing a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

At the end of each calendar year an actuarial evaluation is performed to determine the funded status of our pension and post-retirement obligations and any actuarial gain or loss is recognized in AOCI and then amortized into the income statement in future periods, based on the average remaining lifetime or average remaining service expected.

Pension income was $3.1 million, $5.4 million and $2.1 million for the years ended December 31, 2022, 2021, and 2020, respectively. Post-retirement income was $0.4 million for each of the years ended December 31, 2022, 2021, and 2020. The decrease in pension income was due to higher discount rates in our foreign pension plans.

The weighted average assumptions used to determine benefit obligations for the years ended December 31, 2022, 2021, and 2020 were as follows:

The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, 2022, 2021 and 2020 were as follows:

In 2023, we expect pension income of approximately $0.4 million and post-retirement expense of approximately $1.6 million.

A 25-basis point decrease (0.25 percent) in our discount rate assumption would lead to an increase in our pension and post-retirement expense of approximately $0.7 million for 2023. A 25-basis point change in our long-term rate of return assumption would lead to an increase or decrease in pension and post-retirement expense of approximately $1.1 million for 2023.

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Pension and post-retirement liabilities of $155.5 million as of December 31, 2022, decreased from $222.3 million at December 31, 2021, primarily due to the higher discount rate assumptions compared to the prior year, partly offset by investment losses in 2022. These factors were the primary reasons for the actuarial gains of $204.5 million that were recognized in 2022.

Income Taxes

Deferred tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce deferred tax assets to an amount that is more likely than not to be realized. Facts and circumstances may change and cause us to revise our conclusions regarding our ability to realize certain net operating losses and other deferred tax attributes.

The amount of income taxes that we pay is subject to ongoing audits by federal, state and foreign tax authorities. Our estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. We believe that we have adequately provided for reasonably foreseeable outcomes related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period any assessments are received, revised or resolved.

Recently Adopted Accounting Standards

For information on recently adopted accounting pronouncements, see "Note 2. Significant Accounting Policies, Recent Accounting Pronouncements and Adopted Accounting Standards" to the consolidated financial statements contained in Part II. Item 8. of this report.

SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES

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

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

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

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ITEM 7. 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 should be read in conjunction with the consolidated financial statements of ACCO Brands Corporation and the accompanying notes contained in Item 8. of this report. The following discussion and analysis are for the year ended December 31, 2021, compared with the same period in 2020 unless otherwise stated. For a discussion and analysis of the year ended December 31, 2020, compared with the same period in 2019, please refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (the "SEC") on February 27, 2021.

Overview of the Company

ACCO Brands designs, markets, and manufactures well-recognized consumer, school, technology and office products. Our widely known brands include AT-A-GLANCE®, Barrilito®, Derwent®, Esselte®, Five Star®, Foroni®, GBC®, Hilroy®, Kensington®, Leitz®, Marbig®, Mead®, NOBO®, PowerA®, Quartet®, Rapid®, Rexel®, Swingline®, Tilibra®, and TruSens®. Approximately 70 percent of our sales come from brands that occupy the No. 1 or No. 2 position in the product categories in which we compete. Our top 12 brands represented $1.5 billion of our 2021 net sales. We distribute our products through a wide variety of channels to ensure that our products are readily and conveniently available for purchase by consumers and other end-users, wherever they prefer to shop. These channels include mass retailers; e-tailers; discount, drug/grocery and variety chains; warehouse clubs; hardware and specialty stores; independent office product dealers; office superstores; wholesalers; contract stationers; technology specialty businesses; and our direct-to-consumer channel. Our products are sold primarily in the U.S., Europe, Australia, Canada, Brazil and Mexico.

We have transformed our business by investing in innovative branded consumer and technology products for use in businesses, schools, and homes, both organically and through acquisitions. This change should enable us to continue to organically grow sales and increase profitability by focusing our selling efforts on growing channels, as well as strategically managing declining customers and commoditized product categories, which remain important profit and cash generators. Our top five customers represented 36 percent of our sales in 2021.

Our business is consumer- and brand-centric, product differentiated, and geographically diverse. Organically, we have grown our PowerA® video gaming accessories, Kensington® computer accessories and Leitz® and Rexel® European range of shredders and organization product offerings. ACCO Brands remains a leading supplier of school products, including our top-selling Five Star® line of school notebooks in North America, laminating machines, and stapling and punching products, among others. We have also entered the wellness category with TruSens® branded air purifiers, which we plan to expand over the next few years.

We have made five major acquisitions over the past six years. These acquisitions have meaningfully expanded our portfolio of well-known brands, enhanced our competitive position from both a product and channel perspective, and added scale to our operations. Historically, our approach to acquisitions has focused on consolidation and geographic expansion opportunities that met our strategic and financial criteria. Strategically, we have targeted categories or geographies that provided opportunities for growth, leading brands, and channel diversity. More recently we have prioritized growing product categories, including adjacencies.

Our recent acquisition of PowerA in late 2020 allowed us to enter an attractive product category of third-party video gaming accessories, including controllers, power charging stations, and headsets. The addition of PowerA, has meaningfully improved ACCO Brands' potential for organic sales growth and profitability and reinforced our presence in the faster growing mass and e-commerce channels. PowerA sales grew 22 percent in 2021 as compared to its 2020 pro forma annual sales, and is expected to continue to provide double-digit sales growth for the next several years. The Company plans to expand this business internationally, particularly in Europe and Asia, adding to organic growth over the longer term. PowerA® and Kensington® are now our two largest and fastest growing brands, representing approximately 25 percent of our sales.

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Our leading product category positions provide the scale to invest in marketing and product innovation to drive profitable growth. We expect to grow in mature markets in the gaming, technology, and branded school and office categories. We also anticipate continuing recovery in areas depressed from COVID-19.

We generate strong operating cash flow and will continue to leverage our cost structure through acquisitions, synergies and productivity savings to drive long-term profit and operating cash flow improvement.

Overview of 2021 Performance

Our net sales increased $370.1 million, or 22.4 percent in 2021, primarily from the acquisition of PowerA, which added $249.6 million. Excluding the impact on sales attributable to the PowerA acquisition, sales increased 7.3 percent as a result of price increases and higher demand. EMEA delivered growth above pre-pandemic sales levels. Our North America and International segments' sales were above 2020 levels due to higher prices and improved volume as schools and offices reopened in certain markets, although not to levels prior to the pandemic. Foreign exchange benefited sales $38.1 million, or 2.3 percent. Sales growth varied by channel as depicted in the table below, which includes the benefit from the acquisition of PowerA (mainly in the Mass/Retail and E-tail channels):

The Company recorded operating income of $151.0 million. Underlying performance was impacted by a charge of $19.0 million related to the change in fair value of the contingent consideration that was part of the PowerA purchase price, and $15.4 million of additional amortization resulting from the acquisition. Gross margin rose 70 basis points as improvements in North America and International offset a decline in EMEA. SG&A expenditures increased due to the PowerA acquisition and because the prior-year benefited from many pandemic-related, short-term cost reductions, including lower management incentive expenses and $6.7 million in higher government assistance. Foreign exchange benefited operating income $4.5 million, or 4.0 percent, and added $4.1 million to net income.

Operating cash inflow for 2021 was $159.6 million, compared with last year's operating cash inflow of $119.2 million, representing a $40.4 million year-over-year increase. The PowerA acquisition generated an operating cash outflow of $14.5 million.

The following key factors affected our 2021 results:

•COVID-19 significantly impacted our sales to consumers who work in offices and attend schools. The negative impacts were mainly felt starting in the second quarter of 2020, which meant that 2021 started with an adverse comparison for the first quarter and then showed improving results for the subsequent quarters and full year.

•The acquisition of PowerA in December 2020 significantly increased our 2021 sales, as PowerA sales were included for the full year. We borrowed on our revolver to finance the acquisition, temporarily increasing our net leverage ratio. During the first quarter of 2021, we refinanced all of our bank and bond debt. By year end 2021, we had returned our bank net leverage ratio to below pre-acquisition levels from a combination of improved profitability and debt reduction. The PowerA acquisition included contingent consideration, which, along with increased intangible amortization, increased operating expenses.

•We experienced substantial levels of inflation in the cost of our products and logistics that continued to escalate throughout the year. We responded by increasing our selling prices but typically the impact of these increases lag the inflationary increase. Global supply chain disruptions and limited availability of computer chips resulted in back orders and lost sales. We expect both higher costs and supply chain disruptions to continue for some time.

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•Foreign currency translation impacts the results of our foreign operations which are reported in U.S. dollars, and can also impact the profitability of our foreign operations because they purchase goods in Asia in U.S. dollars. We began the year with favorable foreign exchange, but this changed during the year and we finished with foreign exchange as a headwind, which we anticipate will continue throughout 2022.

•Our 2021 results reflect a normal level of operating expenses, whereas our 2020 results were impacted by short-term cost reductions taken to offset the financial impact of the pandemic. The temporary cost reductions were gradually rescinded in late 2020 and early 2021, creating the difference. In addition, during 2021, we recorded $6.0 million in restructuring charges to further reduce long-term expenses. Long-term cost reductions taken in 2020 also benefited 2021 results.

•Our 2021 results reflect a very low effective tax rate as a consequence of releasing certain reserves.

Operating Segments

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

Each business segment designs, markets, sources, manufactures, and sells recognized consumer, technology and other end-user demanded branded products used in businesses, schools, and homes. Product designs are tailored to end-user preferences in each geographic region, and where possible, leverage common engineering, design, and sourcing.

Our product categories include gaming and computer accessories; storage and organization; notebooks; shredding; laminating and binding machines; stapling; punching; calendars; dry erase boards; and do-it-yourself tools, among others. Our portfolio includes both globally and regionally recognized brands.

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

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Consolidated Results of Operations for the Years Ended December 31, 2021 and 2020

(1)    The Company acquired PowerA effective December 17, 2020; the results of PowerA are included as of that date.

Net Sales

For the year ended December 31, 2021, net sales increased primarily due to the PowerA acquisition, which added $249.6 million, or 15.1 percent. Comparable sales rose 5.0 percent due equally to higher sales prices and volume. The higher volume resulted from the reopening of offices and schools within certain geographical regions. Favorable foreign exchange was $38.1 million, or 2.3 percent.

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 processes; allocation of certain information technology costs supporting those processes; inbound and outbound freight; shipping and handling costs; purchasing costs associated with materials and packaging used in the production processes, and inventory valuation adjustments.

For the year ended December 31, 2021, the PowerA acquisition added $178.0 million, or 15.3 percent. Foreign exchange increased cost of products sold $25.4 million, or 2.2 percent. Excluding the impact of the PowerA acquisition and foreign exchange, cost of products sold increased, primarily due to cost inflation and higher sales.

Gross Profit

For the year ended December 31, 2021, the PowerA acquisition contributed $71.6 million, or 14.5 percent and foreign exchange increased gross profit $12.7 million, or 2.6 percent. Excluding the effects of the PowerA acquisition and foreign exchange, gross profit rose primarily due to higher comparable sales, cost savings, and lower inventory reserve charges, which were partially offset by higher logistics and commodity costs.

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For the year ended December 31, 2021, gross profit as a percent of net sales increased 70 basis points, but the impact by segment differed with North America and International showing improvement, partly offset by margin degradation in EMEA. Overall gross profit margin rose primarily from cost savings and lower inventory reserve charges due to higher sales.

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., information technology, finance, human resources).

For the year ended December 31, 2021, the PowerA acquisition increased SG&A $21.1 million, or 6.3 percent, foreign exchange added $7.2 million, or 2.1 percent, and integration and transaction costs were $2.6 million. The prior-year period included $4.2 million in higher government assistance and $4.4 million in integration costs related to prior acquisitions. Excluding the impact of PowerA acquisition integration and transaction costs, and foreign exchange, SG&A increased $25.6 million as our benefits and compensation were restored to normal levels and our go-to-market costs increased. These factors were partly offset by long-term cost reductions and lower bad debt expense due to improved collections on accounts receivable. The prior period benefited from many pandemic-related, short-term cost reductions, including the government assistance noted above.

For the year ended December 31, 2021, excluding the impact of the PowerA acquisition and foreign exchange, SG&A as a percentage of net sales decreased 90 basis points from the comparable prior year period primarily because of higher sales.

Restructuring Charges

For the year ended December 31, 2021, restructuring charges were $6.0 million compared with $10.9 million in 2020. Costs associated with severance expense were $5.2 million, primarily in North America. Lease abandonment charges were $0.7 million related to facilities in North America and Mexico.

Operating Income

For the year ended December 31, 2021, operating income rose to $151.0 million, primarily due to higher net sales and improved gross margin. The PowerA acquisition added operating income of $15.4 million which includes $19.0 million related to the contingent consideration expense and $13.5 million of higher amortization related to the PowerA acquisition. Restructuring costs were $4.9 million lower than prior year. Foreign exchange benefited operating income $4.5 million, or 4.0 percent.

Interest Expense

For the year ended December 31, 2021, the increase in interest expense was primarily due to higher average debt outstanding due to the PowerA acquisition.

Other Expense (Income), Net

Other expense (income), net included a call premium of $9.8 million and $3.7 million for the write-off of debt issuance costs, which was partly offset by $10.7 million of Brazilian operating tax credits as a result of favorable judicial court rulings.

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Income Tax Expense

The decrease in the effective rate versus the year ended December 31, 2020, was primarily driven by the release of non-U.S. reserves for unrecognized tax benefits related to our foreign-sourced income and the revaluation of the deferred tax assets due to enacted statutory tax rate changes.

See "Note 12. Income Taxes to the Consolidated Financial Statements contained in Part II, Item 8." of this report for additional details.

Net Income/Diluted Income per Share

For the year ended December 31, 2021, net income increased primarily due to higher operating income. Higher interest expense was largely offset by lower taxes. Foreign exchange increased net income $4.1 million, or 6.6 percent.

Segment Net Sales and Operating Income for the Years Ended December 31, 2021 and 2020

ACCO Brands North America