ACCO Brands Corp (ACCO) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2009 ACCO Brands earnings conference call. My name is Lacey, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Ms. Jennifer Rice, Vice President of Investor Relations. Please proceed.

Good morning. Welcome to our first-quarter 2009 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.

A set of 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.

Our discussion this morning will refer to results on an adjusted basis for continuing operations, excluding restructuring and nonrecurring charges. 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 releases and SEC filings for an explanation of those factors.

Following our prepared remarks, we will hold a Q&A session.

Now, it's my pleasure to turn the call over to Mr. Keller.

Thank you, Jennifer. Good morning, everyone. Earlier this morning, we reported our first-quarter 2009 results.

Net sales were $293 million, a decline of 17% excluding foreign exchange, and we recorded a loss from continuing operations of $3.7 million. Excluding charges, the adjusted loss per share was $0.02, and our EBITDA came in at $27.2 million. Neal will provide additional details and color in a few minutes, but let me briefly share my perspective on our results.

Given the headwinds we faced going into Q1, we are pleased with the progress we made in the quarter. Coming into January, we faced a worsening global economy exacerbated by significant inventory destocking by our customers and by their commercial customers. The increased strength of the US dollar was also driving significant translation pressure on our results. In addition, we were sitting on excess inventory that we brought in, in the fourth quarter when commodity costs were much higher, for year-end purchases that didn't materialize, increasing the pressure on cash that we always feel during the first quarter.

Our major customers were closing distribution centers and stores, adding to the time it would take us to reduce inventory. Internally and externally, we were being challenged to improve almost every facet of our business.

We've responded well to the challenges we faced. We generated $27 million in EBITDA despite the adverse volume, currency, and commodity cost trends. Each month of our quarter showed sequential improvement in both top and bottom-line results.

We managed our costs aggressively, and we executed against our internal objectives, scaling our business appropriately for the size of the opportunity today. We remained in compliance with our bank covenants. Importantly, we made significant operational improvements, strengthening customer relationships and improving our supply chain.

Our efforts are being recognized and rewarded by our customers. We won new business at each of our top five customers. We've had eight category wins since January and expect further share gains based on business currently being competed. None of these wins will have significant impact immediately; they will all be phased in over the back half of the year, but we are taking market share and we've moved the needle in the right direction with all of our strategic customers.

We've made significant progress on a number of fronts. We exited the quarter much stronger than when we entered it, and for the first time in recent memory, we even received a modest operational bonus from one of our largest US customers for exceeding their supply-chain criteria.

We are cautiously optimistic that our business in the US is beginning to level out, but we will have a better feel for that based on how our customers react to back-to-school demand late in this quarter. We don't think that's the case, by the way, in our international markets, particularly in Europe, which remain soft. Across the board though, we will continue to manage our expenses in line with current and expected revenue. Net-net, we believe we've made real progress.

I want to underscore, though, that we are not out of the woods yet. Our second quarter, while seasonally not as tough as Q1, will remain challenging because of the economy.

As we move forward, it is important for us to demonstrate continued sequential improvement in topline growth to lock down the improvements we have seen in supply-chain operations and to execute well on the new business that we've won. We also need to continue to monitor and manage our cash position closely. My management team meets at least weekly to ensure that we've deployed our assets appropriately in this unprecedented economic environment. We will manage within the confines of our bank covenants and not let our capital structure impede our business performance or results.

That said, we continued to invest in new product development. Recent product launches include a series of in-line punch products that integrate with high-speed copiers and printers manufactured by Canon, Fuji-Xerox, Konica Minolta, Oce and Ricoh. We are currently launching a new laminating machine initially for the European office products channel that will deliver a six to seven times performance improvement at half the cost of earlier generation laminators. Product vitality is a key to both our short and long-term success, and we believe we have a robust new product pipeline that will make a difference to our bottom line as we move forward.

To sum up, we've made significant progress in what we anticipate to be the toughest quarter of the year. We believe we are positioned to deliver sequential improvement through the remainder of 2009.

Historically, we have been cash-neutral in Q2 and cash-positive in Qs 3 and 4. In spite of the economy, we don't anticipate this year to be any different. As we automate more of our supply chain processes and logistics, our customer service metrics as well as our cost structure will continue to improve.

Our customers' inventory levels are at near historic lows. We believe that further inventory reductions are unlikely and any upside to their business should result in increased orders and improved revenue for us.

We are taking market share, and we are meeting or exceeding our expense-reduction targets. As I said earlier, we are not out of the woods yet, but we are in a better place than we were 90 days ago.

At this point, I will turn the call over to Neal.

Thank you, Bob.

This quarter's performance is recapped on Slide 3. Sales declined 27% with volume down 19.6%. Currency impacted sales by 9.5%. January was our lowest point in the quarter. Customers had curtailed orders as they worked down inventory levels. Sales sequentially improved through the quarter and began to mirror our customers' point-of-sale in February and March.

Adjusted operating income declined 22%, but our margin increased 30 basis points to 5.7%. As we will detail in a moment, the improvement was attributed to SG&A-related cost savings, which offset the impact of lower volume and commodity cost increases.

EBITDA declined 21% to $27 million, and adjusted EPS was a loss of $0.02.

In terms of reported items, as expected, we did incur one-time charges in the quarter, mostly severance-related. Pretax restructuring and restructuring-related charges were $3.4 million.

Slide 4 details the drivers behind our revenue decline. The economic decline, which has impacted businesses in all of our markets, was clearly the largest factor, reducing sales by $79 million. Foreign exchange further reduced sales by $38 million. We did receive a small benefit from price increases and the timing of Easter.

Slide 5 details the specific contributing factors to our margin changes. Gross margins declined 250 basis points, driven largely by the address impact of cost increases as we utilized inventory purchased when commodity costs were inflated.

SG&A improved 300 basis points. The improvement was entirely the result of cost-reduction initiatives that more than offset the adverse leverage from reduced volume.

All told, operating margin improved 30 basis points to 5.7% from 5.4% last year.

Turning to an overview of our segments on Slide 6, in the Americas, sales declined 21%, or 17% excluding currency. This is actually a more favorable rate than seen during the fourth quarter as channel destocking was less severe with January at the low point and February and March showing sequential improvement.

Operating margin for the Americas increased 220 basis points to 4.1% as a result of cost-reduction activities reducing the impact of lower sales volume.

In the International segment, sales declined 34% but excluding currency, sales declined 17%. This is a slightly higher rate than in the fourth quarter. However, the slowdown in some parts of Europe and Australia has lagged the US slightly. International segment margin declined to 8.2% from 10.6%, principally due to the lower sales volume. We have implemented additional cost-reduction activities in our international businesses to help offset further erosion in volume.

Turning to Computer Products, sales declined 26% but, excluding currency, declined 17%. January was the lowest point for the quarter for this business as well with February and March showing sequential improvement. This business performed at expectations due to incremental and new product placements, which helped offset the impact of Circuit City's bankruptcy.

Margins declined to 15% from 16%, principally due to the prior year benefiting from a one-time, $800,000 royalty income from a claim settlement. Otherwise, cost-reduction initiatives have offset the impact from lower sales volume.

Our discontinued operations relates to our commercial print finishing business, which we anticipate we will divest in early June.

Now, turning to cash flow on Slide 7, as expected, our borrowings increased in Q1 due to the normal seasonal variation in working capital. We still aim to reduce our debt levels for the year as a whole by $30 million to $40 million, including $26 million in principal during the second half of the year. This is before factoring proceeds from the pending disposition of our commercial print-finishing business.

Lastly, on Slide 8, we have provided some assumptions to help with modeling certain cash items. These numbers are similar to those we provided on the last call.

That concludes my prepared remarks. At this point, Bob and I will be happy to take your questions. Operator?

(Operator Instructions). Derek Leckow, Barrington Research.

Thank you. Good morning. Just a question on the point you made in your prepared remarks earlier -- the need to make sequential revenue improvements, leverage your supply chain improvements. Does that mean that, point one, the new business wins, are they going to be phased in starting in the second quarter? Point two, you said that -- let's see, you said you would stay -- the customer inventory levels were at historical lows and that you expected those to increase. Is that the way to think about that?

No and yes.

Okay.

The answer to the first question is we don't expect any material impact on the new business wins until late in this year, and we won't fully get the benefit of them until next year. They are the result of line reviews that we are going through kind of as we speak over the course of the last 60 days and on an ongoing basis. So, we don't expect to see material positive impact by that in the next couple of quarters.

The inventory level point was both a reflection of discussions that we've had with our customers about where they are in terms of managing their working capital and inventory and a perspective that, based on year-to-date through March point-of-sale information, their sellout of our product is roughly equivalent to their buy-in of our product.

Just one other quick point, Derek -- seasonally, our quarters do improve anyway with Q1 being our smallest quarter and they seasonally get larger as Q2, 3 and 4 go on because of the buildup of back-to-school and then the calendar year-end.

Okay. The impact in the Computer Products area, did you say that was also kind of behind you at this point, or do you still expect additional, you know, pressure from that in Q2?

You know, I think the business is performing as expected is basically the message in terms of our Computer Products business. I think we've made some progress in expanding our channel partners; that has offset the loss of Circuit City.

On a sequential basis, then, should I assume that goes up next quarter?

I'm sorry. Would you repeat that, Derek?

I was just trying to gather the sequential information on the Computer Products business. Would you expect that to be higher than Q1 levels?

Q2 for Computer Products is very similar to Q1. Q3 and Q4 show the sequential improvement for that segment.

Okay. Then margin rates, the operating margin was surprisingly higher this quarter than we expected. Would I use that as sort of a low point for the year? Is that the way to think (multiple speakers) --?

Again, if you are looking at margins, I would look at the sequential margin. So compare Q2 to Q2 and Q3 to Q3 and Q4 to Q4 because we do have quite a leveraging impact and we have businesses like Computer Products and Day-Timers that make a lot of their margin in the third and fourth quarter. And so we would anticipate having improvements in our margin in every one of our quarters.

Okay, very good. Thanks. That's all for now. Good luck.

Bill Chappell, SunTrust.

Good morning. I guess, first on the sales number for the quarter, is there any way to break out how much of it was destock versus what consumer take-away was in the quarter?

I tried to do a good sales breakout on Slide 4 for you. I didn't include destocking. The reason I didn't is because I don't have a good read at the moment on March, so we are not sure we suffered significant total destocking in all markets. So January certainly suffered from significant destocking, and my best estimate would be that there was about a $10 million impact of destocking on the overall business for Q1.

So, a large majority, let's say 70%-plus, of the decline was just the overall market, not necessarily a destock issue?

Correct. That would be in line with what our peers have shown in the industry.

Okay. Can you give us a little more detail on some of the category wins, like where you might have won some contracts and why you won it?

Yes. I think we have done a pretty good job with our Wilson Jones product line in binders and creating a set that has a strong/good/better/best approach, augmented with both a style section and a cause section. I think that has played out really, really well.

I think we are winning in our boards business across our customer base because I think we have a superior product and we manufacture some significant portion of that domestically and are able to distribute it quickly. Our manufacturing sites are linked to our distribution sites, and the combination of both the product quality and the manufacturing and distribution capability is helping us.

But you know, we are pleased with the progress that we've made in terms of shifting the discussion with our customers from just a high-end, premium provider to a category provider where we can leverage some of our strengths in terms of our supply chain improvements and, frankly, the marketing and merchandising capability that we have around our own product sets. It has been received well by our customers across the board.

Okay. Looking at pricing that helped you in the quarter, with commodity costs coming down, do you foresee a price rollback by midyear, or can you hold the line on pricing?

We actually did two separate things, Bill. In the United States, we completely rolled back our pricing from Q1. So we had announced a January increase which we didn't impose. One of the things that you'll see on the margin analysis slide that I did shows a significant negative impact on our gross margins in Q1. That was virtually all driven by the United States, where we had to still take through the cost of excess commodity costs that came through from the fourth quarter.

Outside the United States, the biggest driver has been foreign exchange movement. Foreign exchange movement hasn't gone away, so the price increase would put through in our international markets offsets the negative impacts on our cost of goods from foreign exchange. Then fundamentally we buy in China and we sell in euros or pounds or Canadian dollars, etc. They have a real cost of goods increase because of the strength of the US dollar.

I got it. And then just one last one. I can safely say I have no clue why Easter would affect office supplies in Europe. Can you give me an idea why it would help that out in the quarter?

Because the consumers all go on vacation. The same in Mexico, the same in Australia.

Of course. Thanks so much.

Arnie Ursaner, CJS Securities.

Yes, good morning. This is actually Fred Buonocore calling in for Arnie. How are you today?

I just wanted to quickly talk about -- you talked about the trends moving through the quarter. Can you give us a sense for how trends are going, looking at April and into May? Clearly, you are saying you are expecting sequential improvements, but can you give a little bit more color on that?

Not a lot. The reality is the second quarter is heavily driven by back-to-school loads, which come in the tail end of May and most of June. That load will determine the quarter.

I think the positive perspective from our point of view is that, in listening to our customers comment on their plans going forward, it is clear that all of the superstores are planning to compete aggressively in the back-to-school market and I think that bodes well for us.

Excellent. Then, in terms of share gains, can you elaborate a little bit more on who you are taking share from? I mean, are you recapturing share loss to private label or from other brands? Can you give us a better sense for that, please?

I think it's kind of across the board. You know, we feel very good about kind of where we are winning and where we are not. We are winning more than we are losing as we go through the line review process. We think we have protected the business that we've had very, very effectively, and we have been able to take business, both from competitors and from private label going forward.

I got it. And then just one final one -- in terms of when you put a product line out for bid, I would imagine that it has just been a challenging process over the last year. I'm wondering if the time between when you may put a new product line out for bid and when you maybe win an agreement, if that cycle time has started to shorten or can you give us any sense for how that process is going?

Yes, I think the old paradigm where line reviews happen kind of once a year with a midyear update on new product introductions appears to be turning into more of just an annual cycle where you are kind of in continuous process sequentially through your product line. And that's fine. You know, the reality is I think, given our size and scale and our relationship with our customers, if we win business and perform, we should be able to hold it. So the line review process is an opportunity to get better.

Very good. That's helpful. Thank you.

Reza Vahabzadeh, Barclays Capital.

On the SG&A front, the decline, how much of that is sales-driven, and how much of it is permanent cost take-outs?

So Reza, I tried to give you that outline on the slide that I put in the deck.

Right, I see it.

And so, we have done some temporary cost take-out; we have done some permanent cost take-out. So obviously part of what we've tried to do is recognize how small Q1 is in terms of our annual year, and therefore, where possible, push out some of the go-to-market activity to the back half of the year. Also, we took some temporary cost savings in terms of putting through employee pay reductions in order to balance our equations for Q1 and Q2.

So, part of the cost savings are temporary, but we have more permanent cost savings that we will build as the year goes on. Therefore, on a kind of ongoing basis, we expect those levels of cost savings to actually be permanent.

Okay. The temporary cost savings were how much?

For Q1, they amount to about $5 million.

Okay. Then on pricing, I'm just trying to clarify a lot of your slides, which by the way are very helpful. On the revenue front, pricing is helping you by $10 million, but on the gross margin front, it seems like price versus cost is negative 230 basis points. Can you explain that?

Which is about $7 million. So fundamentally, what you have flowing through there is a lot of the price increases in our international markets to offset the foreign exchange translation impact on our cost of goods. If you assume that is kind of next to a net neutral overall, the impact of Q4 commodity costs coming through our P&L in Q1, which we don't anticipate continuing for the rest of the year, is about $7 million.

So really this is an impact of pricing not offsetting cost in the non-US markets?

No, it is in the US market. Fundamentally, one of the decisions we made going into the year was not to raise our prices in the US and to roll back our price increase. Many of our competitors raised theirs, so part of opportunity we are getting to bid on our competitors' business is because they went ahead and raised prices. The cost of that we took in Q1 as the excess commodity costs that I had to run through our P&L.

But is it reasonable to expect that the wins that you have obtained so far are at reasonable margins by first-quarter standards?

I think the key thing to understand is, going forward, I don't anticipate that negative drag on my gross margin. It was a Q1 effect from the tail end of the commodity spike, and I would anticipate, by Q3 and Q4, that actually would run positive.

Right. But still these wins that you have that seem to be sizable, these are wins that are profitable wins by at least first-quarter standards?

Yes, they are.

Okay, fair enough. On the cash flow front, I'm sorry if I missed your comments on it. I thought you said you were going to be cash flow neutral in the second quarter and positive in the third and fourth quarters?

That would be correct.

Okay. You have a cash flow source for working capital for the whole year. I am assuming most of that will occur in the fourth quarter. Do you have a dollar amount for that?

I haven't dollar-ized it specifically, but if you go back to my fourth-quarter comments, one of the things I highlighted in the fourth quarter was that we had about $60 million too much inventory. We reduced about $30 million of that in Q1, and so clearly are planning to reduce inventory by another $30 million as the year goes on.

Okay. Then, as we look at a lot of commodity costs, they obviously declined quite a bit. I mean, what kind of a cost inflation are you experiencing right now, and what is that number, say, in the second half of the year? Can you provide any color on that?

I think the real way to understand it is, if you go back to a baseline of 2007, we are seeing that we still have commodity inflation over that 2007 level. The peak of commodity inflation that we experienced in Q3 and Q4 we don't anticipate repeating that level as we go into the second half of this year.

So, from a gross margin point of view, it would appear as though we have lower costs. We still actually have higher costs in real terms, which is I am sure the point you are alluding to, but on a relative basis compared to last year, they will be lower in Q3 and Q4. So our gross margin will benefit in Q3 and Q4 as a consequence of that.

I got it. Thank you.

Karru Martinson, Deutsche Bank.

In terms of the new products and the wins that you have, are you moving more towards kind of the value offerings that you referenced last quarter, or how does that kind of break out?

You know, honestly, we are trying to manage categories for our customers. So it's not that we are focused on the low end of the product line. We want to bring all of the strength we can to help our customers drive our product line, and that says that, by controlling the category, we have a better opportunity to do that.

The products that we've recently introduced, frankly, are at the high end of the product line. They are in-line punches for premium-level distributors. That has been extraordinarily well accepted. The product we just introduced on the laminator side is in the mid to upper part of the marketplace for that product, and we are building a family around that that we will introduce over the course of the next 12 months. That will take us down to a pretty aggressive opening price point for consumers to be able to buy the product, all the way up to high-end product that will fit very well in a commercial environment.

Okay. I think you guys referenced last quarter about $50 million to $60 million of excess inventory that you held. I'm kind of wondering where we are today and the progress of working through that.

During Q1, we reduced our inventory by $28 million, so we have $32 million still to come out.

So another $32 million to come. With the kind of cautious optimism that you reference here and the improvement in February and March, have we seen those trends continue, you know, were less negative into April and May?

Yes, as I said earlier, I don't know that -- we don't have point-of-sale data for April. We tend to get that several weeks in delay. But the reality is that our second quarter is driven by the back-to-school season, and the load-ins for that don't start until the end of May and through June. That will drive our performance this quarter.

Okay. I guess, while the actual load-in hasn't happened yet, are you getting indications that that's what is giving you the confidence for the year's outlook, or how should we think of that?

Again, I think what our customers said in their comments on their calls earlier over the course of the last several weeks is they plan to compete pretty aggressively in the back-to-school market, and we think that bodes well for us.

Okay, thank you very much, guys.

Carney Hawks, Brigade Capital.

I have two questions. I guess you guys talked about sequential improvement but you clearly, as you've alluded to, have sequential improvement just by the seasonal nature of your business. Were you further trying to insinuate that the year-over-year comparisons of EBITDA showed improvement and you were down a little over 20% I guess in the first quarter? Is that the expectation that the cost saves will allow EBITDA to improve and then hopefully go positive by the fourth quarter?

So, I think the way to understand our business is that we will make just seasonally more EBITDA in Q2 than we made in Q1, and we will make more in Q3 than we did in Q2, and we should make more in Q4 than we did in Q3. That's the normal seasonal pattern of our business in a normal year.

Part of what you will also see is we have an accelerating cost-reduction schedule that will pull more through to the bottom line. So Q2 will still be a tough quarter from a comparison point of view. We will have all the negatives that we've had in Q1 from an FX point of view. We will have adverse volume still on a year-over-year basis, because the real negative volume effect on our business occurred in Q3 and Q4 last year. So Q2 will still be very challenging.

When you get into Q3, you get up against a much easier comparison, but you still have a lot of negative foreign exchange effect. When you get into Q4, there is no negative foreign exchange effect; it is potentially positive. There isn't the possibility of the level of destocking that we endured last year. So Q4 should actually be the first quarter that you can see a top line that could potentially look positive. It will be a negative topline in Q2 and Q3, still driven by a combination of significant adverse foreign exchange similar to that which you saw in Q1, and also the fact that the market has declined to a lower level than we experienced particularly in Q2 but Q3 it's still less adverse. But we've already seen a lot of the negative impact by Q3 last year.

I appreciate that. I mean, I guess, just to try to tie it up though, fourth quarter on a year-over-year basis was obviously the worst comparison, and then this quarter, you are down about 20% on an EBITDA line in the first quarter of '09. Is it at least fair to say that your hope or your expectation is that we won't see the year-over-year EBITDA comparisons get sequentially worse, meaning worse than 20% year-over-year decline and they should start to get better?

Q1 was always our most struggling quarter, and always was going to be given the number of things that impacted it and the small size of it. In Q2, you will see a quarter where we will still have a lot of negative headwinds. Q3 and Q4 is where I would expect us to flip around and become positive.

Okay. You have already kind of alluded to this, but on the hedges, I mean, clearly, just looking at the currency curve, you should have negative comparisons through the third quarter. Do you have any sort of hedges in place or anything that might mitigate that, or make it less or more than it otherwise would be?

I am unable to hedge foreign exchange translation, and just that alone will negatively impact Q2 by $5 million and Q3 by a similar amount.

Okay, and then Q4, just assuming foreign exchange rates don't change, Q4 should be better?

Yes, Q4 would be slightly positive. I mean, foreign exchange fluctuates wildly. If the dollar weakens, we will benefit, and if the dollar stays strong, then we will come in much as we just discussed.

Just to quantify, I mean that is a -- it looks like, right now, it is about a $0.20 difference from where you were year-over-year, and you are saying that translates into $5 million on a quarterly basis.

Right. So there is $5 million for Q1, and it's about $5 million for Q2 and about (multiple speakers) --

So that's $0.20 is about $20 million a year now?

Yes.

Great. Thanks.

Chris Dechiario, ISI Capital.

Just a couple of questions -- I guess one of the issues in the fourth quarter and I assume the first quarter was channel shift. You have spoken quite a bit about your ability and your -- going further into private-label, but how about in terms of these new products and new sales? Have you been penetrating new channels? As well I think you talked about a couple of Wal-Mart placements last quarter, and I was just wondering what the progress was on that.

Yes, we are pleased. We reorganized to create a dedicated focus on the mass channel, and we have had two or three wins in that channel. We are actively competing as we speak in that channel, and we feel good about the progress that we've made there.

Is that something that is material to the company this year, or is that something really that is further out?

Again, I think the benefit of the wins that we will have we will see more than 2010. In the mass channel, they react a little bit quicker so we will see a little bit of benefit at the tail end of the third quarter and the beginning of the fourth quarter.

Okay. Also you mentioned you obviously had a large improvement in your supply chain and delivery metrics. I think you had talked about one in particular which was I think on time and accurate, if I remember correctly.

Line on time and complete.

On time and complete, exactly. I'm just trying to get a sense for sort of how much that has improved. Is there still a lot of room left to improve there? Do you pretty much feel like you have done what you can do there?

Honestly, we've made significant improvement. I think all of our strategic customers would say that we are performing, at a minimum, at acceptable levels and in some cases significantly better than that. But we have been muscling it. We got there because we have an absolute focus on delivering our product on time and complete, and we are building back-end processes to enable us to do that on a systemic basis as opposed to just a manpower-driven basis. I think, because of that, we have an opportunity to both improve our performance over time, have it be more sustainable, and, frankly, take cost out.

Great. Okay, thank you.

Justin Sughrue, Apidos Capital.

You show, on Slide 7, $10 million of restructuring. Can you break that out?

Justin, you are fading out. Would you mind repeating that?

Sorry, is this better?

Yes, much.

Can you break out, on Slide 7, the $10 million of restructuring-related charges this quarter?

That is actually cash flow, not charges. The actual charges were about just under $4 million. So, obviously, we came into the year with significant charges that we had taken on the fourth quarter for severance that we have been expensing through the first quarter. So our severance terms are paid out on a monthly basis rather than this lump sum.

Okay, so the $10 million is the cash with a carryover from Q4?

Correct.

But it is still severance-related?

Yes.

Okay. Then can you remind me, on the $30 million to $40 million of expected debt reduction in '09, how that gets paid down or what that relates to?

Our Term Loan A has about a $26 million maturity in the third quarter and the fourth, split between the third and the fourth quarter. So obviously that will receive the prime amount of our debt pay-down. In Q1, we increased the size of our revolver. Obviously, that will get paid down as well as part of the annual cycle of the business.

Okay. Either by $4 million or $14 million, I guess. Okay, thanks.

Ken Bann, Jefferies.

You mentioned that you had been putting in place some additional cost reductions in your international operations. Can you give us some details on that, how much you expect to save in those areas?

Not at this stage, Ken. You know, obviously, there is a need to go through a process in Europe, which is much more legally driven than the processes that you have in the United States. So we have to follow that legal process.

Okay. Can you tell us will it be significant when you're done with the process?

You know, we need to tie our cost base to the levels of demand that they are seeing. The recession in Europe has a time lag effect to that which you've seen in the United States. So we still need to right-size our cost base in Europe and we will be doing that in the current quarter.

Okay. Would it be safe to say, though, that probably this is not something that's going to have a big impact this year but would be more of an impact next year?

No, it will have an impact in Q2 and mainly in Q3 and Q4.

All right. Thank you.

At this time, we have no further questions in queue. I would now like to turn the call back over to Mr. Bob Keller for closing remarks.

I just wanted to say thank you for your time, and we look forward to talking to you next quarter. Thanks, everybody.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day, everyone.