Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ACCO > SEC Filings for ACCO > Form 10-Q on 6-Aug-2013All Recent SEC Filings

Show all filings for ACCO BRANDS CORP

Form 10-Q for ACCO BRANDS CORP


6-Aug-2013

Quarterly Report


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

Overview of Company Performance

ACCO Brands' operating results are dependent upon a number of factors affecting sales, including pricing and competition. Key drivers of demand in the office and school products industries include trends in white collar employment levels, education enrollment levels, gross domestic product (GDP) and growth in the number of small businesses and home offices, as well as declining consumer usage trends for certain of our product categories. Pricing and demand levels for office products have also resulted in 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 pricing and volume for suppliers of office products. As an example, in February 2013, two of our largest customers, Office Depot and OfficeMax, announced that they have entered into a merger agreement which was approved by their respective shareholders in July 2013. Management currently expects that the effects on our business of the proposed merger, if consummated, would be realized primarily in our U.S. retail sales channel. In the short term, customer buying patterns are influenced by a number of factors, including: customer sales to end users, volume discounts, anticipation of price increases and by changes in our customers' holding levels of our inventory.

With 45% of revenues for the year ended December 31, 2012 arising from foreign operations, exchange rate fluctuations can play a major role in our reported results. Foreign currency fluctuations impact our business in two ways: 1) the translation of our foreign operations results into U.S. dollars: a weak U.S. dollar benefits us and a strong U.S. dollar reduces the dollar-denominated contribution from foreign operations; and 2) the impact of foreign currency fluctuations on the purchase price of goods we sell. Approximately half of the products we sell worldwide are sourced from Asia, and are paid for in U.S. dollars. However, our international operations sell in their local currency and are therefore 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.

The cost of certain commodities used to make products on occasion may increase significantly, negatively impacting cost of goods. As commodity costs rise, we implement price increases in an effort to offset increases in commodity costs. We continue to monitor commodity costs and work with suppliers and customers to negotiate balanced and fair pricing that best reflects the current economic environment. Results for our second quarter include a small favorable price benefit that recovers previously experienced adverse commodity cost changes.

During the first half of 2013, we committed to new cost savings plans intended to improve the efficiency and effectiveness of our businesses. These plans relate to cost-reduction initiatives within the Company's North American and International segments, and are primarily associated with post-merger integration activities of the North American operations following the acquisition of Mead C&OP and changes in the European business model and manufacturing footprint. The most significant of these plans was finalized during the second quarter of 2013, and relates to the closure of our Brampton, Canada distribution and manufacturing facility and relocation of its activities to other facilities within the Company. The Company has recorded $15.6 million of restructuring charges for the six months ended June 30, 2013. The Company expects approximately $25 million of restructuring charges and $4 million of IT-related integration charges for the full year in 2013. The cash outflow from restructuring is expected to approximate $30 million in 2013.

We fund our liquidity needs for capital investment, working capital and other financial commitments through cash flow from continuing operations and our $250.0 million Revolving Facility. Based on our borrowing base, as of June 30, 2013, $181.8 million remained available for borrowing under this facility.

On May 1, 2012, we completed the Merger of Mead C&OP with a wholly-owned subsidiary of the Company. Accordingly, the results of Mead C&OP are included in our condensed consolidated financial statements and in this Management's Discussion and Analysis of Financial Condition and Results of Operations from the date of the Merger. For further information on the Merger with Mead C&OP see Note 3, Acquisitions to the condensed consolidated financial statements contained in Item 1 of this report.

Company Refinancing

Effective May 13, 2013 (the "Effective Date"), the Company entered into an Amended and Restated Credit Agreement, (the "Restated Credit Agreement"), among the Company, certain subsidiaries of the Company, Bank of America, N.A., as administrative agent, and the other agents and lenders party thereto. The Restated Credit Agreement amends and restates the Company's existing credit agreement, dated as of March 26, 2012, as amended (the "2012 Credit Agreement"), that had been entered into in connection with the Company's acquisition of Mead C&OP. In addition, immediately prior to the effectiveness of the Restated Credit


Table of Contents

Agreement, the Company entered into a Second Amendment, dated as of May 13, 2013 (the "Second Amendment "), to the 2012 Credit Agreement in order to facilitate the entry into and obtain certain lender consents for the Restated Credit Agreement.

The Restated Credit Agreement provides for a $780 million, five-year senior secured credit facility, which consists of a $250.0 million multi-currency revolving credit facility, due May 2018 (the "Revolving Facility") and a $530.0 million new U.S.-dollar denominated Senior Secured Term Loan A, due May 2018 (the "Restated Term Loan A"). Specifically, in connection with the Restated Credit Agreement, the Company:

replaced the Company's then-existing U.S.-dollar denominated Senior Secured Term Loan A, due May 2017, under the 2012 Credit Agreement, which had an aggregate principal amount of $220.8 million outstanding immediately prior to the Effective Date, with the Restated Term Loan A, due May 2018, in an aggregate original principal amount of $530.0 million;

prepaid in full the Company's then-existing U.S.-dollar denominated Senior Secured Term Loan B, due May 2019, under the 2012 Credit Agreement, which had an aggregate principal amount of $310.2 million outstanding immediately prior to the Effective Date, using a portion of the proceeds from the Restated Term A Loan; and

replaced the $250.0 million revolving credit facility under the 2012 Credit Agreement with the Revolving Facility, under which $47.3 million was outstanding immediately following the Effective Date.

Prior to the Effective Date, the Company's Canadian-dollar denominated Senior Secured Term Loan A, due May 2017, that had been drawn under the 2012 Credit Agreement had been fully repaid.

Included in Other expense, net is a $9.4 million charge for the write-off of debt origination costs associated with the refinancing. Additionally, the Company incurred approximately $4.4 million in bank, legal and other fees associated with the Restated Credit Agreement. Of these fees, $4.2 million were capitalized and will be amortized over the life of the Restated Term Loan A and the Revolving Facility.

For further information on the Company's refinancing see Note 4, Long-term Debt and Short-term Borrowings, to our condensed consolidated financial statements contained in Item 1 of this report.

Management's Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended June 30, 2013 and 2012, should be read in conjunction with the unaudited condensed consolidated financial statements of ACCO Brands Corporation and the accompanying notes contained herein. Unless otherwise noted, the following discussion pertains only to our continuing operations.


Table of Contents

Three months ended June 30, 2013 versus three months ended June 30, 2012

The following table presents the Company's results for the three months ended June 30, 2013 and 2012, respectively.

                                              Three Months Ended June 30,          Amount of Change
(in millions of dollars)                        2013               2012             $             %
Net sales                                  $      440.2       $      438.7     $    1.5          0.3  %
Cost of products sold                             303.1              314.4        (11.3 )         (4 )%
Gross profit                                      137.1              124.3         12.8           10  %
Gross profit margin                                31.1 %             28.3 %                     2.8    pts
Advertising, selling, general and
administrative expenses                            87.1               92.9         (5.8 )         (6 )%
Amortization of intangibles                         6.2                5.1          1.1           22  %
Restructuring charges                               5.9               14.7         (8.8 )        (60 )%
Operating income                                   37.9               11.6         26.3          227  %
Operating income margin                             8.6 %              2.6 %                     6.0    pts
Interest expense, net                              13.5               32.8        (19.3 )        (59 )%
Equity in earnings of joint ventures               (1.3 )             (1.2 )       (0.1 )          8  %
Other expense, net                                  9.6               61.3        (51.7 )         84  %
Income tax expense (benefit)                        6.6             (175.5 )      182.1          104  %
Effective tax rate                                 41.0 %               NM                        NM
Net income                                          9.5               94.2        (84.7 )        (90 )%

Net Sales

Net sales increased by $1.5 million, or 0.3%, to $440.2 million compared to $438.7 million in the prior-year period. The acquisition of Mead C&OP on May 1, 2012 contributed sales of $26.1 million due to the inclusion of Mead C&OP's results for all months in the current year versus only two months in the prior year. The underlying decline of $24.6 million includes unfavorable currency translation of $1.5 million, or 0.3%. The sales decline is principally in the North America segment due to the exit of unprofitable business, as well as, lower volume primarily due to soft consumer demand. The Computer Products segment also declined due to the absence of new mobile device launches from manufacturers which drive demand for mobile accessories, increased competition in the tablet and smart phone accessory space, and continued declines in PC shipments.

Cost of Products Sold

Cost of products sold includes all manufacturing, product sourcing and distribution costs, including depreciation related to assets used in the manufacturing, procurement and distribution process; allocation of certain information technology costs supporting those processes; inbound and outbound freight, shipping and handling costs; purchasing costs associated with materials and packaging used in the production processes. Cost of products sold decreased $11.3 million, or 4%, to $303.1 million compared to $314.4 million in the prior-year period. The decrease primarily resulted from the absence of $10.8 million in amortization of the step-up in inventory value related to the Merger and a $1.1 million impact of favorable currency translation. The inclusion of Mead C&OP's results for an additional month in the current year period was largely offset by lower sales.

Gross Profit

Management believes that gross profit and gross profit margin provide enhanced shareholder understanding of underlying operating profit drivers. Gross profit increased $12.8 million, or 10%, to $137.1 million compared to $124.3 million in the prior-year period. The increase was due to the absence of $10.8 million in amortization of the step-up in inventory value related to the Merger, the acquisition of Mead C&OP and synergies and productivity savings. These benefits were partially offset by lower sales.

Gross profit margin increased to 31.1% from 28.3%. The inclusion of an additional month of Mead C&OP results, which historically has had higher relative margins together with synergies and productivity savings in North America contributed to the improvements in margin. These factors were partially offset by reduced gross margin in Computer Products due to lower sales of high-margin products and a reduction in royalty income.


Table of Contents

Advertising, Selling, General and Administrative Expenses

Advertising, 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, etc.). SG&A decreased $5.8 million, or 6%, to $87.1 million, compared to $92.9 million in the prior-year period. The decrease was driven by an $11.9 million reduction in transaction and integration charges associated with the acquisition of Mead C&OP, which were $1.9 million in the current year and $13.8 million in the prior-year period. Also contributing to the decrease were synergies and productivity savings, a $2.6 million gain on the sale of a facility, as well as favorable currency translation of $0.7 million. These improvements were partially offset by the inclusion of an additional month of Mead C&OP expenses in the current quarter and $2.7 million in higher stock compensation.

As a percentage of sales, SG&A decreased to 19.8% compared to 21.2% in the prior-year period, primarily due to the lack of transaction-related costs in the current year.

Restructuring Charges

Restructuring charges declined to $5.9 million in the current-year period, from $14.7 million in the prior-year period. Employee termination and severance charges included in restructuring charges in the current year primarily relate to the Company's North American operations and are primarily associated with post-merger integration activities of the North American operations following the acquisition of Mead C&OP. The charges in the prior-year period also primarily related to the consolidation and integration of Mead C&OP business, the most significant of these plans related to our dated goods business.

Operating Income

Operating income was $37.9 million in the current-year period compared to $11.6 million in the prior-year period. The underlying increase was primarily due to the lack of transaction-related costs in the current year and reduced restructuring expense.

Interest Expense and Other Expense, Net

Interest expense decreased to $13.5 million compared to $32.8 million in the prior-year period primarily due to the absence of $15.8 million of costs for committed financing in the prior year period related to the Mead C&OP acquisition. Also contributing to the decrease were substantially lower effective interest rates due to the debt refinancing in the current-year period.

Other expense, net, was $9.6 million compared to $61.3 million in the prior-year period. The improvement was due to the second quarter of 2012 including significant one-time merger-related refinancing costs of $61.4 million related to the repurchase or discharge all of our outstanding Senior Secured Notes. The current year quarter includes $9.4 million for the write-off of debt origination costs related to the second quarter 2013 refinancing. For a further discussion of the Company's refinancing completed in the second quarter of 2013 see Note 4, Long-term Debt and Short-term Borrowings, to our consolidated financial statements contained in Item 1 of this report.

Income Taxes

For the three months ended June 30, 2013, we recorded an income tax expense from continuing operations of $6.6 million on income of $16.1 million. For the prior-year period, we reported an income tax benefit from continuing operations of $175.5 million on a loss before taxes of $81.3 million. The tax benefit for 2012 was primarily due to the release of certain valuation allowances totaling $130.4 million and reflects certain non-deductible items that impact the effective rate compared to the statutory rate.

Net Income

Net income was $9.5 million, or $0.08 per diluted share, compared to income of $94.2 million, or $0.98 per diluted share, in the prior-year quarter.


Table of Contents

Segment Discussion

                           Three Months Ended June 30, 2013                                      Amount of Change

                                                                                                                       Segment
                                                                                                      Segment         Operating
                                                                         Net Sales    Net Sales   Operating Income     Income
(in millions of                    Segment Operating     Operating                                                                  Margin
dollars)            Net Sales         Income (A)       Income Margin         $            %              $                %         Points
ACCO Brands North
America           $      286.9     $          33.7         11.7 %       $     7.1        3%       $      20.1           148  %        680
ACCO Brands
International            116.1                10.5          9.0 %             2.2        2%               1.5            17  %        110
Computer Products
Group                     37.2                 2.9          7.8 %            (7.8 )     (17)%            (7.1 )         (71 )%     (1,440 )
Total segment
sales             $      440.2     $          47.1                      $     1.5                 $      14.5

                            Three Months Ended June 30, 2012


(in millions of                    Segment Operating     Operating
dollars)            Net Sales         Income (A)       Income Margin
ACCO Brands North
America           $      279.8     $          13.6          4.9 %
ACCO Brands
International            113.9                 9.0          7.9 %
Computer Products
Group                     45.0                10.0         22.2 %
Total segment
operating income  $      438.7     $          32.6

(A) 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 condensed consolidated financial statements contained in Item 1 of this report for a reconciliation of total Segment operating income to Income (loss) from continuing operations before income tax.

ACCO Brands North America

ACCO Brands North America net sales increased $7.1 million, or 3%, to $286.9 million compared to $279.8 million in the prior-year period. The acquisition of Mead C&OP contributed sales of $21.0 million. The underlying decline of $13.9 million includes unfavorable currency translation of $0.3 million. Of this decline $7.1 million was related to the exit of unprofitable business. The remainder of the decline was in the U.S and was primarily due to soft consumer demand, as well as, market share loss.

ACCO Brands North America operating income increased $20.1 million, or 148%, to $33.7 million compared to $13.6 million in the prior-year period, and operating income margin increased to 11.7% from 4.9% in the prior-year period. The increase was due to the absence of $9.7 million of amortization of step-up in value of finished goods inventory included in the prior year, lower restructuring charges and synergies and productivity savings in the current year.

ACCO Brands International

ACCO Brands International net sales increased $2.2 million, or 2%, to $116.1 million compared to $113.9 million in the prior-year period. The acquisition of Mead C&OP contributed sales of $5.1 million. The underlying decline of $2.9 million includes unfavorable currency translation of $1.2 million. Sales declined primarily in the Australian and Asia-Pacific regions due to adverse market conditions driving weak consumer demand partially offset by higher pricing across the segment. In our European region, the second quarter results show a marked change in sales, which were flat compared to the double-digit declines experienced during the preceding quarters.

ACCO Brands International operating income increased $1.5 million, or 17%, to $10.5 million compared to $9.0 million in the prior-year period, and operating income margin increased to 9.0% from 7.9% in the prior-year period. The increase is primarily driven by Europe due to a $2.6 million gain on sale of a facility, productivity savings and lower pension costs, and the absence of $1.1 million in amortization of the step-up in inventory value included in the prior year, partially offset by lower sales in the Australia and Asia-Pacific regions, the inclusion of Mead C&OP losses for April in the current quarter and $0.9 million of inefficiencies incurred due to the impending shut-down of a manufacturing facility.


Table of Contents

Computer Products Group

Computer Products net sales decreased $7.8 million, or 17%, to $37.2 million compared to $45.0 million in the prior-year period. Volume decreased 14% driven by the absence of new mobile device launches from manufacturers which drive demand for mobile accessories, increased competition in the tablet and smart phone accessory space, and continued declines in PC shipments which impacted sales demand for security products and PC accessories. Pricing, including the loss of $1.2 million in royalty income, unfavorably impacted sales by 3%.

Operating income decreased $7.1 million, or 71%, to $2.9 million in the prior-year period, and operating income margin decreased to 7.8% from 22.2% in the prior-year period. The decline in operating income and margin was primarily due to lower sales (including royalties), $0.9 million higher inventory obsolescence expenses as well as restructuring charges of $0.7 million.

Six months ended June 30, 2013 versus six months ended June 30, 2012

The following table presents the Company's results for the six months ended June 30, 2013 and 2012, respectively.

                                                Six Months Ended June 30,           Amount of Change
(in millions of dollars)                         2013               2012             $             %
Net sales                                   $      792.2       $      727.6     $    64.6           9  %
Cost of products sold                              558.4              523.5          34.9           7  %
Gross profit                                       233.8              204.1          29.7          15  %
Gross profit margin                                 29.5 %             28.1 %                     1.4    pts
Advertising, selling, general and
administrative expenses                            176.7              161.1          15.6          10  %
Amortization of intangibles                         12.8                6.6           6.2          94  %
Restructuring charges                               15.6               20.8          (5.2 )       (25 )%
Operating income                                    28.7               15.6          13.1          84  %
Operating income margin                              3.6 %              2.1 %                     1.5    pts
Interest expense, net                               29.2               51.9         (22.7 )       (44 )%
Equity in earnings of joint ventures                (2.6 )             (2.7 )         0.1          (4 )%
Other expense, net                                   9.5               61.1         (51.6 )         -
Income tax benefit                                  (8.0 )           (171.6 )       163.6          95  %
Effective tax rate                                    NM                 NM                        NM
Income from continuing operations                    0.6               76.9         (76.3 )       (99 )%
Loss from discontinued operations, net of
income taxes                                        (0.1 )             (0.1 )           -           -
Net income                                           0.5               76.8         (76.3 )       (99 )%

Net Sales

Net sales increased by $64.6 million, or 9%, to $792.2 million compared to $727.6 million in the prior-year period. The acquisition of Mead C&OP contributed sales of $126.2 million with six months included in the current year and only two in the prior year. The underlying decline of $61.6 million, includes an unfavorable currency translation of $3.2 million, or 0.4%. The sales decline in the North America and International segments resulted from soft demand and from the exit of unprofitable business. The Computer Products segment decline was due to the absence of new mobile device launches from manufacturers which drive demand for mobile accessories, increased competition in the tablet and smart phone accessory space.

Cost of Products Sold

Cost of products sold includes all manufacturing, product sourcing and distribution costs, including depreciation related to assets used in the manufacturing, procurement and distribution process, allocation of certain information technology costs supporting those processes, inbound and outbound freight, shipping and handling costs, purchasing costs associated with materials and packaging used in the production processes. Cost of products sold increased $34.9 million, or 7%, to $558.4 million compared to $523.5 million in the prior-year period. The increase was primarily due to the acquisition of Mead C&OP and was partially offset by lower sales volume, the absence of $10.8 million in amortization of the step-up in inventory value related to the Merger, synergies and productivity savings and a $2.1 million impact of favorable currency translation.


Table of Contents

Gross Profit

Management believes that gross profit and gross profit margin provide enhanced shareholder understanding of underlying profit drivers. Gross profit increased $29.7 million, or 15%, to $233.8 million compared to $204.1 million in the prior-year period. The increase was due to the acquisition of Mead C&OP and the absence of $10.8 million in amortization of the step-up in inventory value related to the Merger, synergies and productivity savings. These factors were partially offset by lower sales volume, $1.6 million of integration related inefficiencies from the closure of our Day-Timers manufacturing and distribution facility and a $1.1 million impact from unfavorable currency translation.

. . .

  Add ACCO to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ACCO - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.