Moody's raises American Greetings outlook

Moody's Investors Service raised its outlook on American Greetings Corp. to stable from negative and confirmed its ratings including its $195 million senior secured revolving credit facilities and $300 million 6.1% senior notes due 2028 at Ba1 and $260 million 11.75% senior subordinated notes due 2008 and $175 million 7% convertible subordinated notes due 2006 at Ba3.

Moody's said the outlook revision reflects its expectation that American Greetings will sustain its increased profit and cash flow levels following the execution of its fiscal 2002 restructuring program, as the company continues to focus on cost controls and debt reduction.

The expected continued focus on operating efficiency measures is to counter ongoing sales and cash flow pressures that exist due to stagnant industry growth, heavy competition and retailer consolidation.

Following a $314 million restructuring program in fiscal 2002, which focused on facility rationalization and a move to scan-based trading, EBITDA and cash flow from operations increased in fiscal 2003 by approximately 24% and 112%, respectively. As a result of these improvements, the company funded its $143 million COLI tax liability and repaid its $120 million term loan.

American Greetings plans $35 million of investments in the current year to further strategic efforts in supply-chain optimization and expects $50 million to $75 million in savings from this program.

Moody's said it could consider additional positive rating actions if American Greetings' current operating initiatives result in further improvements to its profitability and if the company maintains its discipline regarding the application of cash flows to operating investments and debt reduction.

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