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American Greetings Corp. (NYSE:AM-OLD)

F2Q11 (Qtr End 08/27/2010) Earnings Call

September 29, 2010 9:00 am ET

Executives

Greg Steinberg - Treasurer and Manager, IR

Zev Weiss - CEO

Jeff Weiss - COO

Steve Smith - CFO

Analysts

Jeff Stein - Soleil Securities

Mimi Noel - Sidoti and Company

Philip Lee - First Investors

Operator

Good day and welcome to the American Greetings Corporation second 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.

Gregory Steinberg

Good morning everyone and welcome to our second quarter conference call. I am Greg 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 second quarter of fiscal 2011 this morning. If you do not yet have our second 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'd 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 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?

Zev Weiss

Today I'll cover four main topics. First, I will speak about some of our recent product introductions in support of our product leadership strategy; second, I will give an update on the integration of Recycled Paper Greetings and Papyrus; third, I'll comment on our systems refresh project. And finally, I will speak to our outlook for the balance of fiscal year 2011.

I am pleased with our overall performance for the first half of this year. While we continue to see an erratic recovery in the economy and a defect in our top-line, our team has tightly managed both expenses and our balance sheet which has directly led to health cash flow.

Our cash flow from operations minus capital expenditures of $74 million in the first half gets us more than halfway to our full year cash flow forecast of approximately $125 million. Despite the economic softness, we remain focused on product leadership in our core business.

We have consistently discussed our product innovation this past several quarters in order to underscore thrill at our success. Our team has continued to impress me with their creativity, as they have developed spectacular new products. We believe product leadership, which depends to a large extent on product innovation will keep our retail progress first in the mind of the consumer when they shop for greeting cards.

If the consumer can find the card they like when they need it at the right price, they will remember the location where they had that positive experience and return there when they need cards again. Specifically, product leadership means getting four important variables correct simultaneously; the right card with the right presentation at the right time with the right price.

Daily execution on this strategy in tens of thousands of retail stores is not easy, but that is our challenge and we believe that we succeeding now more than ever.

We have brought innovation into greeting cards through a variety of formats included in paper engineering, interactive technology and the use of multiple sensory items. Let me share with you a few specific examples of products we believe are enhancing the consumer experience.

We have an innovative new greeting card design to simulate an actual guitar. This next generation music greeting features a telescoping birthday card that when pulled extends into a mini guitar. Once fully extended, the music is triggered, and the recipient can enjoy the electric and acoustic versions of Happy Birthday.

My next example is a new line of cards that we call Dance Machine. These cards feature characters with moves sure to put a smile on everyone's face. Combining music and motion in a new way, Dance Machine cards feature bobble head characters that dance along to a festive song. These characters spring to life as soon as the greeting card is opened, revealing mobile arms and legs that move in rhythm to the music.

One last example is a greeting card that allows the user to utilize the sense of touch to control their own birthday greeting. These cards are called Magic Touch. Each one of these cards features a character icon waiting to greet the recipient with their own special greeting.

On opening the card, the character instructs them to touch a spot inside the card in order to trigger the surprise message. As the recipient rubs the area, the character delivers a message that is controlled by the user. For example, one of these cards has a guitar; when you strum the guitar faster, the music plays faster, and if you strum the guitar slower, the music slows down as well. This design provides multiple, interactive experiences for the recipient, all from one card.

We will continue to work hard to surprise and engage the consumer when they shop the greeting card aisle and to help them make meaningful connections with their families and friends.

Let me now shift from the design changes we have made in our new products this year to the larger issue of strategic changes we made to our portfolio last year. As you may recall, we sold our retail store operations and we acquired Papyrus and Recycled Paper Greetings.

The net effect of these three transactions was to enhance our focus on our core greeting card businesses. We acquired these best-in-class product lines as part of our strategy to satisfy the full range of consumer needs in our category which support the product leadership strategy I just spoke about.

Shortly after the transactions were announced, we stated that a key objective with Recycled Paper Greetings and Papyrus was to protect what maintains these products unique, particularly their creative models. And the other objective was to leverage our economies of scale, particularly within our supply chain and back office.

Last quarter we shared with you that we had a combined Recycled Paper Greetings and Papyrus under one name, Papyrus Recycled Greetings or PRG as part of our strategy of keeping their creative efforts separate while leveraging other functions. We also shared with you the significant progress we have accomplished on the integration as we transitioned key supply chain and back office processes onto our platform.

While a large part of the integration work is done, we still have some additional work to complete the project and expect to have it finished by the end of this fiscal year.

Overall, I'm pleased with our progress, and believe by the end of this fiscal year the integration will contribute approximately $20 million of annual operating income and will require cash costs of about $20 million.

As a reminder, we incurred a few million dollars of integration costs last year, and we expect that the vast majority of the remaining integration costs will be incurred this year. In the quarter just ended, we incurred about $5 million of those anticipated integration costs.

In previous years we discussed our multi-year strategy to refresh our information systems. We paused the process approximately 18 months ago while our teams were focused on the sale of the retail store operations as well as the integrations of Recycled Paper Greetings and Papyrus.

Now that a large portion of the integration efforts are complete, we have turned our focus once again to this important systems project to remind you the three primary elements of our information systems refresh are: 1, replacing outdated systems; 2, driving efficiencies within the business; and 3, adding new capabilities.

We will rollout components in a series of phases or waves over a multi-year period that we currently believe will stretch out over five to seven years. We are making investments in our foundational systems and processes in an effort to enable us to continue to execute our product leadership strategy.

This investment means that we will have more capital spending on our information technology systems and we will incur more expenses going forward.

Finally, I would like to switch gears to share some thought about our outlook for the full year. While our earnings in the first half of this year are in line with our own internal expectations, our cash flow has been exceeding our own expectations.

We also recognize that the economy continues to be choppy and we will still have some major holidays in the back half of the year. Taking into account all these factors we still expect our full year cash flow from operations less capital expenditures to be around $125 million.

The $125 million estimate include the modest benefit from a combination of taxes, working capital and deferred costs as well as a reduction in cash flow due to anticipated cash costs associated with the integration efforts.

We still expect our capital expenditure will be around $40 million.

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

Steve Smith

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

Finally, a quick walkthrough of a few key components of our financials. We will then open the line for questions.

Our consolidated revenues were down about $13 million or 3.8% for the last year's second quarter revenue of $356 million. Included in our $353 million of revenue was the adverse effect from foreign exchange of $1 million versus the prior year's second quarter.

Additionally, as a result of the party goods transactions that occurred during last year's fourth fiscal quarter, this year we do not have the benefit of about $10 million of revenue that occurred during last year's second fiscal quarter.

So holding aside both the foreign exchange impact as well as the effect of the party goods transaction revenue was down about $2 million or less that 1%. Our operating income of about $23.5 million was down $15 million compared to the operating income of $38.5 million in the prior year's second quarter.

However, last year's operating income included a benefit of $7 million associated with a legacy insurance program.

In addition, this year we've recognized about $5 million of costs associated with the papyrus and recycled paper greetings integrations. Holding aside the insurance benefit last year and costs associated with the papyrus and RPG integrations, our operating income was down approximately $3 million quarter-on-quarter from a prior period of slightly more than $31 million to a current period of slightly less than $29 million.

Shifting now to review of the reported segments, and how they differ from the prior year's results. Our North American segment's revenues were down about $18 million versus the prior year's second quarter.

Approximately $10 million of the decrease was due to lower sales of our party goods products. This decline was anticipated as part of a party goods transaction we announced this past December. The remainder of the decline was primarily driven by lower sales of gift packaging and other ancillary products.

Our North America segment's earnings were down $9 million versus the prior year. This was driven by a combination of the $5 million of integration costs related to PRG and the lower revenues in the quarter.

Switching now to our International Segment, revenues of about $55 million were essentially flat to the prior year. Segment earnings of $1.4 million were down less than $1 million versus the prior, as we've experienced some inflationary pressure on cost of goods for products we source from third parties internationally.

Our AG Interactive Segment's revenues of $18 million were unchanged compared to the prior year, while segment earnings of $3 million were about $1 million compared to the prior year's second quarter. Both lower back office cost as well as other cost reduction programs drove the earnings improvement.

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 $9.5 million which is up almost $2 million compared to the prior year.

Licensing expenses were about $8 million which is up $1 million compared to last year. So for the second quarter, the company's net licensing effort or revenues less expenses was about $1 million better than the prior year's second quarter.

Now let me move to the third part 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 down about $8 million compared to the last year's second quarter. About one-half of the decline was driven by lower sales volume which resulted primarily from last December's party goods transaction.

In addition, inventory scrap expense was down $2 million, and we had a benefit quarter-on-quarter of about $1 million from foreign exchange. Selling, distribution and marketing expenses were down about $5 million versus the prior year's second quarter. Lower sales volume resulted in lower distribution cost.

The administrative and general expenses were up about $14 million versus the prior year's second quarter. Last year's results included a benefit of $7 million associated with the legacy insurance program. This year's admin and general expense included about $5 million of costs associated with the integrations of recycled paper greetings and papyrus.

Lastly, we had about $2 million of additional stock compensation expense. The next items I will cover is taxes.

Our effective tax rate for the quarter was 49.9% and two items affected the effective tax rate this quarter. Both items were small, but given the low level of pre-tax and comp that traditionally occurs in our second fiscal quarter, these items have a disproportionate effect on our tax rate.

The first item was an audit settlement in a foreign jurisdiction. The second item was the timing of the receipt of certain insurance proceeds which created a difference between the book and cash treatment. We currently forecast our consolidated effective tax rate for the entire 2011 fiscal year to be in the upper 30% range.

Let us now shift gears from a review of the income statement to take brief look at three items within our balance sheet and cash flow statements.

On our balance sheet, inventories decreased by $11 million compared to the prior year. As we have discussed the last few quarters, our team has continued to tightly manage inventories.

Moving to our debt position at the end of the quarter, long term debt decreased by about $100 million from $335 million to $232 million. As we previously announced in June, we refinanced a revolving credit facility and used the cash on our balance sheet to repay the entire outstanding balance under our term loan.

Shifting to our cash flow statement, one item I would to mention is accounts payable and other liabilities, which was an incremental use of $34 million compared to the prior year. As we shared at the end of our last fiscal year, we had accrued additional variable compensation in fiscal 2010 due to our better than anticipated performance.

The accrued variable compensation expense was actually paid during the first quarter of fiscal 2011. In the prior fiscal year we paid below normal levels of variable compensation.

This swing in variable compensation cash payments accounted for the difference in this cash flow item first-half on first-half.

That concludes our prepared comments for today. I would now like to turn the call over to the operator to handle our question and answer period.

Question-and-Answer Session

Operator

(Operator Instructions) We'll go first to Jeff Stein with Soleil Securities.

Jeff Stein - Soleil Securities

A question first on integration expenses. This was the first quarter that you specifically carved out that number. And I am wondering if you could give us the first quarter number as well, and what you would anticipate in the back half of the year.

Steve Smith

Maybe what we could do is, we could start even further back and talk about the full role of the expenses over time. But for the first quarter this year was approximately $3 million dollars, so year-to-date about $8.5 million.

You recall that last quarter when we spoke about this item, we mentioned the fact that on our balance sheet we put on it about a quarter of the total $20 million of estimated one-time costs, so call that about $5 million. And then last fiscal year, we incurred roughly a few million dollars of expense through our P&L.

So we are roughly $15 to $16 million into the $20 million of one-timers related to the integration.

Jeff Stein - Soleil Securities

And if I recall, in the back half of the last year, specifically in the third quarter, you had a fairly substantial incremental variable comp accrual. In addition you had a charge for winding down the Mexican operations. So I'm wondering, number one, do you see any special items such as, and I'm referring more to the Mexican Plant wind down. And then can you also address the issue of the anticipated accrual for variable comp in the back half of the year compared to the prior year?

Zev Weiss

Sure Jeff, I'll take a shot at that one. First of all, we can't know that we would have any special items. If we did, in fact we've have to book them in the quarters which have already occurred. So the first part of your question, the answer is 'no'. We don't anticipate any at this time.

The second part of the question, we booked to our plan as related to variable comp during the course of the year to the extent we're on our plan. And generally we're on it on a number of different metrics. So we're building toward that typical if you will expense figure. And so while I can't give you a number to compare the second half versus last year's second half, it wouldn't be necessarily of the same size.

Jeff Stein - Soleil Securities

And final question, wondering if you could just address the issue, other than the fact that retail sales in general were kind of weak during your second quarter which I presume correlates somewhat to sell-through of greeting cards.

Were there any shifts in terms of wholesale shipments that may have flipped between one quarter and between Q2 and Q3 that may have contributed to your shortfall?

Zev Weiss

Jeff, I don't think that was really the issue in the quarter; I think it was really around traffic. I know sometimes especially around seasons that's an issue for us. And I don't believe there was any of that kind of significantly in the second quarter.

Operator

(Operator Instructions) We'll go next to Mimi Noel with Sidoti & Company.

Mimi Noel - Sidoti and Company

Just have one or two questions. I want to get a little bit more perspective on the admin and general expense. I see that if you compare it to the two-year ago period backing up at $5.2 million, you're about flat and yet revenue for the comparative period is down about 11% to 12%. I would think that there would be some relative improvement over the last two years. Can you shed a little bit of light on that either Zev or Steve?

Zev Weiss

Mimi let me take a shot at, think about it further with my colleagues here. The business model has shifted due to the portfolio changes we've taken particularly with, call it the retail and with the addition of Papyrus and Recycled Paper Greetings.

And so we'd have to go back and think further about how that's rippling through over the two-year horizon, an analysis we haven't got today to answer your question. So top of my head, I can't speak to the specific driver.

Steve Smith

I'll just talk about it from a general perspective. When you look at the revenue, a lot of it is obviously affected by retail. Because of its nature, there is lot of retail associated with it. I think when you look at our admin and general, there are two components to it; there are the salaries, and then there's the additional cost that you may have beyond salaries. From the salary perspective, the one that's changed is the cutback that we went through going back now almost two years or 18 months ago.

And other than that I don't think there have been significant changes. But there were changes that happened then, and I don't believe there's been a whole lot of backfilling from there. So would see a run rate change from a salary perspective, again looking at it from just a high level related to the effect of what happened 18 months to two years ago.

So anything different than that would be incremental expenses that might be non-salary related.

So I don't know if that helped you.

Mimi Noel - Sidoti & Company

It does a little bit. It still raised a question in my mind, but can you give me an example or two of some of those incremental expenses that might have filled in where the salaries came down.

Zev Weiss

I don't have any I mean that we could look into. I'm just thinking about what's changed from a salary perspective and then therefore, if it's equal, the balance has to be from there.

Mimi Noel - Sidoti & Company

And then, I think the only other question I have at this time is probably for Steve. Allowances for doubtful accounts; where would those appear on the balance sheet? Am I overlooking them?

Steve Smith

They don't appear on the face of the balance sheet, Mimi. It's noted against accounts receivable. That detail would be available here in another week or so once we file the Q.

Mimi Noel - Sidoti & Company

Okay. And can you tell me, either through the first quarter of the year or the six month period or maybe generally speaking in fiscal 2010 how the balance has been trending? Have there been any adjustments to it?

Steve Smith

I don't have the specific numbers in front of me, Mimi. We could follow-up.

Mimi Noel - Sidoti & Company

Okay, we'll follow-up at a later time then. That's all I have for now. Thank you.

Operator

We'll take our next question from Philip Lee with First Investors.

Philip Lee - First Investors

I had a question about your free cash flow guidance. You guys talked about a modest benefit from working capital for the year. Could you quantify that a little bit more?

Steve Smith

Phil, we prefer not to get into specific details about it. If you unwinded the balance sheet over the last number of years, you saw substantial benefits coming off the balance sheet from the reduction of receivables, inventories and our deferred costs as well as some pretty big benefits from taxes in the prior year.

And what we have decided to do this year is simply give that general indication that the cash flow number of $125 million is not all from earnings, but again, that there is some benefit from the balance sheet. We prefer not to get into specific details around it though.

Philip Lee - First Investors

I mean, would it be safe to say that modest would be somewhat less than $15 million?

Steve Smith

We'd rather not get that specific in our comments.

Philip Lee - First Investors

In terms of the loss of revenue from Amscan, at what point do you start to see some offsets in the form of cost saves or maybe incremental revenue from a broader party goods offering?

Steve Smith

On the cost savings side, there are a lot of costs associated with it. Probably the biggest component would be related to the facility that we have, and that's still in the process of winding down. Other than that, there aren't a lot of costs associated with it.

And on the revenue side, I think that there are some opportunities, but I think the way the selling processes works, they don't happen immediately, but going out to the marketplace with really a terrific offering that Amscan brings us does provide us for a lot of new business opportunities. It's going to take a little bit of time though before that kicks in.

Philip Lee - First Investors

And then with respect to the PRG Group, you guys mentioned a $20 million kind of run rate benefit once all the charges are done. I mean, does that kind of imply that in your fiscal '12 you are going to see a $20 million increase in your operating income as you get rid of the charges and the accretion starts coming through?

Steve Smith

No, it doesn't because we're picking up some of that operating income benefit this year, although it's ramping from beginning of the year, first quarter, up through the fourth. And so, would be full year incremental 20 year-on-year Philip. It would be a portion of that.

Philip Lee - First Investors

All right. So maybe the charges at least would go away, which might be something in the $10 to $15 million range.

Steve Smith

Right.

Philip Lee - First Investors

Okay. And then lastly, how would you rank your uses of free cash flow? I mean you've got some notes out there, but it's dimly traded, but you could also do some buybacks.

Steve Smith

Yes, I would tell you that first of all in general, we've I think had a pretty conservative view of how we want to approach the balance sheet. We want to have flexibility, and we really look at everything. I mean, we look at organic opportunities, we look at acquisitions, we like having a very conservative, flexible balance sheet as well.

And I think given the way things have transpired in the last 18 months, having some cash on hand also is good from an overall flexibility perspective. And so, I think our stance on that is very consistent with our view in the past.

Philip Lee - First Investors

Does that mean you're not really looking at anything soon in terms of whether it be returning capital to shareholders or debt?

Steve Smith

I think what I'd tell you is we try to look at and keep an open mind in everything and try to have some view of how the future holds. I don't think our view is, we want to have excess cash on the balance sheet, and I don't necessarily want to say what that number is. And we've been very focused on returning cash to shareholders where we thought that we have the cash ready in the bank.

And it made sense that I think we've over the last four or five years done quite a bit of, whether it's through the share buybacks or through the dividend been very focused on that. At the same time, we've through that period I think we've held a very flexible position to act where we think we needed to act.

And I think if you look at the actions that we took both around the retail, but more importantly around Papyrus and around Recycled, it's an example of where having that flexibility helps you act when you think you've got an opportunity to strengthen your product leadership position.

And so, again, I think the overall philosophy is very similar. We're looking at I think very similar to the way we've looked at it in the past. I think the one addition is, we might be a little bit more careful to make sure we've got enough cash on hand in case there's any variability that could happen down the road, just given what's happened in the overall economy over the last couple of years.

Operator

We'll take a follow-up from Jeff Stein with Soleil Securities.

Jeff Stein - Soleil Securities

Question first for Steve. Looking at your segment reporting, you had about an $11 million increase in your non-reportable segment in the segment earnings section. So I'm wondering Steve if you could tell me what that's all about. Did the consolidation (class) fall into that line item, or was there something else?

Steve Smith

The driver of revenue enhancement in our reportable segment is twofold. About 60% to 70% of the improvement there is related to our fixtures business, which is just having a solid year and more demand for the quality product that they are generating. And the balance of the improvement on the revenue side is related to enhanced entertainment revenue for our Strawberry Shortcake property, which has a new TV series out recently.

Jeff Stein - Soleil Securities

Let's look at the segment earnings. Under non-reportable segments, you're showing a sharply higher loss, $25.8 million against $14.2 million under unallocated. So I guess my question is, would the sharp increase in revenue ply a huge increase in the reported loss?

Gregory Steinberg

Within the unallocated, the legacy insurance program was in there last year. So that benefit that we'd received, you press that number a year ago. And then this year, Steve mentioned in his description around the admin and general costs some incremental stock comp expense which is in the current number, and those are the two primary drivers of the delta year-over-year.

Jeff Stein - Soleil Securities

And Zev, you mentioned the $20 million run rate for RPG and Papyrus. If I recall, your last comment or recent comments have been in the $15 to $20 million range. So should we take that to mean that you are becoming more optimistic? You think you are trending towards the higher end of that range on a go-forward basis?

Zev Weiss

Yes, that is correct, Jeff. It's a good pick up and you are correct that that is what we're saying.

Jeff Stein - Soleil Securities

And where is that coming from? Is it revenue driven or expense driven?

Zev Weiss

We're not getting into the details of it. But I think in general on both sides of that equation we're just pleased with what we're seeing and what we think that business can be doing.

Jeff Stein - Soleil Securities

And if you look at RPG and Papyrus, are you seeing a positive year-over-year revenue growth from those two brands? And if so, is it coming from incremental shelf space or is it replacing existing products on the shelf.

Zev Weiss

Jeff, I'm not looking to get into the specifics for the numbers. But just in general if you look at what's happening in that business, I think both those components that you raised are areas where I think there is a lot of strength and then opportunity for the future. The product performance is very well on the shelf.

And because of that we've got a lot of interest from retailers in that product. And it's giving us opportunity to extend market share as a result of it. I mean in both cases there is some real opportunities there.

Jeff Stein - Soleil Securities

And one more question, can you talk a little bit about unit growth relative to pricing in the second quarter. I know that for the greater part of the last decade, we've seen kind of pricing skewed down by the dominance of the dollar store channel? And wondering if you're beginning to see any kind of leveling off of that from benefits from the technology cards and perhaps maturation of the dollar store channel?

Gregory Steinberg

I'm not sure if Zev or Steve want to comment, but we'll have a substantially more detail on that here again in another week or so, Jeff within the 10Q that will breakout that in some pretty good detail for you. I'm just not sure we're ready to get into that this morning.

Operator

(Operator Instructions) We'll go next to (Michael Schecter with Mentor).

Unidentified Analyst

Just a question, the ERP data refresh that you're doing, have those costs started to hit the G&A line?

Greg Steinberg

I'm sorry; you have to repeat that, Michael. I just could not hear you, please?

Unidentified Analyst

The costs that you're incurring for the refresh of your technology, is that starting to hit the G&A line?

Steve Smith

There are some costs, I'm not sure which line item they're hitting. There are some costs in this year. And we're starting to ramp up. And I think we would expect that we're into more detailed implementation that those costs could rise going into next year.

Unidentified Analyst

Can you quantify or give us a range, what we're talking about over say a static expense line?

Steve Smith

We don't even have the plan yet laid out to be able to lay that out for you. I mean that is the work that is happening right now.

Operator

We'll take a follow up from Mimi Noel with Sidoti & Company.

Mimi Noel - Sidoti & Company

Two more questions. Beyond PRG and the acquisition costs rolling off towards the end of this year. Can you talk a little bit more about the long run opportunity for margins in American Greetings?

Zev Weiss

You mean in terms of some of the changes that you would expect to see going forward?

Mimi Noel - Sidoti & Company

Yes, sure. Just if you can give us in more tangible terms of what kind of margin expansion we might see, where those might come from, the magnitude, et cetera; any information.

Zev Weiss

Well, let me speak to you without giving the numbers, because I don't think we've shared anything around where some of the numbers are heading in the future. I think what you will see is from a topline perspective you will see two areas that we're going to be very focused on.

One is from a product leadership perspective, how do we continue to generate steady sales increases from our card business. And I think there is opportunity to do that, both in terms of what we're doing around product leadership within some of the core business. And I think there is also opportunity to be talked about in the PRG businesses.

Separately, interactive is going to be an area that we continue to hope that we can drive some growth in the future. And that's the big topline focus, it's from a cost perceiving perspective we still think there is a lot opportunity to drive cost savings, where in the past some of that may have come from the supply chain we think there is opportunities in some of the processes that we're using to execute.

That's the reason it's part of the systems refresh that we're doing. We think we can become a lot more efficient in that area. And then we're going to continue to focus on yield as an opportunity. And so the hope is that the revenue, the pickup that you get in terms of steady increases in cards and hopefully faster growth on the interactive side combined with the savings should drive some strong margin benefit in cash flow.

Mimi Noel - Sidoti & Company

Okay. The steady increases in sales, hopefully you understand that there is some skepticism out there that something that has evaded you for some time. Can you talk a little bit what things you would point to, to instill more confidence in investors from the perspective that that's really an attainable objective?

Zev Weiss

Well, aside from the confidence we have in the product, I think often people look at what's happening in some of the categories outside of cards as part of our North American segment and distributed to cards. So there has been decline through the areas have been in some of the promotional seasonal wrap business as well as recently in party because of the transaction.

And I think often people just put that into the same group. And therefore assume that there is more challenge in the card business than there really is.

Mimi Noel - Sidoti & Company

And then the last question, really switching gears is, do you have a stated dividend policy or can you give me an update on where the Board stands as far as dividend?

Zev Weiss

Sure. With the help of our treasury staff and others, every spring we will give you an update on our view of the policy as well as the effect of that policy. So as we've done the last two spring conference calls we were expecting, Mimi, that we would discuss that issue with the Board and then bring to the street that the updated view next April or May or whenever the next call is.

Mimi Noel - Sidoti & Company

In the last spring, the update was an increase in the dividend?

Zev Weiss

It was.

Operator

(Operator Instructions) And at this time with no further questions in the queue, I would like to turn the conference back over to Mr. Steinberg for additional closing remarks.

Gregory Steinberg

That concludes the question-answer portion of today's conference call. We look forward to speaking with you again at our fiscal year 2011 third quarter conference call which we expect to occur in December. We thank you for joining us this morning. Thank you.

Operator

This concludes today's conference, we appreciate your participation.

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