ACCO Brands Corporation Fourth Quarter 2008 Earnings Call February 27, 2009
Forward-Looking Statement & Reg. G This presentation contains statements which may constitute "forward-looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995.These forward-looking statements are subject to certain risks and uncertainties, are made as of the date hereof and the company assumes no obligation to update them. ACCO Brands ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted depending on a variety of factors, including but not limited to fluctuations in cost and availability of raw materials; our ability to remain in compliance with our financial ratio covenants; the effects of both general and extraordinary economic, political and social conditions, our ability to access the capital and credit markets; the effect of consolidation in the office products industry; the continued liquidity and solvency of our major customers; the dependence of the company on certain suppliers of manufactured products; the risk that targeted cost savings and synergies from previous business combinations may not be fully realized or take longer to realize than expected; our ability to successfully sell our Commercial Print Finishing business; future goodwill and/or impairment charges; foreign exchange rate fluctuations; the development, introduction and acceptance of new products; the degree to which higher raw material costs, and freight and distribution costs, can be passed on to customers through selling price increases and the effect on sales volumes as a result thereof; increases in health care, pension and other employee welfare costs; as well as other risks and uncertainties detailed from time to time in the company's SEC filings. This presentation includes measures not derived in accordance with generally accepted accounting principles (GAAP), such as measures excluding restructuring and non-recurring costs, goodwill and asset impairment charges, or pension income. Such measures should not be considered substitutes for any measures derived in accordance with GAAP, and may be inconsistent with measures presented by other companies. 2
Fourth Quarter 2008 - Results of Continuing Operations ($MM, except per share information; adjusted basis) Q4 08 vs. Q4 07 Sales Operating income Operating margin EBITDA EPS Reduction of debt $353 $24 6.9% $35 $0.37 $63 (30)% (64)% (620)bps (56)% (44)% (8)% Results of continuing operations 3
Significant Cost Reductions in 2009 ~ $80 million of savings targeted for 2009 $20 million of savings from the original merger integration $10-$20 million of savings announced in August 2008 $15 million in savings from further initiatives announced in November 2008 $30 million of new initiatives 4
$30 Million of Additional Cost Reductions Reduced over 160 permanent positions in Q4 (5% of workforce) Two temporary salary reductions for U.S.-based employees; similar actions taken in other geographies around the world Suspension of merit pay increases and incentive plans for at least the first six months of 2009 Changes in employee benefit plans, including suspension of matching contributions to the 401(k) plan and freezing of the pension plan 5
Key Operating Objectives for 2009 Aggressively manage cash and continue to de-leverage balance sheet Aggressive pursuit of cost-cutting actions Defer capital investments that do not have an immediate payback Careful management of inventory Arrest top-line erosion Improve key customer satisfaction ratios Develop new/improve joint customer/supplier planning systems and processes Accelerate introduction of new products already in development 6
Key Operating Objectives for 2009 (cont.) Position ACCO Brands for growth when economy improves Re-size company to match current revenue opportunity Realign sales and marketing resources to match new geographic orientation Realign manufacturing and distribution footprint based on SKU rationalization and sourcing strategy Invest appropriately in new product development initiatives to ensure robust pipeline across portfolio Drive deeper category penetration 7
Fourth Quarter 2008 Financial Highlights - Continuing Operations Sales (30)% Currency (7)%, business exits impact (1)%, volume (22)% Gross margin (300) bps to 31.9% Volume decline and raw material inflation offset cost savings SG&A margin 310 bps to 24.5% Fixed cost deleveraging more than offset cost savings, lower incentive compensation accruals and lower go-to-market spending OI margin (620) bps to 6.9% EPS (44)% to $0.37 per share Operating cash flow of $30 million 8
Fourth Quarter and 2008 Segment Results ($MM; adjusted basis) Q1 Q2 Q3 Q4 2008 Americas Sales Rate (12)% (14)% (16)% (33)% (19)% Americas Operating Income Rate (76)% (49)% (37)% (58)% (53)% Americas Operating Margin 1.9% (530) bps 4.7% (330) bps 7.8% (260) bps 8.8% (520) bps 5.8% (430) bps International Sales Rate 4% 7% (7)% (25)% (6)% International Operating Income Rate 122% 59% 23% (57)% 15% International Operating Margin 10.6% 570 bps 8.8% 290 bps 8.5% 210 bps 6.1% (430) bps 8.6% 160 bps Computer Products Sales Rate (3)% 3% (7)% (33)% (12)% Computer Products Operating Income Rate 17% (3)% (28)% (60)% (29)% Computer Products Operating Margin 16.0% 270 bps 19.7% (110) bps 19.6% (580) bps 15.9% (1,070) bps 18.0% (420) bps 9
10 1,850 $22 1,800 $1,836 $53 1,750 1,700 $169 1,650 1,600 $4 1,550 $47 $26 1,500 $12 $1,578 2007 YTD Sales (adj) Planned Exits Lost Placement/Contracts US/EUR ROW Inventory Reductions Price FX 2008 YTD Sales Full Year 2008 Sales Reconciliation ($MM; adjusted basis) Source: Management calculations and estimates.
Full Year 2008 Margin Reconciliation ($MM; adjusted basis) Financial Area 2008 vs. 2007 Items of Significant Impact Price increases* (110) bps Adjusted Gross Profit $491.3 Synergies* 30 bps Gross Margin 31.1% Adverse 110 bps Distribution* F/X / misc. Go-to-market (20) bps (10) bps 30 bps 2008 Net Synergies 220 bps $35MM Adjusted SG&A $375.9 23.8% Adverse 110 bps Synergies Reduced volume/cost leverage 180 bps (320) Bps Cumulative Net Synergies $50MM *Reflects cumulative adjustment between excess freight and distribution costs, synergy savings and pricing increases. 11
Fourth Quarter Cash Flow and Debt Reduction ($MM, adjusted basis) Q4 08 EBITDA Interest and taxes Restructuring and related Capital expenditure Working capital and other Net Cash Flow Discount on bond pre-payment Reduction in cash on hand FX impact on debt Total Gross Debt Reduction Gross debt/adjusted EBITDA $35 $(12) $(6) $(5) $6 $19 $17 $17 $10 $63 4.5x 12
Fourth Quarter Debt Reduction - $63 million ($MM) Total Outstanding Debt Q4 2008 Local Currency US $ Equivalent $ Change vs. Q3 2009 US Term Loan $246.0 $246.0 -- Euro Term Loan 24.5 $34.4 $(7.9) Sterling Term Loan 22.8 $32.8 $(15.7) US Revolver $36.0 $36.0 $16.0 Accounts Receivable Securitization $55.6 $55.6 $(19.4) Other Debt $3.5 $3.5 $(0.2) 7 5/8% Subordinate Notes $300.4 $300.4 $(35.5) Total Debt $708.7 $(62.7) 13
Amendment to Credit Agreement December 2008 Amended credit facility on December 15, 2008 to increase operating flexibility under the covenants Maximum Leverage Ratio Minimum Interest Coverage Ratio 12/31/08 5.50x 12/31/08 2.25x 12/31/09 5.25x 12/31/09 2.25x 12/31/10 5.00x 12/31/10 2.50x 12/31/11 4.50x 12/31/11 2.75x 6/30/12 4.00x 6/30/12 3.00x LIBOR + 450 bps (where LIBOR is subject to a 325 bps floor); or the base rate + 350 bps (where base rate is subject to a 425 bps floor) Eliminated the company s ability to further prepay its subordinated notes 14 Refer to amended agreement for full terms and definitions.
Modeling Assumptions ($ MM) [1] 2007 Actual 2008 Actual 2009E Capital Expenditures $59 $44 $20 Cash Restructuring Pre-tax Impact $59 $37 $32 Interest (cash interest 07:$60; 08:$55; 09E:$58) $64 $63 $63 Net Working Capital Source: $7MM Source: $8MM Source Depreciation $34 $34 $30 Amortization $10 $8 $6 Amortization of Stock Option Expense $11 $5 $4 Cash Taxes $22 $19 $19 Effective Tax Rate 30% 32% 31% Diluted Shares 55.0 54.6 55.0 Targeted Cash Flow ~$30-$40 million in 2009 15 [1] Directional information for modeling purposes 16