American Greetings Announces Third Quarter Earnings
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<p><span class="xn-location">CLEVELAND</span>, <span class="xn-chron">Dec. 22, 2010</span> /CNW/ -- American Greetings Corporation (NYSE: AM) today announced its results for the third fiscal quarter ended <span class="xn-chron">November 26, 2010</span>.</p>
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Third Quarter Results
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<p>For the third quarter of fiscal 2011, the Company reported total revenue of <span class="xn-money">$430.1 million</span>, pre-tax income of <span class="xn-money">$51.5 million</span>, and net income of <span class="xn-money">$32.2 million</span> or 78 cents per share (all per-share amounts assume dilution). Compared to the prior year, revenue was down approximately <span class="xn-money">$10.0 million</span>. Approximately <span class="xn-money">$8.6 million</span> of the revenue decline was a result of the party goods transaction that occurred in <span class="xn-chron">December 2009</span>. Holding aside the effect of the party goods transaction, revenue declined about <span class="xn-money">$1.4 million</span>.</p>
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<p>For the third quarter of fiscal 2010, the Company reported total revenue of <span class="xn-money">$440.2 million</span>, pre-tax income of <span class="xn-money">$38.1 million</span>, and net income of <span class="xn-money">$29.7 million</span> or 75 cents per share. Included within these results were pre-tax costs related to the wind down of the Mexican operations of <span class="xn-money">$5.9 million</span> (after-tax of approximately <span class="xn-money">$5.7 million</span>) or approximately 14 cents per share as well as incremental variable compensation expense of approximately <span class="xn-money">$12.1 million</span> (after-tax of approximately <span class="xn-money">$7.4 million</span>) or approximately 19 cents during the quarter.</p>
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Management Comments and Outlook
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<p>Chief Executive Officer Zev Weiss said, "I am pleased with our overall performance in the third fiscal quarter. We have managed to continuously develop new and innovative products while tightly managing expenses, which has resulted in solid earnings for the quarter. During the fourth fiscal quarter, we will face the traditional risk of Christmas and Valentines Day holidays, and this year we face the additional uncertainty of the pace of the economic recovery, which makes consumer buying patterns more difficult to predict. However, we believe our refined business portfolio, along with the changes we have made to our capital structure over the last several years, position the Company well for the opportunities and challenges ahead. We expect to at least meet our projected cash flow from operations minus capital expenditures goal of <span class="xn-money">$125 million</span> with upside to this estimate based on further improvements to the balance sheet and lower than anticipated capital expenditures."</p>
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<p>Previously, for fiscal year 2011, the Company projected 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 of approximately <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
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<p>For more than 100 years, American Greetings Corporation (NYSE: AM) has been a creator and manufacturer 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 one of the largest collections 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
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<p>Certain revenue, after-tax, earnings per share, and liquidity amounts included in this 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 providing adjusted revenue information is useful to investors as it explains the impact of the party goods transaction on the Company's total revenue. In addition, Management believes that providing after-tax and earnings per share information is useful to investors 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;
-- competitive terms of sale offered to customers;
-- 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;
-- 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 the
Company's cost reduction efforts;
-- the timing and impact of converting customers to a scan-based trading
model;
-- the Company's ability to successfully integrate both Recycled Paper
Greetings and Papyrus;
-- 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;
-- the ability to successfully implement, or achieve the desired benefits
associated with, any information systems refresh the Company may
implement;
-- 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;
-- escalation in the cost of providing employee health care;
-- the Company's ability to achieve the desired accretive effect from any
share repurchase programs;
-- the Company's ability to comply with its debt covenants;
-- 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, and the ability to adapt to rapidly changing social media and the digital photo sharing space.</p>
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<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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AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF INCOME
FISCAL YEAR ENDING FEBRUARY 28, 2011
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<p> </p>
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<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
------------------ -----------------
November November November November
26, 27, 26, 27,
--------- --------- --------- ---------
2010 2009 2010 2009
---- ---- ---- ----
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<p> </p>
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Net sales $421,990 $431,512 $1,147,434 $1,189,428
Other revenue 8,148 8,654 21,831 20,010
----- ----- ------ ------
Total revenue 430,138 440,166 1,169,265 1,209,438
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Material, labor and
other production
costs 199,177 204,997 502,903 525,414
Selling,
distribution and
marketing expenses 117,314 124,167 347,183 373,915
Administrative and
general expenses 58,725 69,233 186,950 180,867
Other operating
(income) expense -
net (1,048) (575) (2,578) 25,801
------ ---- ------ ------
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<p>Operating income 55,970 42,344 134,807 103,441</p>
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Interest expense 6,221 6,331 19,141 19,989
Interest income (176) (299) (586) (1,564)
Other non-operating
income - net (1,618) (1,827) (3,321) (4,160)
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Income before income
tax expense 51,543 38,139 119,573 89,176
Income tax expense 19,380 8,444 48,039 26,398
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Net income $32,163 $29,695 $71,534 $62,778
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Earnings per share -
basic $0.80 $0.75 $1.79 $1.59
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Earnings per share -
assuming dilution $0.78 $0.75 $1.75 $1.59
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<p> </p>
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Average number of
common shares
outstanding 40,071,916 39,391,399 39,912,378 39,469,293
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Average number of
common shares
outstanding -
assuming dilution 40,985,909 39,755,233 40,911,964 39,495,247
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<p> </p>
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Dividends declared
per share $0.14 $0.12 $0.42 $0.24
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<p> </p>
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AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 28, 2011
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<p> </p>
<p> (In thousands of dollars)</p>
<p> </p>
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(Unaudited)
-----------
November November
26, 27,
--------- ---------
2010 2009
---- ----
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<p> </p>
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $93,899 $50,563
Trade accounts receivable, net 206,286 208,964
Inventories 181,511 168,103
Deferred and refundable income taxes 70,847 59,791
Assets held for sale 12,325 21,931
Prepaid expenses and other 127,598 151,842
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Total current assets 692,466 661,194
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<p> </p>
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GOODWILL 31,686 38,177
OTHER ASSETS 403,815 349,284
DEFERRED AND REFUNDABLE INCOME TAXES 146,767 173,847
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<p> </p>
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Property, plant and equipment - at cost 851,636 860,670
Less accumulated depreciation 614,894 602,863
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PROPERTY, PLANT AND EQUIPMENT - NET 236,742 257,807
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$1,511,476 $1,480,309
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $- $1,000
Accounts payable 97,899 86,835
Accrued liabilities 80,744 91,469
Accrued compensation and benefits 59,128 74,770
Income taxes payable 39,593 10,479
Other current liabilities 86,419 87,221
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Total current liabilities 363,783 351,774
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<p> </p>
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LONG-TERM DEBT 232,078 355,974
OTHER LIABILITIES 173,017 129,517
DEFERRED INCOME TAXES AND NONCURRENT INCOME TAXES
PAYABLE 32,824 31,633
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<p> </p>
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SHAREHOLDERS' EQUITY
Common shares - Class A 37,199 36,111
Common shares - Class B 2,905 3,232
Capital in excess of par value 486,399 456,478
Treasury stock (952,183) (946,569)
Accumulated other comprehensive loss (27,114) (35,824)
Retained earnings 1,162,568 1,097,983
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Total shareholders' equity 709,774 611,411
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$1,511,476 $1,480,309
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AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDING FEBRUARY 28, 2011
(In thousands of dollars)
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<p> </p>
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(Unaudited)
Nine Months Ended
-----------------
November November
26, 27,
--------- ---------
2010 2009
---- ----
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<p> </p>
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OPERATING ACTIVITIES:
Net income $71,534 $62,778
Adjustments to reconcile net
income to cash flows from
operating activities:
Net (gain) loss on dispositions (254) 27,671
Net (gain) loss on disposal of
fixed assets (1,599) 163
Depreciation and intangible
assets amortization 30,336 34,121
Deferred income taxes 3,957 20,133
Other non-cash charges 12,351 7,096
Changes in operating assets and
liabilities, net of acquisitions
and dispositions:
Trade accounts receivable (71,336) (124,205)
Inventories (16,461) 16,651
Other current assets (694) 16,927
Income taxes 36,187 17,711
Deferred costs - net 19,365 1,904
Accounts payable and other
liabilities (31,541) (10,636)
Other - net 5,896 3,886
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Total Cash Flows From Operating
Activities 57,741 74,200
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<p> </p>
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INVESTING ACTIVITIES:
Property, plant and equipment
additions (19,660) (21,368)
Cash payments for business
acquisitions, net of cash
acquired - (19,300)
Proceeds from sale of fixed
assets 3,835 886
Proceeds from escrow related to
party goods transaction 25,151 -
Other - net - 4,713
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Total Cash Flows From Investing
Activities 9,326 (35,069)
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<p> </p>
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FINANCING ACTIVITIES:
Net decrease in long-term debt (98,250) (34,600)
Net decrease in short-term debt (1,000) -
Sale of stock under benefit plans 19,831 3,683
Purchase of treasury shares (13,439) (11,826)
Dividends to shareholders (16,737) (14,327)
Debt issuance costs (3,178) -
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Total Cash Flows From Financing
Activities (112,773) (57,070)
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EFFECT OF EXCHANGE RATE CHANGES
ON CASH 1,656 8,286
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DECREASE IN CASH AND CASH
EQUIVALENTS (44,050) (9,653)
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<p> </p>
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Cash and Cash Equivalents at
Beginning of Year 137,949 60,216
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Cash and Cash Equivalents at End
of Period $93,899 $50,563
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AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED SEGMENT DISCLOSURES
FISCAL YEAR ENDING FEBRUARY 28, 2011
(In thousands of dollars)
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<p> </p>
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(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
November November November November
26, 27, 26, 27,
--------- --------- --------- ---------
2010 2009 2010 2009
---- ---- ---- ----
Total Revenue:
North American
Social
Expression
Products $312,773 $329,869 $865,664 $920,568
Intersegment
items - - - (5,104)
Exchange rate
adjustment 4,748 2,761 12,324 5,174
----- ----- ------ -----
Net 317,521 332,630 877,988 920,638
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<p> </p>
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International
Social
Expression
Products 77,601 73,972 190,364 184,613
Exchange rate
adjustment 2,502 2,736 2,048 1,597
----- ----- ----- -----
Net 80,103 76,708 192,412 186,210
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Retail Operations - - - 11,727
Exchange rate
adjustment - - - 112
--- --- --- ---
Net - - - 11,839
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AG Interactive 19,234 19,393 56,160 56,743
Exchange rate
adjustment (1) 84 (206) 76
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Net 19,233 19,477 55,954 56,819
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Non-reportable
segments 13,281 11,185 42,911 33,546
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<p> </p>
<p>Unallocated - 166 - 386</p>
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$430,138 $440,166 $1,169,265 $1,209,438
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Segment Earnings
(Loss):
North American
Social
Expression
Products $54,277 $46,675 $155,997 $167,441
Intersegment
items - - - (3,511)
Exchange rate
adjustment 2,218 1,246 5,661 2,318
----- ----- ----- -----
Net 56,495 47,921 161,658 166,248
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<p> </p>
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International
Social
Expression
Products 10,001 9,404 14,196 12,227
Exchange rate
adjustment (19) 154 (55) (15)
--- --- --- ---
Net 9,982 9,558 14,141 12,212
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<p> </p>
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Retail Operations - - - (34,830)
Exchange rate
adjustment - - - (285)
--- --- --- ----
Net - - - (35,115)
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<p> </p>
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AG Interactive 5,134 1,510 10,553 5,209
Exchange rate
adjustment 1 61 (160) 7
--- --- ---- ---
Net 5,135 1,571 10,393 5,216
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Non-reportable
segments 1,438 1,634 6,907 1,872
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Unallocated (21,761) (22,507) (73,924) (61,550)
Exchange rate
adjustment 254 (38) 398 293
Net (21,507) (22,545) (73,526) (61,257)
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$51,543 $38,139 $119,573 $89,176
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For further information: Gregory M. Steinberg, Treasurer and Executive Director of Investor Relations, American Greetings Corporation, +1-216-252-4864, [email protected] Web Site: http://corporate.americangreetings.com
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