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Imation Corp. (NYSE:IMN)

Q4 2012 Earnings Call

February 13, 2013, 10:00 a.m. ET

Executives

Scott Robinson – IR

Mark Lucas – President and CEO

Paul Zeller – SVP and CFO

Analysts

Mark Miller – Noble Financial

Chris McGinnis – Sidoti & Company

Eric Martinez – Lake Street Capital Markets

Operator

Good morning. My name is Laurel and I will be your conference operator today. At this time, I would like to welcome everyone to the Imation Corporation Q4 earnings release conference call. (Operator Instructions)

Scott Robinson, Vice President, Investor Relations, you may begin your conference.

Scott Robinson

Thanks, Laurel. Good morning everyone and thank you for joining our fourth quarter 2012 earnings call. I am your host for today's call where you'll be hearing from our CEO, Mark Lucas, and our CFO, Paul Zeller.

On today's call, we will review our fourth quarter results and provide updates about our strategic transformation.

Before that though, I would like to remind everyone that certain information discussed on the call that does not relate to historical information may be due to constitute forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from any projected results. Risk factors that could cause results to differ are outlined in the press release issued today as well as our filings with the SEC.

With that, I'd like to turn the call over to Mark Lucas, Imation's CEO.

Mark Lucas

Thank you, Scott and good morning everyone.

On today's call, Paul Zeller and I will describe the many steps we took during the fourth quarter to accelerate Imation's strategic transformation.

We have been very busy and are pleased to have this opportunity to provide an update to you. We have said in previous calls that we are leveraging Imation's roots in data storage to become a major player in data security and data storage. Our plan remains to build a platform for long-term growth and improved operating earnings. Our recent moves reflect this focus. And we are on the right track.

Let me state at the outset that there are many moving parts in our transformation. As we narrow our focus and make changes to our global operations and product portfolio, we truly are creating a new company.

Turning to the 2012 fourth quarter, our revenues were not where we want them to be. We have said before that our traditional storage business is in secular decline. We saw this throughout the year. And we saw it in the fourth quarter where total revenues decreased over 12% from the previous year. This is why we are acting urgently to reduce our cost structure and evolve Imation into a company focused on high growth markets and data storage and security.

Paul will give you a detailed rundown of our financials. But let me share my perspective with you regarding improved margins and profitability. There are three indicators I'd like to reference.

First, our goal is to reach over 20% gross margin level as a company. We saw improvement in the full year, 2012 where gross margins reached 18.4% versus 16.8% a year ago.

Second, Imation's opportunity for higher margin differentiated product lies in our secure and scalable storage portfolio. In 2012, gross margins for these products were 18.8%, up from 15.1% in 2011.

And lastly, we are not introducing any new products that don’t meet the 20% margin thresholds.

So again, we are not where we need to be yet. But we are definitely moving towards our goal.

Let me turn to our recent acquisition of Nexsan. One very important step that will help us on a gross margin and revenue side is this recent acquisition. This is a growing and successful company that provides storage systems to 11,000 customers worldwide. Nexsan's management team has built this business from start-up to more than $80 million in revenue with strong gross margins.

The Nexsan product suite now becomes the center of our tiered storage business. Nexsan products address the need for better performance and affordability for a variety of data storage applications. And at the end of January less than a month after we closed the deal, we announced the first post-acquisition Nexsan product release, a system that delivers enterprise class storage capabilities to SMBs.

We are very excited about Nexsan. And it fits perfectly with our approach. The Imation strategy includes addressing the under-served SMB market with storage systems and appliances. This is a sector that Nexsan knows well. And we expect this acquisition to contribute considerably to growth in both the small and medium sized business market and the distributed enterprise storage or SME markets.

I'll move on now to talk about transformation. We are making dramatic changes in this company. And as part of this, we are aggressively implementing cost savings initiatives to right size the organization. We are looking at every part of our organization in order to reduce operating expenses more than 25% over time. How? Well, there are a number of ways we're doing this; through worldwide process improvements through office consolidations in Latin America and Europe, through product line rationalization, infrastructure efficiencies, and also staff reductions of approximately 20% in the first half of this year.

Because of our concentration on data storage and data security, we announced in the third quarter that we are exploring strategic alternatives for our consumer electronics business. As noted in this morning's press release, we have decided to divest our Memorex and XtremeMac consumer electronics businesses. We are continuing with our TDK Life on Record business, but on a more focused basis. These changes allow us to do fewer things better. We can direct our resources, our time, and efforts into growing our core businesses of data security and storage.

Also bolstering our transformation is Imation's new business unit structure. This became effective on January 1st. We have aligned the company with our key commercial and retail segments. We now have two business units. The first is TSS, or Tiered Storage and Security Solutions. The second is CSA, or Consumer Storage and Accessories. These two independently managed segments offer a number of benefits, most notably they provide a more customer-centric structure leading to faster decision making and greater accountability.

Going forward, we will continue to reduce costs, implement efficiencies, and enhance Imation's data storage and security portfolio to successfully complete our strategic transformation. This transformation is wide ranging and dramatic. And we are doing it amid ongoing macroeconomic uncertainty.

We are 100% committed to returning to growth long-term. And we are confident this is the right way to do it. We are making progress and look forward to further progress throughout 2013 as we continue on this important journey.

Before I turn the call over to Paul, I have one more point to note. We continue to evaluate all of our corporate protocols and systems including our governance practices as a public company. As well as reaching out and listening to shareholder concerns. In response to shareholder requests, Imation's board of directors recently made two changes that are included in a separate 8-K filed this morning. We are eliminating Imation's existing shareholder rights plan, commonly known as the poison pill. And we have amended our bylaws to provide for majority voting to elect directors. We listened to our shareholders and have taken action and I wanted you to know about it.

I will now ask Paul to provide a more in-depth look at our financials. Paul.

Paul Zeller

Thanks, Mark, and good morning everyone. As Mark just mentioned, there are a number of moving parts in our fourth quarter results, which evidence the actions we're taking to drive our transformational strategy. I'll start by covering the financial implications of these actions before getting into the details of our fourth quarter.

First, our year-end balance sheet reflects the acquisition of Nexsan since this transaction was effective as December 31. There were no implications to our income statement in 2012. We will be consolidating the results beginning in January.

Second, we recorded $21 million of restructuring and related charges due to cost reduction program we announced in October. Our objective is to achieve a 25% or larger cut in operating expenses over time. The majority of these charges were recorded in the restructuring and other section of our income statement. But a small amount also impacted cost to goods sold. These details are laid out in the supplemental information provided with today's earnings release.

Third, we recorded substantial non-cash impairment charges totally about $284 million in the fourth quarter primarily associated with intangibles from our 2006 and 2007 storage media acquisitions. And I'll provide some more details on that later. So when I refer to results excluding charges today, I'm excluding both the $21 million of restructuring and the related charges as well as these impairment charges.

And finally as Mark noted, we announced our plans regarding the sale of Memorex and XtremeMac consumer electronic businesses as we become squarely focused on storage. In a few minutes, I'll get into the reporting implications of these contemplated actions on our 2013 results.

As we look forward to 2013, we believe our actions are establishing a strong center of grABIty in tiered storage with the Nexsan acquisition and a right size cost structure that creates a solid foundation for Imation.

Now more details on our fourth quarter. Fourth quarter revenues were $299.1 million. That's down 12.6% from the same quarter in 2011. That rate of decline was lower than recent quarters where we've seen 16% to 20% decline rates.

We saw better revenue trends in secure and scalable storage as well as in our traditional media categories. In terms of our product categories, as Mark noted and as you're aware, our traditional storage business, which is primarily optical and magnetic tape has been in secular decline. We saw revenue declines of 15% in the quarter versus quarter four of 2011. That compared to decline rates of 20% or more in the second and third quarters of 2012.

Optical media was the main driver where we saw a 16% decrease improved from a 24% decline rate in the prior quarter. We regained some of the share we lost in Asia a year ago. You may remember that we raised prices late in 2011 in response to earlier supplier cost increases. We lost some share in north Asia at that time. And have steadily regained it since then.

In tape, revenues were down 14% in line with the decline rates we've seen over the last couple of quarters.

Secure and scalable storage revenues grew nearly 17% in the fourth quarter, the strongest growth we've seen in two years. We saw contributions from external hard disc, flash media, storage solutions, as well as mobile security.

Our audio and visual information revenues were down nearly 24% in the quarter. This was driven entirely by the U.S. where we continued to experience a very difficult retail environment. Our international ABI business remains strong with 20% plus growth in most markets.

From a regional standpoint, our America's segment revenues drove the vast majority of our declines with the biggest contributor being our ABI business, which was down over 35% in this region.

The Apple connector change caused significant disruption in the audio category, which only added to what was an otherwise weak holiday season for the bricks and mortar CE segment outside of tablets.

Traditional storage declined in the America's as expected in quarter four. And we saw encouraging growth in mobile security, which was up very nicely in the quarter.

European segment revenues finished relatively strong in the fourth quarter with a 7.5% decline, which compared to a 22% decline in the prior quarter.

Traditional storage driven by optical declined as expected in Europe. However, we saw growth in both secure and scalable storage as well as ABI, which helped to moderate those declines.

North Asia revenues grew 0.5% in the fourth quarter. We benefitted from the recovery in optical share I mentioned earlier helping drive overall optical growth in the fourth quarter for North Asia. We also saw growth in both secure and scalable storage as well as ABI in this region with the largest contributions coming from storage solutions and CE accessories.

In South Asia, revenues declined modestly at 3.9%, a significant rebound from their very weak Q3. We achieved this turnaround despite significant reductions in optical revenues.

Overall, our Q4 revenues were slightly penalized by currency changes, about a one point penalty to our year-over-year comparisons.

Gross margins were 16.9% in the fourth quarter excluding charges. That's down 0.3 of a point from the same quarter in 2011.

Looking at margins by product category, traditional storage margins were down a little over a point driven by softer margins in magnetic primarily due to some inventory accruals related to remaining discount inventory. Optical margins remained solid.

Our secure and scalable storage margins fell off in the quarter to 14.6%. There were several negative impacts. Commodity flash and external hard disc margins were both down reflecting increased supplier costs especially in flash. RDX martins were soft in the fourth quarter due to come inventory adjustments. And mobile security margins rose year-over-year and remained solidly in the 40's, but were down however sequentially.

In ABI, margins improved five points year-over-year and were consistent with last quarter at 15.9%.

Accessory margins remained our strongest ABI category with margins in excess of 20% to sales.

Operating expenses totaled $55.6 million. That's down about 6% or $3.3 million from quarter four of 2011. We expect to report continued and increased levels of cost reductions, especially beginning in the second quarter of 2013 when we will begin to see more measurable benefits of our expense reduction actions.

Associated with our cost sABIngs initiatives, we reported $21.4 million of restructuring and other charges in the fourth quarter. We estimate charges to total between $50 and $60 million over time with cash costs of approximately $40 million. Cash based charges in quarter four were only $900,000. And thus, the majority of these cash costs will occur during 2013.

As I noted earlier and we signaled last quarter, we evaluated our intangible assets for potential impairment during the fourth quarter. As a result of that analysis, we recorded fourth quarter non-cash charges of $260.5 million primarily for branded tangibles and $23.3 million for Goodwill. The vast majority of the brand impairments related to our 2006 and 2007 Memorex and GDK storage media acquisitions. The need to take these charges was triggered by the accelerated optical secular declines we've been seeing recently. The Goodwill impairment was related to our 2011 mobile security acquisitions. And was triggered by a somewhat lower trajectory of the high security market segment.

Our recorded operating loss for the quarter including the $305 million of charges I just walked through was $310 million. If I exclude those charges, we had an operating loss of $5.2 million in the fourth quarter. As a reminder, the vast majority of these charges are non-cash. And EBITDA was $2.8 million in the fourth quarter X charges. And that excludes depreciation and amortization, which totaled $8 million in the fourth quarter.

Non-operating expenses were $800,000 in Q4. That compares favorably to the $1.5 million of costs in Q4, 2011. Our per-share loss was $0.14 excluding the charges I just discussed.

We ended the quarter with $108.7 million of cash and equivalents. That's down $77.6 million in the quarter. The main drive obviously was the acquisition of Nexsan, which used $104.6 million of cash. Offsetting this was a solid $14.1 million in cash generated from operations. We also added $20 million in cash from utilization of our credit facility. And finally, we repurchased about 400,000 shares for $1.7 million during the quarter under our share repurchase authorization, which has 3.8 million shares remaining.

With the implementation of the various transformational actions we've been discussing this morning, we remain committed to building a platform for long-term growth and improved operating earnings. In the near term, we anticipate making several changes to our financial reporting framework based on these actions, which will impact our financial results and disclosures going forward. So let me walk you through those.

First, as we move to our business unit centric structure, we'll be changing our reporting segments from regions to business units beginning in the first quarter. Tiered storage and security solutions, TSS, as one segment and consumer storage and accessories, CSA, as the other. As a reminder, TSS includes our tiered or scalable storage products including Nexsan, Mobile Security, RDX, and Magnetic Tape as well as removable hard disc products.

CSA includes optical media, flash media, external hard disc, and audio and video information. Going forward, this ADI piece will be focused on TDK brand. And this category will also include our storage media accessories.

Second, based on our decision to divest of our Memorex and XtremeMac consumer electronics businesses, their results will be presented on a discontinued operations basis beginning in the first quarter of 2013. Their revenues, gross margins, and direct operating expenses will be reclassified to the discontinued operations line on our income statement, which is below operating income from continuing operations.

In addition, prior periods will be restated to conform to that presentation. As a result, we expect operating income will be penalized in transition by absorbing overhead that previously would have been allocated to these ADI businesses. This possibility was anticipated when we sized our restructuring program. We anticipate that over time, our cost reduction efforts will mitigate this impact but Q1 will likely be penalized as a result.

Finally, as we execute on our restructuring program, we expect to see OpEx benefits begin to ramp to a modest degree in Q1 excluding charges with increasing benefits quarter-by-quarter throughout the year.

So in summary, in our fourth quarter, we continued to lay important groundwork for our transformation as we executed on the Nexsan acquisition, began implementing a restructuring program, and announced today our plans to sell portions of our ABI business to increase our focus. We remain firmly committed to the restructuring program and announced today our plans to sell portions of our ABI business to increase our focus. We remain firmly committed to our strategy focused on secure and scalable or tiered storage.

With that, we’d be pleased to take your questions. Thank you.

Question-and-Answer Session

Operator

(Operator instructions). Your first question comes from the line of Mark Miller from Nobel Financial. Your line is open.

Mark Miller – Nobel Financial

Good morning Mark, and Paul.

Mark Lucas

Good morning, Mark.

Mark Miller – Nobel Financial

A lot of stuff going through this report, and I just wanted to clarify some things. The hit on Secure and Scalable Markets you said was commodity flash. Was it external drive, and was there one other thing?

Paul Zeller

Yeah. There were a couple of business issues in Flash and in external hard disk as you mentioned. In Flash, it’s a combination of both. We’re starting to see NAND price increases or cost increases from our supply base. And we’ve been seeing retail price contraction with some competitors, so it’s kind of a double whammy. So Flash margins, you know, were off several points in the quarter.

External hard disk, has just been competitive and we actually took some interesting business for one of our key customers in ANZ, but it was lower margin and that hurt our overall percentages.

But beyond that, we did have some inventory related adjustments we took in a couple of categories in the rest of the kind of overall TSS business.

Mark Miller – Nobel Financial

And now, the Nexsan results are not – I mean, Nexsan results are not included in Secure and Scalable, is that correct?

Paul Zeller

That’s correct. The balance sheet is consolidated in, and the balance sheet that’s in our release and will be in our 10-K, but none of the P&L results will be included until 2013.

Mark Miller – Nobel Financial

And two, in terms of the margins of Nexsan, would they be at the current level for – or the level reported last quarter, are they higher, are they lower? And just how does that play in? Is it going to benefit or is going to be a hit margins when you add that back?

Paul Zeller

It will definitely be a benefit to both our overall corporate margins, as well as the total of that category there. You know, they’re solid hardware with some software element margins in – at the 40 to low 40’s as we discussed earlier. So, that’s going to be a nice benefit to overall corporate margins.

Mark Miller – Nobel Financial

I have one more question, and then I’ll jump back out of the queue. The ABI business, with the changes you made, would that be now profitable and standalone basis?

Paul Zeller

I mean, I anticipate as someone looks – are you talking about the ones we’re divesting, or the TDK piece we’re retaining, Mark?

Mark Miller – Nobel Financial

Well, I mean, as constituted after these changes. Would ABI have been profitable? Or is it going to be profitable?

Paul Zeller

Yeah, I mean, what we’re doing with our cost reductions, is targeted at making all of our businesses return to profitability and that includes ABI. We certainly will experience some unabsorbed overhead in transition, as I mentioned, so we’ll have to work through that. We did anticipate that could happen when we sized our restructuring reserve, as I mentioned. So, I think we’re going to be taking the right actions to bring our overall cost structure in line with the remaining ABI business. So longer term, yes, near term, there will be challenges.

Mark Miller – Nobel Financial

Okay. Like I said, I’ll let some other questions be posed to you. Thank you.

Mark Lucas

Thanks Mark.

Paul Zeller

Thanks Mark.

Operator

Your next question comes from the line of Chris McGinnis from Sidoti and Company. Your line is open.

Chris McGinnis – Sidoti & Company

Good morning.

Mark Lucas

Morning, Chris.

Paul Zeller

Morning, Chris.

Chris McGinnis – Sidoti & Company

Just I guess a couple of follow-ups. Just on the Nexsan acquisition, you know, how does that position you now in the scalable business, and do you feel comfortable with your product, kind of portfolio? Do you still need to make some additions to that? And maybe talk about the acquisition strategy if there still is one after this?

Mark Lucas

Yeah. Chris, we’re really excited about their portfolio. They have extremely well respected hardware, as well as software overlays to it. They’re constantly rated right up there with some of the big six hardware solutions.

Additionally, they have a great channel and VAR network throughout both the U.S. and Europe. So, we’re looking to be able to bring to Nexsan some global scale and footprint, and be able to accelerate their growth in other parts of the world beyond the U.S.

We think their portfolio is pretty complete. And when we look at the security businesses that we’ve accumulated, and now the scalable storage with Nexsan, our focus for the next year is going to be on assimilating these businesses and leveraging their cores to higher growth.

I do not anticipate any further acquisitions in 2013, although we will continually look opportunistically for things that, you know, are good value and good shareholder return.

Chris McGinnis – Sidoti & Company

Just on the exiting of the Memorex and Xtreme, maybe can you just walk through why you’re going to keep the TDK, and why not just divest the whole, you know, consumer side?

Mark Lucas

Yeah, it was a bit of a difficult decision. TDK is very strong in Europe, Australia, and Japan, and in those markets it’s very strong in the accessories area, like headphones, and headsets, and some ancillary products that all are extremely attractive margin.

Because we’re continuing to offer consumers storage at retail, and we want to maintain our retail presence, these regions pleaded with us basically to allow us to continue TDK in those markets because it gives them economies to scale and increase their relevance with these retailers.

So, the real focus with the TDK will be on high margin, accessory type businesses outside the United States that deliver very attractive returns.

With XtremeMac and Memorex, you know, we’ve done a lot of work there. We’re very pleased with our product portfolio. But the CE market in general is a tough one, especially in the U.S. it’s very competitive right now. Brick and mortar retailers are having a hard time in this category. And quite honestly, the engineering investment and the tooling investment in this category is very high. And so we just thought it would be a good time – we return these businesses to good growth, to good profit margins. We thought it would be a good time to seek out alternatives strategic parties who are interested in consumer electronics as a core business.

Chris McGinnis – Sidoti & Company

Any timing thoughts on when you could expect to divest the two…

Mark Lucas

Yeah. We are hoping to complete these in the first half of this year.

Chris McGinnis – Sidoti & Company

Great. And then just a couple follow-ups, and I know you did discuss. But, just on the 25% cost reduction program, obviously it will hit more in ’14, but you know, is that safe to assume off of the numbers that we just – you just completed for the year on the operating side?

Mark Lucas

Yeah, Chris, I think that’s a reasonable basis on which task to make that. If you look at our full year OpEx, you know, take out the restructuring charges obviously, but that’s kind of the foundation upon which we’re targeting the 25% reduction, yes.

Chris McGinnis – Sidoti & Company

And can you just go through the cash cost again? I think you said 900,000 in Q4, and then the remainder in 2013?

Mark Lucas

Yeah, I think the $40 million I talked about, yeah the vast majority of that you’ll see in 2013. It’s plausible some small amount could flow into 2014, but 2013 is going to be primarily where you’ll see that $40 million.

Chris McGinnis – Sidoti & Company

All right. Thank you very much.

Mark Lucas

Thank you, Chris.

Operator

(Operator instructions) Your next question comes from the line of Eric Martinez of Lake Street Capital Markets. You line is open.

Eric Martinez – Lake Street Capital Markets

Just curious to know the – with the Disk Op, I realize you may not have nailed down all the expenses, but if we looked at 2012 without the (Disk Op) businesses, what does that revenue look like? And then, what would it look like with Nexsan overlaid on it?

Paul Zeller

Okay Eric, this is Paul. Let me give you, you know, we don’t disclose specific brand level revenues and the like. But I think we can get you in the ballpark. If you look under disclosures today, the entirety of the ABI business revenues for 2012 were $161 million. And that has a component of storage accessories that really aren’t consumer electronics related. You know, maybe 15-20% of that total isn’t really related to CE and accessories. So, the remainder of it is split between the Memorex brand, the XtremeMac brand, and TDK. And so, that kind of gives you a rough order of magnitude. You know, call it $90 million plus or minus, between $90 and $100 million of revenues historically relate to the businesses that we are planning to exit.

And what was the second part of your question again?

Eric Martinez – Lake Street Capital Markets

It was, you know, portfolio…

Paul Zeller

Nexsan – Nexsan as we’ve talked about when we announced the acquisition in fourth quarter, has had historic revenues in and around $80 plus million, so that’s a good kind of rough order of magnitude to be thinking about.

Eric Martinez – Lake Street Capital Markets

Okay. And then SMB is now without its competitors, as far as storage systems go, and I do understand Nexsan has a competitive product. But who are the – you mentioned the big six, but there’s typically, you know, 80/20 to any kind of analysis, and I was wondering who are the people that Nexsan bumps up against most often in competitive situations?

Mark Lucas

Probably Compellent is one of their primary competitors out there. Another one would be Equal Logic, and we do understand they’re now – they were acquired, but they’re still running into them pretty much in the SMV area.

One of the nice things that we’ve found, is that the big six can be very controversial to VARS, because they can be very heavy handed in their approach. And Nexsan being very dedicated and of a different approach is very channel friendly. We expect to continue that.

In fact Nexsan has been very excited because what we bring to the party to help them, is the financial stability of a larger public organization which they lacked before. So, we now give them credibility with their customers to actually expand their growth at a faster rate.

Eric Martinez – Lake Street Capital Markets

And you talk about this being a growing business for 2013, are there any revenue synergies built into your forecast, them benefiting from your pre-existing relationships?

Mark Lucas

We believe there is an opportunity to expand their revenue base internationally, and that’s going to be a key focus for us. We also believe there’s plenty of opportunity to expand share and overall their overall footprint in the markets where they do exist today, which is principally the U.S. and Europe.

And even in Europe, for example, they’re not well penetrated throughout the continent, so we think we bring a real opportunity there.

Eric Martinez – Lake Street Capital Markets

Okay, and just one last one if I might. In 2013 with Nexsan, you’re talking about [inaudible] business units and the DiskOp. If we just look at the big picture revenue pie, what’s the percent TSS versus the percent CSA go forward?

Mark Lucas

You know there’s so many moving parts, Eric, as you’re aware, as we’re looking at all the pieces. So, you know, I think it’s a little early to get to kind of specifics like that, except to say, we clearly are growing that higher margin opportunity because, you know, the CSA business is generally – not all of them, but the largest in optical is in secular decline, and there’s a real growth opportunity around storage and security.

So, for sure, the farther you go out, the more and more that’s becoming the increasing center of gravity of the company.

Eric Martinez – Lake Street Capital Markets

Thank you.

Mark Lucas

Thank you.

Operator

Your next question comes from the line of Mark Miller of Nobel Financial. Your line is open.

Mark Miller – Nobel Financial

A couple questions ago you mentioned, I believe was a $40 million charge, most of which will be taken 2013. Is it going to be linear or did you say it was more concentrated in the first quarter?

Mark Lucas

Well I think there’s – let me get at two aspects of that Mark. One is, when the cash cost will be incurred, and when the OpEx benefits will be seen. The cash costs themselves, you know, probably occur obviously a little bit earlier than the full measure of the benefits occur over time. Very little of either the cash cost or the benefit we’re going to see in first quarter. There can be some cash cost depending on just timing of when people exit the company around the world and, you know, severance payments and the like.

As we get into second quarter, for sure, it will be a heavier cash cost, and then into third and the latter part of the year. The benefits are going to be more backend loaded, and you know, we’ve anticipated that when we structured the whole program, but the real benefits begin in second quarter. And by the time we exit the year, we anticipate the vast majority of our benefits should be in place.

Mark Miller – Nobel Financial

Okay. The decrease in Americas in revenue year-over-year, was that just basically through some diversity year-over-year?

Mark Lucas

Well frankly a lot is that ABI declined pretty substantially. I mean, the U.S. retail has been difficult. And we also have a very large optical business in the U.S. with the Memorex brand. And so, U.S. ends up being more exposed to those two categories that were in decline in 2012.

Mark Miller – Nobel Financial

I’m just wondering so far this quarter in terms of Europe or Asia, I mean, a lot of calls were hearing are actually, you know dying down for the current quarter from expectations, but they feel there will be a stronger second half of the year. I’m just wondering what you’re seeing this quarter, and do you expect to see – just from the macro economy globally, do you expect a better second half?

Mark Lucas

Boy, that’s the million dollar question, Mark. Quite honestly, I think from our perspective jury’s out. Primarily also, we have so many moving parts right now as we’re getting out of businesses moving into new businesses. So, I would defer answering that if I might until our next call when we have a better – a couple more months under our belt.

Mark Miller – Nobel Financial

All right, thank you.

Mark Lucas

Thanks Mark.

Operator

Your next question comes from the line of Chris McGinnis of Sidoti and Company. Your line is open.

Chris McGinnis – Sidoti & Company

Just one more follow-up. Just on the cash balance, you know, just under 109, how much of that is in the U.S.? And I guess, when you’re thinking about throughout the years you execute on their restructuring plan. You know, can you use some of the cash out thought the U.S. to help with that?

Mark Lucas

Yeah, so. You know, we have been over time working aggressively to centralize more and more cash into the U.S. In the past, the majority was actually international, and now we’ve moved to 50/50, and now even in greater in the U.S. I think, you know, our objective is to continue to move and manage the cash more and more centrally and have it available corporately, and then if we need it internationally it’s very easy to deploy it where needed for growth.

And, that’s always been my philosophy. We don’t particularly hold cash anywhere internationally just to invest, for example, other than what’s necessary to drive growth in terms of working capital and the like.

So, you know, that’s been our philosophy and I think we’ll continue that.

Chris McGinnis – Sidoti & Company

All right. There shouldn’t be any issues, I guess as you navigate on the restructuring side and the charges, you know, you don’t have to borrow or anything against that, because you have enough liquidity in the U.S. or does that matter?

Paul Zeller

Yeah, absolutely. We have sufficient liquidity in the U.S. and internationally where we need it for implementing the restructuring programs.

Chris McGinnis – Sidoti & Company

Thank, Paul.

Operator

There are no further questions at this time. I turn the call back over to the presenters.

Mark Lucas

Thank you everyone for participating and we look forward to talking to you at the end of the first quarter. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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