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Executives

Jennifer Rice – Vice President, Investor Relations

Robert J. Keller - Chief Executive Officer

Neal V. Fenwick – Chief Financial Officer

Analysts

Reza Vahabzadeh – Barclays Capital

William Chappell – SunTrust Robinson Humphrey

Bill Schmitz – Deutsche Bank

Arnold Ursaner – CJS Securities

Derek Leckow – Barrington Research

Peter Erich - Invesco

ACCO Brands Corporation (ABD) Q3 2008 Earnings Call November 5, 2008 8:30 AM ET

Operator

Good day ladies and gentlemen and welcome to the third quarter 2008 ACCO Brands earnings conference call. My name is Ann and I will be your coordinator for today’s call. (Operator Instructions) I would now like to turn the presentation over to Jennifer Rice, Vice President of Investor Relations.

Jennifer Rice

Good morning everyone and welcome to our third quarter 2008 conference call. On the call today are Bob Keller, Chairman and Chief Executive Officer of ACCO Brands Corporation, and Neal Fenwick, Executive Vice President and Chief Financial Officer.

We have posted a set of slides to accompany this call to the Investor Relations section of www.accobrands.com this morning. These slides give a lot of detailed information to supplement this call.

Our discussion this morning will refer to our results on an adjusted basis, excluding non-cash goodwill and asset impairment charges, restructuring and nonrecurring items. A reconciliation of these results to GAAP can be found in this morning’s press release.

During the call we may make forward-looking statements and based on certain risk factors, our actual results could differ materially. Please refer to our press release and SEC filings for an explanation of those factors. Following our prepared remarks we will hold a Q&A session.

Now I’ll turn the call over to Mr. Keller.

Robert J. Keller

Good morning everyone. I am happy to be here this morning to speak with you about ACCO Brands. I look forward to the opportunity to meet with many of you in person in the weeks and months to come.

First, a quick overview of third quarter results. We completed the quarter with $435.0 million in sales, a 12% decline over last year’s third quarter. The largest driver of this decline continues to be our U.S. market.

Our adjusted operating margin contracted 110 points, due primarily to the de-leveraging effect of the lower sales on SG&A. As a result, earnings per share declined 39%. Importantly, however, our strong cash flow enabled us to reduce debt by $65.0 million in the quarter.

As most of you know, I have only been on the job for two weeks, however, I have known ACCO Brands for more than a decade, both as an executive with Office Depot and as a member of our Board of Directors. Based on that, I have a strong belief in the future of this company. We own some of the world’s most powerful consumer brands in the office product space and we are fortunate to have a wealth of talented associates across the globe.

I believe that even in these extraordinarily challenging times if we plan and execute well we can forge even stronger relationships with our customers, take market share from our competitors, and build value for our shareholders.

I am sure most of you saw last week’s organization realignment announcement. In short, we have combined our former office products and document finishing groups into two geographic-based business segments, one serving North American markets and the other focusing on the rest of the world.

As I said last week, these changes will result in fewer layers of management, better and faster decision making, and greater accountability. More importantly, though, they will significantly improve our customer service by establishing one voice to our customers and a global engine for product innovation.

I will be spending a great deal of time in the coming days meeting with our customers to understand what we need to do better to earn a larger share of their business.

From my perspective, our biggest near-term challenges are in the United States. Some of these challenges are not of our making. Virtually every business enterprise is suffering to a greater or lesser extent in the current economic environment. Some of the challenges we face, though, are of our own making and we need to address them.

We have lost market share in certain categories that have been traditionally strong ones for ACCO Brands. We have also lost share in the mass channel, which is a very meaningful outlet for office products, particularly during back-to-school season, and our U.S. supply chain isn’t operating anywhere close to optimal performance levels. None of these are acceptable and we are determined to reverse these trends.

I believe our new organizational structure is an important step to align us with the needs of our customers. We are redoubling our focus on supply chain excellence, which should drive improved sales results. Given the challenges in the global economy, it is hard to imagine that the overall office products market place will grow, especially in the near term, and so it is imperative that we start to take share.

In some categories we know we haven’t been cost competitive and we are working to improve our position without eroding our profitability.

Finally, we are putting a greater emphasis on customer service. Given our inherently superior products and supply-chain potential, we should be in a better position and a better solution for our customers from both the financial and a product perspective than less capable offshore suppliers who bring little added value to the product equation.

We are performing better in the rest of the world, although the economic downturn in the U.S. has taken hold in most of our other markets. Europe continues to be a bright spot for us at the moment, in no small measure because of the investments we have made in our Pan-European infrastructure. We believe we are better positioned than any of our competitors to take market share in a recessionary environment in Europe.

Sales in Australia, New Zealand, Mexico, and Latin America remain strong. Canada, as you might expect, looks a lot like the U.S. at the moment. I will have more color to add in future calls as our new geographic organization takes hold and gives us an even clearer view of market trends.

In short, I believe in the future of our company. We will start next year in a much better cost position because of the dramatic actions we have taken throughout 2008 and while I don’t believe we will see any improvement in underlying demand, I believe we can, and will, take market share in 2009 and be in a position to more fully capitalize on opportunity when economic conditions do improve.

Before I turn the call over to Neal to review Q3’s results in more detail I want to acknowledge what many of you know. Neal is a tremendous asset to ACCO Brands, with significant knowledge of the company and our industry. I look forward to working with him and the rest of the senior team to restore ACCO Brands’ leadership position in our market place.

With that, Neal I will turn the call over to you.

Neal V. Fenwick

As noted on Slide 4, comparable sales for the quarter were done 12% year-over-year, driven by lower consumer demand plus product placements and planned business exits.

Adjusted gross margin decreased 20 basis points. The decline was due to a lower sales volume from the de-leveraging of our fixed costs.

SG&A margin was adverse 110 basis points. The de-leveraging effect from the lower top line more than offset cost savings in the quarter, including a further reduction of incentive accruals.

The benefit to the P&L from essentially zeroing out the remainder of the future period performance share in incentive accruals was $2.5 million. We have moved very aggressively to reduce costs in light of the sales softness.

The actions we announced last quarter will have a more significant impact in the fourth quarter. The most recent announcement mostly impacts 2009.

In all, adjusted operating income declined 100 basis points and adjusted EPS declined $0.15, or 39%, in the third quarter.

The adjusted tax rate for the quarter was 34%, higher than we had guided because of the elimination of states tax benefit as a result of setting up an evaluation reserve for state NOLs as well as a higher tax rate for certain foreign earnings expected to be repatriated.

We now expect the adjusted tax rate for the year to be 35%, implying 37% in the fourth quarter. This higher rate is a result of not being able to recognize tax benefits accrued from the vesting of equity grants awarded in earlier periods.

In terms of reported items, as expected, we did incur one-time charges in the quarter. Pre-tax restructuring and restructuring related charges were $5.2 million. We also took a further $31.0 million non-cash impairment charge relating to our laminating segment and an $11.0 million tax charge for an evaluation allowance of state income tax less carry forward.

On Slide 5 we have provided a breakdown of our year-over-year sales change. We are source-acting through a $6.0 million impact from the planned business exits, mainly the sale of our MACO label business in 2007. We are also working through the product placements lost in 2007, which had a $13.0 million impact on the quarter, affecting office products and document finishing.

Once you isolate the $19.0 million of lost share, the underlying business was down 8%.

Slide 6. This shows the main items impacting our margins for the first nine months of the year. Notably, price less material inflation now shows a year-to-date position that is slightly unfavorable at negative 20 basis points. Given that this was a favorable 70 basis points at the end of Q1 and 20 basis points by Q2, the sharp rise in raw material and freight costs earlier in the year are still working their way through our P&L and this will continue to impact Q4.

Net synergies came in at $9.0 million in the quarter, in addition to the $12.0 million in the first half of the year. We are on track to deliver total costs savings of $35.0 million this year, a combination of our integration synergies and additional cost-reduction activities.

Within SG&A the volume cost leverage line reflects $4.0 million of severance charges. These are not considered restructuring, as we continue to downsize our cost structure and respond to low volume.

Moving on to a discussion of our business segments on Slide 7. Sales in office products decreased 14% with underlying volumes down 15%. The U.S. and European markets were the drivers of the sales decline. Combined, their sales were down 18%.

Adjusted operating income decreased 19% and margin contracted 60 basis points, primarily as a result of the lower volume and higher raw material costs.

We do have a broad price increase going through in January 2009 to offset the higher raw material and freight costs we are now experiencing. Although many commodity costs are now down from their peak, they are still well up from this time last year.

Now turning to document finishing. Sales decreased 10% with underlying volumes down 14%. Sales declined in the U.S., Europe, and Canada.

Adjusted operating income decreased 21% and margins contracted 90 basis points as a result of lower sales volumes and higher raw material and freight costs.

Moving on to computer products, sales decreased 7% and underlying volumes declined 11%. The decline was due to substantially lower consumer demand, mainly in the United States but most of our geographic markets declined.

Adjusted operating income decreased 28% and margins declined 580 basis points to 19.6% against a record level in the year-ago quarter.

And finally, looking at commercial laminating, sales declined 10% with underlying volumes down 14%. The decline was driven primarily by lower film sales in Europe and lower print finishing equipment sales worldwide.

Adjusted operating income was a loss of $200,000 compared to income of $700,000 in the prior year. The decline was the result of lower sales volumes and higher raw material costs.

Turning to Slide 8, we did generate approximately $55.0 million in net cash flow this quarter, which included reduced working capital. Cash restructuring was positive this quarter as a result of $20.0 million of proceeds from building sales.

All told, debt was reduced by $65.0 million in the quarter. Our total debt balance at the end of the quarter was $771.0 million and our leverage as measured by gross debt to EBITDA was 3.8x.

We continue to expect net cash flow for the year to be $40.0 million to $60.0 million. All of this will go to debt reduction. We are targeting a year-end gross debt balance of less than $700.0 million. As such, we expect remaining compliance with our maximum leverage test even when it tightens to 3.75x at the end of the fourth quarter.

Finally, turning to Slide 9. As noted throughout this call and in our press release, clearly these are very uncertain times in our economy. Weakness in consumer and business spending, raw material inflation, and customer consolidation have combined to create financier prolonged market volatility.

All of these factors make it increasingly difficult to provide meaningful guidance until visibility improves. We therefore are not providing sales or earnings guidance for the balance of 2008 or 2009. However, we will continue to provide some assumptions to help with modeling certain cash items.

With regard to the chart, we have added the additional cash flow associated with all of our productivity initiatives to the cash restructuring figures. We have amended our severance programs so that we now pay severance out over time, such that the cash outflow is aligned to the benefit, avoiding any upfront cash impact.

Therefore while having announced more restructuring activity in 2008, the cash outflow for 2008 is slightly reduced and now impacts 2009, which is more in line with the increased benefits expected.

Based on the broad perspectives that 2009 will be another challenging year, we have dramatically reduced our capital expenditure assumption. We now expect $20.0 million in 2009.

Our effective tax rate has increased for 2008. This was caused by a 3% bump from creating the state tax evaluation allowance in addition, further adjustment relating to the vesting of [break in audio] in which the previously recorded book expense, in accordance with FAS 123-R, now exceeds the related tax deduction. As a result, there is a substantial reduction in our stock price.

Finally, before we open it up for questions, I would like to provide an update on our commercial laminating solutions segment. The process to potentially sell $100.0 million of the revenue associated with the business is well underway but market conditions may not enable us to realize what we consider to be the full value of the business and this could lead us to reconsider our alternatives. We will update you further once we are able to.

At this point, Bob and I will be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Reza Vahabzadeh – Barclays Capital.

Reza Vahabzadeh – Barclays Capital

There was obviously some weakness in the categories you compete in and as you mentioned, some self-inflicted issues. Have you found a way to detect how much of the weakness may have been to your execution issues, whether it is service and distribution issues or whether it is just loss of share. Just how much of the issues are resolvable internally that we can think about going forward.

Neal V. Fenwick

On Slide 5 I tried to articulate that numerically. And approximately 4% of our decline is due to lost share, in our opinion, and 8% is effectively due to the categories we compete in. And that’s comparable with what our major customers are effectively saying, in that you have had all of our three major customers reporting significant declines in their business.

If you took a weighted average of their sales versus ours you would see that they are down about 10 points in the U.S. We are talking about being down about 8 points and that’s probably because we have international business which is down less than our U.S. business.

And so we are in categories which are more exposed than certain other people and we also have experienced less of an impact from back-to-school this year than you would have normally seen into Q3.

So we would anticipate in Q4 having a less negative business than it appears in Q3 on a year-over-year basis, but obviously the economic position is still very negative for our category.

Robert J. Keller

The other piece of that answer is I think we are capable of taking market share back from our competitors.

Reza Vahabzadeh – Barclays Capital

And is that something that is readily accomplishable? What do you have to do to get that?

Robert J. Keller

I think the first thing we have to do is we need to get our supply chain metrics in line with our customers’ expectations. I think we have done that pretty consistently over the course of the past year in Europe and it has paid significant dividends and I think we are under-performing expectations domestically in terms of our line on time and complete metrics.

Reza Vahabzadeh – Barclays Capital

And I couldn’t tell exactly from your comments, but have sales metrics materially weakened in your businesses in Europe and the U.S. as we have headed into the fourth quarter from the third quarter? Or are they about the same?

Neal V. Fenwick

In terms of the fourth quarter versus the third quarter the big difference is that the third quarter has an annual event called back-to-school.

Reza Vahabzadeh – Barclays Capital

No, I’m talking about year-over-year.

Neal V. Fenwick

And so year-over-year we believe our third quarter will be more dramatically affected than our fourth quarter will be because back-to-school had a second element this year, which is that back-to-school shifted predominantly towards more mass retail channels and we have less position in those mass retail channels and so other people picked up our share due to that share channel shift in the third quarter and that won’t repeat in the fourth quarter.

Reza Vahabzadeh – Barclays Capital

And the same in Europe?

Neal V. Fenwick

In Europe it’s a different story. We actually are gaining share in Europe right now.

Reza Vahabzadeh – Barclays Capital

What was the cash on hand as of the end of the quarter?

Neal V. Fenwick

From memory, about $34.0 million.

Reza Vahabzadeh – Barclays Capital

And as far as cash taxes for the year, are you still in the $15.0 million to $20.0 million range?

Neal V. Fenwick

On Slide 9 we quote those as between $18.0 million and $22.0 million.

Operator

Your next question comes from William Chappell – SunTrust Robinson Humphrey.

William Chappell – SunTrust Robinson Humphrey

Bob, maybe you can talk a little bit from the Board’s perspective about the CEO change intra-quarter. There were two different announcements about the Chairman and then the CEO and it seemed like the change accelerated and so trying to understand, was there something internal that really changed, because certainly the macro issues are affecting the whole industry, and so I’m just trying to understand what was the company’s specific to accelerate this change.

Robert J. Keller

I think the answer is pretty simple. I am here because we weren’t meeting our own expectations. And over a 30-day period, during the course of the quarter, our miss got greater. And the Board sent me here with some very specific focuses. We wanted to increase our focus on our customers, we needed to reduce the complexity and increase the accountability within our business, we wanted to manage costs and cash very, very closely, and we clearly need to improve our U.S. supply chain performance. We think we have got an opportunity to increase our mass market penetration.

And frankly, the final thing, which is an important thing to us, is we wanted to create and ACCO Brands culture. We have got a wonderful business but our cultures are, frankly, product cultures and not a corporate culture and we need to pull the team together to have ACCO win in this market place.

William Chappell – SunTrust Robinson Humphrey

With regards to currency and FX, can you just remind us, has there been a big lift to operating profit from FX year-to-date and do you see that as a significant head wind going forward?

Neal V. Fenwick

Yes, that’s exactly right. We have seen a benefit all the way through to the end of August, within September turning adverse on us. In Q4 it will be substantially adverse if the current exchange rates are maintained with the dollar strength and the other currencies’ weakness.

And so in simplistic terms, we’ve had about a $7.0 million benefit on a year-to-date basis, through nine months, and all of that will be given up in Q4 and potentially with it turning slightly negative for the year as a whole.

William Chappell – SunTrust Robinson Humphrey

And that’s $7.0 million to operating profit?

Neal V. Fenwick

Yes, it is.

William Chappell – SunTrust Robinson Humphrey

And could you just give us an update on debt covenant issues or debt covenants over the next two to three quarters and if there are any changes in terms of the key ratios.

Neal V. Fenwick

The key issue is our gross debt to EBITDA and its adjusted EBITDA that is used for the metric. That’s a 4.25x leverage test as at the third quarter and we came in around at about 3.8x and that drops to 3.75x in the first quarter and that remains then through to the fourth quarter of next year when it drops down to 3.5x.

And so that leverage test will be tight for us in Q4 and it will be tight for us in Q1. The key thing is to focus on getting our gross debt down. That’s why we have targeted getting below $700.0 million for the end of the year. And it’s working both sides of that equation in order to achieve it.

William Chappell – SunTrust Robinson Humphrey

No word on the divestiture at this point? With the write-down this quarter is that postponed indefinitely or is there any expectation of something happening by year end?

Neal V. Fenwick

No, it’s still very active at the moment but I’m just being realistic about the fact that active prices in the market place have gone down and obviously we have reflected that in taking a further good will adjustment in that business in terms of our own valuation and it’s a question of whether you can complete things with the current banking markets.

We are still fairly optimistic that we can conclude something by the end of the year.

Operator

Your next question comes from Bill Schmitz – Deutsche Bank.

Bill Schmitz – Deutsche Bank

Can you talk about the trade inventory levels and as some of these stores close have you stepped up your obsolescence allowances? Are there any obsolescence charges, or if there are any obsolescence charges this quarter do you foresee any more going forward?

Neal V. Fenwick

What we have seen throughout the year, the free flowing on a market by market basis, is that as our customers have recognized as a permanent downturn in their own volumes, they have obviously adjusted their inventory down in order to make sure they don’t have too much. And so that has really hit our business as a wave. You saw some more of it in the third quarter.

But what impacted us in the third quarter was mainly where we knew markets were going down, such as Canada and eastern parts of Europe and so we believe that our customers’ inventories for our products are very much in line with where they would want them to be at the end of the third quarter.

And from our point of view, you will have seen that our inventory had grown in the first quarter of the year quite significantly. I am pleased to tell you that we have got that inventory back down, as at the end of the third quarter, and we would anticipate driving that inventory down even further as we get into the fourth quarter, really as the benefit of what we have done on the distribution side.

So we should be permanently be able to run with lower inventory than we had in the preceding year and that will come to pass as we go through the fourth quarter and into the first quarter of 2009.

So from an obsolete inventory point of view, we manage our products very well. We’ve obviously taken obsolete inventory charges this year, as we would ordinarily, but they’re not actually out of line with how they would have been in prior years.

Bill Schmitz – Deutsche Bank

How much do you have left in the revolver because I know that the March quarter is typically a seasonal working capital use quarter so what availability do you have to borrow to get through that inventory build for the March quarter?

Neal V. Fenwick

We have a substantial capacity on our revolver so as at the end of the third quarter we had about $20.0 million drawn on the revolver. The revolver is $150.0 million and then there is approximately $15.0 million to $20.0 million that would be covered with LCs, and so the vast majority as at the end of the third quarter was undrawn and we would anticipate having zero drawn on it at the end of the year.

Bill Schmitz – Deutsche Bank

Did October volume fall more than you expected? Because a lot of the companies we spoke to said September was bad but October was awful, it was almost like a stand-still. And it sounds like you didn’t really see that. Is that fair?

Neal V. Fenwick

What we’ve seen is a great deal of volatility from one month to another and it’s almost a function of individual months for us and not reflecting in terms of point of sale, they’re affecting very much what our customers are doing in terms of responding to their own inventory.

And so the market place is very volatile and our customers’ response to it tends to be volatile. So if you look at our third quarter, our single worst month was August, which was reported by many of our customers as a singly bad month but it was our singly worst month and we saw a pick-up in September. And so as you move into the fourth quarter I anticipate seeing similar volatility that really doesn’t tell you very much.

Bill Schmitz – Deutsche Bank

And on the computer products business, what is the Circuit City impact on that? Because I know that is a big retailer for you and they’re going to close 20% of their U.S. stores. So what happens to that inventory and how does it impact that business?

Neal V. Fenwick

Where they are closing 20% of their stores, it doesn’t surprise you that that doesn’t represent 20% of their revenue. And so they are obviously closing their least performing stores and from our point of view that is a good thing because it helps keep them to be a viable customer.

So we are continuing to support them and we think that what they’re doing makes sense for their business. I think it will make them ongoing a slightly smaller customer but it’s not that material in the scheme of things. The more important thing for us is that they remain a viable outlet for our products.

Bill Schmitz – Deutsche Bank

Do you have a big receivables exposure there?

Neal V. Fenwick

We don’t. We manage that carefully.

Operator

Your next question comes from Arnold Ursaner – CJS Securities.

Arnold Ursaner – CJS Securities

Can you update us a little more on how the whole Pan-European strategy initiative is going?

Robert J. Keller

I think a couple of things. I think our view of having a Pan-European model helps us in recessionary times. I think having the opportunity to compete against smaller, local competitors in these times gives us a pretty significant advantage and we invested pretty heavily a couple of years ago in the European infrastructure and I think it is paying dividends today.

Our Bourne distribution center is performing at very high levels, 96% line on time and complete, and that has allowed us to start to take market share back in that market place.

Arnold Ursaner – CJS Securities

I know you are not giving formal views towards Q4 or for next year, but as you go through the negotiations with your key customers for pricing for the upcoming year, will you be able to fully recover your higher cost in your negotiation or is there just too much pressure on you to be able to do that? And obviously volume is the uncertainty on fixed costs, but on all your variable costs are you basically able to get enough price relief to maintain or improve margins?

Robert J. Keller

We’re in the midst of those discussions so I would really rather not comment on it. I think we have a pretty balanced approach to that question , with our clients and we will see. I think we are clearly, some of our commodity pricing has started to come down. It hasn’t necessarily been reflected yet in our cost structure and we do need to recover some of that. So we will see.

Arnold Ursaner – CJS Securities

Do you have intentions or are you more than willing to walk away from business that you don’t think meets your margin objectives?

Robert J. Keller

We’re not in here just for the work. We need to be profitable and we need to be profitable at a product line level. But I think the other component that is in our hands is our ability to control costs. And I don’t think we have been as effective as we need to be in terms of our execution, which adds cost to our supply chain operation and I think we have an opportunity to be more aggressive about price and maintain margins.

Operator

Your next question comes from Derek Leckow – Barrington Research.

Derek Leckow – Barrington Research

So a focal point for 2009 seems like it’s going to be recapturing lost market share and you have talked a lot about controlling costs and improving the efficiency of your supply chain in the U.S., but you also said you are going to take a price increase in your largest segment in January, so I’m trying to figure out these price increases, will they eventually stop or are you going to reduce that at some point? It seems like kind of [inaudible] trends there. Can you talk about that a little bit?

Neal V. Fenwick

Obviously one of the big things to us is a raw materials cycle that ran up significantly through 2008. And you will see as we get into the fourth quarter that the price increases we had in January 2008 don’t leave us whole during the year of 2008. So we go into 2009 with a raw material deficit, and although prices have come down they’re still not back where they were.

I’ll give you a good example. [Colg rod] steel, in January 2008 we were paying $819 a ton. That peaked at $1,200 a ton and today we’re paying $890 a ton. Well that’s still up 9% year-over-year so we still have to have some price increases to reflect what is the underlying year-over-year increase in our operating costs.

And that is true for everybody we compete against. So what you are seeing is that all the suppliers in our market are putting price increases through into the market.

Derek Leckow – Barrington Research

But as far as recapturing that lost market share that you talked about, I wanted to figure out from Slide 5, is that $13.0 million is that what you’re calling lost placement in contracts or is there more in that U.S./U.K. segment there with the $32.0 million decline?

Neal V. Fenwick

That $30.0 million is only the impact on Q3.

Derek Leckow – Barrington Research

Right but I’m just trying to get a trend here. I’m trying to figure out if you’re still losing share and you’re going to continue losing share and you’re raising prices in that environment, I’m just trying to figure out how you’re going to recapture share.

Neal V. Fenwick

Services has been our big issue which drove a lot of our share issues. We don’t believe we’re uncompetitive in terms of trying to pass on raw materials. We think that we’re uncompetitive in terms of the service offer that we provide for our customers. And we have seen that come through in Europe as we have fixed the service model there. Europe is further ahead than the U.S. We moved quicker there in terms of putting our things together.

And a lot of the business in our industry flows on angle contracts and so we came into 2008 having lost share and in 2009 a lot of that share is decided in the fourth quarter of 2008 and into the first few weeks of 2009 and we’re in the middle of that process right now.

Derek Leckow – Barrington Research

Can you quantify what the supply chain impact was in the third quarter?

Neal V. Fenwick

It’s very hard to say what is the supply chain impact as such. What I would tell you is that all of our customers tell us our service isn’t good enough and that’s something you have to fix in order to be able to take share, and we have been very focused on fixing that. And until your customers see you having fixed it for a sustained period of time they are not going to say you have fixed it.

So we have improved our service dramatically in the third quarter but we have to be doing that on a consistent basis.

Derek Leckow – Barrington Research

So are we six to twelve months away from being fixed? What sort of time line can you give us on that?

Robert J. Keller

Fixing supply chain issues isn’t a flip-of-a-switch kind of thing. It’s a systemic process improvement and I think our customers will see that throughout 2009. My expectation is that sometime in the first half of 2009 we can get to the service levels that they expect of us. I guess I’m saying it’s a six- to nine-month process.

Operator

Your next question comes from Peter Erich – Invesco.

Peter Erich - Invesco

With the goal of de-leveraging and trying to stay within covenants, have you looked at buying any bonds back yet?

Neal V. Fenwick

You will see we did that in the second quarter and we did that in the third quarter. We look at our cash position and we will take decisions when we think it is the right use of cash.

Peter Erich - Invesco

You mentioned that you did buy some bonds in the third quarter?

Neal V. Fenwick

A very small amount and you will see that when we file our 10-Q later today or early tomorrow.

Peter Erich - Invesco

So it is something you are able to do under the bank deal and something attractively, obviously if you can buy bonds back at $0.60 on the dollar, that’s a pretty powerful form of de-leveraging.

Neal V. Fenwick

I recognize that.

Operator

There are no further questions at this time.

Robert J. Keller

Thank you everybody. We appreciate both your time and interest. I would like to leave you with just a couple of perspectives. I am excited about being here. I honestly believe in the future of this business. I think I inherited a very strong senior management team. I believe we can take market share. I believe we will continue to generate strong cash flows. I think the restructuring that we have done is going to benefit us going forward, and as we spoke earlier in the call, I do believe our Pan-European model will serve us very well in these tough recessionary times.

Thanks again for your time and interest and I look forward to meeting with all of you.

Operator

This concludes today’s conference call.

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Source: ACCO Brands Corporation Q3 2008 Earnings Call Transcript
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