American Greetings Announces Significantly Improved Fourth Quarter Earnings

CLEVELAND, April 22 /PRNewswire-FirstCall/ -- American Greetings Corporation (NYSE: AM) today announced its financial results for both the fourth fiscal quarter and fiscal year ended February 28, 2010.

Fourth Quarter Results

For the fourth quarter of fiscal 2010, the Company reported total revenue of $426.4 million, pre-tax income of $31.8 million, and net income of $18.8 million or 46 cents per share (all per-share amounts assume dilution).  The Company recorded pre-tax costs of $12.3 million (after-tax of approximately $8.6 million, reducing earnings per share by about 21 cents) related to the previously announced wind down of its operations in Mexico. Other pre-tax costs included $19.0 million for the settlement of a lawsuit (after-tax of about $11.6 million, reducing earnings per share by about 29 cents) and $5.9 million for severance (after-tax of about $3.6 million, reducing earnings per share by about 9 cents). These costs were partially offset by a $21.2 million pre-tax net benefit from the previously announced party goods transaction (after-tax of about $12.9 million, increasing earnings per share by about 33 cents).  The $21.2 million net benefit included a $34.2 million gain and $13.0 million of impairments related to the exit of the party goods manufacturing facility.  The Company also recognized a $3.3 million pre-tax gain related to the liquidation of a business in France (the after-tax amount was also about $3.3 million, increasing earnings per share by about 8 cents).

For the fourth quarter of fiscal 2009, the Company reported total revenue of $422.5 million, a pre-tax loss from continuing operations of $67.9 million, and a net loss of $50.1 million or $1.13 per share.  During the fourth quarter of fiscal 2009, the Company recognized pre-tax goodwill impairment charges of $47.3 million (after-tax of approximately $42.6 million that reduced earnings per share by 97 cents).  In addition, the Company recognized atypical expenses in its licensing business of $16.4 million (after-tax of approximately $10.0 million reducing earnings per share by 23 cents).  The Company also recognized a pre-tax severance charge of $7.5 million (after-tax of about $4.6 million, decreasing earnings per share by about 10 cents).

Full Year Results

For the full year fiscal 2010, the Company reported total revenue of $1,635.9 million, pre-tax income of $121.0 million, and net income of $81.6 million or $2.03 per share.  The Company recorded costs of approximately $18.2 million (after-tax of approximately $6.5 million reducing earnings per share by approximately 16 cents) related to the previously announced wind down of its operations in Mexico.  The Company also incurred a $24.0 million pre-tax charge for the settlement of a lawsuit (after-tax of about $14.7 million, reducing earnings per share by about 37 cents), pre-tax severance expense of $9.4 million (after-tax of about $5.8 million, reducing earnings per share about 14 cents) and a $28.3 million pre-tax charge related to the divestiture of our retail business earlier in the year (after-tax of about $17.3 million, reducing earnings per share approximately by 43 cents).  These costs were partially offset by a  $21.2 million pre-tax net benefit related to the party goods transaction (after-tax of about $12.9 million, increasing earnings per share by about 33 cents), a $3.3 million pre-tax gain related to the liquidation of a business in France (the after-tax amount was also about $3.3 million, increasing earnings per share by about 8 cents) and a $7.9 million pre-tax benefit associated with a legacy insurance program (after-tax of about $7.6 million, increasing earnings per share about 19 cents).

Management Comments and Outlook

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 $171 million, 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."  

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 December 2009.  The Company expects 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 to be around $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 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 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 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.

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:

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.

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.

SOURCE American Greetings Corporation