American Greetings fiscal Q3 earnings swing to US$29.7M from loss of US$193.3M a year ago when it recorded hefty impairment charges

Sandy Yang

CLEVELAND , December 23, 2009 (press release) – 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.

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, visit http://corporate.americangreetings.com.

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