ACCO BRANDS Corp (ACCO) FY 2021 MD&A

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

(1)Segment operating income excludes corporate costs, including changes in fair value of the contingent consideration. 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, 2021, net sales increased due to the PowerA acquisition which added $199.8 million, mainly in the mass and e-tail channels. Favorable foreign exchange increased net sales $7.4 million, or 0.9 percent. Comparable sales increased primarily due to $15.1 million in higher sales prices. Sales volume was flat for the full year as a decline in the first quarter from COVID-19 impacts was offset by improving demand throughout the rest of the year as schools and offices reopened.

For the year ended December 31, 2021, operating income increased $38.9 million, primarily due to the PowerA acquisition, which contributed $23.2 million (including $12.9 million of increased amortization related to the acquisition, and $3.0 million of inventory step-up charges) and $19.8 million from long-term cost reductions and $7.6 million from lower inventory charges due to higher sales, partly offset by normal SG&A expenses as the prior year benefited from many pandemic-related, short-term cost reduction measures. Restructuring charges were $3.2 million lower, and favorable foreign exchange added $1.2 million. Sales price increases did not benefit operating income as they were offset by increases in logistics and commodity costs, as well as salary and wage inflation.

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ACCO Brands EMEA

(1)Segment operating income excludes corporate costs, including changes in fair value of the contingent consideration. 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, 2021, net sales increased primarily because of improved volume due to economic recovery and market share gains. Strong sales growth came from computer accessories, do-it-yourself tools, home-use filing items, shredders, air purifiers, and art supplies, along with an increase in many commercial product categories and $12.7 million from the Franken product range. The PowerA acquisition added $37.5 million, favorable foreign exchange contributed $22.1 million, and higher sales prices added $15.1 million. Comparable sales of $603.3 million increased 15.1 percent, mainly due to improved volume.

For the year ended December 31, 2021, operating income and operating margin increased primarily due to the PowerA acquisition, which contributed $8.6 million, and foreign exchange, which added $2.1 million, or 4.1 percent. Strong increases in operating income in the first half were partially offset by declines in the second half primarily due to lower gross profit caused by higher logistics and commodity costs. These cost increases significantly exceeded the benefit of higher sales prices. SG&A expenses increased as the prior period benefited from many pandemic-related, short-term cost reduction measures, including $2.1 million of higher government assistance.

ACCO Brands International

(1)Segment operating income excludes corporate costs, including changes in fair value of the contingent consideration. 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.

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For the year ended December 31, 2021, net sales increased as a result of $13.0 million from higher prices, the PowerA acquisition contributed $12.3 million, and foreign exchange of $8.6 million. Comparable sales declined primarily due to lower volume related to the continuing impact of COVID-19 in the first quarter, partially offset by improving volume throughout the rest of the year in several countries.

For the year ended December 31, 2021, operating income and operating margin improved due to $6.5 million of lower charges related to reserves for bad debts and inventory, a net benefit from price increases, and the PowerA acquisition contributed $2.6 million. Excluding these factors, operating income decreased due to lower sales, higher expenses as the prior period benefited from short-term cost reduction measures that included $4.0 million of higher government assistance, partly offset by $8.3 million of benefits from long-term cost reductions. Restructuring costs were $1.5 million lower and foreign exchange increased operating income $1.2 million.

We have seen a steadily improving business environment as the 2021 year progressed which we anticipate will continue into 2022 and beyond.

Liquidity and Capital Resources

Our primary liquidity needs are to support our working capital requirements, service indebtedness, fund capital expenditures, and fund 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, 2021, there was $39.1 million outstanding under the Revolving Facility ($13.7 million reported in "Current portion of long-term debt" and $25.4 million reported in "Long-term debt, net") and the amount available to borrow was $550.6 million (allowing for $10.3 million of letters of credit outstanding on that date). We maintain adequate financing arrangements at market rates.

We are in a strong financial position with $41.2 million cash on hand and $550.6 million available to borrow under our Revolving Facility as of the end of 2021. In connection with the PowerA acquisition, effective November 10, 2020, we amended our bank debt maintenance covenant increasing the maximum Consolidated Leverage Ratio by 0.5x for each of the six fiscal quarters beginning March 31, 2021 and ending June 30, 2022. As of December 31, 2021, our Consolidated Leverage Ratio was approximately 3.30x. We have no debt maturities before March 2026.

Given the debt incurred in connection with our acquisition of PowerA, our 2021 cash flow was used to fund our dividend and reduce debt. Beginning in 2022, our long-term strategy remains to deploy cash to fund dividends, reduce debt, make acquisitions and repurchase stock.

The $422.3 million of debt currently outstanding under our senior secured credit facilities has a weighted average interest rate of 2.06 percent as of December 31, 2021, and $575.0 million outstanding principal amount of our senior unsecured notes (the "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 2021 and 2020:

Because of the seasonality of our business, we typically generate much of our cash flow from operating activities in the third and fourth quarters, as accounts receivable are collected, and we typically use cash in the second quarter to fund working capital in order to support the North America back-to-school season. We experienced this seasonality pattern in both 2021 and 2020. As expected, we generated higher operating cash inflow than we did in 2020 due to the higher level of profit in the third and fourth quarters. We expect our cash flow in 2022 to largely follow the pattern we saw in 2021.

Consolidated cash and cash equivalents were $41.2 million as of December 31, 2021, approximately $25.6 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 it in short-term Brazilian government securities.

Debt

Effective March 31, 2021, the Company entered into a Fifth Amendment (the “Fifth Amendment”) to the Credit Agreement. Pursuant to the Fifth Amendment, the Credit Agreement was amended to, among other things:

•further extend the maturity date from May 23, 2024 to March 31, 2026;

•further modify the maximum Consolidated Leverage Ratio financial covenant such that for the fiscal quarter ending September 30, 2022 and thereafter, the maximum leverage ratio is set at 4.00:1.00; and

•reflect more favorable pricing at higher Consolidated Leverage Ratio levels along with lower fees on undrawn amounts.

Under the Fifth Amendment, pricing was locked at LIBOR plus 2.25 percent until the Company published its financial results for the fiscal quarter ended June 30, 2021, and it became subject to the leverage-based pricing grid thereafter.

Financial Covenants

As of December 31, 2021, our Consolidated Leverage Ratio was approximately 3.30 to 1.00 versus our maximum covenant of 4.25 to 1.00. Our Interest Coverage Ratio was approximately 7.00 to 1.00 versus the minimum financial covenant of 3.00 to 1.00.

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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, 2021 and December 31, 2020, 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, 2021, the Company recorded $6.0 million in restructuring expenses: $4.4 million of restructuring expense for our North America segment, $0.5 million for our EMEA segment, and $1.1 million for our International segment. Restructuring charges were primarily related to severance costs and termination of lease agreements associated with cost reduction initiatives in our North America, EMEA and International segments. 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, 2021 and 2020

Cash Flow from Operating Activities

Cash provided by operating activities during the year ended December 31, 2021 was $159.6 million, an increase of $40.4 million compared to cash provided by operating activities of $119.2 million during the year ended December 31, 2020. The improvement in cash provided by operating activities was primarily due to an increase in net income of $39.9 million, a decrease in cash used for paying accrued expenses and other liabilities of $84.5 million, an increase in the fair value of the contingent earnout of $19.0 million, and higher depreciation and amortization costs of $15.0 million, partially offset by more cash used for net working capital investments of $113.2 million.

The table below shows our cash flow provided (used) by accounts receivable, inventories and accounts payable for the years ended December 31, 2021 and 2020:

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•Accounts receivable was a use of cash of $77.6 million in 2021, an unfavorable change of $179.2 million compared to a source of cash of $101.6 million in 2020. The $179.2 million unfavorable change was due to strong sales (including $52.8 million in receivables from PowerA) in 2021, as compared to lower sales in 2020, driven by COVID-19 impacts.

•Inventories was a use of cash of $131.8 million in 2021, an unfavorable change of $134.0 million when compared with the $2.2 million cash provided in 2020. The use of cash for inventory was higher in 2021 compared to 2020 as a result of the Company increasing inventory to secure supply for the back-to-school season, and to support the growth in PowerA ($55.4 million) as well as increased purchases due to supply chain disruptions related to international shipping.

•Accounts payable was a source of cash of $131.2 million in 2021, a favorable change of $200.0 million when compared to a use of cash of $68.8 million in 2020. The source of cash for accounts payable was a result of the Company purchasing more inventory due to higher sales, including for back-to-school, and PowerA ($51.1 million).

Cash Flow from Investing Activities

Cash used by investing activities was $5.8 million and $354.7 million for the years ended December 31, 2021, and 2020, respectively. The cash used by investing activities was down $348.9 million primarily due to a reduction of cash used for acquisitions of $354.8 million, partially offset by an increase in cash used for capital expenditures of $5.9 million. The source of cash from acquisitions of $15.4 million during the year ended December 31, 2021, included a working capital adjustment received of $18.2 million from the acquisition of PowerA, partially offset by cash used of $2.8 million for the acquisition of Franken.

Cash Flow from Financing Activities

Cash used by financing activities was $147.2 million for the year ended December 31, 2021, an increase of $391.9 million, compared with cash provided by financing activities of $244.7 million during the prior year. The increase primarily relates to a decrease in cash provided by our incremental borrowings of $391.7 million, compared with the prior year. In addition, there were cash outflows for payments of debt issuance costs associated with our bond and bank debt refinancing in the first quarter of 2021, which were offset by a reduction of cash used for share repurchases of $18.9 million in 2020.

Capitalization

The Company had 95.8 million and 94.9 million shares of common stock outstanding as of December 31, 2021, and 2020, respectively.

Adequacy of Liquidity Sources

Based on our 2022 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 and debt service 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, 2021 were as follows:

(1)Interest calculated at December 31, 2021, 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.

(5)Other long-term liabilities consist of estimated expected employer contributions for 2022, 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, 2021, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $43.3 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 (which are generally tied to achievement of certain sales volume levels); 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 2021, on a quantitative 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. In addition, we have not identified a triggering event through December 31, 2021 that more likely than not would result in impairment.

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 North America, ACCO Brands EMEA and ACCO Brands 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 2021, 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.

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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, and other expectations about the anticipated short-term and long-term operating results for each of our three reporting units.

Given the current economic environment and the uncertainties regarding its impact on our business, there can be no assurance that our estimates and assumptions made for purposes of our quantitative impairment testing during 2021 will prove to be accurate predictions of the future. If our assumptions regarding forecasted revenue or margin growth rates of certain reporting units are not achieved, we may be required to record impairment charges in future periods, whether in connection with our next annual impairment testing in the second quarter of 2022 or prior to that, if a triggering event is identified outside of the quarter when the annual impairment test is performed. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

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. The assumed discount rates reflect market rates for high-quality corporate bonds currently available. Our discount rates were determined by considering the average of pension yield curves constructed of a large population of high quality corporate bonds. 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 with an average AA rating from main ratings agencies. Effective December 31, 2020, we changed our basis to estimate the discount rate assumption to the yield curve that uses a dataset of bonds rated AA by at least one of the main rating agencies, as we determined it better reflects the duration of the plan.

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 $5.4 million, $2.1 million and $2.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Post-retirement income was $0.4 million, $0.4 million and $0.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. The increase in pension income was due to higher expected rates of return on plan assets in our foreign pension plans.

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The weighted average assumptions used to determine benefit obligations for the years ended December 31, 2021, 2020, and 2019 were as follows:

The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, 2021, 2020 and 2019 were as follows:

In 2022, we expect pension income of approximately $4.1 million and post-retirement income of approximately $0.5 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 $0.6 million for 2022. 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 $1.6 million for 2022.

Pension and post-retirement liabilities of $222.3 million as of December 31, 2021, decreased from $317.1 million at December 31, 2020, primarily due to the higher discount rate assumptions compared to the prior year and strong investment returns in 2021. These factors were the primary reasons for the actuarial gains of $36.8 million that were recognized in 2021.

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.

Recent Accounting Standards Updates and Recently Adopted Accounting Standards

For information on recent 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.

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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 net sales. Comparable net sales represents 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 net sales as comparable sales.

We use comparable net 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 net 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 net sales should not be considered in isolation or as a substitute for, or superior to, the directly comparable GAAP financial measure and should be read in connection with the Company’s financial statements presented in accordance with GAAP.

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

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