Good day, and welcome to the American Greetings Corporation Fourth Quarter Fiscal 2011 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Gregory Steinberg. Please go ahead, sir.

Thank you, Alisha. Good morning, everyone, and welcome to our fourth quarter conference call. I'm Greg Steinberg, the company's Treasurer and Help Manager, Investor Relations. Joining me today on the call are Zev Weiss, our CEO; Jeff Weiss, our COO; and Steve Smith, our CFO. We released our earnings for the fourth quarter fiscal 2011 this morning. If you do not yet have our fourth quarter press release, you can find a copy within the Investors section of the American Greetings website at investors.americangreetings.com. As you may expect, some of our comments today include statements about projections for the future. Those projections involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. We cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forward-looking statements. If you would like more information on our risks involved in the forward-looking statements, please see our annual report or our SEC filings. Previous earnings releases as well as our 10-Ks, 10-Qs and annual report are available on the Investors section of the American Greetings website. We will now proceed with comments from both our CEO and CFO, followed by a question-and-answer session. Zev?

Thank you, Greg, and good morning, everyone. First of all, I would like to share with you how pleased I am with our overall performance this year. Our business is running well. Our financial results exceeded our expectations and the team had a great performance in the otherwise challenging year. Today, I would like to discuss both the product leadership initiatives and the completed integration of Papyrus and Recycled Paper Greetings, and then move to some comments about our outlook for our fiscal year 2012. Steve will then share some details on our fourth quarter and fiscal year 2011 performance. Let me start with a product leadership initiative. The foundation for our product leadership strategy is based on continuous research. That research and our experience tells us that cards are important to consumers. They are relevant to how women connect with each other, and it is our goal to ensure that we keep our products on trend in order to meet consumer's ongoing needs. Research also supports our belief and confidence that greeting cards will continue to be used to help people connect with each other and recognize life's special moments. Looking back at history, our predecessors likely wondered if the increase in the price of postage stamps will cause greeting cards to go away, but it didn't. Of this probably also thought that with the advent of inexpensive long-distance phone calls, people would call each other on special occasions and stop sending cards, but that didn't happen either. And there came the development of the electronic greetings that could be sent over the internet. But again, that new technology did not stop the sending of paper greeting cards. What we have seen is that consumers are using technology in an ever-increasing way of connecting with their families and friends.…

Thanks, Jeff. I have three components to my prepared remarks for today. I will start with comments on a few large items that impacted both our consolidated results this quarter and also the full year. Then I will share a review of our reported segments. Finally, a quick walk-through a few key components of our financials. We will then open the line for questions. Our fourth quarter operating income of $40 million was about $4 million better than the operating income of $36 million in the prior year's fourth quarter. However, there are number of items that affected both last year's and this year's operating income. Let me show those items and then summarize the net effect. As a reminder, last year's fourth quarter operating income, included a $19 million charge related to the settlement of a lawsuit, charges of $12 million associated with the distribution model changes made in our Mexican operations, and severance charges of about $6 million due primarily to the closure of our party goods manufacturing facility. Partially offsetting those three items last year was a $21 million net benefit related to the party goods transaction and a $3 million benefit related to the liquidation of our Interactive business in France. Holding aside those items, operating income for last year's fourth fiscal quarter was approximately $49 million. During this year's fourth quarter, we had a few larger items that affected our operating income that I would like to call out. First, we had scan-based trading conversions that negatively affected operating income by $6 million. Second, we incurred severance costs of about $4 million. Third, we have costs associated with the integrations of Recycled Paper Greetings and Papyrus that negatively impacted operating income by about $1 million. Holding aside these items, operating income for this year's fourth…

[Operator Instructions] We'll take our first question from Jeff Stein from Soleil Securities.

A couple of questions for you. Wondering if you could just talk a little bit about your guidance on cash flow. So it looks on the surface, almost looks like -- almost [indiscernible] earnings. Kind of wondering what the components of the cash flow from operations number are? I know you don't disclose that specifically. But if you could just kind of talk us through the elements of the cash flow from operations including deferred costs, working capital, depreciation and how do you see those factors relative to the prior year?

Okay, Jeff, so let me try to address the components of your question and we may not be able to address each element. As we said in our prepared comments, we're expecting $80 million to $100 million of cash flow from operations minus CapEx. We are guiding to $45 million to $50 million of CapEx for the fiscal year. And therefore, cash flow from operations of about $130 million. We're saying...

$125 million to $145 million.

Thanks, Greg. And we're saying that on our balance sheet to your question, we're expecting a modest use amongst all of those categories you listed, working capital, deferred costs add backs, as well as taxes. So we're saying, a $5 million -- a modest use $5 million, $10 million, $15 million of cash flow for those items.

And could you go through those again? So working capital, deferred cost and what was the third?

And taxes. The combination of all three is a modest use for fiscal '12.

And maybe between the three of those, I mean, would it be $30 million if you kind of use the midpoint of maybe $5 million to $15 million for each of those? Would that...

No. We're speaking to the average when we say a modest use for all three. So it's $5 million to $15 million in that group of items. All three of them, combined.

Okay. All right. So for the new fiscal year, I mean basically, you're integration costs from RPG and Papyrus, essentially fall away and consequently, that -- those two businesses should become accretive in the current fiscal year. Is that kind of still the outlook?

We haven't specifically spoken to that business unit's performance year-on-year in our forecast. Let me help you with what I think you're thinking about, which is incremental costs in fiscal '12 versus the incremental costs in fiscal '11. We have in fiscal '12 costs associated with rollout for -- continuation of rollout cost for new customer space and additional systems refresh efforts. And we can speak to that if you'd like, but the cost of integration associated with Recycled Paper Greetings and Papyrus are fundamentally done.

Okay. Great. So could you address the issue of rollout costs and systems refreshing? And also if you could address in the fourth quarter, you guys filed an 8-K back during the 1st week of January where you indicated that there were going to be some additional costs with regard to taking on some new doors in the value channel distribution. And it seems like some of those costs, I mean, are some of those cost rolling over into the new fiscal year and were there any other costs besides the scan-based trading charge that you took in the fourth quarter that would have been perhaps booked but not called out in the fourth quarter?

No, I believe you recaptured the costs associated with the rollout in our scripts. We've said it was going to be in the $7 million to $9 million range, inclusive of the scan-based trading, which was a $5.5 million in the quarter. And so therefore, we had another $4 million-ish of non-scan-based trading costs, some of which will be recurring. And the rollout cost for fiscal '12, in addition to the systems refresh efforts, so, Jeff, we're combining both, we're not giving a specific line item guidance. Those two items will be in the neighborhood of $15 million of incremental expense in fiscal '12 over fiscal '11.

So that's for systems and additional rollout cost?

Yes.

And that's a pretax number?

Yes, both.

Got it. Okay, and could you talk a little bit about Watermark and kind of where that fits in to the grand scheme of things? Is that business -- did you buy that business. I mean is that business expected to be accretive in the current fiscal year? And can you talk a little bit about kind of the characteristics of the business from a margin standpoint?

Well, why don't I just talk in general about business and that'll probably cover it. I mean the business is primarily greeting cards. And I'd say very similar to some of the discussions that we've had with Papyrus and Recycled Paper Greetings, where there is a creative component to that business that is integral to that business that we will continue to look to grow and build upon. And so they offer a very unique look in the marketplace and one that's valued by its customers and one that we're looking to retain and build upon in the future. At the same time, it's primarily greeting cards. And I would view it very similar to the way we booked at the acquisitions that we made with Papyrus and Recycled Paper.

Got it. Got it. Okay. And are you expecting that business to be accretive?

So, Jeff, we can comment that -- a couple of things first. We do expect it to be. We have -- you shall see in our K, which will be filed later this week and then in the Q, which will be filed, the first quarter Q, which will be filed later. Our subsequent event, you'll see, we talked about the purchase price and you'll see that net of cash acquired. This is a purchase price that's approximately $10 million. And you'll see that the margin profile associated with this. So you won't see this but you can imply it, is similar to our International segment. And so you'll see that when you do the math that we paid a few times trailing EBIT for this business.

Got it. All right. So it looks like it's a fairly good deal for you. On the PhotoWorks, I'm just kind of curious because I received an e-mail from PhotoWorks that said my photos are going to be transferred over to Shutterfly. And I was just kind of curious. You guys also own Webshots. Why would you not have those photos transferred to Webshots or are you intending to get rid of Webshots at some point?

Now I look at the businesses around and the whole photo storage around Webshots and PhotoWorks as different. And our feeling was the best thing that we can do for the PhotoWorks customers was to make the transition that you shared. Webshots is very different. The nature of the business is different. And so we didn't feel the need to do the same thing with Webshots that we did with PhotoWorks. And at this time, we are very comfortable with running that business.

Is that business making money? And what, I guess, what are your plans for it on a go-forward basis?

We don't break out the components of Webshots. But, overall, our goal is going to be to continue to build on what that site does well and that is to share photos in a very broad way. So very different than what PhotoWorks was, which is a very personal photo site. And we've seen that consumers still are very pleased with that site and we hope to continue to grow it in the future.

Okay. And is there going to be any charges taken in association with the dismantling or discontinuance of PhotoWorks?

No, Jeff. If we were take a charge, we would already have to do so, and we can't predict future charges.

Got it, okay. Now you did write off, I recall, this may go back a year or two but you took a fairly large impairment charge in your AG Interactive position, would you expound value of PhotoWorks to nothing at that point in time?

I recall the impairment charge, Jeff. Do you recall, Greg, what that was a part of it? I don't remember.

Yes. Jeff, at that point in time, we essentially look at different businesses within that AG Interactive segment and as you may recall, at that time the markets were really out of sorts and based on the analysis we did, we impaired essentially all of the goodwill at that point in time that covered a variety of different businesses within AG Interactive or product line and yes it did include the PhotoWorks business at that time.

Got it. Okay. And one more question and I'll turn it over. The organic growth that you're expecting, so if revenues are going to be up 5%, 2.5% comes from Watermark. The other 2.5%, would that primarily be coming from the new doors that you alluded to in your 8-K filing in January? Or do you see comp store growth so to speak being positive this year?

We see it as a combination of door growth, as well as comp store growth. And it's going to be with a contribution from both of those that will get that revenue growth.

[Operator Instructions] At this time, we have no further questions in the queue. I would like to turn the call back over to Mr. Steinberg for any closing comments.

Thank you, Alisha. That concludes the question-and-answer portion of today's conference call. We look forward to speaking with you again in our first -- excuse me, at our fiscal first quarter conference call for 2012 in late June. We thank you for joining us this morning, and that ends today's call.

That does conclude today's conference. We thank you for your participation.