Good day, and welcome to the American Greetings Corporation Third Quarter Fiscal 2013 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Gregory Steinberg. Please go ahead, sir.

Thank you, Kyle. Good morning, everyone, and welcome to our third quarter conference call. Joining me today on the call is Steve Smith, our CFO. We released our earnings for the third quarter fiscal 2013 this morning. If you do not yet have our third 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 may 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. In light of the proposed going-private transaction that was announced at the end of September, today's conference call will have a similar format to last quarter's conference call. Our CFO, Steve Smith, will offer some prepared remarks, which will be followed by a question-and-answer session. We will be limiting prepared remarks to historical results. We are not updating, reaffirming or otherwise addressing full year guidance, and we'll not be discussing the proposed going-private transaction that was previously announced. We will now proceed with comments from Steve, followed by the question-and-answer session. Steve?

Thanks, Greg. I have 4 components to my prepared remarks today. I will start with comments on how the Clintons transaction impacted our financial results, then share our consolidated results for the quarter, then move to a review of our reported segments, and finally, I will touch on a few key components within our financial statements. We will then open the line for questions. I would like to first start with comments on how the recent acquisition of certain assets of Clinton Cards is impacting our financial results. As you likely know, during our first fiscal quarter, we acquired the senior secured debt of Clinton Cards and incurred bad debt and other related expenses, as Clinton Cards filed for administration. During the second fiscal quarter, we acquired certain assets from Clinton Cards, which included approximately 400 stores and related overhead as well as the Clinton Cards brand. Since that time, we've been making progress to improve the business. We are encouraged by the progress made so far. As we discussed last quarter, our strategy to improve the Clintons operations has included reevaluating the overall product offering within the stores, remodeling some of the stores, re-merchandising the card assortment, aggressively renegotiating leases, installing a new computer system and reducing overhead costs. We are encouraged with the progress so far as well as the preliminary results, although we are still in the middle of the turnaround. Forecasting the performance of a turnaround that is both highly seasonal and where the ultimate number of stores we will eventually operate have not been finalized, is a difficult task. After the business has had a full year of operations, including having operated through the Christmas season where the bulk of the profit is generated, we will have more confidence on our ability to predict Clinton's…

[Operator Instructions] And we'll take our first question with Jeff Stein with Northcoast Research.

Question on the performance of Clinton during the quarter. I know you're not going to talk about forward-looking, but you did indicate you expected the operating loss at Clinton for the year to be under $10 million, and it looks like you're around $16.5 million through Q3. So I'm just kind of wondering how Clinton performed relative to plan in the third quarter?

Clintons is a challenge, Jeff, because the number of doors as well as the Christmas holiday period haven't occurred, but through the end of the third fiscal, they were on track with our internal plan.

Okay. Can you talk about the sale of seasonal cards and holiday cards overall through the -- in the third quarter, and perhaps late into the third quarter? And perhaps, give us a little indication in terms of which channels were tracking well and which, perhaps, might be underperforming?

Well, as you'll see in our pieces in prices section that comes out in our Q in about 1.5 weeks, our seasonal card business is doing okay. The -- we don't generally comment on very specific channels. The trend within seasonal cards this third quarter versus prior third quarter is roughly similar. Some differences, we're seeing increased pull as we've gained more space in the value area and our innovations product is doing relatively well, too.

Okay. Can you talk about the performance of Cardstore.com during the third quarter, and how it compared to your expectations, and year-ago?

Cardstore is within, as you know, our North American Social Expressions group. We generally don't get into great detail within Cardstore. Revenues are still small but growing. They're tracking pretty much to their internal plan.

Okay. And wondering if you could talk a little bit about the comment you made with respect to the effect that product mix and product costs had on your gross margin during the third quarter? Anything -- in other words, what were those factors? Was it more lower priced dollar cards? And when you talk about product content costs going up, does that refer to paper prices or are there other factors?

I'll try to hit all those, Jeff, elements of your question. What we're seeing are additional product attributes, including embellishments, adding some cost to the card -- the card, our cost of goods. We're seeing some inflation from foreign suppliers, especially for hand-finished cards. The demand pull for this product is fairly strong, and so that's encouraging. I think those are the elements you asked for.

So in other words, these would be your -- basically, your electronic card, so to speak, your -- the card -- the higher price point cards?

We're seeing it in a number of our higher price point cards including innovation and our higher value product.

And we'll take our next question from Carla Casella with JPMorgan.

This is Paul Simenauer, on for Carla Casella. First, I wanted to see if you guys still have any plans to revisit the headquarters build because I know you guys put out a press release that might be delays. I was wondering if you can just talk about that a little bit?

Sure. As we said in the press release, our Board of Directors believes, Paul, it's advisable to temporarily delay the project in light of the proposed going-private transaction, so our pre-construction activity has definitely slowed. But it's our expectation, as we said in the release, that, that will be a delay, not a permanent stop.

Got it. So do you know like how long the delay will be? Or it is just indefinite or...

It's indefinite at this point. It's driven in part by the timing of the proposed going-private transaction.

Okay, great. And then next, I was wondering if you can give us some color on how sequentially the holiday season has shaped up.

We typically don't comment intra-quarter, and what you're asking is for an intra-quarter type of reaction. A significant portion of the Christmas card sales and holiday card sales occur near the very end of the holiday period, so we prefer not to comment on that question.

[Operator Instructions] And we'll take our next question from Sean O'Malley with Wedge Capital.

A couple questions. First, with respect to Clinton, as I recall, I think when the transaction occurred, there were 400 doors initially affiliated with Clinton. Can you give us an update on where that stands now?

Sure. There weren't initially 400. There were initially about 735, and our targeted figure for doors was in the neighborhood of 400. We expect that still to be the roughly approximate number of doors that we'll eventually operate. One of the challenges is the knowing that figure and therefore modeling around it, but we expect around 400 stores ultimately in the portfolio.

Okay. And where are you at this point?

Well, we're a little bit under 400.

Okay, good. And through the first 2 quarters, advertising spending for Cardstore.com led to incremental expense, I believe, of about $9 million year-over-year. About where would we be for incremental on Cardstore.com advertising this year?

Yes. So actually for the quarter, there was no increase versus the prior. Steve mentioned in his prepared remarks that our advertising expense was up about $1 million this particular quarter, but that increase this quarter actually was unrelated to Cardstore.

Is that because we're now lapping the initial ramp-up in support of Cardstore.com from last year?

Yes.

Okay. And then how much expense, not capitalized expense but expense coming through the income statement, would be affiliated with the systems refresh in this quarter?

So expense of approximately $3.7 million in the quarter.

Okay. And then the $8 million in administrative expenses affiliated with the going-private transaction, can you give us some idea of what those expenses are coming from?

There's a -- Sean, there's a variety of legal expenses and other advisory expenses that are being incurred in this process. I don't think we're prepared to get into the real details of how much where, but those are the types of expenses we're incurring at this point.

So have the independent directors engaged an investment bank?

Yes. The -- there was a press release -- I'll look up the date while we're speaking -- that acknowledged that the board special committee had engaged both a financial adviser as well as a legal adviser, and there are costs associated with that, that the company is bearing.

We'll take our next question from Owen Douglas with Gleacher & Company.

I have a quick question, just wanted to drill down a little bit into the Clinton Cards business. So I presume that as you guys are examining these stores and figuring out which ones you're going to keep and how you're going to turn this performance around that you hired some outside advisers and that some of those costs are included in the segment earnings for that retail segment, is that correct?

The bulk of the costs are within the segment, yes.

Okay. So would you be able to sort of quantify how much of that negative $11.5 million was attributed to those advisory costs?

It's small, but do we have it with us, Greg?

I actually don't have the exact number with me for the quarter.

For the advisory cost --

Yes.

It would be --

It's a few million dollars probably.

Yes. A couple of million dollars would be our estimate, Owen.

Okay. So about $2 million to $3 million, let's say, and I presume that last quarter was something roughly similar?

I don't know that off the top of my head. I hate to comment on the open mic.

Okay. Okay, no worries, I understand there. I can circle up with you a later date on that. But then I'm just trying to get a better sense of what Clinton Cards' performance could be once you strip out some of those onetime costs. It seems to me as though it's going to be basically negative operating income this quarter, and that's just the status of affairs, because there's a reason why the company ended up in bankruptcy, right?

So the business had many challenges in its operations. We won't comment about the history of the prior -- predecessor company. Right now, to give you sense of what's being worked on, it included, as we said in our prepared remarks, a re-merchandising of the card assortment, which was critical, and renegotiating leases also critical. But the brand is strong in the U.K., and that's the primary reason that we've taken on the task, and they're performing well through the end of the third quarter versus the plan. One comment that you make is accurate, and that is that there is a significant seasonality to that business. And the seasonality of that business is impacting the overall consolidated group seasonality, and you're seeing that ripple through both the consolidated group as well as the segment analysis.

Okay. Are you able to share some -- like a retail-type metric, for example, of same-store sales? I'm understanding that you guys obviously wouldn't really have the same level of data now as you would have had regarding last year's periods. But do you think that you can give us a sense of what's happening with that top line?

We'd like to, but you hit the nail on the head, which is we do not have good visibility to predecessor company store sales. Their systems were not strong, to be candid, and therefore, we'd rather not comment on same-store sales, not sure ourselves how accurate that metric would be.

[Operator Instructions] And there are no further questions in the queue at this time.

Thank you, Kyle. That concludes today's conference call. We thank you for joining us this morning.

This does conclude today's conference call. Thank you, all, for your participation.