INTRODUCTION

ACCO Brands is one of the world's largest suppliers of branded office products (excluding furniture, computers, printers and bulk paper) to the office products resale industry. We design, develop, manufacture and market a wide variety of traditional and computer-related office products, supplies, binding and laminating equipment and related consumable supplies, personal computer accessory products, paper-based time management products and presentation aids and products. Through a focus on research, marketing and innovation, we seek to develop new products that meet the needs of our consumers and commercial end-users, which we believe will increase the product positioning of our brands. We compete through a balance of innovation, a low-cost operating model and an efficient supply chain. We sell products in highly competitive markets, and compete against large international and national companies, regional competitors and against our own customers' direct sourcing of private-label products. We sell our products primarily to markets located in North America, Europe and Australia. Our brands include GBC®, Kensington®, Quartet ®, Rexel, Swingline®, Wilson Jones®, Marbig, NOBO and Day-Timer®, among others.

The majority of our office products are used by businesses. Most of these end-users purchase our products from our reseller customers, which include commercial contract stationers, retail superstores, wholesalers, mail order and internet catalogs, mass merchandisers, club stores and dealers. We also supply our products directly to commercial and industrial end-users and to the educational market. Historically we have targeted the premium-end of the product categories in which we compete. However, we also supply private label products for our customers where we believe we have an economic advantage or where it is necessary to merchandise a complete category.

Our leading brand positions provide the scale to enable us to invest in product innovation and drive market growth across our product categories. In addition, the expertise we use to satisfy the exacting technical specifications of our more demanding commercial customers is in many instances the basis for expanding our product range to include consumer products.

Our strategy centers on a combination of growing sales and market share and generating acceptable profitability and returns. Specifically, we have substantially reduced our operating expenses and seek to leverage our platform for organic growth through greater consumer understanding, product innovation, marketing and merchandising, disciplined category expansion including broader product penetration and possible strategic transactions, and continued cost realignment. To achieve these goals, we plan to continue to execute the following strategies: (1) invest in research, marketing and innovation,
(2) penetrate the full product spectrum of our categories and
(3) opportunistically pursue strategic transactions.

On November 17, 2011, the Company announced the signing of a definitive agreement to merge the Mead C&OP Business into the Company in a transaction valued at approximately $860 million as of the date the transaction was announced. The Mead C&OP Business is a leading manufacturer and marketer of school supplies, office products, and planning and organizing tools - including the Mead®, Five Star®, Trapper Keeper ®, AT-A-GLANCE®, Cambridge®, Day Runner ®, Hilroy, Tilibra and Grafons brands in the U.S., Canada and Brazil. Upon completion of the transaction, MeadWestvaco shareholders will own 50.5% of the combined company. The transaction is subject to approval by the Company's shareholders and the satisfaction of customary closing conditions and regulatory approvals, including a ruling from the U.S. Internal Revenue Service on the tax-free nature of the transaction for MeadWestvaco. The transaction is expected to be completed in the first half of 2012. The Company will be the accounting acquirer in the merger and will apply purchase accounting to the assets and liabilities acquired upon consummation of the merger. In connection with this transaction, in the year ended December 31, 2011, the Company has incurred expenses of $5.6 million.

On June 14, 2011, the Company announced the disposition of GBC-Fordigraph Business. The Australia-based business was formerly part of the ACCO Brands International segment and the results of operations are

included in the financial statements as a discontinued operation for all periods presented. The GBC-Fordigraph Business represented $45.9 million in annual net sales for the year ended December 31, 2010. The Company has received final proceeds of $52.9 million inclusive of working capital adjustments and selling costs. In connection with this transaction, in 2011, the Company recorded a gain on sale of $41.9 million ($36.8 million after-tax).

In June 2009, the Company completed the sale of its commercial print finishing business for final gross proceeds of $16.2 million, after final working capital adjustments. As a result of the adjustments, the Company received net cash proceeds before expenses of $12.5 million and a $3.65 million note due from the buyer payable in installments, $1.325 million of which was paid in June, 2011 and $2.325 million that is due June, 2012. Interest on the unpaid balance is payable at the rate of 4.9 percent per annum. The gross proceeds received are before fees and expenses related to the transactions and provisions arising from continuing litigation related to the transaction. The commercial print finishing business has been classified as a discontinued operation in our consolidated financial statements for all periods presented.

For further information on the Company's discontinued operations see Note 18, Discontinued Operations, to our consolidated financial statements contained in Item 8 of this report.

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 therein. Unless otherwise noted, the following discussion pertains only to our continuing operations.

Overview of Company Performance

ACCO Brands' results are dependent upon a number of factors affecting sales, including pricing and competition. Historically, key drivers of demand in the office products industry have included trends in white collar employment levels, gross domestic product (GDP) and growth in the number of small businesses and home offices together with usage of personal computers. Pricing and demand levels for office products have also reflected a substantial consolidation within the global resellers of office products. This consolidation has led to multiple years of industry pricing pressure and a more efficient level of asset utilization by customers, resulting in lower sales volumes for suppliers of office products.

With 53% of revenues for the fiscal year ended December 31, 2011 arising from foreign operations, exchange rate fluctuations can play a major role in our reported results. Foreign currency fluctuations impact our business in two important ways. The first and more obvious foreign exchange impact comes from the translation of our foreign operations results into U.S. dollars: a weak U.S. dollar therefore benefits ACCO Brands and a strong U.S. dollar will diminish the contribution from our foreign operations. The second, but potentially larger and less obvious impact is from foreign currency fluctuations on our cost of goods sold. A significant portion of the products we sell worldwide are sourced from Asia (approximately 70%) and paid for in U.S. dollars. However, our international operations sell in their local currency, and are exposed to their domestic currency movements against the U.S. dollar. A strong U.S. dollar, therefore, increases our cost of goods sold and a weak U.S. dollar decreases our cost of goods sold for our international operations.

We respond to these market changes by adjusting our sales prices, but this response can be difficult during periods of rapid fluctuation. A significant portion of our foreign-currency cost of goods purchases is hedged with forward foreign currency contracts, which delays the economic effect of a fluctuating U.S. dollar helping us align market pricing changes. The financial impact on our business from foreign exchange movements for cost of goods is also further delayed until we sell the inventory. The two foreign exchange exposures impact the business at different times: the translation of results is impacted immediately when the exchange rates move, whereas the impact on our cost of goods is typically delayed due to a combination of currency hedging and the inventory cycle.

During the second half of 2010 and into 2011, the cost of certain commodities used to make our products increased significantly, negatively impacting our cost of goods. We continue to monitor commodity costs and work with our suppliers and customers to negotiate balanced and fair pricing that best reflect the current economic environment. Select price increases took effect during the third quarter of 2010 and the Company implemented additional price increases in the first and third quarters of 2011. These increases are intended to further help offset our additional cost increases.

The Company did not incur restructuring charges in 2011 and 2010, but adjusted outstanding reserve estimates as necessary. Cash payments related to prior years' restructuring and integration activities amounted to $3.4 million during 2011. It is expected that additional disbursements of $1.0 million will be completed by the end of 2013 as the Company spends amounts accrued on its balance sheet. Any residual cash payments beyond 2011 are anticipated to be offset by expected proceeds from real estate held for sale. Additionally, in the first quarter of 2011, the Company initiated plans to rationalize its European operations. The associated costs primarily related to employee terminations, which were accounted for as regular business expenses and were primarily incurred in the first half of 2011; these were largely offset by associated savings realized in the second half of 2011. These costs totaled $4.5 million during the year December 31, 2011.

The Company funds liquidity needs for capital investment, working capital and other financial commitments through cash flow from continuing operations and its $175.0 million revolving credit facility. Based on our borrowing base, as of December 31, 2011, approximately $165.5 million remained available for borrowing under our revolving credit facility.

During 2009, the Company determined that it was no longer more likely than not that its U.S. deferred tax assets would be realized, and as a result, the Company recorded a non-cash charge of $108.1 million to establish a valuation allowance against its U.S. deferred tax assets. In addition, during 2009, the Company recorded a non-cash impairment charge of $1.7 million on certain of its trade names.

Refinancing Transactions

On September 30, 2009, the Company issued $460.0 million aggregate principal amount of its 10.625% Senior Secured Notes due March 15, 2015 (the "Senior Secured Notes"), and entered into a four-year senior secured asset-based revolving credit facility ("ABL Facility") providing for borrowings of up to $175.0 million subject to borrowing base limitations including a $40 million sub-limit for letters of credit and an optional $50 million accordion feature (available to fund working capital growth if needed). Initial borrowings under the ABL Facility were $16.1 million. These funds, together with the $453.1 million in proceeds from the issuance of the Senior Secured Notes, were used to
(i) repay all outstanding borrowings under and terminate the Company's prior senior secured credit agreements, (ii) repay all outstanding borrowings under and terminate the Company's accounts receivable securitization program,
(iii) terminate the Company's cross-currency swap agreement, (iv) repurchase approximately $29.1 million aggregate principal amount of its 7 5/8% senior subordinated notes due August 15, 2015 ("Senior Subordinated Notes") and (v) pay the fees, expenses and other costs relating to such transactions.

On November 17, 2011, the Company announced the signing of a definitive agreement to merge the Mead C&OP Business into the Company. Subject to this transaction closing, the Company has underwritten financing that will fund a $460 million dividend to MeadWestvaco and refinance the Company's Senior Secured Notes, which had a principal amount outstanding of $425.1 million as of December 31, 2011, and its $175.0 million revolving credit facility, together with transaction and refinancing expenses.

Fiscal 2011 versus Fiscal 2010

The following table presents the Company's results for the years ended December 31, 2011 and 2010.

                                               Twelve Months Ended
                                                  December 31,                   Amount of Change
(in millions of dollars)                      2011            2010              $                %
Net sales                                   $ 1,318.4       $ 1,284.6       $    33.8                 3 %
Cost of products sold                           903.7           887.5            16.2                 2 %
Gross profit                                    414.7           397.1            17.6                 4 %
Gross profit margin                              31.5 %          30.9 %                         0.6 pts
Advertising, selling, general and
administrative expenses                         293.9           281.2            12.7                 5 %
Amortization of intangibles                       6.3             6.7            (0.4 )              (6 )%
Restructuring income                             (0.7 )          (0.5 )          (0.2 )              40 %
Operating income                                115.2           109.7             5.5                 5 %
Operating income margin                           8.7 %           8.5 %                         0.2 pts
Interest expense, net                            77.2            78.3            (1.1 )              (1 )%
Equity in earnings of joint ventures             (8.5 )          (8.3 )          (0.2 )               2 %
Other expense, net                                3.6             1.2             2.4               200 %
Income tax expense                               24.3            30.7            (6.4 )             (21 )%
Effective tax rate                               56.6 %          79.7 %                       (23.1)pts
Income from continuing operations                18.6             7.8            10.8               138 %
Income from discontinued operations, net
of income taxes                                  38.1             4.6            33.5               728 %
Net income                                       56.7            12.4            44.3               357 %

Net Sales

Net sales increased $33.8 million, or 3%, to $1.32 billion, primarily due to translation gains from the U.S. dollar weakening relative to the prior year, which favorably impacted sales by $39.8 million, or 3%. Underlying sales declined modestly as lower volume in the International and Americas segments were partially offset by higher pricing and volumes gains in the Computer Products segment.

Cost of Products Sold

Cost of products sold includes all product sourcing, manufacturing and distribution costs, including depreciation related to assets used in the manufacturing and distribution process, inbound and outbound freight, shipping and handling costs, purchasing costs associated with materials and packaging used in the production processes. Cost of products sold increased $16.2 million to $903.7 million. The increase reflects the impact of unfavorable currency translation of $25.6 million as well as higher commodity and fuel costs, which were partially offset by lower sales volume and improved manufacturing, freight and distribution efficiencies.

Gross Profit

Management believes that gross profit and gross profit margin provide enhanced shareholder appreciation of underlying profit drivers. Gross profit increased $17.6 million, or 4%, to $414.7 million. The increase in gross profit was primarily due to the benefit from favorable currency translation of $14.2 million. Gross profit margin increased to 31.5% from 30.9%, primarily due to improved freight and distribution efficiencies, particularly in Europe.

SG&A (Advertising, selling, general and administrative expenses)

SG&A expenses 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, etc.). SG&A increased $12.7 million, or 5%, to $293.9 million, of which currency translation contributed $7.0 million of the increase. SG&A as a percentage of sales increased to 22.3% from 21.9%. This increase was due to $5.6 million in costs associated with the pending acquisition of the Mead C&OP Business. Business rationalization charges of $4.5 million, primarily incurred in the first quarter of 2011, were offset by savings during the rest of the 2011.

Operating Income

Operating income increased $5.5 million, or 5%, to $115.2 million, and as a percentage of sales, operating income increased modestly to 8.7% from 8.5%. The increase in operating income was driven by $7.0 million of favorable currency translation and improved gross margins, partly offset by the SG&A cost increases described above.

Interest Expense, Net, Equity in Earnings of Joint Ventures and Other Expense, Net

Interest expense was $77.2 million compared to $78.3 million in the prior-year. The decrease in interest was due to repurchases of the Company's Senior Secured Notes and Senior Subordinated Notes totaling $34.9 million and $25.0 million, respectively, as well as lower borrowings under its revolving credit facility during the year. This reduction was partly offset by the acceleration of debt origination amortization costs resulting from bond repurchases of $1.2 million.

Other expense was $3.6 million compared to $1.2 million in the prior-year period. The increase was due to $3.0 million of premium paid on the repurchase of $34.9 million of the Senior Secured Notes, partly offset by lower foreign exchange losses in the current year.

Income Taxes

For the year ended December 31, 2011, the Company recorded income tax expense from continuing operations of $24.3 million on income before taxes of $42.9 million, which compares to an income tax expense from continuing operations of $30.7 million on income before taxes of $38.5 million in the prior year. The high effective tax rates for 2011 and 2010 are due to no tax benefit being provided on losses incurred in the U.S. and certain foreign jurisdictions where valuation reserves are recorded against future tax benefits. Included in the 2011 amount is a $2.8 million benefit from the reversal of a valuation reserve in the U.K. Included in the 2010 amount is an $8.6 million expense recorded to reflect the tax impact of foreign currency fluctuations on an intercompany debt obligation, partially offset by the benefit of a $2.8 million out-of-period adjustment to increase deferred tax assets of a non-U.S. subsidiary.

Income from Continuing Operations

Income from continuing operations was $18.6 million, or $0.32 per diluted share, compared to income of $7.8 million, or $0.14 per diluted share in the prior-year.

Income from Discontinued Operations

Income from discontinued operations was $38.1 million, or $0.66 per diluted share, compared to income of $4.6 million, or $0.08 per diluted share in the prior-year.

Discontinued operations include the results of the Company's GBC-Fordigraph Business, which was sold during the second quarter of 2011, and the commercial print finishing business, which was sold during 2009. For a further discussion of the Company's discontinued operations see Note 18, Discontinued Operations, to our consolidated financial statements contained in Item 8 of this report.

The components of discontinued operations for the years ended December 31, 2011 and 2010 are as follows:

            (in millions of dollars)                    2011       2010
            Income from operations before income tax   $  2.5     $  6.6
            Gain (loss) on sale before income tax        41.5       (0.1 )
            Income tax expense                            5.9        1.9

            Income from discontinued operations        $ 38.1     $  4.6

Net Income

Net income was $56.7 million, or $0.98 per diluted share, compared to net income of $12.4 million, or $0.22 per diluted share, in the prior year.

Segment Discussion



                                          Year Ended
                                         December 31,
                                      2011          2010          Amount of change
        (in millions of dollars)           Net Sales                $             %
        ACCO Brands Americas        $   684.9     $   688.3     $    (3.4 )        -
        ACCO Brands International       443.2         419.3          23.9           6 %
        Computer Products               190.3         177.0          13.3           8 %

        Total segment sales         $ 1,318.4     $ 1,284.6     $    33.8

                                                     Year Ended December 31,
                                              2011                             2010                          Amount of change
                                                    Operating                        Operating
                                    Operating        Income          Operating        Income                                  Margin
(in millions of dollars)             Income          Margin           Income          Margin           $           %          Points
ACCO Brands Americas               $      50.7             7.4 %    $      56.3             8.2 %    $ (5.6 )      (10 )%         (80 )
ACCO Brands International                 45.6            10.3 %           31.5             7.5 %      14.1         45 %          280
Computer Products                         47.1            24.8 %           43.0            24.3 %       4.1         10 %           50

Total segment operating income     $     143.4                      $     130.8                      $ 12.6

Segment operating income excludes corporate costs; interest expense, net; equity in earnings of joint ventures and other expense, net. See Note 15, Information on Business Segments, to our consolidated financial statements contained in Item 8 of this report for a reconciliation of total segment operating income to income from continuing operations before income taxes.

ACCO Brands Americas

Results

ACCO Brands Americas net sales decreased $3.4 million to $684.9 million. Foreign currency translation favorably impacted sales by $5.3 million. Sales volume declined 3%, primarily in the U.S. due to inventory management initiatives by certain customers. The decline was partially offset by higher pricing and increased volumes in Latin America and Canada.

Operating income decreased $5.6 million, or 10%, to $50.7 million and included favorable foreign currency translation of $0.9 million. Operating income margin decreased to 7.4% from 8.2% in the prior-year period primarily due to the deleveraging of fixed costs due to lower sales volume.

ACCO Brands International

Results

ACCO Brands International net sales increased $23.9 million, or 6%, to $443.2 million. The increase was driven by foreign currency translation, which increased sales by $30.0 million, or 7%. Sales volume declined 4% due to weak European market demand, partially offset by European price increases and small volume gains in the Asia-Pacific region.

Operating income increased $14.1 million, or 45%, to $45.6 million, including a $4.6 million benefit from foreign currency translation. Operating income margin increased to 10.3% from 7.5%, mainly due to the substantial improvements in European operations, resulting from higher pricing, improved freight and distribution efficiencies, as well as SG&A savings. Included in the net SG&A savings were $4.5 million of business rationalization charges within Europe.

Computer Products Group

Results

Computer Products net sales increased $13.3 million, or 8%, to $190.3 million. The favorable impact from foreign currency translation increased sales by $4.5 million, or 3%. The remainder of the increase primarily reflects volume gains from sales of new accessory products for smart phones and tablets.

Operating income increased $4.1 million, or 10%, to $47.1 million, resulting from a $1.5 million benefit from foreign currency translation, higher volume and lower SG&A expenses, partially offset by lower security product sales, which adversely impacted both margin and royalty income. Operating income margins increased to 24.8% from 24.3% primarily due to the favorable benefit from increased sales, partially offset by the adverse sales mix.

Fiscal 2010 versus Fiscal 2009

The following table presents the Company's results for the years ended December 31, 2010 and 2009.

                                                    Year Ended
                                                   December 31,                 Amount of Change
(in millions of dollars)                       2010            2009             $              %
Net sales                                    $ 1,284.6       $ 1,233.3       $   51.3              4 %
Cost of products sold                            887.5           868.7           18.8              2 %
Gross profit                                     397.1           364.6           32.5              9 %
Gross profit margin                               30.9 %          29.6 %                      1.3pts
Advertising, selling, general and
administrative expenses                          281.2           263.0           18.2              7 %
Amortization of intangibles                        6.7             7.1           (0.4 )           (6 )%
Restructuring (income) charges                    (0.5 )          17.4          (17.9 )         (103 )%
Intangible asset impairment charges                  -             1.7           (1.7 )         (100 )%
Operating income                                 109.7            75.4           34.3             45 %
Operating income margin                            8.5 %           6.1 %                      2.4pts
. . .