Jennifer Rice - Vice President, Investor Relations Boris Elisman - President, Chief Executive Officer, Chief Operating Officer, Director Neal Fenwick - Chief Financial Officer, Executive Vice President

Bonanza Chalaban - KeyBanc Arnie Ursaner - CJS Securities Bill Chappell - SunTrust Karru Martinson - Deutsche Bank Chris McGinnis - Sidoti and Co. Kevin Steinke - Barrington Research Helen Pan - Barclays

Good morning, and welcome to our fourth quarter 2013 conference call. Speaking on the call today are Boris Elisman, President and Chief Executive Officer of ACCO Brands Corporation and Neal Fenwick, Executive Vice President and Chief Financial Officer.

Slides that accompany this call have been posted to the Investor Relations section of accobrands.com. These slides provide detailed information to supplement this call.

When speaking to the quarterly and annual results, we refer to our adjusted results. Adjusted results exclude restructuring and merger-related costs and apply a normalized effective tax rate of 35% for the current quarter and year and 30% in the prior-year period.

2012 full year results include the results of Mead, as though the acquisition had occurred on January 1, 2012. Schedules of adjusted and adjusted pro forma results as well as other non-GAAP financial measures and a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure are in this morning's press release.

During the call, we may make forward-looking statements, and based on certain risks and uncertainties, our actual plans, actions and results could differ materially. Please refer to our press release and SEC filings for an explanation of certain of these factors.

Our forward-looking statements are made as of today's date, and we assume no obligation to update them going forward. Following our prepared remarks, we will hold a Q&A session.

Now it is my pleasure to turn the call over to Boris Elisman.

Thank you, Jennifer, and good morning, everyone. We reported in January that our fourth quarter and full-year results were in line with our overall expectations.

Our North American business delivered to expectations. International segment performed slightly better and computer products were slightly worse.

Significantly, we generated $157 million adjusted free cash flow which we used to reduce our debt. In the fourth quarter, sales declined 5%.

On a constant currency basis, sales were down 2% driven primarily by lower volume and unfavorable product mix. Adjusted income per share increased 5% to $0.39 per share with cost synergies and productivity improvements more than offsetting the negative effects of currency.

For the year, sales declined 7% or 5% on a constant currency basis, primarily because of lower volume and unfavorable mix in North America and computer products. Adjusted income per share was $0.76 compared to $0.82 last year, driven by $0.03 of currency and lower sales, but partially offset by cost synergies and productivity improvements.

Specifically we achieved our 2013 goal of $20 million of cost synergies related to the Mead acquisition and an additional $25 million of productivity improvements. Neal will provide greater detail on the quarter and the year in a few moments.

I would like to focus the rest of my comments on an overview of our strategy and expectations for 2014 and beyond. Our strategy remains straightforward.

We will manage our mature markets for profit. We will continue to invest in developing markets with an expectation of top and bottom line growth.

We will use our cash flow to pay down debt with an aim to reduce our leverage to two times. We will continue to evaluate value created acquisitions and ways to return value to shareholders.

Let me be more specific. In our mature markets, which include North America, Europe and Australia, we will participate in a number of low growth and declining categories.

We are focused on market share gains, fueled by new products and new channels and aggressive productivity improvements to drive profitability. Medium-term, we expect the top line in mature markets to be roughly flat with market share and pricing offsetting secular issues.

In mature markets, we will evaluate acquisition opportunities that are highly synergistic. In emerging markets, where we saw a 7% growth in local currency in 2013, we will continue to invest in growth.

We have been leveraging the combined traits of legacy ACCO Brands and legacy Mead in Brazil, Mexico, rest of Latin America and Asia and have had great success introducing products in these markets or channels where one of us previously didn't have coverage. We will continue to do this in 2014 and beyond.

We will look for acquisitions that enhance our growth and presence in these markets. In computer products, two thirds of our business is driven by PC sales which are projected to decline over the next few years.

We will focus on product categories such as security accessories, trackballs and presenters. We have established profitable market positions and can innovate to capture incremental share.

One third of our business is tablet and smartphone accessories and that market, while growing, is rapidly commoditizing. We will refocus on higher value, higher price point tablet and smartphone accessories but we will stop investing in commodity categories such as smartphone cases and the like.

We will also reduce costs and better leverage ACCO Brands shared services to improve the returns of our computer products business. These strategies should enable us to grow our revenues in the low-single digits at steady-state and generate low-teens free cash flow percentage returns.

In the near term our priority remains to use the cash to delever the business, absent a value created acquisition. This should put us in a position in the next 18 months to evaluate other shareholder value creating opportunities including share repurchases or dividend as well as continued delevering and acquisitions.

We finish 2013 with a bank leverage ratio of 3.3 times net debt to EBITDA but we need to reduce our leverage to below 2.5 in order to consider share repurchases or dividends. As for 2014, we have tried to factor in a number of known variables including the potential impact of customer consolidation and volatility in computer products.

In terms of our guidance, we have made some general assumptions. We have assumed that the macro environment doesn't change much, it doesn't get dramatically better nor does it get dramatically worse.

We assume currency at current foreign exchange rates which are worse than averages for 2013. We assume some sales and margin reductions from the consolidation of Office Depot and OfficeMax.

We have assumed that channels shifts that are occurring away from office superstores to mass and eTail will continue and we will assume that trend towards lower end products will continue. Therefore, taking into account the facts that I just outlined, we are taking actions to significantly reduce our costs in 2014 including $60 million in cost reductions from restructuring initiatives we announced in December and with an additional $40 million in productivity improvements.

We have planned for the overall 2014 sales to decline in the mid-single digits. This decline is largely driven by FX and volume declines in North America and computer products.

Both segments could decline roughly in the mid-single digits. We expect single-digit growth in our international segment in local currencies driven by emerging markets.

We are forecasting adjusted earnings per share in the range of $0.70 to $0.76 per share at current FX rates. It's important to note that excluding the effect of currency, our EPS guidance is similar to our finish in 2013, but allows for some volatility in the industry and the demand environment, cost reductions and productivity improvements to offset the impact of the sales decline.

Similar to 2013, our first quarter will have negative earnings, the second quarter will be positive but small and more than 80% of our earnings will come in the third and particularly the fourth quarters. We expect approximately $140 million of free cash flow for the year.

Our cash flow is also seasonal with the majority coming in Q3 and Q4. The cash flow generation in Q1 will be essentially offset by the working capital investments for Back-to-School in Q2.

With that, I will turn the call over to Neal for a detailed rundown on our results. Neal?

Thank you, Boris, and good morning, everyone. Our fourth quarter performance is recapped on pages two through four of our slide deck.

Q4 sales decreased 5%, or 2% at constant currency. The 2% decline was driven by lower volume and unfavorable mix.

Pricing was favorable by 1%. The volume decline was in North America and computer products.

Adjusted income from continuing operations was $45 million or $0.39 per share compared to $42 million $0.37 per share in the prior-year quarter. The improvement was the result of synergy savings and productivity improvements which offset lower sales volume, adverse mix and $0.02 of adverse currency.

In terms of gross margin, we made great progress on both our cost synergies and productivity initiatives, which together contributed 190 basis points to gross margin. This offset unfavorable sales mix which adversely impacted gross margin by 140 basis points and inflationary pressures of 40 basis points.

From a segment perspective, gross margins improved in both North America and International but were offset by 610 basis points traction from the computer products segment. All-in, gross margin increased 10 basis points in the quarter.

SG&A expenses were down in the quarter and at the margin level decreased 150 basis points. Cost savings and synergies as well as lower incentive compensation were 210 basis points favorable which more than offset sales deleveraging of 60 basis points.

In all, operating income margin increased 160 basis points to 15.7%. Interest expense was down $4.5 million in the quarter to $12.2 million, a benefit of $0.03 per share.

However the benefit was offset by higher tax rate which had a negative $0.03 impact on the quarter. Foreign exchange reduced EPS by $0.02.

For the full year, sales decreased 7%, or 5% at constant currency. Pricing was favorable by 1% but volume and mix was down 6%.

The volume decline was in North America and computer products. Adjusted income from continuing operations was $88 million or $0.76 per share compared to adjusted pro forma earnings of $94 million or $0.82 per share in the prior-year quarter.

The decline was primarily the result of reduced profitability of our computer products segment and $0.03 of adverse FX. The effects of the volume decline in North America were offset by cost reduction benefits.

In terms of gross margin, which increased 10 basis points for the year, we made great progress on both our cost synergies and productivity initiatives which together contributed 200 basis points of benefit. However, unfavorable sales mix largely offset these benefits, as it was a 190 basis point impact.

From a segment perspective, gross margins improved in both North America and International but were offset by 610 basis points contraction from computer products segment. SG&A expenses were down for the year as percent of sales were up slightly by 10 basis points.

Cost savings and synergies were a 120 basis point benefit mostly offsetting the sales deleveraging which impacted SG&A margins by 130 basis points. In all, operating income margin was even for the year.

The improvements in the International and North American segments were offset by the declines experienced in our computer products segment. The competition in the tablet accessory market accounted for more than half of our reduced profit.

Interest expense was down $16 million in the year to $53 million, a benefit of $0.10 per share. However, much of the benefit was offset by the higher tax rate which had a negative $0.06 impact for the year.

Foreign exchange reduced EPS by $0.03 for the full year. Turning to an overview of our segments for the quarter.

In North America, fourth quarter sales decreased 7%, with a quarter of the volume decline or $7 million attributable to exiting unprofitable business. The underlying decline was due to soft demand and some lost product placements.

North America adjusted operating income increased 14% to $46 million compared to $42 million in the prior-year quarter. Operating margin increased 270 basis points to 17.2% from 14.5%.

The increase was due to synergies and productivity improvements. In our International segment, net sales increased nearly a 0.5%, but on a constant currency basis increased over 6%.

We saw growth in each of our major geographies with Brazil leading the way with 10% growth in local currency. International segment adjusted operating income showed strong improvement increasing 17% to $35 million as a result of the sales growth and restructuring actions with margin expanding 270 basis points to 18.8% and 16.1%.

Computer products net sales decreased 12% driven by volume loss and reduced pricing. The increased competition in tablet accessories accounted for two thirds of our sales loss market but decline in laptop shipments which impacted demand for our computer accessories and security products drove the remainder of our decline.

As a result of the sales declines, particularly of tablet products, computer products adjusted operating income was $5.4 million compared to nearly $11 million a year ago. Operating margin decreased to 11.8% from 20.5%.

Turning now to a highlight of our year and quarter. Our cash flow and balance sheet.

We had strong cash flow generation during the quarter at $157 million for the year. We have paid down $151 million of debt and, as Boris noted, finished the year with a net debt to EBITDA ratio of 3.3 times based on our bank covenant definition.

For 2014, we expect free cash flow of approximately $140 million. The year-to-year difference is mainly foreign exchange which, at recent spot rates, is very negative to last year and is expected $2 million increase in cash contributions of pension plans.

Once again, we expect our cash generation in quarters one, three and four, and two will again be a cash outflow quarter due to the seasonality of North American Back-to-School. I should note that our free cash flow estimate is net of $21 million of payments for cash restructuring.

Page six of our slide deck contains a number of our assumptions affecting our free cash flow including capital expenditure which is expected to be $30 million, cash interest, which is expected to be $42 million and working capital which is expected to be neutral. We have also included a slight detail in our guidance on page five.

I would like to point out that currency has become a significant headwind. Using February 4 spot rates, it would have had a $0.03 negative impact on 2013 EPS and a 2% impact from 2013 sales.

Our 2014 guidance uses these spot rates. With that, I will conclude my remarks and move on to Q&A, where Boris and I will be happy to take your questions.

Operator?

Hi, everyone. This is Bonanza Chalaban in place of Brad Thomas.

You mentioned the headwind from customer consolidation. I was wondering if you could give us an update on the Office Depot, OfficeMax merger and what your guidance assumes in terms of the impact on earnings and margins?

Also have they started negotiating share prices with you or where are you in that process? Thanks.

Good morning. The Office Depot, OfficeMax merger is proceeding.

The companies have combined and right now they have appointed or are in the middle of appointing the management structure down to the merchandiser level. They have started the process of consolidating the suppliers for the duplicated categories and we are going through that process with them as we speak.

So far, all of our discussions and negotiations are consistent with our assumptions. We have assumed in the plan a fairly meaningful reduction to both sales and an impact on margins just due to the analysis that our teams have done on our category penetration in both accounts, pricing in both accounts as well as the experience that we have had with the Staples, Corporate Express merger.

So that's incorporated into our guidance. I don't want give a specific number because we are going through the negotiations with Office Depot.

So I don't want be proscriptive in that but it is baked into our guidance.

Okay, fair enough, and this has obviously been a difficult year for you guys. I think you have done a good job and the way you can control despite that environment.

So as we look at your 2014 guidance, bout what level of certainty do you have with that guidance and what do you see as a major risk?

Well, it is a forecast though. As much certainty as forecasts contain.

We try to be fairly conservative in our assumptions. In my prepared script, I went through certain assumptions that we have made in terms of the macro and the currency and the consolidation of the channel and just the things that have happened in 2013 in terms of the shift to lower-end products in the shift to more mass and eTail will continue.

So we are not assuming any improvement in any of those areas. But I go back to my first point, it is a forecast and things may happen that are outside of our control or some variables that we haven’t predicted.

As we have demonstrated over the last few years when things that have happened we react and we adjust our cost structure or change the way we do business or do something to make sure that we still continue to improve our profitability and deliver the appropriate value to the shareholders.

Okay, thanks.

Hi, good morning. First, I compliment for taking a very realistic view of 2014 in your prepared remarks.

In mid-year 2013 or towards the end of Q3, it was very clear and you made it clear on your October conference call last year that the consumer preference have shifted away from the premium branded model that’s driven your company towards more lower price points and in a sense, you talk then about how you have to reset your business model to adjust for that. Could you comment more on the structural changes you are likely to make in 2014 and to be as specific as I can be?

You had about $200 million of SG&A in North America. With this change in the business mix, how should we think about that number on a go forward basis?

Well, following that Q3 discussion that we announced $24 million in restructuring activities primarily focused on North America and within that most of it is actually U.S. where we are seeing predominant shift to these low-end products.

So at the time as we discussed we are reducing mainly the headcount that we have focused on the North American business by about 12% of our salaried employees. We are consolidating the coverage from a go-to-market perspective so that we are improving productivity on a per-person basis and we are focusing on our product development and marketing resources on areas that we think where we can add value and where customers are willing to pay for the value and trying to really strip the cost out of more commoditized categories where we know we will have to compete to some extent but we don't want to burden ourselves with any of the additional cost.

So of that $24 million, $16 million will come through in 2014 and are embedded in our guidance. Then in addition to that, we have had very successful Lean Six Sigma productivity initiatives in the company for over three years now and we are continuing that we are assuming another $14 million in Lean Six Sigma efforts and a lot of those are also focused on North America.

So combined we feel that we have adjusted our cost structure to align with the consumer buying preferences but as I mentioned to the previous question, if we need to do more we are prepared to do more.

Okay, and how should we think about your gross margin given the various changes in your business? What's a reasonable expectation for the upcoming year and can you get enough cost reductions to see any improvement in your operating margin?

Right now, we are assuming that our gross margin will improve slightly versus what we did in 2013 and the SG&A will be roughly the same as a percent of sales. So you will see a little bit of a margin expansion in 2014 or you should see a little bit of margin expansion in 2014.

And I just wanted to clarify, did you mention in the computer products area, you are going to move away from the commodity stuff towards the more higher-end and if so, hasn’t that been a place where people have traded down?

Well, the computer accessories market is huge and it's actually significantly bigger than the office products market and there is plenty of space for all kinds of consumers, the ones that are focused on more commodity products as well as the ones that want more value-added stuff. We just feel there's so much competition in the commodity space and most of that is coming from Asia sources.

It has undifferentiated and a lot of the stores go there. Stores, private label brands go there shopping.

So we don't feel that we can effectively compete in that space. It will be where the majority of the market is but we need to drive value and we can't do it through participating in those particular markets.

Thank you very much.

Good morning. Boris, can you just remind us?

Good morning.

How are you? Can you talk a little bit more about your outlook for the computer product segment in general?

I mean would you expect the segment to continue to have this trajectory as we move through while we start in, event this quarter we expect to see a bottom where you can felt things will flatten out? It is tougher to gauge.

How are you looking at it?

Yes, I think that I will make comments on the industry overall and then on our participation. So I think in the industry overall, I think the broad trends in the computer industry will continue.

I think there will be some decline in the PC space. That market is fairly saturated and when we buy our third and fourth and fifth computer, we don’t really need all the bells and whistles that we have historically needed.

So most of us will tend to go with tablets to supplement our PCs. So the PC market will decline.

The tablet market has grown and will continue to grow and actually not in 2014 but in 2015 it's projected to overtake the PC market in terms of units sold. In terms of our business, the computer products business, we believe that the worst is behind us because we just had such a successful business for so many years delivering 20% plus operating profits which are really unheard of in the computer accessories industry and not a lot of our competitors have delivered historically such profits.

So now we think we are more where the trend line and the averages in the industry will be going forward. From the PC market space, we are anticipating that that space will continue to decline and our PC accessories will probably decline proportionately.

We have developed, over time, strong niches within that space in our security business in our trackballs, in our presenters and some other PC accessory categories and we will continue to participate there, differentiate and introduce new products there and participate profitably in that space that will probably be a negative growth space for us but it's still a very, very profitable space. The growth for us will have to come from the tablet and smartphone accessories space.

We did not grow in 2013 in that space, with some of what just what happened in the industry and some of it is our execution on a particular line. We are in the process of addressing that and fixing that in 2014.

I am expecting things will be better because we have a stronger product assortment today and that we also have plans to continue to improve that assortment going forward but also the competition in that particular space is getting tougher because everybody, just like ourselves, everybody is realizing that's where the growth is coming from and more and more players are beginning to participate in that particular space. That's why we need a more differentiated way of addressing the tablet and smartphone accessory market than we have historically done and we are in the process of defining and implementing that.

So just to clarify, you feel like your R&D pipeline has the products this year to come out or are you still in the process of building that?

We have some products this year but I don't think we are finished in our innovation and I think will need to do more on a go forward basis. Frankly, Bill, that’s just how the technology industry is.

Stuff gets copied all the time. So you always need to innovate and try for it.

Sure, and then, just switching to International. I may have missed this but is the strength Brazil, is it more Mexico and is it more the Mead business?

You have a good traction or you are seeing some synergies as you bring more of the legacy ACCO products in to those markets, especially in Brazil?

So for Q4, the strength was pretty balanced across the board. As Neal mentioned in his remarks, we have seen revenue growth in Q4 for every International segment including Brazil and Mexico and Asia and in Europe.

So it's been pretty broad. Brazil has been strong all year and there we have been taking share.

As you know, the Brazilian economy has not been in a great shape of the last couple of years and we don't anticipate that that will change but our team has done a terrific job introducing new products, getting new licenses there and moving into the new price points for notebooks and other products while securing the premium category. So we have captured a lot of share.

Going back to 2013, Mexico had a slow first half due to some channel issues and the government change. That didn’t affect just us but it affected the industry overall but had a strong Q4 and we anticipate that they will have a good 2014 as well.

Got it. Thanks for the color.

Thank you, Bill.

Thank you. Good morning.

Good morning.

When we look at the longer-term two times leverage target, 18 months to get there, then does that build in acquisitions of the tuck-in variety or is that off the table until we get to those kinds of levels?

Yes. So just to be clear, we didn't say we are going to get to two times leverage in 18 months.

What we said is that our projection is that if nothing changes and if the trends continue as is, in about 18 months we will be in a position to do other things with our cash than just paying or do acquisitions and mainly we will be able to repurchase the share or issue a dividend and we have to get to 2.5 times debt-to-EBITDA ratio in order to do that not just two times. I think two times is further out than 18 months.

That’s point number one. Then point number two is, the two times is our goal to get to a steady-state.

I won't be in 18-month but we believe for us to be in a position to, on a continuous basis to be able to return cash to the shareholders in the best way possible, namely through either EBITDA growth or acquisitions or share repurchases or dividend at steady-state, we should be about 2X or around that rate. So that's the comment about 2X.

Okay. Thank you for that clarification.

Sorry for misunderstanding that. When we look at the industry and the challenges that you are facing, given that you guys are the larger player here, what are you seeing from the competitive stance in folks who may not have the breadth of product to weather the storm that you are seeing out there?

Folks are retrenching and trying to find their niches and protect their existing businesses. It is a tough industry.

There is a lot of pressure that is coming on the industry through consolidation. You are seeing some players or you have some players over the last year or so abandon the industry and letting their parts the business consolidate with other players.

So it's tough for all of us. I am not saying that as a big guy, it is any tougher for us.

We are all trying to compete and deliver value in a very, very tough industry in a tough environment.

And what's your ability to compete on that low-end private label side? That’s something that has comes in and out of the strategy over the last couple of years.

What's the ability to expand that side and go after that market?

We are structured to compete there. We are just as capable as competing there as anybody else is.

The question is, when and how do you want to compete there and what we are saying is that we want to compete better when we manage the whole category. It doesn't make sense for us to only offer a private label.

In fact, we don't think it makes sense for our customers to only offer private label because it's just moves the consumer down and doesn't offer them an appropriate choice but where we do the overall category management, as part of that we have lower-end products and medium priced products and higher-end, higher feature products then as an overall mix, it makes sense for us and we have over the last several years said that that is part of our strategy and we are willing participants in the strategy. In fact, for a lot of our customers we do that.

Where it doesn't make sense for us and again I believe it does not make sense for our customers if the only choice is private label because I think that does not give a good choice to the consumer.

Thank you very much, guys. I appreciate it.

Thank you.

Good morning. Thanks for taking the questions.

Hi, Chris.

Just to follow up on the previous question. How much of your business now is the lower margin price point?

Chris, I don’t have answer for you. I know that private label for us, as a company, is around 5% but we know we also have branded products that’s fairly lower priced as well.

So it's difficult to say how much is exactly in that lower price point range.

Sure. All right.

And then I guess just thinking about the negative mix, is that being predominantly driven by the shift of the Internet away from a brick-and-mortar?

No. The negative mix has predominantly been driven by the choices that our big customers make in the assortment they want to introduce primarily for Back-to-School or Back-to-Business.

That's really what drives the mix. What we have seen over the last couple of years is for Back-to-School, some of our customers that are meaningful customers for us, specially a customer that is a meaningful customer for us has tended to skew their mix of the assortment very, very low and that drove the mix for us and that drove the margin degradation for us.

So for 2014, we are assuming nothing's going to change. The same thing will happen.

We are taking cost out of the business to make sure that we are aligned with that particular structure.

It is worth just appreciating the big change we saw in the gross margin in the computer products segment bear the loss of the negative mix that we saw in the fourth quarter.

Sure. All right.

And then, you may have already answered this and I apologize if you did but how are you better competing? I know that in 2013 at least some of the headwind was this move to private label.

How better positioned are you? Or do you feel this year going into school season and just your product mix and how you are targeting your customers maybe a little bit better?

Let me answer that. I just want to make one comment on your previous question.

In eTail space in general is actually driving a higher margin and a better mix than the house average. So actually it benefits us to move more to eTail than that retail.

To your current question. We are in the process of finalizing the assortments with our customers for the 2014 Back-to-School.

We are pleased with where we are. We believe that we gained some incremental business versus the 2013.

It ain't over till it's over. So we won't be able to celebrate until the Back-to-School season is finished but from an assortment perspective, we are in decent shape and I feel good about our position there.

Then as I mentioned, we are structuring, preparing ourselves as if nothing will change. So we are making sure that we take the appropriate costs out of the business so that if and when it doesn't change we are still delivering good profits to our shareholders.

Sure. Thank you for taking my questions.

Thanks, Chris.

Good morning.

Good morning, Kevin.

Just wondering what the next steps are to get more revenue synergies out of Mead and if you are including assumptions of additional revenue synergies in your 2014 outlook?

We are. So if you go back to '13 we delivered somewhere around $15 million range in revenue synergies from the merger which was less than 1%.

We wanted to be around 1%. So a little bit below our target, our goal and what we have baked into our guidance is revenue synergies in the 1% to 2% range and they are going to come from the same places that we have seen before and just with better execution and more time.

Unfortunately for us, these take a long time because you have to displace people from their existing shelf or market positions in Brazil and Mexico and U.S. and Europe and Asia and Australia.

We have had success where we have taken each other's products into the strong channels and have got them placed and got some sell-through and we just need to continue to build on that and increase the product penetration is those areas. So that is part of our 2014 plan.

Okay, and thanks for all the detail on your assumptions behind the 2014 outlook. I was just wondering if you could share how you think margins might trend for each segment in 2014?

The general view in the business is that if you look at the overall margins for the business, our SG&A is going to be flat performance. The reason for that is because what we have is an assumption, that while we have SG&A cost out overall we have two issues which are negative to that.

One of them is the fact that we have to reinstate our incentive earnings. The second one is there is an adverse leverage of the business from the assumption that the top line is the challenges.

So the margin improvement overall is going to come through in the gross margin area and most of that assumption is coming out of where we are seeing progress already which is our North America and International business. I think our computer products business is an area where we can look for stability.

Okay, thanks. That’s helpful.

Thanks for taking my questions.

Thanks, Kevin.

Hi, good morning.

Good morning, Helen.

I just had a few follow-up questions on the online business. Can you tell us how big that is currently for you as a percentage of sales?

It is difficult to say because very few of our online partners buy direct from us. Most of them, in fact, buy through the wholesalers.

So we don't get to see that. But it’s a meaningful number especially in the U.S.

where the eTail channels are more developed. I would hesitate to give you a number but it's tens of millions of dollars and it is growing very, very rapidly.

And then you mentioned that online has better margin. Can you perhaps talk about how that margin has changed though for you as online sales have increased over the past couple of years?

Well, without talking specifically about the online customers just as in general, the smaller customer the better the margin and the bigger the customer the worse the margin gets. So I am sure that what you are going to see is as these customers become larger and more sophisticated and we become a bigger part of their sales, they are going to push for more programs and lower cost and that’s just something that we will need to manage.

A counter to that, as our existing customers get smaller, some of the programs and cost that we spend on them will go down. So overall I think that shift that happens pretty much in every industry will be fairly neutral just from the shift that we feel are neutral to our margins.

The other thing about the online business that is beneficial to margins, online resellers are very interested in selling branded products and not private label products. So that helps the overall lower margin mix for the online business.

Okay, thanks for that color, and then, one last question on your over all guidance. You are guiding to overall sales down mid-single digits.

That includes International up single digits. Can you perhaps speak about North America and computer products and what sort of declines you are assuming for those two segments?

Yes, we are assuming a mid-single-digit decline for each one of those segments.

Okay. Thank you.

Thanks, Helen.

Hi, good morning.

Good morning.

I was curious about, you have talked in the past about the consolidation impact, some part of being more or less temporary from excess inventory in the channel. So I am wondering if you are still expecting that?

Are you seeing this as sort of an opportunity for these two customers to reset their - I guess be more aggressive with their merchandising to lower price points?

Kevin inventory tends to be much more of an issue from quarter-to-quarter rather than through the year as a whole. What we do think is one of the negative impacts of the Depot, Max merger will be ultimately that it will lower the amount of inventory in the channel because they are going to take down the number of stores they have and they are going to consolidate their supply chain.

It doesn't change end-user demand. I think that’s an important thing.

It creates short-term fluctuations in our business which, particularly, in some quarters like Q1 which is a small can be quite magnified. So we have to talk about it in the context of the quarter.

It cannot be a big feature in the context of the year.

. Okay.

So the part about consolidate suppliers is not the bigger part of your expectations for 2014.

You mean consolidating suppliers as part of Office Depot, OfficeMax strategy, to consolidate suppliers? Is that what you are asking, Kevin?

That’s right.

We look at that, we can either lose or win. We are very broadly penetrated across each one of those customers.

As they come together we are in a very, very strong position to retain our business across the board. We have some opportunities actually to expand our presence.

So all of that with our judgment applied is part of the guidance that we have provided.

Okay, and then I guess looking at International for second. It seems like a lot of the growth there has been more on price than necessarily on volume.

So I am curious is that a mix shift or is that actual pricing actions you are taking? Do you expect that dynamic to be able to hold?

So important to understand that markets Brazil are high inflation markets So they tend to have a need to have high price increases to keep up with that inflationary experience in the market. Generally what we are seeing in a number of international markets is the need to respond to the movements in their relative price in U.S.

dollar and the local currency. So that’s the other factor driving price increases in other markets.

So it's not mix, it's actually price.

Okay. And you think, I guess, that will continue going forward then?

Well, it’s the converse of the U.S. dollar headwind that we get as a translation issue and the two are driven by the same fact.

Okay, and then I guess just touching on acquisitions again. Is the long-term trend of wanting to get below 2.5 times or down to two times, does that make it more likely that an acquisition would be more of a tuck-in variety than necessarily a strategic or a larger levering transaction?

Not necessarily. The goal to get to two times is a long term goal.

It will not be in a way of us doing an acquisition if that makes sense for us. So you shouldn’t think of it in that way.

Okay. Do you think of leverage limits?

How high you would take leverage in a particular acquisition or is it more just the nature and the attractiveness of the target?

It's more of the latter but we need to be pragmatic and running a business. So of course, there will be some natural limits to what we will do from leverage perspective.

And just, I guess, then thinking of the conversion, is there a point which you would look to sell assets to get your leverage down to a point where you could begin to return money to shareholders. I know you are still intent on driving the improvement in the computer business but I was thinking of that in particular, is an opportunity for a point which you would look to sell that?

We think we have a good portfolio right now where we are pleased where we are and we are looking to sell anything.

Okay. Thanks.

Thank you, Kevin.

Thank you everybody for joining us this morning. I look forward to speaking with you next quarter in about three months.

Thank you. Bye, bye.