ACCO Brands Corporation — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This annual filing includes fourth-quarter results; it is not a standalone quarterly filing. Figures are in U.S. dollars, in millions except per-share amounts.
Business context and results
ACCO Brands designs, manufactures, sources and sells branded traditional office products, document-finishing equipment and supplies, and computer accessories. Its three segments are ACCO Brands Americas, ACCO Brands International and Computer Products Group. Sales are concentrated in North America, Europe and Australia and depend substantially on large office-product resellers.
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Net sales | $1,318.4 | $1,284.6 |
| Gross profit / margin | $414.7 / 31.5% | $397.1 / 30.9% |
| Operating income / margin | $115.2 / 8.7% | $109.7 / 8.5% |
| Income from continuing operations | $18.6; $0.32 diluted EPS | $7.8; $0.14 diluted EPS |
| Discontinued-operations income | $38.1 | $4.6 |
| Net income / diluted EPS | $56.7 / $0.98 | $12.4 / $0.22 |
| Cash from operating activities | $61.8 | $54.9 |
| Cash and cash equivalents at year-end | $121.2 | $83.2 |
| Total debt at year-end | $669.0 | $727.6 |
Fourth-quarter results
Fourth-quarter 2011 sales were $350.7, versus $359.5 in fourth-quarter 2010. Gross profit was $112.9 versus $113.8, while operating income rose to $35.9 from $34.2. Income from continuing operations was $9.4 versus $4.3; net income was also $9.4 versus $6.8.
Changes, liquidity and segment performance
- Full-year sales rose 3%, but favorable foreign-currency translation added $39.8; underlying sales declined modestly as lower Americas and International volumes were partly offset by Computer Products growth and pricing. Gross margin improved 0.6 percentage points, supported by freight and distribution efficiencies.
- Americas sales were nearly flat at $684.9, while operating income fell 10% to $50.7 as lower volume reduced fixed-cost absorption. International sales increased 6% to $443.2, largely from currency translation; operating income rose 45% to $45.6, helped by pricing, efficiency gains and savings. Computer Products sales increased 8% to $190.3 and operating income rose 10% to $47.1, reflecting new mobile-device accessories and higher volume.
- Operating cash flow increased $6.9 to $61.8. Investing activities provided $40.0, chiefly reflecting $52.9 of proceeds from the GBC-Fordigraph sale; capital expenditures were $13.5. Financing activities used $63.1, including debt repurchases. Working capital provided $22.8 of cash.
- Year-end current assets were $622.9 and current liabilities were $306.1. The $175.0 asset-based revolving facility had no borrowings outstanding; $165.5 was available after borrowing-base limits and letters of credit. The company reported compliance with applicable loan covenants.
- Stockholders’ deficit improved to $61.9 from $79.8. Long-term debt was principally $425.1 principal amount of 10.625% senior secured notes and $246.3 of 7.625% senior subordinated notes, both due in 2015.
Outlook, material events and risks
- ACCO expected liquidity from operations, cash and available revolving credit to meet foreseeable working-capital, capital-expenditure and debt-service needs. It prioritized investment in growth and new products alongside debt reduction. The filing gives no specific revenue or earnings guidance.
- The proposed Mead C&OP merger, announced in November 2011 and valued at approximately $860, was expected to close in the first half of 2012, subject to shareholder, regulatory and other approvals. MeadWestvaco shareholders were to own 50.5% of the combined company. Planned financing included a $460 dividend to MeadWestvaco and refinancing of existing notes and the revolving facility. ACCO had incurred $5.6 of transaction costs in 2011; failure to close could trigger a $15 termination fee or expense reimbursement of up to $5.
- The sale of GBC-Fordigraph generated $52.9 in final proceeds and a reported $41.9 pretax gain ($36.8 after tax), materially boosting 2011 discontinued-operations and net income. Continuing-operations income is a better view of recurring performance.
- Commodity and fuel inflation pressured costs; price increases were implemented during 2010 and in the first and third quarters of 2011. Europe rationalization costs were $4.5, largely offset by savings in the second half. The MicroSaver patents expired in January 2012; management identified ClickSafe as a protected replacement product. Royalty revenue tied to the expiring patents was $5.4 in 2011.
- Principal risks include intense competition and private-label pricing, customer concentration (top ten customers were 51% of sales; Staples 13%, Office Depot 11%), leverage and restrictive covenants, economic and seasonal demand swings, commodity and currency exposure, reliance on third-party sourcing, pension funding volatility, and execution and financing risks related to the proposed merger. Pension and post-retirement benefit obligations on the balance sheet were $106.1.
- The company reported no material pending legal proceedings and stated that environmental compliance was not expected to have a material adverse effect. Management and the auditor concluded internal control over financial reporting was effective at year-end.
Important facts for investors to verify
- Whether the Mead C&OP transaction closed as expected, its final consideration and financing terms, and the resulting leverage, dilution and synergies.
- How much of reported growth and margin improvement was operational rather than currency-related, and whether underlying volumes stabilized.
- Recurring earnings and cash generation excluding the GBC-Fordigraph disposal gain and other transaction or rationalization costs.
- Debt repayment capacity, 2015 maturities, covenant headroom and actual availability under the asset-based facility.
- The effect of MicroSaver patent expiration on royalties and security-product margins, and the commercial progress of ClickSafe and newer mobile accessories.
- Changes in pension funding requirements, commodity costs, foreign-exchange exposure and sales dependence on major reseller customers.