American Greetings Announces Third Quarter Earnings

Dec 22, 2010, 07:30 ET from American Greetings Corporation

CLEVELAND, Dec. 22, 2010 /PRNewswire-FirstCall/ -- American Greetings Corporation (NYSE: AM) today announced its results for the third fiscal quarter ended November 26, 2010.

Third Quarter Results

For the third quarter of fiscal 2011, the Company reported total revenue of $430.1 million, pre-tax income of $51.5 million, and net income of $32.2 million or 78 cents per share (all per-share amounts assume dilution).  Compared to the prior year, revenue was down approximately $10.0 million.  Approximately $8.6 million of the revenue decline was a result of the party goods transaction that occurred in December 2009.  Holding aside the effect of the party goods transaction, revenue declined about $1.4 million.  

For the third quarter of fiscal 2010, the Company reported total revenue of $440.2 million, pre-tax income of $38.1 million, and net income of $29.7 million or 75 cents per share.  Included within these results were pre-tax costs related to the wind down of the Mexican operations of $5.9 million (after-tax of approximately $5.7 million) or approximately 14 cents per share as well as incremental variable compensation expense of approximately $12.1 million (after-tax of approximately $7.4 million) or approximately 19 cents during the quarter.

Management Comments and Outlook

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 $125 million with upside to this estimate based on further improvements to the balance sheet and lower than anticipated capital expenditures."

Previously, for fiscal year 2011, the Company projected cash flow from operating activities of about $165 million and capital expenditures of approximately $40 million resulting in cash flow from operating activities minus capital expenditures of approximately $125 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 http://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 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 Cleveland, Ohio, American Greetings generates annual revenue of approximately $1.6 billion, and its products can be found in retail outlets worldwide.  For more information on the Company, visit http://corporate.americangreetings.com.

Non-GAAP Measures

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.  

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;
  • 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.

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.

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.

AMERICAN GREETINGS CORPORATION

THIRD QUARTER CONSOLIDATED STATEMENT OF INCOME

FISCAL YEAR ENDING FEBRUARY 28, 2011



(In thousands of dollars except share and per share amounts)




(Unaudited)



Three Months Ended


Nine Months Ended



November 26,

2010


November 27,

2009


November 26,

2010


November 27,

2009










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










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










Operating income

55,970


42,344


134,807


103,441










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)










Income before income tax expense

51,543


38,139


119,573


89,176

Income tax expense

19,380


8,444


48,039


26,398










Net income

$      32,163


$      29,695


$      71,534


$      62,778



















Earnings per share - basic

$          0.80


$          0.75


$          1.79


$          1.59



















Earnings per share - assuming dilution

$          0.78


$          0.75


$          1.75


$          1.59



















Average number of common shares outstanding

40,071,916


39,391,399


39,912,378


39,469,293










Average number of common shares outstanding - assuming dilution

40,985,909


39,755,233


40,911,964


39,495,247










Dividends declared per share                        

$          0.14


$          0.12


$          0.42


$          0.24



AMERICAN GREETINGS CORPORATION 

THIRD QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FISCAL YEAR ENDING FEBRUARY 28, 2011


(In thousands of dollars)




(Unaudited)




November 26,

2010


November 27,

2009







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



Total current assets

692,466


661,194







GOODWILL

31,686


38,177

OTHER ASSETS

403,815


349,284

DEFERRED AND REFUNDABLE INCOME TAXES

146,767


173,847







Property, plant and equipment - at cost

851,636


860,670

Less accumulated depreciation

614,894


602,863

PROPERTY, PLANT AND EQUIPMENT - NET

236,742


257,807




$ 1,511,476


$ 1,480,309













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



Total current liabilities

363,783


351,774







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







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



Total shareholders' equity

709,774


611,411




$ 1,511,476


$ 1,480,309



AMERICAN GREETINGS CORPORATION 

THIRD QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS

FISCAL YEAR ENDING FEBRUARY 28, 2011

(In thousands of dollars)












(Unaudited)





Nine Months Ended





November 26,

2010


November 27,

2009








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



Total Cash Flows From Operating Activities

57,741


74,200








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



Total Cash Flows From Investing Activities

9,326


(35,069)








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)


-



Total Cash Flows From Financing Activities

(112,773)


(57,070)








EFFECT OF EXCHANGE RATE CHANGES ON CASH

1,656


8,286








DECREASE IN CASH AND CASH EQUIVALENTS

(44,050)


(9,653)










Cash and Cash Equivalents at Beginning of Year

137,949


60,216



Cash and Cash Equivalents at End of Period

$ 93,899


$ 50,563



AMERICAN GREETINGS CORPORATION 

THIRD QUARTER CONSOLIDATED SEGMENT DISCLOSURES

FISCAL YEAR ENDING FEBRUARY 28, 2011

(In thousands of dollars)




(Unaudited)



Three Months Ended


Nine Months Ended



November 26,

2010


November 27,

2009


November 26,

2010


November 27,

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










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










Retail Operations

-


-


-


11,727

Exchange rate adjustment

-


-


-


112

Net

-


-


-


11,839










AG Interactive

19,234


19,393


56,160


56,743

Exchange rate adjustment

(1)


84


(206)


76

Net

19,233


19,477


55,954


56,819










Non-reportable segments

13,281


11,185


42,911


33,546










Unallocated

-


166


-


386












$ 430,138


$ 440,166


$ 1,169,265


$ 1,209,438



















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










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










Retail Operations

-


-


-


(34,830)

Exchange rate adjustment

-


-


-


(285)

Net

-


-


-


(35,115)










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










Non-reportable segments

1,438


1,634


6,907


1,872










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)












$   51,543


$   38,139


$    119,573


$      89,176



SOURCE American Greetings Corporation



RELATED LINKS

http://corporate.americangreetings.com