American Greetings Announces Third Quarter Earnings
By American Greetings Corporation, PRNETuesday, December 22, 2009
CLEVELAND, December 23 - American Greetings Corporation (NYSE: AM) today announced its third
quarter results for the quarter ended November 27, 2009.
Third Quarter Results
For the third quarter of fiscal 2010, the Company reported total revenue
of US$440.2 million, pre-tax income of US$38.1 million, and net income of
US$29.7 million 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 US$5.9 million (after-tax of approximately US$5.7 million) 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 US$12.1 million (after-tax of
approximately US$7.4 million) that reduced earnings per share by
approximately 19 cents during the quarter.
For the third quarter of fiscal 2009, the Company reported total revenue
of US$454.1 million, a pre-tax loss of US$228.7 million, and a net loss of
US$193.3 million or US$4.25 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 US$242.9
million (after-tax of approximately US$202.6 million) that reduced earnings
per share by approximately US$4.46 during the quarter. Within the Retail
Operations segment, the Company recorded a non-cash pre-tax asset impairment
charge of US$3.9 million (after-tax of approximately US$2.7 million) that
reduced earnings per share by approximately 6 cents during the quarter. The
Company also recorded a pre-tax severance charge of US$7.0 million (after-tax
of approximately US$4.7 million) that reduced earnings per share by
approximately 10 cents. Partially offsetting these charges was a reduction of
variable compensation expense of US$11.1 million (after-tax of approximately
US$7.5 million), which increased the Company's earnings per share by
approximately 17 cents.
Management Comments and Outlook
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."
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 US$105 million to US$115 million
and capital expenditures of approximately US$35 million to US$45 million
resulting in cash flow from operating activities minus capital expenditures
of approximately US$70 million. In September, the Company raised its
expectation of cash flow from operating activities to at least US$160 million
and capital expenditures of approximately US$35 million resulting in cash
flow from operating activities minus capital expenditures to be greater than
US$125 million. The Company now expects cash flow from operating activities
of at least US$195 million and capital expenditures of approximately US$35
million resulting in cash flow from operating activities minus capital
expenditures to be greater than US$160 million.
Conference Call on the Web
American Greetings will broadcast its conference call live on the
Internet at 9:00 a.m. Eastern time today. The conference call will be
accessible through the Investor Relations section of the American Greetings
Web site at investors.americangreetings.com. A replay of the call will
be available on the site.
About American Greetings Corporation
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 Cleveland, Ohio, American
Greetings generates annual revenue of approximately US$1.7 billion, and its
products can be found in retail outlets worldwide. For more information on
the Company, visit corporate.americangreetings.com.
Non-GAAP Measures
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.
Factors That May Affect Future Results
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:
- 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.
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.
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.
(All amounts in US Dollars unless otherwise specified)
AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2010
(In thousands of dollars except share and per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
---------------------- -----------------------
Nov. 27, Nov. 28, Nov. 27, Nov. 28,
2009 2008 2009 2008
--------- --------- ---------- ----------
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
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)
--------- --------- ----------- -----------
Operating income (loss) 42,344 (222,188) 103,441 (195,654)
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)
--------- --------- ----------- -----------
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)
--------- --------- ----------- -----------
Net income (loss) $ 29,695 $(193,311) $ 62,778 $ (177,681)
========= ========= =========== ===========
Earnings (loss) per
share - basic $ 0.75 $ (4.25) $ 1.59 $ (3.75)
Earnings (loss) per
share - assuming
dilution $ 0.75 $ (4.25) $ 1.59 $ (3.75)
Average number of
common shares
outstanding 39,391,399 45,460,385 39,469,293 47,343,640
Average number of
common shares
outstanding -
assuming dilution 39,755,233 45,460,385 39,495,247 47,343,640
Dividends declared
per share $ 0.12 $ 0.12 $ 0.24 $ 0.36
AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 28, 2010
(In thousands of dollars)
(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
GOODWILL 38,177 56,965
OTHER ASSETS 345,438 411,582
DEFERRED AND REFUNDABLE INCOME TAXES 169,566 166,269
Property, plant and equipment -
at cost 882,546 951,905
Less accumulated depreciation 610,609 664,715
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - NET 271,937 287,190
----------- -----------
$ 1,464,964 $ 1,637,775
=========== ===========
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
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
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
----------- -----------
Total shareholders' equity 611,411 631,682
----------- -----------
$ 1,464,964 $ 1,637,775
=========== ===========
AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDING FEBRUARY 28, 2010
(In thousands of dollars)
(Unaudited)
Nine Months Ended
-----------------------------
November 27, November 28,
2009 2008
------------ --------------
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)
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)
--------- ----------
Total Cash Flows From Investing
Activities (35,069) (103,820)
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)
--------- ----------
Total Cash Flows From Financing
Activities (57,070) 137,524
EFFECT OF EXCHANGE RATE CHANGES ON CASH 8,286 (17,436)
--------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (9,653) (67,896)
Cash and Cash Equivalents at Beginning
of Year 60,216 123,500
--------- ----------
Cash and Cash Equivalents at End of Period $ 50,563 $ 55,604
========= ==========
AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED SEGMENT DISCLOSURES
FISCAL YEAR ENDING FEBRUARY 28, 2010
(In thousands of dollars)
(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
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
Retail Operations - 36,766 11,727 109,829
Exchange rate adjustment - 1,333 112 7,917
-------- --------- ---------- ----------
Net - 38,099 11,839 117,746
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
Non-reportable segments 11,185 15,581 33,546 39,143
Unallocated 166 - 386 -
-------- --------- ---------- ----------
$440,166 $ 454,084 $1,209,438 $1,268,219
======== ========= ========== ==========
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
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)
Retail Operations - (9,624) (34,830) (19,563)
Exchange rate adjustment - 81 (285) (69)
-------- --------- ---------- ----------
Net - (9,543) (35,115) (19,632)
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)
Non-reportable segments 1,634 1,614 1,872 2,189
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)
-------- --------- ---------- ----------
$ 38,139 $(228,667) $ 89,176 $ (207,066)
======== ========= ========== ==========
Gregory M. Steinberg, Treasurer and Director of Investor Relations, American Greetings Corporation, +1-216-252-4864, investor.relations at amgreetings.com
Tags: American Greetings Corporation, Cleveland, Ohio, United Kingdom
