ACCO BRANDS Corp (ACCO) FY 2023 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, 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:

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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;

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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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