EX-99.1 2 l17528aexv99w1.htm EX-99.1 PRESS RELEASE EX-99.1 PRESS RELEASE
 

Exhibit 99.1
AMERICAN GREETINGS ANNOUNCES THIRD QUARTER EARNINGS
Company declares 8 cent cash dividend
CLEVELAND (December 22, 2005) — American Greetings Corporation (NYSE: AM) 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 (NYSE: AM) 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.
###
CONTACT:
Stephen J. Smith
VP, Treasurer and Investor Relations
American Greetings Corporation
216-252-4864
investor.relations@amgreetings.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

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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.

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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  

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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  
 
            

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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  
 
            

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