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Executives

Jennifer Rice – IR

David Campbell – Chairman, CEO

Neil Fenwick – EVP, CFO

Analysts

Arny Ursaner – CJS Securities

Reza Vahabzadeh – Lehman Brothers

Seth Basham – Credit Suisse

Bill Chappell – Suntrust Robinson

ACCO Brands Corporation (ABD) Q4 2007 Earnings Call February 13, 2008 8:30 AM ET

Operator

Good morning, my name is Julie and I will be your conference operator today. At this time I would like to welcome everyone to the ACCO Brands Corporation fourth quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you have already done so, please press the pound sign now, then press star one again to insure your question is registered. Thank you, Ms. Rice, you may begin your conference.

Jennifer Rice

Good morning everyone and welcome to our fourth quarter and fiscal 2007 conference call. On the call today are David Campbell, Chairman and Chief Executive Officer of ACCO Brands Corporation and Neil 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 ACCOBrands.com. These slides provide detailed information to supplement the call.

Our discussion this morning will refer to our results on an adjusted basis, excluding 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 may 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. As a courtesy to others we request that you please limit yourself to one question. Now I’ll turn the call over to Mr. Campbell.

David Campbell

Thank you Jennifer and good morning everyone. Operationally, 2007 was a very strong year, although our results ended slightly below our original 2007 guidance due to lower sales volume and challenges from our commercial laminating business. 2007 sales declined by 0.6%. Pacing was positive adding two points while volume declined 3%. The results of slower consumer demand and less market share. However, we believe market share declines are reversible as we work through our onetime customer disruptions created during the integration process.

Despite these disruptions, operating income increased 27%, the result of two years of integration improvements. Particularly heartening, office products led the way. Its profits grew 36% as price recovery and synergies took hold. Full year EBITDA increased 11% to $220 million, the midpoint of our guidance range. Earnings per share were up 37% to $1.37. Our cash flow remained strong allowing for our [product] plan and price restructuring expenditures and the reduction of $40 million of debt.

Finally, our pretax with trend on invested capital increased 290 basis points to 14.7%. We entered 2008 a stronger company as a result of the many actions that we have taken over the past couple of years and with the benefits of much of this work yet to flow through into 2008. As highlighted on slide 4, two years ago, ACCO Brands embarked upon a 36 month merger integration process. Since that time, we have made material progress in streamlining operations, improving our margins and reducing costs. The vast majority of these actions required to realize our $40 million of annual synergies in 2008 will actually be completed in the next couple of months.

In fact, we are now already winning projects necessary to yield an additional $20 million annual savings targeting in 2009. Let me provide more detail on what we have already accomplish for the past two years. First and most importantly, we have developed the foundation for improving our customer reliance and response capabilities. Additionally, integrating our sales force, customer service organizations and supply chain operations that are already resulting in synergies.

Second, we have built a stronger more streamlined business model. We are improving the way we conduct business globally, particularly in Europe by creating a new pan-European offering model much more in sync with the growing larger customers. Third, we continue to simplify and strengthen our product portfolio fitting non strategic and low return businesses. Through 2007, we have eliminated approximately $90 million of low quality sales. Our increased new product development spend is now squarely focused on our future growth in the high return categories.

Fourth, since 2005, we have sharply stepped up our investment in core brands, increasing focus on user and ramping up the amount of go to market spend by $30 million annually or 1.5% of sales. Slide 6 provides details of some of the actions that we have taken most recently. I am very excited about our long term opportunities and significant potential our business holds. We entered 2008 in a position to drive continued earnings expansion and lay the foundation for top line growth as the economy turns.

For 2010, we are targeting to ramp up our organic sales from the flat or slightly down position in 2008 to a 3-5% growth in 2010. We expect ongoing margin improvement of at least 350 basis points over the next three years. Together, these achievements should enable us to deliver double digit organic or earnings per share growth. Our strong free cash flow generation is expected to improve as profitable and [structure] subside creating additional opportunities to reduce debt and undertake other actions focused on building shareholder value.

We anticipate approximately $90-$110 million of debt reduction capability in 2008. Disciplined asset management and prudent reinvestment will drive continued increased in our return on invested capital, allowing us to achieve our targeting 20% pretax long term rate of return. To deliver this, we have specific sales and margin plans. To drive the top line, the strategies that we need to execute it are clear and highlighted on slide 8. First, step up our focus on core brand innovation. Based on consumer research focus and insight, we have honed in on specific channels and product opportunities.

We have created local development centers with focused expertise to drive product development and make sizable investments in engineering talent and resources. A great example of a business receiving this kind of focus and investment is our document finishing segment. Insight into markets identified significant consumer needs that are not being addressed by any of our current products. We are reengineering our binding and laminating machines and supplies to address these needs and we have incorporated intellectual properties into our designs that recapture lost market share.

Our plan is to rollout several new products through our direct sales channel at the end of 2008 and early 2009. We expect that in 2009, document finishing will be a strong contributor to our growth, just as our computer products is today. Second, we are changing the emphasis of our go to market investment and the mix of our SG&A spend to drive greater end user awareness. Historically, our industry has been focused on customers through rebate programs. We need to work with our customers to show that the value of putting more emphasis on consumers to drive traffic.

We have also internally focused on remixing the composition of our SG&A spend by creating global product design centers. At the end of the day this will result in more global product appeal and develop leverage while we reduce our G&A spend enabling us to increase the proportion of marketing and product developments investment. Third, we must increase the penetration of our key channels. We think document finishing is our example again. In this business we will be increasing the size of our sales force in Europe significantly with the ultimate aim of expanding it to an equivalent size of our North American sales organization.

Our recent experience is that for each sales person we have added, the number of accounts we pick up increases 10%. We are refocusing the deployment of our direct sales people in North America as well to make them more effective. Once we are able to offer new products currently under development, we expect North American sales in the direct sales channel to increase as well. And fourth, we are positioning ourselves to gain sales in key geographies. Using Europe as an example today, more than a third of our European sales are in the UK. We’re only 12% of European population [resarts].

As we begin to leverage our new pan-European infrastructure, global products and a larger European coverage model, we will look to increase the presence on the mainland of Europe. Over time, we also believe the European market will provide an attractive customer acquisition for target. In summary, we believe steady execution against these strategies will enable us to increase our long term organic sales growth to 3-5%. Now, let me spend a moment on operating income and margins. An underlying principle of our future is to continue to drive profitable growth.

Our target is to grow our operating income double digits over the next three years and high single digits thereafter. To do so, we also have clear strategies. First, continue to improve upon our supply chain effectiveness. While much initially has been accomplished in the reconfiguration of our supply chain, we are still in our early days. Significant further efficiencies exist to be captured as more of our product offerings become global, we can better leverage the coordination of our global purchasing scale and the progressive introductions of common IT systems and standard processes across our global operations.

Second, we have increased the level of investment in new products over the last two years. This investment has so far only yielded results in our computer products and video communications category. Over half of our increased investment has yet to have any impact on the remaining business. As the fruits of this investment begin to flow, we will see both higher growth and expanded margins in document finishing and other areas of office products. In addition we have taken steps to reduce our SG&A costs. Near term, [unintelligible] erosion has offset some of these benefits.

On an ongoing basis, we will seek to reverse [unintelligible] erosion and grow [unintelligible] margin leverage as a result. And finally, we will create a more efficient organization by simplifying and fine tuning our processes. The term organization effectiveness captures a lot of what was already done to lower supply chain and SG&A costs but it also captures everything from improving our customer interaction and customer service to fine tuning our new systems and further reducing our cost base. Now let me put this in some context in terms of what you might expect to see in 2008. Our growth in 2008 will still be bottom line driven.

Given the uncertainty of the consumer and business spending in 2008, the completion of $20 million of product exits, our $45 million full impact from 2007 share loss and the timing of new products, we anticipate our top line to be flat to down mid single digits in 2008. We believe the first half of the year will be particularly tough with sales 2 points lower than the full year rate. We then expect to start to recover share in the back half of the year and seeing an improving economy. 2008 operating income growth of mid single digits to low double digits is expected, a wide range cause principally by economic uncertainty.

We expect to realize $25 million of synergies as well as the positive price contribution but believe flat to shrinking volume will subtract from this. We still anticipate substantial underlying margin growth but volume and the timing of the pass through of anticipate raw material inflation could create challenges. This would translate into earnings per share growth of flat to low double digits. Our cash flow will be strong, we believe $90-$110 million as our capital expenditure levels and cash restructuring costs decline from 2007 by about $25-$50 million. 2008 will be a challenging economic environment. Our key issue is to complete the repositioning of the business, both restructuring and new product development so that we can start to regain the share and benefit as the economy turns. Now, I will turn the call over to Neil to walk you through more financial detail. Neil.

Neil Fenwick

Thank you David and good morning everyone. I will be starting with slide 11. As already noted, [unintelligible] corporate were down 1% year over year driven by lower consumer demand since we lost product placement. Despite this, we grew operating income a strong 17% and our three most important businesses delivering improvement. [Unintelligible] gross margin increased 170 basis points. The improvement was once again driven by price increases, integration synergies and favorable product mix. However, the improvement was tempered by the continuation of supply chain product [unintelligible]. Energy and commodity costs continued to increase in the quarter to offset the significant cost pressure with announced price increases during [unintelligible] quarter.

The anticipated pricing pressure will continue and will remain [unintelligible] additional price increases later in the year. SG&A benefited from a $3 million reversal of previous equity incentive accruals related to performance share plan and go to market expenditures was down $3 million for the quarter. Adjusted operating income was up $16 million, of which $5 million was the benefits from foreign exchange. Operating margin was 12.5%, up 280 basis points. It was helped by the marked improvements [unintelligible] underlying volume growth. Adjusted earnings per share for the quarter was up 32% to $0.66.

Our tax rate for the quarter came to 29.5%, this was slightly lower than our anticipated rate of 31% due largely to higher mix of [unintelligible]. As expected we once again had onetime charges in the quarter, restructuring charges were $9 million and associated [unintelligible] carrying charges $10 million. We also booked a non cash goodwill impairment charge of $35 million and net reduction of our commercial laminating business deteriorating performance. [Unintelligible] shows you the drivers of our margin improvement [unintelligible] in more detail.

You will note that price increases was a hefty 120 basis points and overall synergy contribution was 80 basis points or $15 million, lower than our $20 million estimate due to $5 million of stock [unintelligible]. Now let’s turn to slide 13 and our adjusted pretax return on invested capital. We’ve continued to make great progress, [unintelligible] return on invested capital which has increased over 300 basis points since December 2005 to 14.7%. Our improved adjusted operating income and reduced debt levels drove this improvement.

Our working capital sales ratio [unintelligible] by year end even though inventory balances remained high due to our offset by high payable days. Capital spending was $21 million in the quarter and $59 million for the year, largely our new US distribution center in [Goodenberg]. We reduced debt by $50 million in the quarter [unintelligible] net reduction for the year of $40 million. The repayment included all mandatory debt repayments through 2008 but we obviously expect to continue to decrease debt in 2008 as our free cash flow will be even stronger. [Unintelligible].

Stronger return on invested capital is a good indicator of future sustainable cash flow capability, one of ACCO’s great strengths. Moving on to a discussion of our business segments in the quarter on slide 14. Office product sales increased $0.01 as underlying volumes down 4%. Share loss has been slower [unintelligible] demand each represented about half of the decline. Despite the volume decline, adjusted operating income decreased 23% and margin expanded 210 basis points.

The improvement was due to price increases, lower volume rebates and lower product costs from [unintelligible] manufacturing, [unintelligible] favorable mix. Document finishing sales were roughly even with underlying volume down 7%. Slower demand and inventory destocking each represented about one-half of the decline. This business is one of our more economically sensitive businesses with heavy user groups in the financial and real estate sectors. Despite the volume decline, adjusted operating income increased a strong 43% and margins expanded 420 basis points.

The improvement was due to price increases, reduced volume rebates, lower product costs resulting from outsourcing, manufacturing and favorable mix. Computer products sales increased 12% from the expected year over year [unintelligible] United States and continued growth in international markets. Adjusted operating income increased a strong 55% and margins expanded 750 basis points to 26.6%. The improvement was due to favorable mix, expanded management and $1.2 million in income from product [unintelligible] loyalty claim.

Commercial laminating comparable sales were up 1% with volumes up 3% driven by high machine sales. However as expected we have yet [unintelligible] and margins were still down because of low cost import competition which continued to impact pricing while raw material costs have increased. Before moving on to Q&A, slide 15 will provide you some more details to help model your future years. We will have significant reductions in capital expenditure and cash restructuring needs in 2008 which along with improved operating performance will drive very strong improving free cash flow. We expect free cash flow to be $90-$110 million in 2008. And Dave and I will be happy to take your questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, at this time I would like to remind everyone, in order to ask a question press star then the number one on your telephone keypad. We’ll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Arny Ursaner with CJS Securities.

Arny Ursaner – CJS Securities

Hi good morning, first question I have, you mentioned several times Neil in your segment comment the impact of less rebate expense due to volume shortfalls but on your slide 12 where you discuss margin you didn’t separate that out at all. Should we assume it was not material enough that it warranted a separate line item on slide 12?

Neil Fenwick

Arny it’s actually included in the line that’s called price and the effect of those lower rebates, included within price would have been about $4 million and fundamentally it’s part of the price mix in the way the business operates.

Arny Ursaner – CJS Securities

Okay, my second real quick question, you obviously mentioned you’re trying to get price relief to cover your raw material costs and I know at year end, going into the new year was very important, yet the price increases you’ve put in, are they sufficient to fully recover all of your raw material costs?

David Campbell

Arny its David. Yeah I believe at this point they are Arny, I think that this is going to be a year, we believe that with petroleum and with some of the tax changes in China that there could be greater increases than one might anticipate, a little bit ambiguous. So what we’ve done is we’ve put price increases through in January that we believe should cover us.

We’ve got a window here in June, sort of midyear of 08 where if we find that they’re not, if we find that raw material increases have increased greater that we can catch up. We also have sort of a natural buffer with our inventory in the lead times that we place orders. So I think at this juncture we can say that we’re well covered. This is something we’ll monitor very closely though.

Arny Ursaner – CJS Securities

My final question is a little more strategic. Obviously you have in the past given exiting year end 08 guidance for operating margins and some things like that. The range of guidance you’ve given for 08 is quite broad and I guess the question I really have is as you think about running your business is it fair to say you’re just shifting the timing of when you reach these goals or is there something more structural that says it’s a lot more challenging to reach these goals?

David Campbell

I guess what I believe is fundamentally we’ve got some macro indicators here that are making it a little bit difficult. I think that if I could just comment you know one of the things that we have sort of consistently talked about is white collar employment and I don’t know if you followed it but there’s been some restatement of white collar employment numbers for 07. And I think what we’re seeing there is that the restated numbers are really reflecting that there is sort of less growth going on in white collar than maybe previously thought that we’re seeing actual sort of declines now as we hit year end and into January.

So I think because of that the weakness or ambiguity I think that’s a better word, ambiguity of the economic situation, we’re putting at broader spreads on our guidance. I don’t think fundamentally anything has changed about our business, I think we feel that we’re well positioned. I think we’re going down a right direction. All of that, what’s new news here is I think that there is a more ambiguous sort of macro environment.

Neil Fenwick

Yeah I would also say that all of our customers are indicating that they think it’s going to be a very tough half of the year and so what we would plan to do is narrow our guidance range as the year goes on.

Arny Ursaner – CJS Securities

Thank you very much.

Operator

Your next question comes from the line of Reza Vahabzadeh with Lehman Brothers.

Reza Vahabzadeh – Lehman Brothers

Hello? Morning, on your sales guidance the flat to mid single digits, is there a price component in there and an FX component that you can also separate out?

Neil Fenwick

At the moment it would include about a 1% overall price increase and FX assumption I’ve assumed at the moment is it’s neutral with 07 average.

Reza Vahabzadeh – Lehman Brothers

Okay and would this sales guidance be roughly about the same for the whole first half and the second half or is it, do you expect more weakness or strength in one part or the other part of the year?

Neil Fenwick

We would assume the first half is down at least two points more than the average for the year and therefore the second half less severely down. And part of the reason for that is we actually started experiencing weakness in our business throughout the last four months of 2007 and so we actually think that we will start to anniversary some of the slowdown that we’ve been seeing.

Reza Vahabzadeh – Lehman Brothers

Right, thanks and as far as cash restructuring and cap ex, do you have exact numbers for 2008?

Neil Fenwick

In fact we put them on the slide there, actually, the last slide that we put out, it’s called the financial modeling assumptions. So it’s called cash restructuring charges of around $25 million and P&L charge of around $40 million.

Reza Vahabzadeh – Lehman Brothers

Got it, thanks and then the free cash flow number that you put out there and you may have talked about this but, is it going to be largely used to pay down debt?

Neil Fenwick

At this point in time that would be the main use of cash that we would have in mind. But obviously you change your mind depending on what’s available to drive shareholder value at any given point.

Reza Vahabzadeh – Lehman Brothers

Got it, thank you.

Operator

Your next question comes from the line of Gary Balter with Credit Suisse.

Seth Basham – Credit Suisse

Good morning, it’s actually Seth Basham and I think Gary’s on the line as well. A couple questions for you guys. Could you differentiate between trends you saw in the US versus Europe on the office supply side?

Neil Fenwick

Yeah, obviously there’s a lot more market data that you’re able to get in the US than for Europe. But fundamentally what we are seeing in Europe is that the UK economy is the weakest link in Europe and that’s about a third of our European sales. Coupled with that is the French economy which would be the second weakest and unfortunately that’s our second biggest market in Europe.

So what we’re really seeing in Europe is really our two major exposure economies are the two weak ones. Neither of them I would say is quite as bad as the United States and so the impact we’re seeing is predominately a US driven one followed by UK followed by France. We’re actually seeing the rest of our global world doing fairly well thank you and that’s a little bit of a positive offset for us.

Seth Basham – Credit Suisse

Understood, going forward would you expect Europe to sort of catch up with the weakness in the US or how do you think about that in forecasting the business?

Neil Fenwick

You know for us most of our let’s call it our non US French business is really about market share gain. We’re so small in our market share in those economies that quite honestly our experience will be different to the economy because it’s about gaining share as opposed to necessarily going up and down with the economy, which obviously has an impact but less of an impact than share gain for us. So my belief is the UK is already got about as bad as it’s going to get. I think that you’ll see, at the moment you’re seeing a lot of fiscal stimulus coming from the US government. You haven’t seen that same fiscal stimulus get enacted in Europe yet, so my guess is they’re four or five months behind the US in terms of the curve.

Seth Basham – Credit Suisse

Gotcha and in terms of the US’s curve, do you expect it to get a lot worse before it gets better in the second half or how do you rate the first half of 2008 compared to the second half of 2007?

Neil Fenwick

You know our experience in January just to give you some idea is that our sales are down about 4% in January and so it’s very much reminiscent of what we’ve really seen over the back half of 2007 but my guess is that it will get a little worse in the first half compared to the second half of 07 in overall terms. And part of that is, as many people have indicated in this industry, we think there is some inventory that will come out of our customers, I would estimate that about $10 million of inventory that would need to come out from our bigger customers, they’re going to want to get their inventory force so you could maybe double that to get an overall macro effect. And then in addition to that, we lost share in the second half of 2007 and we have share loss that will continue in the first half and in the second half we have the real opportunity to regain share and that would be our desire and intention.

David Campbell

If I could just make some comments, I think one of the things that I would say in contrasting 07 and 08, I think that if you recall in 07 we really put through some pretty significant pricing increases and rebate readjustments for our customers both in Europe and in the US. I don’t think we’ll be seeing that in obviously in 08. That was really a onetime adjustment, the price increases we’re putting through at this juncture are much more in line with just basic raw material increases.

I would say that over the course of 07 as we were introducing new distribution both in Europe , centralized distribution in Europe and our [born] facility and making changes in our Boonville facility here in the US there were shipping disruptions which again I don’t think we’ll see in 2008. I think that particularly in the second half of 2008 we can expect to see benefit from the new products development spend that we’ve been making through 07. I think that will flow through. So I think that there are some real good things that have gone on in our business that particularly in the back half of 08 should be a positive. But even in the first half to some degree.

Seth Basham – Credit Suisse

Alright, good and one last question related to a comment you just made David, can you give us some more thoughts on how you’re grappling with inflationary pressures out of China, not so much on the raw materials side but on the labor side and really to the bat rebate.

David Campbell

Sure well I think that’s an excellent question. People who have done a great deal of offshore sourcing and frankly I think with private label, our dealing with vendors in China that are going through a lot of change and certainly under sort of under tax pressure, things like that. I think we’ve tried to be very selective about who we deal with.

We do not deal with a large number of vendors in China, it’s really quite focused. We have spent a great deal of time working with them. I feel at this point fairly comfortable and confident that because we deal with few, because they are custom manufacturers, we have a very close relationship with these people. I generally feel for us fairly comfortable that we’re well positioned from a cost position and a supply position.

Neil Fenwick

I think there’s going to be a lot of uncertainty in China as the year develops and as economic policies in China start to bite and they’re not just BAT that you mentioned, they’re also to do with export cash subsidies and I think that’ll actually create a lot of churn in the supply reliability of some vendors in China which will particularly hit people who don’t have good relationships with Chinese vendors.

David Campbell

And I think it’s important to remember, we have been working now with Asian vendors for over ten years. This is not a new thing for us, a lot of the relationships are very well entrenched.

Seth Basham – Credit Suisse

Thank you very much.

Operator

Your next question comes from the line of Bill Chappell with Suntrust Robinson.

Bill Chappell – Suntrust Robinson

Good morning, I guess first question on your expectations for 2008, what are you expecting for the currency benefit to the top line?

Neil Fenwick

In terms of my forecast I’ve put no benefit in at all. So to the extent that currency ends up being a benefit, it’ll be a benefit Bill. At the end of the day, I don’t know if today’s foreign exchange is going to be tomorrow’s foreign exchange and therefore I don’t try and forecast it.

Bill Chappell – Suntrust Robinson

Sure but I mean, we would think that it would have at least some benefit in the first quarter since we’re about halfway through it.

Neil Fenwick

That’s true and it would have a negative detriment in the second half and that’s why I don’t model it in. But at this point in time you’re correct it will benefit us in the first half.

Bill Chappell – Suntrust Robinson

So the top line expectation of kind of flat to down, it doesn’t in too many benefit at this point.

Neil Fenwick

Correct.

Bill Chappell – Suntrust Robinson

Second, just trying to understand the strength in the December quarter versus kind of what you’re seeing in January. I mean is that, is that more of a catch up from the September quarter on retailers holding back shipments and then it’s kind of finished out as we’ve gone into January or was there something different there? And also kind of with that in mind do you expect computer products, are you seeing the same type of trend from the fourth quarter to the first quarter?

Neil Fenwick

You’ve asked several different questions, I’ll try and parse them for you. In our industry as in common with all the other players in our industry, do offer annual volume related rebates. What you do see a little bit of in every December of every year is people putting some inventory into the channel in order to make sure they secure those rebates. We did see a number of our large vendors forego that this year end and they bought to actual demand but some of the, sorry, vendors, customers, some of our customers do obviously follow that tradition. We would actually estimate that this December it was lower than in previous Decembers but we do believe that there is about $10 million of inventory that will come out of the channel through the first half of 2008.

The second question you asked was about computer products. The key thing with computer products is really to understand that the demand that we’ve been seeing for the first three quarters of the year was heavily impacted by the channel shift that we’ve been reporting all year and a change in Comp USA as a customer. Most of that had annualized out when we got into the fourth quarter, so you finally saw the fourth quarter display an impact that no longer included the situation with the channels shifts, still included a bit of Comp USA. But what you then really saw was the benefit we’ve been getting of getting new products and new listings and so that should of course continue and we would anticipate that as segment, the Kensington segment, would still end up with mid single digit growth at least if not slightly better than that as we go through 2008 even with softening demand.

Bill Chappell – Suntrust Robinson

Okay and then, final two questions then I’ll turn it over. On the cash flow, I think you’re now at 3.2 times debt to EBITDA and you could start repurchasing shares at two-and-three-quarters. Does that mean you would during this year get to that point where you would look from share repurchases or is it not total year end where you have the cash flow to really get to that point?

Neil Fenwick

You know, as you’ll be aware because you follow us very well Bill, our cash flow really comes in the third and fourth quarters. Again we spoke about the volume rebates earlier, they all get paid out in January and that’s one of the big things that gives us negative cash flow in Q1. In Q2 you end up with a need to rebuild inventory levels prior to back to school and working capital absorbs cash in Q2. So Q3, Q4 is when this business has always generated its cash on a long term basis. I know in some quarters historically we did a little better than that but that was really about squeezing QVCs balance sheet when we first acquired it.

Bill Chappell – Suntrust Robinson

And on the tax rate, you might have mentioned, why was it a little bit lower in the December quarter and have we given up on getting the reversal in the UK?

Neil Fenwick

No we haven’t and we’ve made a little bit of progress there which was a little bit of what came through at the end of the year. Fundamentally it’s about mix, at the moment we’re not paying any US tax and we’re not paying any US fundamentally because of the level of restructuring charges that we’ve taken. So we have NOLs that are effectively using up the US tax. So our tax rate is fundamentally a function of what foreign taxes we’re paying and what the foreign mix is within the overall. So that’s what causes the variation in tax.

Bill Chappell – Suntrust Robinson

Great, thank you.

Operator

There are no further questions, I would now like to turn the call back over to David Campbell.

David Campbell

Thank you very much, look I hope we’ve demonstrated sort of the progress we’re making in the business. Again, as we look at our business we see a very bright future for ACCO Brands, we thank you for your support and look forward to our next call in May. Have a good morning.

Operator

This concludes today’s ACCO Brands Corporation fourth quarter earnings release conference call. You may now disconnect.

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