Exhibit 99.2
AMERICAN GREETINGS ANNOUNCES THIRD QUARTER EARNINGS
CLEVELAND (December 23, 2009) – 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 $440.2 million, pre-tax income of $38.1 million, and net income of $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 $5.9 million (after-tax of approximately $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 $12.1 million (after-tax of approximately $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 $454.1 million, a pre-tax loss of $228.7 million, and a net loss of $193.3 million or $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 $242.9 million (after-tax of approximately $202.6 million) that reduced earnings per share by approximately $4.46 during the quarter. Within the Retail Operations segment, the Company recorded a non-cash pre-tax asset impairment charge of $3.9 million (after-tax of approximately $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 $7.0 million (after-tax of approximately $4.7 million) that reduced earnings per share by approximately 10 cents. Partially offsetting these charges was a reduction of variable compensation expense of $11.1 million (after-tax of approximately $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 $105 million to $115 million and capital expenditures of approximately $35 million to $45 million resulting in cash flow from operating activities minus capital expenditures of approximately $70 million. In September, the Company raised its expectation of cash flow from operating activities to at least $160 million
and capital expenditures of approximately $35 million resulting in cash flow from operating activities minus capital expenditures to be greater than $125 million. The Company now expects cash flow from operating activities of at least $195 million and capital expenditures of approximately $35 million resulting in cash flow from operating activities minus capital expenditures to be greater than $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 athttp://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 $1.7 billion, and its products can be found in retail outlets worldwide. For more information on the Company, visithttp://corporate.americangreetings.com.
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CONTACT:
Gregory M. Steinberg
Treasurer and Director of Investor Relations
American Greetings Corporation
216-252-4864
investor.relations@amgreetings.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.
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 | |||||||||||||||
November 27, 2009 | November 28, 2008 | November 27, 2009 | November 28, 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, 2009 | November 28, 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, 2009 | November 28, 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, 2009 | November 28, 2008 | November 27, 2009 | November 28, 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 | ) | |||||||