American Greetings Announces Third Quarter Earnings

CLEVELAND, Dec. 22 /PRNewswire-FirstCall/ -- American Greetings Corporation today announced its third quarter results for the fiscal quarter ended November 30, 2005, and announced an 8 cent per share cash dividend.

Third Quarter Results

For the third quarter of fiscal 2006, the Company reported net sales of $558.6 million, pre-tax income of $25.0 million and income from continuing operations of $10.3 million or 16 cents per share (all per-share amounts assume dilution). Included in the 16 cents of earnings per share was a non- cash pre-tax goodwill impairment charge of $43.2 million (after-tax of approximately $33 million) that reduced earnings per share by 42 cents during the quarter. The Company believes that providing the earnings per share impact of the impairment charge is useful for investors who are focusing on core operating results and calculating comparability to prior periods and estimates.

In the prior year's third quarter, the Company reported net sales of $586.2 million, pre-tax income of $65.8 million and income from continuing operations of $40.3 million or 51 cents per share. Included within the prior year's third quarter were previously reported charges that reduced pre-tax income from continuing operations by $37.8 million.

Management Comments and Outlook

Chief Executive Officer Zev Weiss said, "We have recently reviewed various investment strategies, the probability of success and the return profile of each alternative, and have concluded that our best investment is in our own greeting card business. We believe our card business is poised for meaningful improvement. To enable that improvement, we are considering an investment of approximately $70 million to $100 million over the next couple of years, with the majority of that investment occurring during fiscal 2007."

Weiss added, "We have also considered many other ways to wisely deploy the outstanding cash flow of the last few years and have concluded that in addition to an investment in cards, we should also invest in our own shares when we believe they are trading at a discount to intrinsic value. We are considering a more aggressive share repurchase program and several other changes to our capital structure, including replacing our convertible bond which matures in July, 2006. Our objective in making these focused investments in our business is to generate higher earnings per share over the long term."

For the fourth quarter of fiscal 2006, the Company is projecting earnings per share to be between 44 cents and 59 cents. For the full fiscal year 2006, the Company is projecting earnings per share between $1.03 and $1.18 (including the $33 million after-tax effect of the goodwill impairment charge) and between $1.45 and $1.60 without the impairment. The Company believes that providing the estimate excluding the impairment charge is useful for investors who are calculating comparability to prior years and estimates. The Company has included in its estimate the completion of its $200 million share repurchase program.

Financing Activities

The Company purchased 2.1 million shares of common stock for $52.6 million during the fiscal third quarter of 2006 under its previously announced $200 million share repurchase program. The third quarter repurchases bring the year-to-date purchases to 6.0 million shares of common stock for $149.1 million.

The Company's Board of Directors authorized a cash dividend of 8 cents per share to be paid on January 23, 2006 to shareholders of record at the close of business on January 11, 2006.

Conference Call on the Web

American Greetings will broadcast its conference call live on the Internet at 9:30 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

American Greetings Corporation is one of the world's largest manufacturers of social expression products. Along with greeting cards, its product lines include gift wrap, party goods, candles, stationery, calendars, educational products, ornaments and electronic greetings. Located in Cleveland, Ohio, American Greetings generates annual net sales of approximately $2 billion. For more information on the Company, visit http://corporate.americangreetings.com/.

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: retail bankruptcies, consolidations and acquisitions, including the possibility of resulting adverse changes to contract terms; successful integration of acquisitions; successful transition of management; a weak retail environment; consumer acceptance of products as priced and marketed; the impact of technology on core product sales; competitive terms of sale offered to customers; successfully implementing supply chain improvements and achieving projected cost savings from those improvements; increases in the cost of material, energy and other production costs; 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; 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; escalation in the cost of providing employee health care; the ability of the Company to execute share repurchase programs or the ability to achieve the desired accretive effect from such repurchases; the timing and impact of any changes the Company may make to its capital structure 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 public's acceptance of online greetings and other social expression products and the ability of the mobile division to compete effectively in the wireless content aggregation market.

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.

AMERICAN GREETINGS CORPORATION THIRD QUARTER CONSOLIDATED STATEMENT OF INCOME FISCAL YEAR ENDING FEBRUARY 28, 2006 (In thousands of dollars except share and per share amounts) (Unaudited) (Unaudited) Three Months Ended Nine Months Ended November 30, November 30, -------------------- ---------------------- 2005 2004 2005 2004 -------- -------- ---------- ---------- Net sales $558,619 $586,165 $1,389,451 $1,411,790 Costs and expenses: Material, labor and other production costs 277,249 292,737 634,038 661,069 Selling, distribution and marketing 166,883 173,735 469,485 466,690 Administrative and general 57,898 64,476 179,996 186,118 Goodwill impairment 43,153 - 43,153 - Interest expense 8,406 8,744 26,675 70,601 Other income - net (19,931) (19,341) (40,234) (52,917) -------- -------- --------- --------- Total costs and expenses 533,658 520,351 1,313,113 1,331,561 -------- -------- --------- --------- Income from continuing operations before income tax expense 24,961 65,814 76,338 80,229 Income tax expense 14,654 25,470 36,376 31,049 -------- -------- --------- --------- Income from continuing operations 10,307 40,344 39,962 49,180 Income from discontinued operations, net of tax 2,620 22,417 2,620 24,729 -------- -------- --------- --------- Net income $12,927 $62,761 $42,582 $73,909 ======== ======== ========= ========= Earnings per share - basic: Income from continuing operations $0.16 $0.58 $0.60 $0.72 Income from discontinued operations 0.04 0.33 0.04 0.36 -------- -------- ---------- ---------- Net income $0.20 $0.91 $0.64 $1.08 ======== ======== ========== ========== Earnings per share - assuming dilution: Income from continuing operations $0.16 $0.51 $0.57 $0.67 Income from discontinued operations 0.03 0.27 0.03 0.30 -------- -------- ---------- ---------- Net income $0.19 $0.78 $0.60 $0.97 ======== ======== ========== ========== Average number of common shares outstanding 65,425,537 68,753,922 67,041,089 68,391,128 Average number of common shares outstanding - assuming dilution 78,695,259 82,397,633 80,385,975 81,874,590 Dividends declared per share $0.08 $0.06 $0.24 $0.06 AMERICAN GREETINGS CORPORATION THIRD QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION FISCAL YEAR ENDING FEBRUARY 28, 2006 (In thousands of dollars) (Unaudited) November 30, ----------------------------- 2005 2004 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $77,606 $221,744 Short-term investments 208,740 - Trade accounts receivable, net 316,817 406,483 Inventories 259,363 263,482 Deferred and refundable income taxes 167,151 165,810 Prepaid expenses and other 220,309 213,693 ----------- ----------- Total current assets 1,249,986 1,271,212 GOODWILL 212,694 247,836 OTHER ASSETS 583,323 606,984 Property, plant and equipment - at cost 977,772 981,814 Less accumulated depreciation 664,555 648,536 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT - NET 313,217 333,278 ----------- ----------- $2,359,220 $2,459,310 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $135,151 $138,073 Accrued liabilities 122,570 118,519 Accrued compensation and benefits 88,193 78,463 Income taxes 23,873 55,020 Other current liabilities 107,079 71,567 ----------- ----------- Total current liabilities 476,866 461,642 LONG-TERM DEBT 475,967 483,988 OTHER LIABILITIES 113,736 102,216 DEFERRED INCOME TAXES 24,584 26,963 SHAREHOLDERS' EQUITY Common shares - Class A 60,391 64,663 Common shares - Class B 4,220 4,366 Capital in excess of par value 397,208 364,423 Treasury stock (586,834) (440,101) Accumulated other comprehensive income 2,045 42,803 Retained earnings 1,391,037 1,348,347 ----------- ----------- Total shareholders' equity 1,268,067 1,384,501 ----------- ----------- $2,359,220 $2,459,310 =========== =========== AMERICAN GREETINGS CORPORATION THIRD QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS FISCAL YEAR ENDING FEBRUARY 28, 2006 (In thousands of dollars) (Unaudited) Nine Months Ended November 30, -------------------------- 2005 2004 --------- --------- OPERATING ACTIVITIES: Net income $42,582 $73,909 Income from discontinued operations 2,620 24,729 ---------- --------- Income from continuing operations 39,962 49,180 Adjustments to reconcile to net cash provided by operating activities: Goodwill impairment 43,153 - Gain on sale of investment - (3,095) (Gain) loss on fixed assets (438) 1,817 Loss on extinguishment of debt 863 39,056 Depreciation and amortization 41,631 42,425 Deferred income taxes (6,608) (18,953) Other non-cash charges 5,069 1,429 Changes in operating assets and liabilities, net of acquisitions: Increase in trade accounts receivable (137,741) (169,141) Increase in inventories (40,135) (19,852) Decrease in other current assets 9,097 10,298 Decrease in deferred costs - net 59,256 98,314 (Decrease) increase in accounts payable and other liabilities (10,304) 25,475 Other - net 8,907 10,017 ---------- --------- Cash Provided by Operating Activities 12,712 66,970 INVESTING ACTIVITIES: Property, plant and equipment additions (32,491) (25,745) Proceeds from sale of fixed assets 7,548 3,545 Proceeds from sale of discontinued operations - 77,000 Cash payments for business acquisitions - (3,894) Proceeds from sale of short-term investments 1,362,430 - Purchases of short-term investments (1,362,430) - Investment in corporate owned life insurance (1,509) (3,468) Other - net (5,762) 23,958 ---------- --------- Cash (Used) Provided by Investing Activities (32,214) 71,396 FINANCING ACTIVITIES: Reduction of long-term debt (10,782) (216,417) Sale of stock under benefit plans 26,408 35,875 Purchase of treasury shares (150,705) (18,263) Dividends to shareholders (16,141) (4,125) ---------- --------- Cash Used by Financing Activities (151,220) (202,930) Cash Used by Discontinued Operations - (2,395) EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,939) 3,253 ---------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (172,661) (63,706) Cash and Cash Equivalents at Beginning of Year 250,267 285,450 ---------- --------- Cash and Cash Equivalents at End of Period $77,606 $221,744 ========== =========