ACCO Brands Corp (ACCO) 2012 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Q4 2012 ACCO Brands Corp earnings conference call. My name is Theresa, and I'll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this call.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Jennifer Rice, Vice President, Investor Relations. Please proceed, ma'am.

Good morning, and welcome to our fourth quarter 2012 conference call. Speaking on the call today are Bob Keller, Chairman and Chief Executive Officer of ACCO Brands Corporation, Boris Ellsman, President and Chief Operating Officer, and Neal Fenwick, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the investor relations section of www.accobrands.com. These slides provide detailed information to supplement this call.

When speaking of the quarter results, we may refer to adjusted pro forma results, including Mead, for all periods, but excluding restructuring and merger related costs, and applying a normalized effective tax rate of 30%. Schedules of adjusted pro forma results and a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures begin on page 12 of our press release.

During the call, we may make forward-looking statements, and based on certain risks and uncertainties, our actual results could differ materially. We assume no obligation to update our forward-looking statements. Please refer to our press release and SEC filings for an explanation of certain of these factors. Following our prepared remarks, we will hold a Q&A session. Now it's my pleasure to turn the call over to Bob Keller.

Thank you Jennifer, and good morning everyone. Today we announced our fourth quarter and full year results. For the quarter, sales were up 51% to $530 million, as a result of our May 1 first merger with the Mead Consumer and Office Products Business. Reported earnings per share were $0.37 on an adjusted basis, compared to $0.29 in the prior year. For the year, pro forma sales were $1.9 billion, adjusted earnings per share were $0.82, and adjusted EBITDA was $280 million. We generated a significant amount of cash in the fourth quarter, which allowed us to pay down $200 million in debt for the year, $75 million more than we had initially planned. As we expected, gross margin improved in Q4, and sales trends improved as well.

In the fourth quarter, we increased our accrual for incentive payments as a result of our strong finish for the year. Boris and Neal will provide more detail on our overall results in a moment. As you know, last month we announced that the Boris will succeed me as Chief Executive Officer of ACCO Brands effective March 31. I'll become Executive Chairman, focusing on longer term strategic initiatives. The Board of Directors and I are thrilled that Boris will lead ACCO Brands in its next stage of growth, building on the terrific progress we have all made together. It has been a priority of the Board to prepare for a smooth and seamless transition of leadership, and last month's announcement is the culmination of that carefully planned process.

Boris has served as President and Chief of Operating Officer over the past two years, working side-by-side with me on the development and execution of our strategy. He is the right guy, and now's the right time. ACCO Brands is a stronger and more resilient Company with great customer relationships, a robust product offering, significantly better channel and geographic coverage, and greater financial flexibility than we've had in some time. Our strategic focus will remain the same, to be the branded product leader in all the categories we serve. As Executive Chairman, I will continue to manage the Board, ensure that Boris' transition is smooth, focus on our long-term business strategy, and identify opportunities for further growth. I'm proud of what we have accomplished in the last four years, and I'm excited about ACCO Brands future and Boris' leadership. Now Boris and Neal will provide additional perspective on our fourth quarter and full year results. Boris?

Thank you, Bob. Before commenting on the quarter and 2013, this is the last time that Bob joins us on the call. I want to publicly thank him for leading ACCO Brands over the last 4.5 years. Bob took over the CEO role in tough circumstances during the depths of the Great Recession, and has successfully led our Company to a market-leading position. Under his leadership, we refocused on customer service, product innovation, and operational excellence. We improved our financial position and added hundreds of millions to shareholder equity. I am committed to keeping us on the strategic course we have set together, while continuing to raise the execution bar even higher.

I am very excited about our prospects going forward, and I am particularly happy with the progress that we have made bringing ACCO Brands and the former Mead Westvaco Consumer and Office Products businesses together. Much of the integration work to realize our cost synergies is either completed or well underway. We've integrated the sales and marketing functions, we have transitioned Mead from its former parent's IT system, and as a result terminated the transition services agreement with Mead Westvaco. Once this IT transition was completed, we were able to equalize vendor terms across the two businesses, and realize a sizable working capital benefit.

In January of this year, we began the physical move and integration of our two dated goods manufacturing facilities. All of these actions keep us solidly on track to realize $20 million of cost synergies in 2013. We also made great progress on our Lean Six Sigma productivity initiatives. These initiatives generated more than $10 million of savings in 2012, double the benefit of 2011, and our 2013 objective it is to achieve another $15 million to $20 million in productivity savings as we expand our Lean Six Sigma discipline across the combined business and into additional geographies. As we enter 2013, our goal is to balance share gains and sales synergies, especially in emerging markets, with profitability improvements and cost reduction initiatives, especially in our mature geographies.

We made good progress launching sales synergy initiatives in our key geographies, but this is a multiyear process, and we have modest expectations for 2013. Most of our growth should come from Brazil, Mexico, and Canada. We expect US to be flat, and Europe to show moderate sales decline. In our Computers Products businesses, we expect significant growth from tablets and smartphone accessories, offset by a slowdown in PC and security accessories. We will continue to expand our channels of distribution beyond the traditional to faster growing electronic, mass, and alternate channels. Because we expect 2013 to remain a challenging year for the global economy, and many of our customers, we have commenced additional restructuring in US and Europe. This should yield further efficiencies in the latter part of the year and in 2014.

For 2013, we're expecting adjusted earnings per share growth of 16% to 20%, resulting in an adjusted EPS range of $0.95 to $1.05. The midpoint of the range assumes modest pro forma revenue growth, including sales synergies, and the earnings improvement will be largely driven by the realization of cost synergies and productivity improvements. To the extent the macro environment differs from current trends, plus or minus, that is the variable that can put us at the higher or lower end of our range. A significant majority of annual improvement will be in the second half of the year, as we complete most of our integration activities. We should generate free cash flow of approximately $150 million in 2013, and our priority is to reduce debt, absent any compelling transactions. With that, I will turn the call over to Neal for greater detail on our 2012 performance, and to provide you with 2013 modeling assumptions. Neal?

Thank you, Boris. Our fourth quarter performance is recapped on Slides 3 and 4. Reported sales increased 51% to $530 million, due to the merger with Mead. On a pro forma basis, sales declined 7%, with 1% of the decline due to FX. We expanded our gross margin 10 basis points to 33.6% in the quarter, as shown on Slide 4. The improvement came from $5 million less of obsolete inventory charges in the current quarter, mainly in the Mead business. SG&A expenses were down in the quarter, but as a percentage of sales increased 90 basis points to 18.4%, due to the continued sales deleveraging, which offset other cost reduction initiatives. In all, operating income margin decreased 60 basis points to 14.1% from 14.7%. Foreign exchange had a $2 million adverse impact on the bottom line.

For the full year, sales increased 33% to $1.76 billion, driven by the merger with Mead. On a pro forma basis, sales declined 8%, driven primarily by lower volume and mix, which declined 7%. As discussed throughout the year, we did face a number of headwinds, particularly during the second half of the year. Excluding FX, approximately 0.5 of our decline was expected, specifically product exits in Europe and realignment of US direct business, the decline in calendars and the loss of royalty and price for computer security products. However, we also endured further economic deterioration that set in during June across most of our markets, and most severely in Europe and Australia, and the consumer shift to lower prices during back-to-school.

In addition, the decline in unit sales of PC-related accessories further softened demand. While we did see share gains and substantially grew our tablet and smartphone accessory businesses, they were not enough to offset the headwinds. We will lap these various issues in Q1 and Q2 of this year. Despite strong cost savings, the decline in sales negatively affected both our gross margin and SG&A percentage. Gross profit margin decreased 90 basis points to 30.8%, and SG&A costs increased 10 basis points to 19.2%, a modest change due to cost reductions, productivity improvements, and reduced incentive compensation. In all, our annual operating income margin decreased 100 basis points to 10.2% from 11.2%. Foreign exchange had a $5.4 million adverse impact on the bottom line.

Turning to an overview of our pro forma segments. For the fourth quarter, North America sales declined 5%, mainly driven by declining calendars and a shift to lower value products. Despite the sales decline, North American adjusted pro forma operating income increased 14% to $42.2 million, and operating margin increased 230 basis points to 14.5%. The improvement was due to $4.7 million of lower obsolete inventory charges versus the prior year, and higher current year pricing that offset last year's increase in material costs.

International segment sales decreased 11%, or 7% on a constant currency basis. The decline was driven mainly by planned product exits in Europe, as well as the weak demand and pricing conditions in Europe and Australia. Excluding FX and product exits, international volume was down 2%. We will largely lap the product exits in Europe during this Q1. In Australia we will lap that market downturn in Q2. International segment adjusted pro forma operating income was down $9 million, and operating margin declined 230 basis points to 16.1%. The main drivers were lower sales volume and lower prices in Europe and Australia, and $2 million in negative foreign exchange. ¶ Computer Product sales decreased 4%, due to $1.4 million of sales price declines, and an approximately $1 million loss of royalties due to the expiration of our security law patent. Volume and mix increased 1% due to new product introductions for smartphone and tablet accessories, which offset lower PC accessories sales, including high margin security products. Computer Products operating margins declined to 20.5% versus 25.1% in the prior year quarter, due mainly to lower pricing, the loss of royalty income, and adverse product mix due to lower volumes of security products.

Turning now to our balance sheet and cash flow. We generated $63 million of cash in the quarter, and paid down $140 million of debt, for a total of $200 million since the merger. We finished the year with net leverage of 3.68 times. Because of the Mead merger, our cash flow statement contains a number of one-time items, and Mead is only Incorporated from the date of acquisition. Therefore, the annual cash flows is not reflective of true underlying pro forma cash flow. The cash flow statement shows a $7.5 million operating cash outflow for the year due to one-time cash payments of $78 million related to the transaction, debt extinguishment, and refinancing. These payments were largely offset by cash generate from operating profits. The use of cash for net working capital was $117 million in 2012, and reflects a large seasonal investment in working capital for the Mead C&OP business, but this excludes a $30.5 million working capital adjustment we received from Mead Westvaco as part of the transaction to affect the sale at a weighted average working capital, due to the seasonal nature of this business.

The Mead business has a very seasonal cash flow patent, whereby strong sales during the fourth quarter result in substantial accounts receivable at the end of the year, and strong cash collections during the early part of the following year. As a result, nearly all of the Mead annual net cash generation occurs during the first quarter. Other significant cash payments in 2012 included interest payments of $79 million, income tax payments of $29 million, and contributions to the Company's pension and defined benefit plans of $19 million. The additional $29 million of additional restructuring and integration charges we announced today are in line with our original plans, including some non-cash items, and are reflected in our 2013 free cash flow assumptions.

For 2013, we continue to expect pro forma free cash flow to be about $150 million, inclusive of $30 million of restructuring-related expense. We will also benefit from the full year Mead cash flow, which is generated primarily in Q1, and will more than offset the historical legacy ACCO brand seasonal cash outflow during Q1. Q2 will now become our seasonal cash outflow quarter, due to the buildup of working capital for back-to-school, and the timing of our bond interest payment. As always, the main quarters when cash generation can be used for debt reduction are Q3, and particularly Q4.

Finally, I want to draw your attention to Slide 6, which contains many modeling assumptions. As previously reported, but just as a reminder, our effective tax rate will increase from 30% to 35% in 2013, as we have reversed our US federal and state tax valuation allowances, as well as certain foreign tax valuation allowances, and must now incorporate various tax adjustments and the effect of lower dilution from our foreign operations in the ongoing tax rate. Our cash taxes will remain relatively low over the next few years, due to the use of NOLs. However, our cash taxes will increase as our US earnings increase, because our US NOL reusage is restricted to approximately $50 million per year.

With that, I will conclude my remarks and move onto Q&A, where Boris, Bob and I will be happy to take your questions. Operator?

Thank you.

(Operator Instructions)

Brad Thomas, KeyBanc.

First of all, Boris, wanted to congratulate you on the new role, and Bob want to wish you all the best as you start to move on here.

Thanks.

Thank you, Brad.

Wanted to first ask about the Computer Products division. It was a very unusual year with the Kensington patent expiration. Can you just talk a little bit about the timing of when this drag goes away and what your expectations are for the sales and the profitability of this division as we get past sort of the unique items that have been happening in this division?

Sure. Just remind everybody, our main patent on our Microsaver lock expired early in 2012, and as a result of that, for the year we lost around $5 million in royalties that we were getting before from companies that were offering that technology, as well as it put some margin pressure on our security products. Most of that will lapse after Q1. So in Q1 of '13 we still have some compares issue versus '12, but then it does go away. So that will be behind us.

Okay. So then how are you thinking about the business as we get --

As far as the rest of the Kensington business, we have seen an accelerated shift from the PC accessories and security to more a smartphone accessories and tablets. We saw strong double-digit growth throughout the year in tablets and smartphones accessories. For the year overall, it now represents a third of our Business at Kensington. If I look at Q4 of last year, due to just the seasonal trends, it was 40% of the business. We expect that trend to continue. We expect very, very strong growth in tablets and smartphones accessories that is fueled by new products introductions that we are going to see from Kensington.

We saw at the end of Q4, plus we will see throughout Q1 and the rest of the year. We expect moderate growth from the PC and Security business, and that is a little bit of a wild card. We will see what happens in the market in 2013. As many of you know, it was a pretty insignificant slowdown in PC sales in 2012. We have not seen the pick-up in Q4 associated with Windows 8 launch. That story is still to be played out. So, we are expecting fairly moderate growth from the PC side of the Business, and a fairly aggressive growth from the smartphone and tablet side of the Business.

Okay. Then, Boris, in your prepared remarks you talked about Brazil and Mexico being areas that you expect growth. Could you just give us an update on the timing and the magnitude of the revenue synergies that you are seeing from the Mead deal?

As we said in our prepared remarks, the overall guidance does include revenue synergies. Roughly 0.5 of our growth is driven by revenue synergies. If I look at Mexico, most of the synergies will come with the launch of Mead products, or legacy Mead products into Mexico, and that is happening in Q1. I'm very optimistic that that will go well, that we have a very established channel there that is ready to accept these products. So high confidence that we will be able to execute that well. Brazil, we have introduced about 30 Kensington SKUs into Brazil in Q4, and about 15 legacy ACCO SKUs, primarily in the shredding area in Q4. That is going into the channel as we speak.

We're going to be introducing another 70 or so SKUs in the Q2 timeframe. Our expectations for Brazil are very aggressive in the long term, but are fairly moderate in the short term because it is a very, very fragmented market, and it's going to take a while to get the penetration that we desire. If you think of Brazil, which has twice as many people as Mexico, my expectation that in 2013 we will roughly have the same level of sales synergies in Brazil as we will in Mexico.

Bill Chappell, SunTrust.

Boris, congratulations. Bob, best of luck in your quest for stretch handicap. Just wanted to kind of dig in on a couple of things. One, when you look at the US market can you give us a little more color in both backward-looking what you're seeing in terms of trends of consumables versus durables, and then Mead versus legacy ACCO. And then also forward-looking, do you expect any meaningful synergies in the US in terms of revenue synergies, or is that mainly falling outside, Brazil, Mexico, and other places?

Let me give you some color on 2012. Mead and ACCO were similar for the year overall, although I would say that legacy Mead was a little bit stronger in the first couple of quarters of the year, and then kind of got into the average for the business, and then legacy ACCO was weaker in the first three quarters of the year but finished okay in the US. The trends are similar. One thing that, just to reinforce what Neal mentioned, we did see a little bit more than average decline in the durable side of our Business, which had to do with really changing the go-to-market model for our Direct business in order to improve profitability, and we made significant strides in that, and are very pleased with the progress that we made on the Direct side of the Business.

US was better than the house overall, as far as 2012 performance is concerned. It's still, as we discussed, very choppy. It was a very choppy year. One month was great, one month was soft. Then as we also talked about in the US, there definitely was a shift, especially in the back-to-school season, and even in Q4, to more value-oriented products.

If I look at synergies, sales synergies for the US, there is definitely an opportunity for sales synergy in the US. In the fact we are planning to have some in the US. As you know, US market is very concentrated in terms of customers. So synergies will be binary in nature, and probably fairly significant in nature as well, but it is part of our plan. We are working hard on it. It is -- part of the guidance that we provided includes some US synergies, and hopefully we will be able to get more.

Okay, and just as a follow up, can you give us kind of an idea as you're looking at modest growth overall for this year, is there much pricing in that in terms of, did you take a round of pricing in January, or are you expecting to in July, or is this largely you're expecting growth to come through volume?

There is a little bit of pricing in the growth, Bill, and the pricing is primarily outside of the US. Brazil took pricing, US took a little bit of pricing, Europe took a little bit of pricing, Canada took a little bit of pricing. I would say between pricing and volume, it is about 0.5 of our expected growth, and the other 0.5 from sales synergies.

Arnie Ursaner, CJS Securities.

Bob, I echo the comments, although Bob, I thought you were a plus-1, so you don't want to go and become a scratch. You want to keep the plus-one. So revenue, modest is a term that means different things to different people. So in your prepared remarks you talk about modest revenue growth in the upcoming year. What does modest mean to you, and you have already told us 0.5 of that growth will be coming from expected revenue synergies.

Yes. Modest is around 2%.

Okay. You have traditionally excluded any impact from foreign exchange in the way you provide revenue guidance.

That is correct, Arnie. There is no FX.

But if it stays where it is now, you've got multiple currencies, wouldn't it in fact be a little bit of a tailwind versus a headwind last year?

It's very hard to call where FX are going on. We have so many different currencies and they're moving in different directions. They tend to have a much more of a seasonal impact. So, for example, you see Brazil will have a huge sales quarter in Q4, and therefore its FX becomes a dominant feature in Q4, which isn't the same when you get into Q1. You flip around and other currencies become more important. It is really a function of just seeing how it goes a during the year. We assume no gain/no loss due to FX.

Okay.

I think it is fair to assume there'll be a little bit of a headwind in the first few months of the year, just due to the Brazilian real, but then it should correct itself in the second half. So overall for the year, neutral, but probably a little bit of a headwind initially.

Okay. Just to double-check, I think I got this right. Neal, you indicated that the free cash flow of $150 million is after the $19 million or so cash outlay that you are going to have for the restructuring, is that correct? Other than that, it would have been closer to $170 million of free cash flow?

Yes. In fact, the cash impact in 2013 is much higher, because we took a lot of charges in '12, of which the cash impact 2013, together with all a lot of the new charges which impact '13. So the total cash outflow for restructuring in 2013 is $30 million, three-zero, and that is included $150 million after that.

Okay. Two more really more quick ones. In your prepared remarks, you indicated that you're exceeding your original cost synergies expectations. What were they, and what do you think you now are looking at?

Yes. When we first talked to investors about the merger, we talked about $20 million in net synergies by 2014. As we got into the process, we brought some of those savings forward. So right now we are planning to deliver all of $20 million in 2013. Not run rate, all of the savings in 2013.

Okay. Then the final question I have is, you mentioned you are taking back the, I guess, corporate services relationship that you have had with Mead. Can you discuss the impact it will have on ACCO in 2013 by ending that service relationship?

Yes. What we're doing is we had a transition services agreement with Mead Westvaco corporate. That was part of our synergy plan, is to bring those services over to utilize ACCO shared services platform. We are pretty much done with that, and we're now providing shared services through the ACCO platform. Those savings are included in that $20 million.

Okay. So that is embedded in some sort of net number in the $20 million?

That is correct.

Simeon Gutman, Credit Suisse.

Good morning, it's Simeon. Congratulations, Bob and Boris. A quick question to start, Boris. This is the second or third quarter we have heard about the, I guess, a shift to lower value products. I don't know if the market is moving there or if that is something that just cyclical. What is your product exposure there? Could you move more towards that spectrum, I guess that may not fit in with higher quality, higher value product portfolio, but can you coexist more on that end of the spectrum, and then what are your margins in the lower value spectrum of products?

First just on your first part of the question. They are both seasonal effects and overall macroeconomic effects to that. We did see, in particular for the back-to-school season, when students and more consumers shop, that more of a shift to more value products. It got a little bit better in Q4, and you saw that on margins. Gross margins improved in Q4. As we previously discussed, our plan is to provide appropriate products at all price points.

We want to manage the complete category. We're not interested at providing products with opening price points exclusively, but as part of the overall category management, as part of the overall assortment, we're very willing to do that. In fact, in some of our businesses we're on purpose going, not necessarily to opening price point, but starting at midrange to offer a growth platform for our customers and for our Business. Overall, it is part of our strategy, and it is included in the guidance that we've provided.

Okay. Then can we talk about the office supply superstore channel? It looks like the largest player, they've sounded like they are getting more, or they're trying to get it a little more aggressive on margin, up or down their supply chain. Then, curious if the eventuality of that consolidation, if that happens sooner than later, is that good or bad for ACCO?

The largest player in that channel has always been very, very aggressive. So I don't think there's a big change in the behavior this year. As far as the possible consolidation in that channel, in the short term it will have a negative effect, because there will be some inventory taken out as a result of that. We don't expect that to happen in 2013, because even if something were to happen real soon, it will take a while for this to be approved. Then overall, it is a small percent of our overall global business. In the short term, there probably will some negative effect. In the long term there really shouldn't be any effect whatsoever, because it is not going to change the behavior of the end consumer.

And the percent exposure you said is small, where is that today?

If we look at our overall sales to the superstores, it is around 28%. Roughly 0.5 of it is the biggest customer there, and the other 0.5 is the two others combined. If you look at that, about 0.5 of that is retail and 0.5 of that is commercial. We think most of the commercial business will not be impacted. Some of the retail business will be impacted, because they will probably close some stores, and then only part of that 0.5 is in the US where the impact is really going to be. If you kind of parse it out, the impact overall will be fairly small, and as I mentioned, we don't think it is going to be that meaningful in 2013.

Then the last modeling question, maybe for Neil. Regarding the flow and the timing of some expenses. It sounds like, from the comments, that synergies will ramp, I don't know if it was at an accelerating pace throughout the year. I think there is also some incentive comp that was moved out of 2012 into '13. I think that will hit over the course of the year, but will be more of an impact in the first half, just given the comparison. Are there other things to think about in terms of the modeling cadence for the year?

You are correct on multiple levels. Number one, clearly for us to achieve the $20 million of synergies for the full year, the run rate has to be a higher number. So there will be some carryover into 2014 of positive synergy effect. A lot of the synergies are related to specific activities. So things like getting out of the Mead shared services, because we did that at the very end of 2012, the benefit is every quarter going through 2013. On the other hand, when we merged the dated goods business, because it's largely manufacturing-related and a highly seasonal business, it is largely Q4 that will receive that benefit.

There are a disproportionate number of benefits that go into the back half of the year due to the seasonal nature of the businesses where some of the cost savings come through. We are expecting to see EPS slightly up in every quarter, but more so in Q3 and Q4, and that is really in line with the kind of 80/20 that you see in our EPS anyway. I think if you think of the synergies coming roughly in line with that 80/20, it is a good way to think of the business coming out in its normal pattern.

Helen Brand, Barclays.

I would also like to offer my congratulations to Boris and my best wishes to Bob. Boris, you mentioned that you could see $15 million to $20 million in benefits from Lean Six Sigma in 2013. Could you just go over where these are coming from and whether this is a modest assumption, whether you could see upside from this?

There are hundreds of projects that are driving the $15 million to $20 million in savings. They're pretty much in every part of our Business. We have over 80 green and black belts in the Business that are in charge of these projects. They range from consolidating our distribution facilities to improving our freight terms to relaying our factories to improve productivity to consolidations in our system to drive some savings in G&A. Literally that $15 million to $20 million is really not made up of projects, each one more than a few hundred thousand dollars in nature. I do think that $15 million to $20 million is a realistic range. So, I wouldn't be counting on an upside versus that.

And would 2013 be --

Helen, just one second. Neal is correcting me here. We actually have 80 just black belts and another 120 green belts. So overall 200 folks who are trained in Lean Six Sigma.

Got you. Would 2013 be the year with the biggest benefit from this program, or do you see further benefits?

I do see further benefits. Every year I anticipate and I expect our team to improve productivity. So I absolutely believe that '14 will be better than '13.

Reza Vahalzadeh, Barclays.

Congratulations to you Bob and Boris. As far as North America business is concerned, I'm not sure if I caught this before, but how do you think about mix and volume in North America in 2013 versus 2012?

How do we think about mix and volume?

Yes.

North America is obviously US and Canada. As far as we expect in Canada specifically the volume to grow in 2013. There are some synergy opportunities in Canada, positive synergy opportunities in Canada that we are realizing. So that should be a positive for us. In the US, volumes are going to be flat to negative. It is probably going to be slightly down in the Office Products side. It is good to be up on the Computer Products side, and maybe School will be slightly up. US is a big market for our dated goods products. There the volume is definitely down, and it is probably going to impact the overall average for the US.

Right. Mix was a 90 basis points hit to gross margin in 2012. Is that going to stay the same, or would that moderate in 2013?

Our expectation of gross margin will improve in 2013, around 100 basis points for the year. There will be some challenges in Q1, so we don't expect a huge improvement in Q1 because we're going to lap some of the things that I discuss, such as Kensington royalty, and there will still be some of the European headwinds from a SKU rationalization and go-to-market changes that we made at the end of 2011, there will still be some effect in Q1. Overall for the year, we expect around 100 basis points improvement.

Got it. On the cost savings fund as far as timing is concerned, it sounds as though the synergy savings will be heavily weighted towards the second half with some coming in the second quarter. I am wondering if that is accurate, and then as far as your organic productivity savings, is that going to be more evenly distributed throughout the year, or will be more weighted towards second half, first half? Thank you.

They both build up throughout the year. So both the productivity savings and the synergies will build quarter-to-quarter. So much more in the second half than the first half.

Got it. So not much in the first quarter, build more in Q2 and then more in 3Q?

Exactly.

Thank you. We have no further questions, and I would now like to turn the call over to Mr. Robert Keller, Chairman and CEO, for closing remarks.

Boris and I would like to thank everyone for your time and attention today. It has been a pleasure to serve in this role for the past four years, but I look forward to Boris guiding this terrific Company into even greater success in the years to come. We look forward to talking to you soon. Thanks.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a good day.