American Greetings Announces Significantly Improved Fourth Quarter Earnings
- Earnings significantly improve over prior year
- Cash flow exceeds enhanced expectations
- Fiscal 2011 cash flow forecast provided
</pre>
<p><span class="xn-location">CLEVELAND</span>, <span class="xn-chron">April 22</span> /CNW/ -- American Greetings Corporation (NYSE: AM) today announced its financial results for both the fourth fiscal quarter and fiscal year ended <span class="xn-chron">February 28, 2010</span>.</p>
<pre>
Fourth Quarter Results
</pre>
<p>For the fourth quarter of fiscal 2010, the Company reported total revenue of <span class="xn-money">$426.4 million</span>, pre-tax income of <span class="xn-money">$31.8 million</span>, and net income of <span class="xn-money">$18.8 million</span> or 46 cents per share (all per-share amounts assume dilution). The Company recorded pre-tax costs of <span class="xn-money">$12.3 million</span> (after-tax of approximately <span class="xn-money">$8.6 million</span>, reducing earnings per share by about 21 cents) related to the previously announced wind down of its operations in <span class="xn-location">Mexico</span>. Other pre-tax costs included <span class="xn-money">$19.0 million</span> for the settlement of a lawsuit (after-tax of about <span class="xn-money">$11.6 million</span>, reducing earnings per share by about 29 cents) and <span class="xn-money">$5.9 million</span> for severance (after-tax of about <span class="xn-money">$3.6 million</span>, reducing earnings per share by about 9 cents). These costs were partially offset by a <span class="xn-money">$21.2 million</span> pre-tax net benefit from the previously announced party goods transaction (after-tax of about <span class="xn-money">$12.9 million</span>, increasing earnings per share by about 33 cents). The <span class="xn-money">$21.2 million</span> net benefit included a <span class="xn-money">$34.2 million</span> gain and <span class="xn-money">$13.0 million</span> of impairments related to the exit of the party goods manufacturing facility. The Company also recognized a <span class="xn-money">$3.3 million</span> pre-tax gain related to the liquidation of a business in <span class="xn-location">France</span> (the after-tax amount was also about <span class="xn-money">$3.3 million</span>, increasing earnings per share by about 8 cents).</p>
<p/>
<p>For the fourth quarter of fiscal 2009, the Company reported total revenue of <span class="xn-money">$422.5 million</span>, a pre-tax loss from continuing operations of <span class="xn-money">$67.9 million</span>, and a net loss of <span class="xn-money">$50.1 million</span> or <span class="xn-money">$1.13</span> per share. During the fourth quarter of fiscal 2009, the Company recognized pre-tax goodwill impairment charges of <span class="xn-money">$47.3 million</span> (after-tax of approximately <span class="xn-money">$42.6 million</span> that reduced earnings per share by 97 cents). In addition, the Company recognized atypical expenses in its licensing business of <span class="xn-money">$16.4 million</span> (after-tax of approximately <span class="xn-money">$10.0 million</span> reducing earnings per share by 23 cents). The Company also recognized a pre-tax severance charge of <span class="xn-money">$7.5 million</span> (after-tax of about <span class="xn-money">$4.6 million</span>, decreasing earnings per share by about 10 cents).</p>
<pre>
Full Year Results
</pre>
<p>For the full year fiscal 2010, the Company reported total revenue of <span class="xn-money">$1,635.9 million</span>, pre-tax income of <span class="xn-money">$121.0 million</span>, and net income of <span class="xn-money">$81.6 million</span> or <span class="xn-money">$2.03</span> per share. The Company recorded costs of approximately <span class="xn-money">$18.2 million</span> (after-tax of approximately <span class="xn-money">$6.5 million</span> reducing earnings per share by approximately 16 cents) related to the previously announced wind down of its operations in <span class="xn-location">Mexico</span>. The Company also incurred a <span class="xn-money">$24.0 million</span> pre-tax charge for the settlement of a lawsuit (after-tax of about <span class="xn-money">$14.7 million</span>, reducing earnings per share by about 37 cents), pre-tax severance expense of <span class="xn-money">$9.4 million</span> (after-tax of about <span class="xn-money">$5.8 million</span>, reducing earnings per share about 14 cents) and a <span class="xn-money">$28.3 million</span> pre-tax charge related to the divestiture of our retail business earlier in the year (after-tax of about <span class="xn-money">$17.3 million</span>, reducing earnings per share approximately by 43 cents). These costs were partially offset by a <span class="xn-money">$21.2 million</span> pre-tax net benefit related to the party goods transaction (after-tax of about <span class="xn-money">$12.9 million</span>, increasing earnings per share by about 33 cents), a <span class="xn-money">$3.3 million</span> pre-tax gain related to the liquidation of a business in <span class="xn-location">France</span> (the after-tax amount was also about <span class="xn-money">$3.3 million</span>, increasing earnings per share by about 8 cents) and a <span class="xn-money">$7.9 million</span> pre-tax benefit associated with a legacy insurance program (after-tax of about <span class="xn-money">$7.6 million</span>, increasing earnings per share about 19 cents).</p>
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Management Comments and Outlook
</pre>
<p>Chief Executive Officer Zev Weiss said, "I am delighted with our fourth quarter performance as it was the culmination of a successful year. During the year, we made both strategic and operational changes that improved our business model. Our portfolio changes as well as our operational execution, including our innovation in product content, have been large factors driving improved cash flow. We were able to generate cash flow from operations minus capital expenditures of <span class="xn-money">$171 million</span>, which exceeded our expectations. We could not have achieved these results without the unrelenting effort of all our associates and I am grateful for their commitment."</p>
<p/>
<p>For fiscal 2011, the Company expects revenue to decline approximately 1% to 2% compared to fiscal 2010. The decline is driven by the expectation of reduced sales of party goods products as a result of the transaction announced in <span class="xn-chron">December 2009</span>. The Company expects cash flow from operating activities of about <span class="xn-money">$165 million</span> and capital expenditures of approximately <span class="xn-money">$40 million</span> resulting in cash flow from operating activities minus capital expenditures to be around <span class="xn-money">$125 million</span>.</p>
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Conference Call on the Web
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<p>American Greetings will broadcast its conference call live on the Internet at <span class="xn-chron">9:00 a.m. Eastern time</span> today. The conference call will be accessible through the Investor Relations section of the American Greetings Web site at <a href="http://investors.americangreetings.com">http://investors.americangreetings.com</a>. A replay of the call will be available on the site.</p>
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About American Greetings Corporation
</pre>
<p>For more than 100 years, American Greetings Corporation (NYSE: AM) has been a manufacturer and retailer of innovative social expression products that assist consumers in enhancing their relationships. The Company's major greeting card lines are American Greetings, Carlton Cards, Gibson, Recycled Paper Greetings and Papyrus, and other paper product offerings include DesignWare party goods and American Greetings and Plus Mark gift-wrap and boxed cards. American Greetings also has the largest collection of electronic greetings on the Web, including cards available at AmericanGreetings.com through AG Interactive, Inc. (the Company's online division). AG Interactive also offers digital photo sharing and personal publishing at PhotoWorks.com and Webshots.com and provides a one-stop source for online graphics and animations at Kiwee.com. In addition to its product lines, American Greetings also creates and licenses popular character brands through the American Greetings Properties group. Headquartered in <span class="xn-location">Cleveland</span>, Ohio, American Greetings generates annual revenue of approximately <span class="xn-money">$1.6 billion</span>, and its products can be found in retail outlets worldwide. For more information on the Company, visit <a href="http://corporate.americangreetings.com">http://corporate.americangreetings.com</a>.</p>
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Non-GAAP Measures
</pre>
<p>Certain after-tax and liquidity amounts included in this earnings release may be considered non-GAAP measures under the Securities and Exchange Commission's Regulation G. The after-tax amounts were calculated based on the Company's statutory tax rate of approximately 38.9% for U.S. based items (other than cumulative currency translation adjustments, for which a 0% tax rate is applied) and the appropriate rates for international jurisdictions. Management believes that after-tax information is useful in analyzing the Company's results and that cash flow from operating activities minus capital expenditures provides a liquidity measure useful to investors in analyzing the cash generation of the Company.</p>
<pre>
Factors That May Affect Future Results
</pre>
<p>Certain statements in this release, including those under Management Comments and Outlook, may constitute forward-looking statements within the meaning of the Federal securities laws. These statements can be identified by the fact that they do not relate strictly to historic or current facts. They use such words as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. These forward-looking statements are based on currently available information, but are subject to a variety of uncertainties, unknown risks and other factors concerning the Company's operations and business environment, which are difficult to predict and may be beyond the control of the Company. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Company's future financial performance, include, but are not limited to, the following:</p>
<pre>
1. a weak retail environment and general economic conditions;
2. the ability to achieve both the desired benefits from the transaction
with Amscan as well as ensuring a seamless transition for affected
retail customers and consumers;
3. the ability to successfully integrate acquisitions, including the
recent
acquisitions of Recycled Paper Greetings and Papyrus;
4. the Company's ability to successfully complete the sale of the
Strawberry Shortcake and Care Bears properties;
5. the Company's successful transition of the Retail Operations segment to
its buyer, Schurman Fine Papers, and Schurman Fine Papers' ability to
successfully operate its retail operations and satisfy its obligations
to the Company;
6. retail consolidations, acquisitions and bankruptcies, including the
possibility of resulting adverse changes to retail contract terms;
7. the ability to achieve the desired benefits associated with it's the
Company's cost reduction efforts;
8. competitive terms of sale offered to customers;
9. the Company's ability to comply with its debt covenants and to
refinance
its debt on acceptable terms as the debt instruments mature;
10. the timing and impact of investments in new retail or product
strategies as well as new product introductions and achieving the
desired benefits from those investments;
11. consumer acceptance of products as priced and marketed;
12. the impact of technology on core product sales;
13. the timing and impact of converting customers to a scan-based trading
model;
14. escalation in the cost of providing employee health care;
15. the ability to successfully implement, or achieve the desired benefits
associated with, any information systems refresh the Company may
implement;
16. the Company's ability to achieve the desired accretive effect from any
share repurchase programs;
17. fluctuations in the value of currencies in major areas where the
Company operates, including the U.S. Dollar, Euro, U.K. Pound
Sterling,
and Canadian Dollar; and
18. the outcome of any legal claims known or unknown.
</pre>
<p>Risks pertaining specifically to AG Interactive include the viability of online advertising, subscriptions as revenue generators, and the ability to adapt to rapidly changing social media and the digital photo sharing space.</p>
<p/>
<p>In addition, this release contains time-sensitive information that reflects management's best analysis as of the date of this release. American Greetings does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release. Further information concerning issues that could materially affect financial performance related to forward-looking statements can be found in the Company's periodic filings with the Securities and Exchange Commission, including the "Risk Factors" section of the Company's Annual Report on Form 10-K.</p>
<pre>
</pre>
<p> </p>
<pre>
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED FEBRUARY 28, 2010
</pre>
<p> </p>
<p> (In thousands of dollars except share and per share amounts)</p>
<p> </p>
<p> </p>
<pre>
(Unaudited)
Quarter Ended
-------------
February February
28, 2010 28, 2009
--------- ---------
</pre>
<p> </p>
<pre>
Net sales $408,864 $403,467
Other revenue 17,556 19,052
------ ------
Total revenue 426,420 422,519
</pre>
<p> </p>
<pre>
Material, labor and other
production costs 187,661 223,288
Selling, distribution and
marketing expenses 134,045 153,818
Administrative and general
expenses 95,164 55,753
Goodwill and other intangible
assets impairment - 47,277
Other operating income - net (26,111) (67)
------- ---
</pre>
<p> </p>
<p>Operating income (loss) 35,661 (57,550)</p>
<p> </p>
<pre>
Interest expense 6,322 5,881
Interest income (112) (447)
Other non-operating (income)
expense - net (2,327) 4,883
------ -----
</pre>
<p> </p>
<pre>
Income (loss) before income tax
expense (benefit) 31,778 (67,867)
Income tax expense (benefit) 12,982 (17,789)
------ -------
</pre>
<p> </p>
<pre>
Net income (loss) $18,796 $(50,078)
======= ========
</pre>
<p> </p>
<p> </p>
<pre>
Earnings (loss) per share -
basic $0.48 $(1.13)
</pre>
<p> </p>
<p> </p>
<pre>
Earnings (loss) per share -
assuming dilution $0.46 $(1.13)
</pre>
<p> </p>
<p> </p>
<pre>
Average number of common shares
outstanding 39,463,368 44,144,203
</pre>
<p> </p>
<pre>
Average number of common shares
outstanding -
assuming dilution 40,445,332 44,144,203
</pre>
<p> </p>
<pre>
Dividends declared per share $0.12 $0.24
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
(Unaudited)
Year Ended
----------
February February
28, 2010 28, 2009
--------- ---------
</pre>
<p> </p>
<pre>
Net sales $1,598,292 $1,646,399
Other revenue 37,566 44,339
------ ------
Total revenue 1,635,858 1,690,738
</pre>
<p> </p>
<pre>
Material, labor and other
production costs 713,075 809,956
Selling, distribution and
marketing expenses 507,960 618,899
Administrative and general
expenses 276,031 226,317
Goodwill and other intangible
assets impairment - 290,166
Other operating income - net (310) (1,396)
---- ------
</pre>
<p> </p>
<p>Operating income (loss) 139,102 (253,204)</p>
<p> </p>
<pre>
Interest expense 26,311 22,854
Interest income (1,676) (3,282)
Other non-operating (income)
expense - net (6,487) 2,157
------ -----
</pre>
<p> </p>
<pre>
Income (loss) before income tax
expense (benefit) 120,954 (274,933)
Income tax expense (benefit) 39,380 (47,174)
------ -------
</pre>
<p> </p>
<pre>
Net income (loss) $81,574 $(227,759)
======= =========
</pre>
<p> </p>
<p> </p>
<pre>
Earnings (loss) per share -
basic $2.07 $(4.89)
</pre>
<p> </p>
<p> </p>
<pre>
Earnings (loss) per share -
assuming dilution $2.03 $(4.89)
</pre>
<p> </p>
<p> </p>
<pre>
Average number of common shares
outstanding 39,467,811 46,543,780
</pre>
<p> </p>
<pre>
Average number of common shares
outstanding -
assuming dilution 40,159,651 46,543,780
</pre>
<p> </p>
<pre>
Dividends declared per share $0.36 $0.60
</pre>
<p> </p>
<pre>
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDED FEBRUARY 28, 2010
</pre>
<p> </p>
<p> </p>
<pre>
(In thousands of dollars)
(Unaudited)
-----------
February 28, February 28,
2010 2009
------------- -------------
</pre>
<p> </p>
<pre>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $137,949 $60,216
Trade accounts receivable, net 135,758 77,703
Inventories 163,956 194,945
Deferred and refundable income
taxes 78,433 67,267
Assets held for sale 13,280 23,627
Prepaid expenses and other 148,048 162,125
------- -------
Total current assets 677,424 585,883
</pre>
<p> </p>
<pre>
GOODWILL 31,106 26,871
OTHER ASSETS 428,160 376,665
DEFERRED AND REFUNDABLE INCOME
TAXES 148,210 183,066
</pre>
<p> </p>
<pre>
Property, plant and equipment -
at cost 840,696 922,613
Less accumulated depreciation 595,945 647,049
------- -------
PROPERTY, PLANT AND EQUIPMENT -
NET 244,751 275,564
------- -------
$1,529,651 $1,448,049
========== ==========
</pre>
<p> </p>
<p> </p>
<pre>
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Debt due within one year $1,000 $750
Accounts payable 95,434 117,504
Accrued liabilities 79,478 90,236
Accrued compensation and
benefits 85,092 32,198
Income taxes payable 13,901 11,743
Other current liabilities 97,138 105,537
------ -------
Total current liabilities 372,043 357,968
</pre>
<p> </p>
<pre>
LONG-TERM DEBT 328,723 389,473
OTHER LIABILITIES 164,642 149,820
DEFERRED INCOME TAXES AND
NONCURRENT INCOME TAXES PAYABLE 28,179 21,599
</pre>
<p> </p>
<pre>
SHAREHOLDERS' EQUITY
Common shares - Class A 36,257 37,043
Common shares - Class B 3,223 3,499
Capital in excess of par value 461,076 449,085
Treasury stock (946,724) (938,086)
Accumulated other comprehensive
loss (29,815) (67,278)
Retained earnings 1,112,047 1,044,926
--------- ---------
Total shareholders' equity 636,064 529,189
------- -------
$1,529,651 $1,448,049
========== ==========
</pre>
<p> </p>
<pre>
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED FEBRUARY 28, 2010
(In thousands of dollars)
</pre>
<p> </p>
<p> </p>
<pre>
(Unaudited)
Year Ended
----------
February 28, February 28,
2010 2009
------------- -------------
</pre>
<p> </p>
<pre>
OPERATING ACTIVITIES:
Net income (loss) $81,574 $(227,759)
Adjustments to reconcile net
income (loss)
to cash flows from operating
activities:
Goodwill and other intangible
assets impairment - 290,166
Net gain on dispositions (6,507) -
Net loss on disposal of fixed
assets 59 1,215
Depreciation and intangible
assets amortization 45,165 50,016
Deferred income taxes 25,268 (29,438)
Fixed assets impairment 13,005 5,465
Other non-cash charges 18,289 8,270
Changes in operating assets
and liabilities,
net of acquisitions and
dispositions:
Trade accounts receivable (56,105) (6,504)
Inventories 14,923 2,877
Other current assets 16,962 17,585
Deferred costs - net 18,405 27,596
Accounts payable and other
liabilities 14,193 (67,542)
Other - net 12,259 1,093
------ -----
Total Cash Flows From
Operating Activities 197,490 73,040
</pre>
<p> </p>
<pre>
INVESTING ACTIVITIES:
Property, plant and equipment
additions (26,550) (55,733)
Cash payments for business
acquisitions, net of cash
acquired (19,300) (37,882)
Proceeds from sale of fixed
assets 1,124 433
Other - net 4,713 (44,153)
----- -------
Total Cash Flows From
Investing Activities (40,013) (137,335)
</pre>
<p> </p>
<pre>
FINANCING ACTIVITIES:
Net (decrease) increase in
long-term debt (62,350) 118,991
Sale of stock under benefit
plans 6,705 525
Purchase of treasury shares (11,848) (73,983)
Dividends to shareholders (19,049) (22,566)
------- -------
Total Cash Flows From
Financing Activities (86,542) 22,967
</pre>
<p> </p>
<pre>
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 6,798 (21,956)
----- -------
</pre>
<p> </p>
<pre>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 77,733 (63,284)
</pre>
<p> </p>
<pre>
Cash and Cash Equivalents at
Beginning of Year 60,216 123,500
------ -------
Cash and Cash Equivalents at
End of Year $137,949 $60,216
======== =======
</pre>
<p> </p>
<pre>
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER CONSOLIDATED SEGMENT DISCLOSURES
FISCAL YEAR ENDED FEBRUARY 28, 2010
(In thousands of dollars)
</pre>
<p> </p>
<p> (Unaudited)</p>
<p> </p>
<pre>
Quarter Ended
-------------
February 28, February 28,
2010 2009
------------- -------------
Total Revenue:
North American
Social
Expression Products $311,079 $267,449
Intersegment items - (8,325)
Exchange rate
adjustment 3,462 54
----- ---
Net 314,541 259,178
</pre>
<p> </p>
<pre>
International
Social
Expression Products 55,148 53,083
Exchange rate
adjustment 12,674 4,792
------ -----
Net 67,822 57,875
</pre>
<p> </p>
<pre>
Retail Operations - 60,237
Exchange rate
adjustment - 829
--- ---
Net - 61,066
</pre>
<p> </p>
<pre>
AG Interactive 23,176 21,050
Exchange rate
adjustment 451 155
--- ---
Net 23,627 21,205
</pre>
<p> </p>
<pre>
Non-reportable
segments 20,429 23,195
</pre>
<p> </p>
<p>Unallocated 1 -</p>
<p> </p>
<pre>
$426,420 $422,519
======== ========
</pre>
<p> </p>
<p> </p>
<pre>
Segment Earnings
(Loss):
North American
Social
Expression Products $69,545 $(24,539)
Intersegment items - (6,195)
Exchange rate
adjustment 621 1,021
--- -----
Net 70,166 (29,713)
</pre>
<p> </p>
<pre>
International
Social
Expression Products 3,793 (6,045)
Exchange rate
adjustment 841 3,324
--- -----
Net 4,634 (2,721)
</pre>
<p> </p>
<pre>
Retail Operations - (164)
Exchange rate
adjustment - 565
--- ---
Net - 401
</pre>
<p> </p>
<pre>
AG Interactive 6,036 (1,461)
Exchange rate
adjustment 167 884
--- ---
Net 6,203 (577)
</pre>
<p> </p>
<pre>
Non-reportable
segments 5,762 (9,816)
</pre>
<p> </p>
<pre>
Unallocated (55,061) (24,961)
Exchange rate
adjustment 74 (480)
Net (54,987) (25,441)
</pre>
<p> </p>
<pre>
$31,778 $(67,867)
======= ========
</pre>
<p> </p>
<p> </p>
<pre>
Year Ended
----------
February 28, February 28,
2010 2009
------------- -------------
Total Revenue:
North American
Social
Expression Products $1,231,850 $1,139,745
Intersegment items (5,104) (52,805)
Exchange rate
adjustment 8,433 8,508
----- -----
Net 1,235,179 1,095,448
</pre>
<p> </p>
<pre>
International
Social
Expression Products 209,974 205,687
Exchange rate
adjustment 44,058 65,040
------ ------
Net 254,032 270,727
</pre>
<p> </p>
<pre>
Retail Operations 11,727 170,066
Exchange rate
adjustment 112 8,746
--- -----
Net 11,839 178,812
</pre>
<p> </p>
<pre>
AG Interactive 78,955 81,615
Exchange rate
adjustment 1,491 1,798
----- -----
Net 80,446 83,413
</pre>
<p> </p>
<pre>
Non-reportable
segments 53,975 62,338
</pre>
<p> </p>
<p>Unallocated 387 -</p>
<p> </p>
<pre>
$1,635,858 $1,690,738
========== ==========
</pre>
<p> </p>
<p> </p>
<pre>
Segment Earnings
(Loss):
North American
Social
Expression Products $236,305 $106,006
Intersegment items (3,511) (38,899)
Exchange rate
adjustment 3,620 2,844
----- -----
Net 236,414 69,951
</pre>
<p> </p>
<pre>
International
Social
Expression Products 13,778 (60,206)
Exchange rate
adjustment 3,068 (17,463)
----- -------
Net 16,846 (77,669)
</pre>
<p> </p>
<pre>
Retail Operations (34,830) (19,727)
Exchange rate
adjustment (285) 496
---- ---
Net (35,115) (19,231)
</pre>
<p> </p>
<pre>
AG Interactive 10,586 (156,325)
Exchange rate
adjustment 833 (5,366)
--- ------
Net 11,419 (161,691)
</pre>
<p> </p>
<pre>
Non-reportable
segments 7,634 (7,627)
</pre>
<p> </p>
<pre>
Unallocated (116,103) (83,966)
Exchange rate
adjustment (141) 5,300
Net (116,244) (78,666)
</pre>
<p> </p>
<pre>
$120,954 $(274,933)
======== =========
For further information: Gregory M. Steinberg, Treasurer and Director of Investor Relations, American Greetings Corporation, +1-216-252-4864, [email protected] Web Site: http://corporate.americangreetings.com
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