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American Greetings (NYSE:AM-OLD)

Q4 2011 Earnings Call

April 28, 2011 9:00 am ET

Executives

Stephen Smith - Chief Financial Officer and Senior Vice President

Zev Weiss - Chief Executive Officer, Director and Member of Executive Committee

Gregory Steinberg - Director of Investor Relations and Treasurer

Analysts

Jeffery Stein - Soleil Securities Group, Inc.

Operator

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.

Gregory Steinberg

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?

Zev Weiss

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. However, as consumers are inundated with e-mails, text messages and posts that are often quick and informal, we feel a real opportunity to help them connect in a more meaningful way.

Recognizing the changes in consumer's communication patterns, as well as the opportunities that result from those trends, we have established what we believe to be the industry-leading portfolio of products. Over the last two years, we have taken several leaps forward to create, develop and provide products that help consumers say what they might otherwise have trouble saying themselves.

We added upscale products like Papyrus and humorous products like Recycled Paper Greetings. Internally, we enhanced our creative resources to develop even more exceptional artwork, color palettes and editorial sentiments that really help people connect emotionally.

Our creative team has also internally developed the technology-enabled greeting cards we have discussed with you through our past several conference calls. As a result of our big-risk effort to be the industry leader, retailers have taken notice. Retailers are asking us how to get our products into their stores. We are pleased that we've been able to capitalize on our product leadership strategy by winning additional space at retail.

To further our card strategy, on an international dimension, just last month, we announced the acquisition of a greeting card company in the U.K. named Watermark. Watermark has grown to approximately $40 million of annual revenue as their product has a unique style and tone that resonates with local consumers. This acquisition broadens our product offering in the U.K., and Watermark has become part of our international segment.

Let me shift to some of the changes we have made to our portfolio businesses to enhance our focus on our greeting card leadership strategy. Two years ago, we sold our retail store operations and acquired both Papyrus and Recycled Paper Greetings. I am pleased that we have met our goals of successfully integrating these two businesses over the last two years.

Success for us means the expenses of the integrations came in slightly under our original budget, and we meaningfully exceeded our original integration savings target of $15 million by achieving $20 million of savings this year.

Our portfolio of businesses also includes AG Interactive, our online business. Within this segment, we seek to meet the rapidly changing needs of online consumers. As a result, we have and we'll continue to invest in consumer research in order to develop new products for the internet, smartphones, social media or platforms yet to be identified in order to engage with our consumers to whatever medium they choose.

In addition, we reexamined our strategy around photo personalized products. As part of that effort, we decided to deemphasize photo prints and other miscellaneous photo personalized products. As a result, we decided to wind down our PhotoWorks website. We have and we'll continue to refine our strategy to leverage our strengths and best meet consumer needs.

About six years ago, we made other strategy around the prioritization of capital deployment, and has not changed since. Our first priority is to pay down debt. The second, to invest for growth, and third, return ongoing excess capital to shareholders.

At times we preferred to operate with what may be perceived as an under levered balance sheet. We do so intentionally in order to take advantage of strategic opportunities when they present themselves. We significantly benefited from this strategy when we're able to acquire both RPG [Recycled Paper Greetings] and Papyrus in early 2009. At a time when many companies found themselves without excess access to capital, we acquired two competitors who were over leveraged and heading to or already in bankruptcy.

In addition to acquiring two companies during a very tumultuous capital market experience, we used our under leveraged balance sheet to repurchase about $25 million of our own shares below $5 per share, which represented 13% of our market cap at that time.

Since those acquisitions and share repurchases, we have returned to our first priority, to pay down debt. And we have done so by paying down over $150 million of debt.

So it is not the case that we won't use leverage, we use leverage when it affords us -- it affords us a strategic opportunity. To the extent that we find ourselves with excess capital, we will then consider returning that excess capital to shareholders over time. If you look back over the last six years, you will see that we reduced our share count by more than 50%, and raised our dividend several times including a 7% increase last month.

Finally, I would like to switch gears to share some thoughts about our outlook for fiscal year 2012. As we've discussed for the last several years, we have and will continue to invest in consumer research, the development of new products and our information technology systems in order to support and enhance our overall product leadership.

Whether it was our winner card strategy 5 years ago, the acquisitions of Papyrus and Recycled Paper Greetings in 2009 for the ongoing development of several new styles and types of greeting cards, these actions have all supported our strategy to offer retailers and consumers the best products in the industry.

We are pleased with the demand for our products and recognized that at times there are implementation costs to achieve revenue growth. As a result, we expect the revenues for fiscal year 2012 to increase about 5%. Approximately, half of the increase is expected to be driven by organic revenue growth, while the other half will be from the acquisition we made in the U.K.

We expect our full year cash flow from operating activities less capital expenditures to be between $80 million and $100 million. This cash flow estimate includes a very modest use for the combination of working capital, deferred costs and taxes.

We expect our capital expenditures will be between $45 million and $50 million. Before I pass the call to Steve, I would like to make one last comment. I want to thank our associates around the world for their continued commitment and teamwork. They have worked diligently during a very demanding time. Despite those demands, they worked exceptionally hard to help execute various strategic changes and to improve our operating results. Without their efforts, we wouldn't be where we are today.

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

Stephen Smith

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 fiscal quarter was approximately $50 million. In summary, holding aside all of the specific items I mentioned that occurred both in last year's and this year's fourth fiscal quarters, operating income was up about $1 million quarter-on-quarter.

I would also like to point out that during the quarter, we have two items that improved other non-operating income. We recognized a benefit of $3 million associated with a building sale in our international operations, and we recognized the benefit of $1.3 million from a dividend we received due to our minority investment in another company.

Both the building sale and the dividend are recorded on our other non-operating income line, which is below operating income.

With that background, let me now share with you a high-level view of revenue in the quarter. Our consolidated revenue of $423 million was down $3 million compared to last year's fourth quarter revenue of $426 million. Included in our reported revenue this quarter was a benefit from foreign exchange of almost $3 million versus the prior year's fourth quarter.

Separately, as a result of the party goods transaction that occurred during last year's fourth fiscal quarter, this year, we did not have the benefit of about $5 million of revenue that occurred during the last year's fourth fiscal quarter. Lastly, as a result of scan-based trading conversions, revenue was reduced this year by $7 million.

In summary, holding aside the foreign exchange impact, the effect of the prior year's party goods transaction and the effect of scan-based trading conversions, fourth quarter revenue was up about $6 million or 1.4%.

Up until now, I've been addressing only the fourth quarter. Let me share with you a summary of our full fiscal year, a very good year for the corporation. Full year revenue of $1.59 billion was $43 million lower than last year's revenue of $1.64 billion. Revenue was negatively affected by three items.

About $31 million as a result of the party goods transaction last year, about $12 million as a result of that sale of our retail store business last year, and about $7 million due to the scan-based trading conversions this year. While this year's revenue was depressed $50 million versus prior to these three items, foreign exchange was a benefit this year of about $10 million versus prior.

In summary, while recorded revenue was down $43 million, holding aside the effect of the party goods transaction, the sale of our retail store operations, scan-based trading conversions and FX, our revenues were down $3 million compared to the prior fiscal year.

Let me now compare operating income year-to-year. Last year, we reported operating income of $139 million and this year $175 million. As a reminder, there were a handful of major items that impacted our operating income last fiscal year.

Last year's operating income included a $24 million charge related to the settlement of a lawsuit. In addition, last year, we had charges of $18 million associated with the changes we made to our distribution model in our Mexican operations. We also recognized severance costs of about $9 million and a $29 million loss related to the divestiture of our Retail business.

Partially offsetting these items was both 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. Last year also benefited from $13 million in the LIFO liquidation, as well as $7 million of income associated with our legacy insurance program.

Holding aside these items, operating income last year was approximately $175 million. Now let me examine three items that affected this year's operating income.

Fiscal 2011 included costs of $10 million associated with the integrations of RPG and Papyrus, and that was worth about $0.15 per share. Second, we recognized about $7 million of severance that was worth about $0.10 per share. Third, we incurred $6 million in charges related to scan-based trading conversions, and that was worth about $0.09 per share.

Holding aside these items, operating income during fiscal 2011 was approximately $198 million. Separately, on our income statement but reported below operating income, we recognized a $3 million gain on the sale of the building in Australia, a gain of $1 million on the sale of a building in Mexico and about $1 million on a dividend income related to a minority investment in another company.

These three items totaled about $5 million of non-operating income and equates to about $0.08 per share.

Our income taxes, up $69 million, equated to an effective tax rate of 44.2%. This included about $7 million of additional estimated tax expense, which was worth about $0.17 per share.

In summary, starting with our full year earnings per share of $2.11 and adjusting for the items just described, our earnings per share are about $2.55. Having walked through the fourth quarter and full year revenues and operating income, compared to prior on a reported basis and adjusted basis, I will now turn exclusively to the fourth quarter to examine our segments' results.

Our North American segment's revenues of $308 million were down about $3 million versus the prior year's fourth quarter revenue of $311 million. Due to the party goods transactions in the fourth quarter of last year, segment revenue in this quarter was negatively impacted by $5 million.

In addition, as a result of the scan-based trading conversions, revenue was negatively affected by $7 million. So holding these two items aside, we reduced reported segment revenue by $12 million.

Segment revenue is up $9 million or approximately 3% holding these items aside. The improvement in revenues exclusive of the transaction in scan-based trading effect was due to both an increase in sales of gift packaging and seasonal cards.

Our North American segments earnings of $54 million were down $15 million versus the prior year's segment earnings of $69 million. During the prior year, this segment recognized charges of $12 million associated with the distribution model changes made in our Mexican operations.

The prior year also included $21 million net benefit related to the party goods transaction. The prior year's segment earnings without these items would have been $60 million.

This year's segment earnings included scan-based trading conversions, which negatively affected segment earnings by $5.5 million and integration costs of almost $1 million.

Eliminating the effect of these two items, earnings for the segment for the most recent quarter were $60 million.

Comparing the segment earnings to the prior year and holding aside the items mentioned, segment earnings were about $60 million in the prior year compared to about $60 million in the current year.

Switching now to our international segment. Revenues were about $66 million, which is an increase of $1 million versus the prior year. Segment earnings improved $1 million versus the prior year quarter.

This year includes a $2.8 million gain on the sale of a building, partially offset by bad debt as some parts of the global economy continued to struggle.

We also incurred slightly higher fuel service expense in the segment quarter-on-quarter. Let me move now from the Social Expression segments to our Interactive segment.

Revenues were $22 million, which represents a $1 million decline over the prior year period, driven by decline in personalized photo products.

Segment earnings were $4 million this year compared to $6 million in the prior year. Last year, we recognized a benefit of $3 million related to the liquidation of our Interactive business in France.

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 within other revenue, was just over $10 million, down about $7 million versus the prior year.

Licensing expenses were $9 million this year, down $2 million compared to the last year. So for the fourth fiscal quarter, the company's net licensing effort or revenues less expenses declined about $5 million, quarter-on-quarter.

Now let me move to the third part of my comments for today, a review several of the key components of our financial statements. The company's manufacturing labor and other production cost, or MLOPC, were down about $8 million compared to last year's fourth quarter.

Last year, we incurred a $13 million impairment, related to the wind down of our party goods manufacturing facility. The reason this line item did not improve by $13 million was due to slightly higher scrap costs and higher creative content costs. Creative content costs include costs associated with both our internal creative studios and external groups with whom we partner.

Selling, distribution and marketing costs were down about $3 million versus the prior year's fourth quarter. As a result of the lower licensing revenue, we incurred $2 million lower agency fees compared to last year, and agency fees appear in our SD&M [Selling, Distribution and Marketing] line.

The administrative and general expenses were down $2 million -- I'm sorry, $22 million versus the prior year's fourth quarter. Last year, we had a $19 million expense related to the settlement of a lawsuit. The remainder of the reduction was due to lower payroll related costs.

Our other operating income line included a $26 million benefit last year, due primarily to three items: Last year, we recognized a $34 million gain related to the party goods transaction, a benefit of $3 million related to the liquidation of the business in France and a charge of $11 million associated with the distribution model changes made in our Mexican operations.

None of those items repeated this year and therefore, our other operating income reflects minimal activity.

The next item we'll cover is taxes. Our effective tax rate for the quarter was 57.5%. During the quarter, we effectively settled 10 years of our oldest Federal tax audits. As part of the process, we booked additional net tax and interest, which negatively affected our income tax expense by about $7 million.

Looking forward, we expect our tax rate to be in the upper 30% range in fiscal 2012. Let's now shift gears from a review of the income statement to take a brief look at three key components of the balance sheet.

On our balance sheet, accounts receivable were about $16 million lower than the prior year. About 1/2 of the decline is related to a reduction in AR in conjunction with the scan-based trading activity of the fourth quarter. The balance was primarily favorable timing associated with cash collection at the end of February.

Inventories increased by $16 million compared to the prior year. The primary reason for the increase was driven by the need to build inventory for expanded customer relationships.

In addition, we had slightly higher inventory levels for technology cards. Moving to our debt position at the end of the quarter, long-term debt decreased from $329 million at the end of last year to $233 million at the end of fiscal 2011.

As we previously discussed, this past June, we refinanced our revolving credit facility and used cash on the balance sheet to repay the entire outstanding balance on our term loan.

Shifting to our cash flow statement. One item I would like to mention is accounts payable and other liabilities, which was an incremental use of about $30 million compared to the prior year.

As we shared at the end of last fiscal, we had accrued additional variable comp in fiscal 2010 due to our better-than-anticipated performance. The accrued variable comp expense was actually paid during the first quarter of fiscal 2011.

In the prior fiscal year, we paid below normal levels of variable comp. This swing in variable compensation cash payments caused a difference in this cash flow line item.

So 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. Alisha?

Question-and-Answer Session

Operator

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

Jeffery Stein - Soleil Securities Group, Inc.

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?

Stephen Smith

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...

Gregory Steinberg

$125 million to $145 million.

Stephen Smith

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.

Jeffery Stein - Soleil Securities Group, Inc.

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

Stephen Smith

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

Jeffery Stein - Soleil Securities Group, Inc.

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...

Stephen Smith

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.

Jeffery Stein - Soleil Securities Group, Inc.

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?

Stephen Smith

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.

Jeffery Stein - Soleil Securities Group, Inc.

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?

Stephen Smith

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.

Jeffery Stein - Soleil Securities Group, Inc.

So that's for systems and additional rollout cost?

Stephen Smith

Yes.

Jeffery Stein - Soleil Securities Group, Inc.

And that's a pretax number?

Stephen Smith

Yes, both.

Jeffery Stein - Soleil Securities Group, Inc.

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?

Stephen Smith

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.

Jeffery Stein - Soleil Securities Group, Inc.

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

Stephen Smith

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.

Jeffery Stein - Soleil Securities Group, Inc.

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?

Zev Weiss

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.

Jeffery Stein - Soleil Securities Group, Inc.

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

Zev Weiss

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.

Jeffery Stein - Soleil Securities Group, Inc.

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

Zev Weiss

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

Jeffery Stein - Soleil Securities Group, Inc.

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?

Stephen Smith

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

Gregory Steinberg

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.

Jeffery Stein - Soleil Securities Group, Inc.

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?

Stephen Smith

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

[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.

Gregory Steinberg

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.

Operator

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

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