American Greetings Announces Third Quarter Earnings


    



    
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<p><location>CLEVELAND</location>, <chron>Dec. 23</chron> /CNW/ -- American Greetings Corporation (NYSE:   AM) today announced its third quarter results for the quarter ended <chron>November 27, 2009</chron>.</p>
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    Third Quarter Results
    
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<p>For the third quarter of fiscal 2010, the Company reported total revenue of <money>$440.2 million</money>, pre-tax income of <money>$38.1 million</money>, and net income of <money>$29.7 million</money> or 75 cents per share (all per-share amounts assume dilution).  The Company recorded, within the North American Social Expression Products segment, pre-tax employee termination and estimated asset impairment costs related to the previously announced wind down of the Mexican operations of <money>$5.9 million</money> (after-tax of approximately <money>$5.7 million</money>) that reduced earnings per share by approximately 14 cents during the quarter.  The Company also recorded, due to better than expected performance, incremental variable compensation expense of approximately <money>$12.1 million</money> (after-tax of approximately <money>$7.4 million</money>) that reduced earnings per share by approximately 19 cents during the quarter.</p>
<p/>
<p>For the third quarter of fiscal 2009, the Company reported total revenue of <money>$454.1 million</money>, a pre-tax loss of <money>$228.7 million</money>, and a net loss of <money>$193.3 million</money> or <money>$4.25</money> per share.  Included in the prior period's results are several charges recorded by the Company.  Within the International Social Expression Products and AG Interactive segments, the Company recorded non-cash, pre-tax goodwill and other asset impairment charges of <money>$242.9 million</money> (after-tax of approximately <money>$202.6 million</money>) that reduced earnings per share by approximately <money>$4.46</money> during the quarter.  Within the Retail Operations segment, the Company recorded a non-cash pre-tax asset impairment charge of <money>$3.9 million</money> (after-tax of approximately <money>$2.7 million</money>) that reduced earnings per share by approximately 6 cents during the quarter.  The Company also recorded a pre-tax severance charge of <money>$7.0 million</money> (after-tax of approximately <money>$4.7 million</money>) that reduced earnings per share by approximately 10 cents.  Partially offsetting these charges was a reduction of variable compensation expense of <money>$11.1 million</money> (after-tax of approximately <money>$7.5 million</money>), which increased the Company's earnings per share by approximately 17 cents.</p>
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    Management Comments and Outlook
    
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<p>Chief Executive Officer Zev Weiss said, "For the third consecutive quarter, I am very pleased with our earnings performance and strong cash flow.  We continue to develop new products that consumers find unique and fresh.  I believe the product content innovation over the last couple of years as well as the portfolio changes and operational improvements we have made this year are clearly contributing to the results of this quarter.  In this challenging economic environment, we could not have achieved these results without the hard work of all our associates and I am grateful for their dedication."</p>
<p/>
<p>As a result of the strong cash flow performance during the first nine months of the fiscal year, the Company raised its fiscal 2010 cash flow estimate.  At the beginning of the fiscal year, the Company expected cash flow from operating activities of approximately <money>$105 million to $115 million</money> and capital expenditures of approximately <money>$35 million to $45 million</money> resulting in cash flow from operating activities minus capital expenditures of approximately <money>$70 million</money>.  In September, the Company raised its expectation of cash flow from operating activities to at least <money>$160 million</money> and capital expenditures of approximately <money>$35 million</money> resulting in cash flow from operating activities minus capital expenditures to be greater than <money>$125 million</money>.  The Company now expects cash flow from operating activities of at least <money>$195 million</money> and capital expenditures of approximately <money>$35 million</money> resulting in cash flow from operating activities minus capital expenditures to be greater than <money>$160 million</money>.</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 <chron>9:00 a.m. Eastern time</chron> 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
    
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<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 brands 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 <location>Cleveland</location>, Ohio, American Greetings generates annual revenue of approximately <money>$1.7 billion</money>, 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
    
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<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 and the appropriate statutory 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>
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    Factors That May Affect Future Results
    
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<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>
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    --  a weak retail environment and general economic conditions;
    --  the ability to achieve both the desired benefits from the strategic
        alliance with Amscan as well as ensuring a seamless transition for
        affected retail customers and consumers;
    --  the ability to successfully integrate acquisitions, including the
        recent acquisitions of Recycled Paper Greetings and the Papyrus brand;
    --  the Company's ability to successfully complete the sale of the
        Strawberry Shortcake and Care Bears properties;
    --  the Company's successful transition of the Retail Operations segment
to
        its buyer, Schurman Fine Papers, and the ability to achieve the
desired
        benefits associated with this and other dispositions;
    --  retail consolidations, acquisitions and bankruptcies, including the
        possibility of resulting adverse changes to retail contract terms;
    --  the ability to achieve the desired benefits associated with its cost
        reduction efforts;
    --  competitive terms of sale offered to customers;
    --  the Company's ability to comply with its debt covenants;
    --  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;
    --  consumer acceptance of products as priced and marketed;
    --  the impact of technology on core product sales;
    --  the timing and impact of converting customers to a scan-based trading
        model;
    --  escalation in the cost of providing employee health care;
    --  the ability to successfully implement, or achieve the desired benefits
        associated with, any information systems refresh the Company may
        implement;
    --  the Company's ability to achieve the desired accretive effect from any
        share repurchase programs;
    --  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
    --  the outcome of any legal claims known or unknown.

    
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<p>Risks pertaining specifically to AG Interactive include the viability of online advertising, subscriptions as revenue generators, the ability to adapt to rapidly changing social media, and the ability to gain a leadership position in 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>
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<p> </p>
<p> </p>
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                               AMERICAN GREETINGS CORPORATION
                       THIRD QUARTER CONSOLIDATED STATEMENT OF OPERATIONS
                          FISCAL YEAR ENDING FEBRUARY 28, 2010
    
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<p> </p>
<p>         (In thousands of dollars except share and per share amounts)</p>
<p> </p>
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                                               (Unaudited)
                              Three Months Ended        Nine Months Ended
                            ----------------------   -----------------------
                             Nov. 27,     Nov. 28,     Nov. 27,     Nov. 28,
                               2009         2008         2009         2008
                            ---------    ---------    ----------   ----------
    
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<p> </p>
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    Net sales               $ 431,512    $ 444,527   $ 1,189,428   $1,242,932
    Other revenue               8,654        9,557        20,010       25,287
                            ---------    ---------   -----------  -----------
    Total revenue             440,166      454,084     1,209,438    1,268,219
    
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<p> </p>
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    Material, labor and
     other production costs   204,997      223,214       525,414      586,668
    Selling, distribution
     and marketing
     expenses                 124,167      159,819       373,915      465,081
    Administrative and
     general expenses          69,233       50,841       180,867      170,564
    Goodwill and other
     intangible assets
     impairment                     -      242,889             -      242,889
    Other operating (income)
     expense - net               (575)        (491)       25,801       (1,329)
                            ---------    ---------   -----------  -----------
    
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<p> </p>
<p>Operating income (loss)    42,344     (222,188)      103,441     (195,654)</p>
<p> </p>
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    Interest expense            6,331        6,634        19,989       16,973
    Interest income              (299)        (947)       (1,564)      (2,835)
    Other non-operating
    (income) expense - net     (1,827)         792        (4,160)      (2,726)
                            ---------    ---------   -----------  -----------
    
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<p> </p>
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    Income (loss) before
     income tax expense
     (benefit)                 38,139     (228,667)       89,176     (207,066)
    Income tax expense
     (benefit)                  8,444      (35,356)       26,398      (29,385)
                            ---------    ---------   -----------  -----------
    
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<p> </p>
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    Net income (loss)       $  29,695    $(193,311)  $    62,778   $ (177,681)
                            =========    =========   ===========  ===========
    
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<p> </p>
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    Earnings (loss) per
     share - basic          $    0.75    $   (4.25)  $      1.59   $    (3.75)
    
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<p> </p>
<p> </p>
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    Earnings (loss) per
     share - assuming
     dilution               $    0.75    $   (4.25)  $      1.59   $    (3.75)
    
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<p> </p>
<p> </p>
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    Average number of
     common shares
     outstanding           39,391,399   45,460,385    39,469,293   47,343,640
    
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<p> </p>
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    Average number of
     common shares
     outstanding -
     assuming dilution     39,755,233   45,460,385    39,495,247   47,343,640
    
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<p> </p>
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    Dividends declared
     per share             $    0.12     $    0.12   $      0.24   $     0.36





    
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<p> </p>
<p> </p>
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                                AMERICAN GREETINGS CORPORATION
                    THIRD QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                             FISCAL YEAR ENDING FEBRUARY 28, 2010
    
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<p> </p>
<p>                              (In thousands of dollars)</p>
<p> </p>
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                                                     (Unaudited)
                                        --------------------------------------
                                          November 27,          November 28,
                                              2009                  2008
                                        -----------------    -----------------
    ASSETS
    CURRENT ASSETS
      Cash and cash equivalents          $    50,563           $    55,604
      Trade accounts receivable, net         193,317               163,049
      Inventories                            176,161               244,918
      Deferred and refundable
        income taxes                          64,374                62,490
      Assets held for sale                     7,800                 9,810
      Prepaid expenses and other             147,631               179,898
                                         -----------           -----------
              Total current assets           639,846               715,769
    
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<p> </p>
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    GOODWILL                                  38,177                56,965
    OTHER ASSETS                             345,438               411,582
    DEFERRED AND REFUNDABLE INCOME TAXES     169,566               166,269
    
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<p> </p>
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    Property, plant and equipment -
     at cost                                 882,546               951,905
    Less accumulated depreciation            610,609               664,715
                                         -----------           -----------
    
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<p> </p>
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    PROPERTY, PLANT AND EQUIPMENT - NET      271,937               287,190
                                         -----------           -----------
    
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<p> </p>
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                                         $ 1,464,964           $ 1,637,775
                                         ===========           ===========
    
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<p> </p>
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    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT LIABILITIES
      Debt due within one year           $     1,000           $    23,445
      Accounts payable                        86,835               135,002
      Accrued liabilities                     75,822                78,607
      Accrued compensation and benefits       74,770                35,184
      Income taxes payable                    10,479                36,686
      Other current liabilities               87,221               106,436
                                         -----------           -----------
              Total current liabilities      336,127               415,360
    
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<p> </p>
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    LONG-TERM DEBT                           355,974               425,184
    OTHER LIABILITIES                        129,517               148,320
    DEFERRED INCOME TAXES AND
     NONCURRENT INCOME TAXES PAYABLE          31,935                17,229
    
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<p> </p>
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    SHAREHOLDERS' EQUITY
      Common shares - Class A                 36,111                41,917
      Common shares - Class B                  3,232                 3,495
      Capital in excess of par value         456,478               447,958
      Treasury stock                        (946,569)             (918,826)
      Accumulated other comprehensive
       loss                                  (35,824)              (48,334)
      Retained earnings                    1,097,983             1,105,472
                                         -----------           -----------
    
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<p> </p>
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              Total shareholders' equity     611,411               631,682
                                         -----------           -----------
    
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<p> </p>
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                                         $ 1,464,964           $ 1,637,775
                                         ===========           ===========




    
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<p> </p>
<p> </p>
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                           AMERICAN GREETINGS CORPORATION
                  THIRD QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS
                        FISCAL YEAR ENDING FEBRUARY 28, 2010
                            (In thousands of dollars)
    
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<p> </p>
<pre>
    
                                                         (Unaudited)
                                                      Nine Months Ended
                                                ------------------------------
                                                 November 27,    November 28,
                                                     2009           2008
                                                -------------   --------------
    
</pre>
<p> </p>
<pre>
    
    OPERATING ACTIVITIES:
      Net income (loss)                           $  62,778       $ (177,681)
      Adjustments to reconcile net income (loss)
       to cash flows from operating activities:
        Goodwill and other intangible assets
         impairment                                       -          242,889
        Net loss on dispositions                     27,671                -
        Net loss on disposal of fixed assets            163              642
        Depreciation and intangible assets
         amortization                                34,121           37,732
        Deferred income taxes                        20,133          (32,726)
        Other non-cash charges                        7,096            8,053
        Changes in operating assets and liabilities,
         net of acquisitions and dispositions:
          Trade accounts receivable                (124,205)        (115,086)
          Inventories                                17,703          (44,591)
          Other current assets                       16,948            9,538
          Deferred costs - net                        1,904            6,023
          Accounts payable and other liabilities      7,309          (17,452)
          Other - net                                 2,579           (1,505)
                                                  ---------       ----------
                Total Cash Flows From Operating
                 Activities                          74,200          (84,164)
    
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<p> </p>
<pre>
    
    INVESTING ACTIVITIES:
      Property, plant and equipment additions       (21,368)         (44,320)
      Cash payments for business acquisitions,
       net of cash acquired                         (19,300)         (15,625)
      Proceeds from sale of fixed assets                886              278
      Other - net                                     4,713          (44,153)
                                                  ---------       ----------
    
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<p> </p>
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                Total Cash Flows From Investing
                 Activities                         (35,069)        (103,820)
    
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<p> </p>
<pre>
    
    FINANCING ACTIVITIES:
      Net (decrease) increase in long-term debt     (34,600)         181,891
      Net increase in short-term debt                     -           23,445
      Sale of stock under benefit plans               3,683              494
      Purchase of treasury shares                   (11,826)         (51,190)
      Dividends to shareholders                     (14,327)         (17,116)
                                                  ---------       ----------
    
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<p> </p>
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                Total Cash Flows From Financing
                 Activities                         (57,070)         137,524
    
</pre>
<p> </p>
<pre>
    
    EFFECT OF EXCHANGE RATE CHANGES ON CASH           8,286          (17,436)
                                                  ---------       ----------
    
</pre>
<p> </p>
<p> </p>
<p>DECREASE IN CASH AND CASH EQUIVALENTS            (9,653)         (67,896)</p>
<p> </p>
<pre>
    
      Cash and Cash Equivalents at Beginning
       of Year                                       60,216          123,500
                                                  ---------       ----------
    
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<p> </p>
<pre>
    
      Cash and Cash Equivalents at End of Period  $  50,563       $   55,604
                                                  =========       ==========




    
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<p> </p>
<p> </p>
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                           AMERICAN GREETINGS CORPORATION
                   THIRD QUARTER CONSOLIDATED SEGMENT DISCLOSURES
                        FISCAL YEAR ENDING FEBRUARY 28, 2010
                              (In thousands of dollars)
    
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<p> </p>
<pre>
    
                                                (Unaudited)
                             Three Months Ended         Nine Months Ended
                            ------------------          -----------------
                          November 27, November 28,  November 27, November 28,
                             2009         2008          2009          2008
                          -----------  -----------   -----------  -----------
    Total Revenue:
    North American Social
     Expression Products    $329,953    $ 317,363    $  920,771   $  872,296
    Intersegment items             -      (17,454)       (5,104)     (44,480)
    Exchange rate adjustment   2,677        1,252         4,971        8,454
                            --------    ---------    ----------   ----------
    Net                      332,630      301,161       920,638      836,270
    
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<p> </p>
<pre>
    
    International Social
     Expression Products      62,066       61,316       154,826      152,604
    Exchange rate adjustment  14,642       17,252        31,384       60,248
                            --------    ---------    ----------   ----------
    Net                       76,708       78,568       186,210      212,852
    
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<p> </p>
<pre>
    
    Retail Operations              -       36,766        11,727      109,829
    Exchange rate adjustment       -        1,333           112        7,917
                            --------    ---------    ----------   ----------
    Net                            -       38,099        11,839      117,746
    
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<p> </p>
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    AG Interactive            19,070       20,332        55,779       60,565
    Exchange rate adjustment     407          343         1,040        1,643
                            --------    ---------    ----------   ----------
    Net                       19,477       20,675        56,819       62,208
    
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<p> </p>
<p>Non-reportable segments   11,185       15,581        33,546       39,143</p>
<p> </p>
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    Unallocated                  166            -           386            -
                            --------    ---------    ----------   ----------
    
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<p> </p>
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                            $440,166    $ 454,084    $1,209,438   $1,268,219
                            ========    =========    ==========   ==========
    
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<p> </p>
<p> </p>
<pre>
    
    Segment Earnings (Loss):
    North American Social
     Expression Products    $ 46,204    $  46,114    $  166,760   $  130,545
    Intersegment items             -      (12,554)       (3,511)     (32,704)
    Exchange rate adjustment   1,717           (7)        2,999        1,823
                            --------    ---------    ----------   ----------
    Net                       47,921       33,553       166,248       99,664
    
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<p> </p>
<pre>
    
    International Social
     Expression Products       7,765      (54,365)        9,985      (54,161)
    Exchange rate adjustment   1,793      (21,230)        2,227      (20,787)
                            --------    ---------    ----------   ----------
    Net                        9,558      (75,595)       12,212      (74,948)
    
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<p> </p>
<pre>
    
    Retail Operations              -       (9,624)      (34,830)     (19,563)
    Exchange rate adjustment       -           81          (285)         (69)
                            --------    ---------    ----------   ----------
    Net                            -       (9,543)      (35,115)     (19,632)
    
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<p> </p>
<pre>
    
    AG Interactive             1,254     (153,985)        4,550     (154,864)
    Exchange rate adjustment     317       (6,829)          666       (6,250)
                            --------    ---------    ----------   ----------
    Net                        1,571     (160,814)        5,216     (161,114)
    
</pre>
<p> </p>
<p>Non-reportable segments    1,634        1,614         1,872        2,189</p>
<p> </p>
<pre>
    
    Unallocated              (22,522)     (19,895)      (61,042)     (59,005)
    Exchange rate adjustment     (23)       2,013          (215)       5,780
                            --------    ---------    ----------   ----------
    Net                      (22,545)     (17,882)      (61,257)     (53,225)
                            --------    ---------    ----------   ----------
    
</pre>
<p> </p>
<pre>
    
                            $ 38,139    $(228,667)   $   89,176   $ (207,066)
                            ========    =========    ==========   ==========





    

For further information: For further information: Gregory M. Steinberg, Treasurer and Director of Investor Relations, American Greetings Corporation, +1-216-252-4864, investor.relations@amgreetings.com Web Site: http://corporate.americangreetings.com

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