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Executives

Zev Weiss – CEO

Steve Smith – CFO

Gregory Steinberg – Director IR

Analysts

Jeff Stein - Soleil Securities

Mimi Noel – Sidoti & Company

Mike Hughes – Delaware Investments

Richard Greenberg – Donald Smith & Company

Jim Davis – Unspecified Company

Lee Atzil – Broadway Gate Capital

Robert Haley - Gabelli

Brian Courville - Mentor Partners

American Greetings Corporation (AM-OLD) Q1 2010 Earnings Call June 24, 2009 9:00 AM ET

Operator

Good day and welcome to the American Greetings Corporation first quarter 2010 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.

Gregory Steinberg

Good morning everyone and welcome to our first quarter conference call. I’m Gregory Steinberg the company’s Treasurer and I help manage our 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 first quarter fiscal 2010 this morning. If you do not yet have our fourth quarter press release you can find a copy within the Investor section of the American Greetings website at www.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 forward-looking statements, please see our Annual Report or our SEC filings. Previous earnings releases as well as our 10-Qs, 10-Ks and Annual Report are available on the Investor 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 Weiss

Thank you Greg and good morning everyone. Today I’ll cover three broad topics. First I will share with you our fiscal 2010 first quarter results, second I will speak about the recent strategic moves we made to strengthen our business model by further focusing on our core business, and third, I will share a few directional comments on our outlook for fiscal year 2010.

Steve will then present more details behind our first quarter performance. I’m very pleased with our first quarter performance as sales of greeting cards held constant despite the economy. If you include the acquisitions we made, our card sales improved more than 6% over the prior period.

And holding aside the charge we recognized for the sale of our retail business, earnings are substantially higher than the first quarter of last year. As many of you know we have spent a lot of time and effort investing in our leadership position in the greeting card category. In addition we have been focused on improving the mix of cards on retailer shelves to meet the consumers’ changing desires.

We believe that we are continuing to see the benefits of our hard work in those investments. Our operating earnings benefited from a combination of both improved yields and last year’s overhead efficiency efforts.

As you may recall in the past few quarters we spoke about our unacceptable sales yield, meaning we had not appropriately calibrated the supply chain for the optimal level of production needed to maximize sales.

We committed to be both more vigilant in managing our supply chain and to lower our overhead. On both commitments the organization delivered, at least for this one quarter. Within the supply chain we handled the volumes more deftly to their shipments, better [master of sales] and therefore our distribution and scrap costs were reduced.

As far as overhead, during our fourth quarter last year we made significant headcount reductions so that in the first quarter a portion of that savings flowed through earnings. While I am encouraged with our progress to date, we have a lot of work ahead of us, both domestically and internationally.

Our international business continues to face a challenging environment. In the United Kingdom for example we are experiencing cases of retailer distress including bankruptcy. This retailer distress puts additional pressure on our international team to try and maintain revenues as well as to reduce costs.

Moving on to our strategic transactions, at the end of last fiscal year we acquired Recycled Paper Greetings or RPG. Then just seven weeks later in mid April, we acquired the Papyrus brand and sold our retail store business. These transactions were part of our multiyear strategy to reinvent the greeting card category and to focus on higher returning business units within our portfolio.

The strategy began with consumer research and [inaudible] segmentation followed by American Greetings new retail fixtures and now the addition of RPG’s and Papyrus’ best in class card offerings. We believe that we can bring together the strengths of the American Greetings, RPG, and Papyrus brands to satisfy the full range of consumer needs to help them connect with friends and loved ones.

The consumer will be able to count on us for a unique mix of fresh and relevant cards. RPG will enhance our ability to deliver witty and topical content printed on recycled paper. Papyrus will help consumers celebrate life’s special moments with modern and elegant designs.

Both RPG and Papyrus have unique creative models used to develop a full range of consumer preferred cards. We believe that these moves position us well for the future. Our goal with RPG and Papyrus is to protect what makes their products unique, particularly their creative models. We have recognized that preserving the essence of RPG and Papyrus does not come without costs. We understand and respect the creative models they use. We intend to keep RPG and Papyrus separate and leverage our economies of scale to benefit the consolidated group over time.

As we previously mentioned for fiscal year 2010 we expect the combination of these three strategic actions to negatively impact revenue by about 2% or $40 million. However exclusive of transaction and transition related costs, which could be meaningful, we expect these strategic actions to modestly benefit operating income this year.

Looking beyond this year we expect to achieve the full benefit of these transactions during the subsequent 12 to 24 months and to be able to realize an annual run rate contribution to operating income of at least $15 million.

Our initial investment into these businesses net of the tax benefits we acquired is roughly $60 million. During our last quarterly call we shared with you some thoughts about our outlook for this fiscal year that we believe are still appropriate. While our first quarter performance was solid, we are still experiencing volatile global economic conditions and we expect the economy to remain challenging at least through the first half of our fiscal year.

While we hope to see improvements later in our fiscal year, our preference is to remain conservative with our estimates until that time. Holding aside the recent transactions, including the acquisitions of RPG and Papyrus, and the divestiture of our retail store operations, we expect a decline in net revenue this year of roughly 5% driven principally by the continued decline in our non-card product lines particularly gift packaging.

Despite a revenue decline on a consolidated basis, we anticipate our margins to benefit both from cost reduction efforts taken during the last year’s fourth fiscal quarter as well as from continued focus on reducing supply chain costs including ongoing efforts to improve sell through yield in greeting cards.

As a result of tightened controls on operating and capital expenses, we are targeting a significant improvement in cash flow when compared to fiscal 2009. We estimate cash flow from operations after capital expenditures should exceed $70 million. This estimate assumes capital expenditures of about $35 to $45 million this year.

I should also note that this cash flow target does not include funds deployed to integrate and strengthen RPG and Papyrus and to transition the retail store operations to Schurman. While I am pleased with the first quarter, we still have a lot of work ahead of us, as our team is working hard on both driving improved margins in the core business during a difficult economic time and integrating two businesses in RPG and Papyrus.

Now let me turn the call over Steve who will provide a detailed review of the quarter and then we’ll take your questions.

Steve Smith

Thanks Zev, I have three components to my prepared remarks today. I will start with some comments on a few large items that impacted our consolidated results this quarter, 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.

As many of you know we acquired Recycled Paper Greetings, or RPG, at the end of our 2009 fourth fiscal quarter. Then during our 2010 first fiscal quarter we sold our retail operations business and acquired the Papyrus brand and its related wholesale distribution.

Results of RPG and Papyrus are included in our North American social expression segment. Our consolidated revenue was down $15 million from last year’s first quarter or 3.6%. However included in our $413 million of revenue was the adverse impact from foreign exchange of $24 million versus the prior year’s first quarter.

So, holding aside the foreign exchange impact, revenue was up about $9 million which is slightly above 2%. I would note that the revenue loss due to the divestiture of the retail business was essentially offset by the revenue additions from the RPG and Papyrus acquisitions.

Our operating income of $22.6 million was up slightly over the operating income of $22.2 million in the prior year’s first quarter. However this year’s results included a preliminary charge of just over $28 million associated with a non-cash loss on the disposition of our retail operations.

Holding aside the loss on our retail operations, our operating income improved about $29 million versus the prior. Recall that the prior year’s first quarter included a $10 million drag on earnings from the rollout of our Canadian product line.

So, net of the current year loss on the sale and the prior year Canadian line conversion costs, our consolidated operating income improved by approximately $19 million. This positive [variance] from $19 million is best explained at the segment level.

So let me shift to the second component of my prepared remarks which will be a review of the reported segments and how they differ from the prior year’s results. Our North American segments revenues were up about $34 million or 12% versus the prior year’s first quarter. The revenue increase was primarily driven by the benefit of $29 million of RPG and Papyrus revenues which we did not have last year.

The remaining $5 million was the result of improved card sales partially offset by lower sales from our non-card product lines particularly our gift packaging and party goods lines. Our North American segments earnings were up $32 million versus the prior year. The improvement was driven by the improved product mix shift toward cards, improved yield, and the realization of the cost reduction initiatives put in place near the end of last year.

In addition, as I mentioned the prior year’s first quarter included a $10 million drag on earnings from the introduction of a new Canadian product line. Switching now to our international segment, revenues were $47 million which is down $1 million versus the prior year. Segment earnings were down just over $1 million quarter on quarter, principally driven by the lower revenues particularly in everyday cards, and increased bad debt expense as we continue to face challenging economic conditions particularly in the United Kingdom.

As you may recall at the end of last year’s third fiscal quarter we lost a major customer within this segment due to the equivalent of bankruptcy. We anticipate this customer’s loss along with the general economic conditions in the UK will continue to put downward pressure on our international revenues for at least the balance of this fiscal.

Let me now move from the social expressions segments to our retail stores segment, as Zev mentioned about midway through our first quarter we sold our retail stores to another specialty greeting card company. Therefore we reported about $12 million of revenue for the portion of the quarter during which we still owned the retail store business.

Segment earnings included the preliminary $28 million non-cash loss on the sale of the business as well as the loss from operations for the seven weeks we owned the stores. The $28 million loss may be adjusted as we complete the fair value analysis required for financial reporting purposes.

Switching segments again, for the quarter our AG interactive segments revenues of $19 million were down $1 million versus the prior year. Advertising revenue continues to be depressed under current market conditions. Segment earnings were up about $3 million. A portion of the improvement is related to the cost reduction efforts taken last year with a balance of the improvement related to less intangible asset amortization. There was an impairment of intangible assets in this segment during the last 12 months.

Let me shift from the segment analysis to briefly comment on the status of our licensing performance. Licensing revenue for the quarter which is reported on our income statement as other revenue, was about $3.6 million which is an increase of almost $1 million versus the prior year.

Licensing expenses were about $5 million compared to $6 million last year. So for the first quarter the company’s net licensing revenue effort, or revenues less expenses, was about $1.5 million better than the prior year’s first quarter.

Let me move to the third component of my comments today, a review of several of the key components of our financial statements. The company’s manufacturing labor and other production costs were or MLOPC, were down about $26 million compared to last year’s first quarter. While almost one half of our MLOPC improvement was from foreign exchange, we also benefited from efficiencies as a result of improved yield, product mix, and lower scrap costs compared to last year.

Our supply chain is running more smoothly as we redoubled our efforts to reduce excess volumes in the system. Selling, distribution, and marketing costs were down about $19 million versus the prior year’s first quarter. About one half of the reduction of our selling, distribution, and marketing costs was related to favorable foreign exchange.

The balance of the reduction was the result of the transaction to exit our retail store business. The administrative and general expenses were essentially flat versus the prior year’s first quarter. This outcome was in part due to lower expenses on our information technology as we have substantially slowed our efforts to refresh our information technology systems as we are now very focused on the integration of our RPG and Papyrus.

Partially offsetting these savings was an increase in bad debt expense related to troubled retailers within our international group. Moving down the income statement, the next item I will address is tax. Our effective tax rate for the quarter was 41.2%.

As a result of our reported pre-tax income being relatively small this quarter, minor changes to the tax assets and reserves can have a disproportionate impact on the corporation’s effective tax rate. As we had minor changes of under $1 million in reserves during the quarter, our ETR moved up to slightly over 41%.

Let me now shift gears from the review of the income statement to take a brief look at our balance sheet. On our balance sheet accounts receivable were about $51 million higher than the prior year. About one third of the increase is related to the acquisitions of RPG and Papyrus while the balance of the increase was primarily related to the improved sell through in greeting cards and therefore fewer returns or credits to accounts receivable.

Inventories decreased by $30 million compared to the prior year. This decrease was the direct result of the sale of our retail store operations. Our net deferred cost decreased about $27 million from about $337 million a year ago, to about $310 million at the end of the first quarter.

The four line items of our deferred costs on our balance sheet at the end of the first quarter were: prepaid expenses of $100 million; other assets of $266 million; other current liabilities of $53 million; and other liabilities of $3 million.

The last item I would like to comment on is accounts payable. Accounts payable were down about $25 million at the end of the quarter compared to the prior year. About one half of the reduction is a result of lower spending. The balance is simply timing of some of our payments.

So that concludes our prepared comments for today, we are now ready for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Jeff Stein - Soleil Securities

Jeff Stein - Soleil Securities

Great quarter, all things considered, great quarter. A question regarding your integration expenses on RPG and Papyrus, you didn’t specifically address that. It seems that most of that swing on the other expense line was related to the loss on the sale of the retail operations, can you talk about the magnitude of integration expenses and what may lie ahead for the balance of the current fiscal year.

Zev Weiss

You’re not going to see much in the first quarter as it relates to the integration costs. It will come clearly within the back half of this year and it may also come into next year. We’re not yet prepared to talk about what those look like, when exactly they’ll happen or what the size is. The teams are pretty actively working on their plans and so there’s nothing we can share yet.

Jeff Stein - Soleil Securities

Have you baked that into your guidance on free cash flow for the year.

Zev Weiss

There hasn’t been any of the effect of the transactions on the guidance of the free cash flow.

Jeff Stein - Soleil Securities

And can you talk a little bit about what’s going on in the greeting card business in terms of your comp door sales. It sounds like your wholesale business excluding acquisitions was relatively flat if I’m reading it correctly and could you comment on what channels are the strongest and what channels are showing the weakest increases at this point, or decreases.

Zev Weiss

What I would say in general is that we had a pretty solid quarter as it relates to card sales and in light of what’s happening in general with retail we felt pretty good about that. I wouldn’t get into specifics around channels. Obviously we are affected by traffic and so if you look at in general what’s happening with comp store sales, often you’ll see some correlation to what’s going on with comp store sales and traffic and therefore traffic and then card sales.

And that’s probably the best guide that you might want to use as you look at what’s happening in general.

Steve Smith

We are seeing geographically more strength in the North American market then we are seeing internationally particularly over in the UK.

Jeff Stein - Soleil Securities

If you could talk about the issue of scrappage, in reading through the 10-K it looks like your scrappage was up about $19 million year on year, and you did call that out in first quarter as being an area of improvement and I’m wondering are you targeting any specific dollar level of improvement year on year that we may look for to be a favorable swing in the model this year.

Zev Weiss

What we’re doing is, scrappage comes from a lot of different areas so it’s not just from one area and what we do is we’ve obviously been very specific with the organization by area of what they need to do and for the first quarter they’ve been following through on that.

But it’s nothing that we’re aggregating and then sharing publicly in terms of a line item for the plan for this year.

Jeff Stein - Soleil Securities

And can you talk a little bit about, you mentioned also about supply chain improvements, is there anything from a system standpoint that you’re doing to better manage and match supply relative to demand or is it just more of an execution issue or has it been an execution issue that you’re just addressing more closely at this point.

Zev Weiss

It’s mostly execution, there is some system support in what we’re doing. But I would think its more execution oriented then systems oriented.

Operator

Your next question comes from the line of Mimi Noel – Sidoti & Company

Mimi Noel – Sidoti & Company

Following up on Jeff’s question regarding channel strength, weaknesses, etc. what kind of break up there, how are your margins across all channels. Are they fairly consistent or should we take some sort of migration into consideration when making margin assumptions in our model.

Zev Weiss

It’s a good question but we don’t get into that in terms of from a public perspective and so it’s not something that we’re looking to share.

Mimi Noel – Sidoti & Company

Okay and nothing along qualitative feedback either.

Zev Weiss

It’s just not the kind of thing we’re looking to share in this kind of a forum. It is a good question and obviously these kinds of things do matter, but nothing that we’re looking to share.

Operator

Your next question comes from the line of Mike Hughes – Delaware Investments

Mike Hughes – Delaware Investments

I was just wondering if you could expand on your comments on the year over year growth in AR, I think you said about two thirds was from improved sell through so there were fewer sales credits, so does that actually improve the gross margins, meaning is it possible that the large portion of the year over year earnings growth in the expressions business was because of the sales credit number was reduced.

Steve Smith

No, that would not imply that. Just a little context for you on AR versus prior periods, in particular two and three years ago just to elaborate a bit. First if you look at AR in an absolute level versus two or three years ago, right in line and if you look at this year’s performance versus prior, it’s more of a reflection of allowances in prior year due to some returns then it is performance this fiscal first quarter.

Mike Hughes – Delaware Investments

The sales credit at a lower level does not help the margins.

Steve Smith

No, not at this time.

Mike Hughes – Delaware Investments

Can you just walk through how the accounting works for the sales credit, maybe I don’t think I follow how it works.

Steve Smith

Sure we’d be glad to do that with you if you’d like offline.

Operator

Your next question is a follow-up from the line of Jeff Stein - Soleil Securities

Jeff Stein - Soleil Securities

Question on the tax benefits from the RPG transaction, given the 41% rate in the first quarter doesn’t look like much if any of that tax benefit flowed through, is that correct and can you talk about how much of that tax benefit may flow through this year.

Steve Smith

You’re correct in your assumption on the first quarter, there will be some. We discussed last quarter that there would be some benefit, tax benefit attributed to fiscal 2010 due to the transaction. We said it was a fairly small amount and it will be likely still to be a small amount.

It’s spread out over a number of years, more than half a dozen, as a result of the way that we treat the benefits but it’s not a significant number first quarter or in this fiscal year.

Jeff Stein - Soleil Securities

Looking at your greeting card sales, can you talk about price growth and unit growth during the quarter, it sounds like based on your last quarter’s comments there was kind of a barbell effect. You’re adding more technology cards on the high end, there’s growth in the dollar stores on the low end and the two about neutralized the other, if that’s still the case as you look at Q1.

Zev Weiss

It is, very high level because we’ll be giving some of this information in our Q which we file in about a week, right after the fourth. What you’re seeing in overall, this is globally, you’re seeing the total dollars in cards roughly flat despite the weakness in the economy. You’re seeing pieces as we did last year down slightly with price mix up, price mix up fundamentally the result of the barbell effect that you spoke to.

Jeff Stein - Soleil Securities

And with regard to the share count, your shares dropped year on year because of the buyback, what was the actual share count at the end of the quarter.

Gregory Steinberg

It was about 39.5 million.

Jeff Stein - Soleil Securities

So that is the average, so the actual is also about the same.

Gregory Steinberg

Yes it is. The actual is just a shade under the average for the quarter.

Jeff Stein - Soleil Securities

And I noticed in doing some store checks that you, at least it seems like you’re coming out with some expanded lines of your tech cards, there were some talking character cards that I noticed on an end cap in one of the drugstore chains you serve, is this something that, is it more than just a test or is this a new line that’s being rolled out across the business.

Zev Weiss

I think we talked about, at the last call that there’s a whole bunch of innovation product that you’re going to see coming out and its going to be more than just music and what you’re seeing for the summer program which is a number of different new products, that we are very excited about and that follows what we did for Father’s Day, actually there were a number of new products in the Father’s Day set that we were very excited about.

And it’s just part of what we’re doing in terms of creating the innovative product and some of the investments that we’ve made in innovative product that we’ve been speaking about. So it’s just a continuation of what we’ve been talking about and what you’ll be seeing in the future.

Jeff Stein - Soleil Securities

And would it be fair to say that most of this innovation is going to be coming in the technology card segment.

Zev Weiss

It’s going to be all over the place. It won’t just be in technology. It’ll be in, both from content perspective and formats and some of those formats include technology and some of them do not.

Jeff Stein - Soleil Securities

You addressed some credit quality issues in the UK, are you noticing any uptick in credit quality issues domestically.

Zev Weiss

I think in general people feel better domestically then they did maybe three months ago or six months ago, but it’s so hard to know until you get through things. So it feels better but I think we’ll know more in the next three, six or nine months.

Operator

Your next question comes from the line of Richard Greenberg – Donald Smith & Company

Richard Greenberg – Donald Smith & Company

I was wondering if you could prioritize the $70 million of free cash flow. I know you may not want to be too specific but just in general, do you think that’s going to be used more for investing in the business, for stock buyback, possible debt reduction, where do acquisitions, future acquisitions fit, just a general discussion of the use of that money.

Zev Weiss

We haven’t shared anything in terms of the direction that we’re going with that so I think we’ll apply the same philosophy that we’ve done historically which is we’ll look at all of our options, whether it’s making some strategic bets and obviously we just made a number of them so that’s been a very aggressive thing for us.

So we’re going to be thoughtful about what we might do going forward but we’ll look at strategic bets in terms of acquisitions and then we’ll look at either returning cash to shareholders, whether that’s in buybacks or dividends, or reducing debt.

And I think at this point we’re very early in the year so it’s hard to make those calls before the money comes in but then when it does, I think we’ll have to look at all of our choices and then figure out what we think is the best thing to do and then we’ll do that.

But we haven’t shared anything beyond that.

Richard Greenberg – Donald Smith & Company

You’ve clearly leveraged up the company substantially more than a couple of years ago. You’re at over $400 million in debt right now, how do you feel about that. Are you comfortable with that level of debt or would you like to start to bring it down again.

Zev Weiss

I think we’re comfortable with the current level of debt. In general our philosophy from a debt perspective has been to be relatively conservative and I don’t think our philosophy has changed. And so some of that debt is the result of some of the moves that we made in the last 12 months and so we’ll see how things play out.

It’s not that we’re uncomfortable with where we’re at, but in general we like to be conservative.

Operator

Your next question comes from the line of Jim Davis – Unspecified Company

Jim Davis – Unspecified Company

Just a short follow-up on the accounts receivable, and yield and scrap issues that you talked about, how do you feel about the just the sustainability of this level of scrap and yield in your business and is there still much room for improvement here or is it operating at a pretty optimal level right now.

Zev Weiss

It’s only been a quarter, so it’s hard to say. I don’t feel like we’re operating at an unsustainable level. I think that this is something that we should be able to sustain and improve upon as we go forward.

Jim Davis – Unspecified Company

And if, do you have any context on relative to the pretty giant leap you took this quarter, how much room for improvement there may be in coming periods.

Zev Weiss

I think if you look at the way we’ve operated historically, go back a number of years, we’re not doing anything now that’s unusual for with the way we’ve operated historically. And there’s still room for improvement and still be within the range of the way we’ve operated historically. So it just tells you that this is sustainable, it should be sustainable, and it should be able to be improved upon.

Operator

Your next question comes from the line of Lee Atzil – Broadway Gate Capital

Lee Atzil – Broadway Gate Capital

First I’m sorry to focus on this, maybe I would hope this is appropriate for here for this call, but the receivable issue something I’m not clear on, generally speaking as you move to more scanned based trading, shouldn’t receivables decline over time.

Steve Smith

Yes, that’s correct. They would typically decline over time. Again back to the earlier question, let’s try to help illuminate that a bit more, if the total shipments are down and our credits were down [inaudible] the net effect of that is basically zero on the P&L in the quarter and so that’s the point of focus really ought to be prior years other than last year’s first fiscal and comparing this year’s first 2010 to 2008 and 2007.

If you look back at that you’ll see a fairly normal pattern.

Lee Atzil – Broadway Gate Capital

And of the $70 million free cash flow which is a great number for this year, what would be the tax benefit. I see this quarter deferred tax was I think $17 million or so benefit, what do you expect the tax benefit to be.

Steve Smith

We typically don’t get into forecasting taxes as far as benefits. And again back to the earlier question we have very little tax benefits associated if you’re thinking with the transactions in this quarter.

Lee Atzil – Broadway Gate Capital

As you build up the $70 million you obviously have an assumption there for, I’m just wondering if is it a significant number, an insignificant number or maybe a drag, deferred tax, your expectation is part of the free cash flow this year.

Steve Smith

We used our normalized effective tax rate in the buildup of that $70 million. There was no extra assumptions for that, to get to that $70 million figure.

Lee Atzil – Broadway Gate Capital

You’re assuming no benefit from deferred taxes this year, for free cash flow.

Steve Smith

To get to that $70 million, it’s about our effective tax, average effective tax rate.

Lee Atzil – Broadway Gate Capital

As we try to model your business going forward there is significant change both from selling, getting out of a lower margin retail business, and also the two acquisitions, RPG and Papyrus, how we can thing of margins in the next three years. Obviously should be higher than where they are now, is there a way to think about what levels they are or is Papyrus, RPG, are they higher margin, same margin, as your North American social expressions. Any way to think about that.

Zev Weiss

I think the best way to look at it is to look at what we shared as the run rate impact on operating income of the two transactions which we said in the my script, we said that that was an improvement of $15 million and then you could add to that what you may have modeled the performance of retail and then I think that’s probably the best way to look at it going forward.

Lee Atzil – Broadway Gate Capital

And in terms of, so its $50 million of income, what would be the revenue normalized impact from these two transactions.

Zev Weiss

So what we said was the combination of the two of the additions of RPG and Papyrus and then subtract out retail, was a net reduction of sales of about $40 million.

Lee Atzil – Broadway Gate Capital

But excluding retail, because you talked about a normalized $15 million contribution from these two acquisitions, so what would be the revenue contribution of these.

Zev Weiss

It would tell you the revenue contribution of the two is around $120 million.

Operator

Your next question comes from the line of Robert Haley - Gabelli

Robert Haley - Gabelli

Just following up on that with RPG and Papyrus, over time what is the opportunity to increase distribution of those through your system and grow the top line.

Zev Weiss

Obviously when we looked at these acquisitions we felt like on the one hand they were savings but perhaps even more importantly there was opportunities to grow the top line. And so it’s something that we are very focused on and hopeful for as we look forward.

So I think you’re hitting on something that we agree with. These are very powerful and strong brands and they’ve got the opportunity to be extended in the marketplace.

Robert Haley - Gabelli

Is it fair to say that in the short-term you’re more focused on costs and longer-term the focus would shift increasingly to distribution and top line.

Zev Weiss

No I think it’s actually equal in terms of the focus. We don’t forecast a lot of revenue increases so it’s not the kind of thing that we would give you in terms of, here’s what we would expect and I would consider that to be upside. In terms of how we’re executing I’d say we’re very focused on both and we remain very focused on the product line and on the consumer and on our customers to make sure we’re growing sales.

Steve Smith

You can see we’re focused on both, the effect of the effort is for visible sooner with our efforts on synergies. The revenue side of it comes at a later date.

Robert Haley - Gabelli

With your outlook for the full year, down 2% on the core business, what’s the currency impact you’re baking in there.

Steve Smith

For the full year we haven’t forecasted currency impact.

Robert Haley - Gabelli

Is there any update you can give on the Strawberry Shortcake Care Bears IPs.

Zev Weiss

There really is no updates, I mean we continue to be in litigation and we’re not looking to comment on that litigation in this forum.

Operator

Your next questions comes from the line of Brian Courville - Mentor Partners

Brian Courville - Mentor Partners

Did you buyback any debt in the quarter.

Steve Smith

No we did not.

Brian Courville - Mentor Partners

Were you offered any in [past].

Steve Smith

We can’t comment on the efforts behind the scenes.

Operator

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Gregory Steinberg

That does conclude the question-and-answer portion of our conference call today. We look forward to speaking with you again at our second quarter fiscal 2010 earnings conference call which is anticipated to occur in late September. We thank you for joining us this morning and that concludes today’s call.

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Source: American Greetings Corporation F1Q10 (Qtr End 05/29/09) Earnings Call Transcript
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