June 29, 2006 at 07:00 AM EDT
American Greetings Announces First Quarter Earnings
* Company reports 25 cents earnings per share from continuing operations

CLEVELAND, June 29 /PRNewswire-FirstCall/ -- American Greetings Corporation (NYSE:AM) today announced its first quarter results for the fiscal quarter ended May 26, 2006, and declared an 8 cent per share cash dividend.

(Logo: http://www.newscom.com/cgi-bin/prnh/20060321/CLTU081LOGO)

First Quarter Results

For the first quarter of fiscal 2007, the Company reported net sales of $406.6 million, pre-tax income from continuing operations of $18.9 million and income from continuing operations of $16.0 million or 25 cents per share (all per-share amounts assume dilution). For the first quarter of fiscal 2006, the Company reported net sales of $439.5 million, pre-tax income from continuing operations of $43.6 million and income from continuing operations of $26.9 million or 36 cents per share.

Management Comments

Chief Executive Officer Zev Weiss said, "We started our 100th year with results of the first quarter that were generally in line with our internal expectations. One of the key initiatives of our 100th year is the enhancement of both our greeting card assortments and the merchandising of those cards. The rollout of this strategic card initiative has begun. While this initiative may put downward pressure on earnings, we are pleased with the execution of the first of many phases of that rollout."

Weiss added, "Our efforts to refinance our long-term debt were substantially completed this past quarter and they were concluded on time, within budget and with terms and conditions that will permit the simultaneous use of capital for our strategic card initiative as well as for repurchases of our own shares, as we believe both investments will grow long-term earnings per share."

Financing Activities

During the quarter, the Company completed most of its major activities related to the refinancing of its long-term debt. During the first fiscal quarter, the Company:

    1. Increased its total senior credit facility from $200 million to $650
       million by increasing its revolving credit facility from $200 million
       to $350 million and adding a new secured $300 million delay draw term
       loan.

    2. Reduced its accounts receivable securitization program from $200
       million to $150 million. The reduction recognized the decline in the
       Company's pool of eligible accounts receivable.

    3. Completed a tender offer for its $300 million 6.1% notes because they
       were putable back to the Company in August of 2008. The Company retired
       $277.3 million, or 92% of its 6.1% notes. The indenture that governs
       the remaining bonds outstanding was amended in conjunction with the
       tender to eliminate certain restrictive covenants and events of
       default.

    4. Completed a senior unsecured notes offering. The Company issued $200
       million of senior unsecured notes with a 10-year final maturity at a
       coupon of 7.375%. Proceeds from the issuance were used to finance the
       tender for the 6.1% notes.

    5. Completed an exchange offer for its convertible notes. The Company
       achieved a 91% success ratio in its exchange offer for its $175 million
       convertible subordinated notes. The exchange permits the Company to
       settle the conversion of the new notes in cash and stock, whereas the
       old notes could only be settled with stock. Assuming all of the holders
       of the new notes convert their bonds at maturity in mid-July, in early
       August of 2006, the Company expects to use $159.1 million of cash to
       settle a portion of the total conversion value. Based on the range of
       the Company's recent stock prices, the exchange offer is expected to
       effectively reduce the potential dilution associated with the
       conversion by approximately 6.0 to 6.5 million shares.

    Share Repurchases and Dividend Declaration

During the first fiscal quarter, the Company purchased, under the share repurchase program initiated in February of 2006, 2.8 million shares of common stock for $59.4 million. Including the shares purchased under the same program at the end of the fourth fiscal quarter of fiscal 2006, the Company has repurchased approximately 4.9 million shares at an average cost of $21.06 per share for $102.1 million. As of the end of the first fiscal quarter, the Company has a balance of $97.9 million available under the current repurchase program.

The Company's Board of Directors authorized a cash dividend of 8 cents per share to be paid on July 24, 2006 to shareholders of record at the close of business on July 14, 2006.

Seasonality

Due to the seasonal nature of the Company's business, the second fiscal quarter has historically been the Company's weakest fiscal quarter. For the second quarter of fiscal years 2005 and 2006, the Company reported diluted earnings per share of 10 cents and 5 cents, respectively. Beyond the seasonality of the business, the Company anticipates expenses related to its strategic card and scan-based trading initiatives will continue to put downward pressure on operating earnings during the second fiscal quarter as well as for the remainder of fiscal 2007.

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 $1.9 billion. For more information on the Company, visit http://corporate.americangreetings.com .

Certain statements in this release, including those under "Management Comments," "Financing Activities" and "Seasonality" 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:

    - the Company's ability to successfully implement its strategy to invest
      in its core greeting card business;
    - 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;
    - the ability to execute share repurchase programs or the ability to
      achieve the desired accretive effect from such repurchases;
    - retail bankruptcies, consolidations and acquisitions, including the
      possibility of resulting adverse changes to retail contract terms;
    - 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;
    - successful implementation of supply chain improvements and achievement
      of projected cost savings from those improvements;
    - increases in the cost of material, energy, freight 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;
    - escalation in the cost of providing employee health care;
    - successful integration of acquisitions; 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
                  FIRST QUARTER CONSOLIDATED STATEMENT OF INCOME
                       FISCAL YEAR ENDING FEBRUARY 28, 2007

           (In thousands of dollars except share and per share amounts)

                                                        (Unaudited)
                                                     Three Months Ended
                                              -------------------------------
                                              May 26, 2006       May 27, 2005
                                              ------------       ------------
    Net sales                                     $406,571           $439,469

    Costs and expenses:
       Material, labor and other
        production costs                           176,321            178,430
       Selling, distribution and
        marketing                                  143,769            153,798
       Administrative and general                   62,006             62,475
       Interest expense                             12,464              9,677
       Other income - net                           (6,880)            (8,495)
                                                   --------           --------
         Total costs and expenses                  387,680            395,885
                                                   --------           --------
    Income from continuing operations
       before income tax expense                    18,891             43,584
    Income tax expense                               2,854             16,676
                                                   --------           --------
    Income from continuing operations               16,037             26,908

    Loss from discontinued operations,
     net of tax                                       (645)              (494)
                                                   --------           --------
    Net income                                     $15,392            $26,414
                                                   ========           ========
    Earnings per share - basic:
       Income from continuing operations             $0.27              $0.40
       Loss from discontinued operations             (0.01)             (0.01)
                                                   --------           --------
       Net income                                    $0.26              $0.39
                                                   ========           ========
    Earnings per share - assuming
     dilution:
       Income from continuing operations             $0.25              $0.36
       Loss from discontinued operations             (0.01)             (0.01)
                                                   --------           --------
       Net income                                    $0.24              $0.35
                                                   ========           ========

    Average number of common shares
     outstanding                                58,137,230         68,595,786

    Average number of common shares
     outstanding - assuming dilution            71,077,312         81,952,895

    Dividends declared per share                     $0.08              $0.08



                          AMERICAN GREETINGS CORPORATION
            FIRST QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                       FISCAL YEAR ENDING FEBRUARY 28, 2007

                            (In thousands of dollars)
                                                         (Unaudited)
                                                ------------------------------
                                                May 26, 2006      May 27, 2005
                                                ------------      ------------
    ASSETS
    CURRENT ASSETS
       Cash and cash equivalents                   $205,468          $210,956
       Short-term investments                        83,100           208,750
       Trade accounts receivable, net               122,808           191,523
       Inventories                                  237,658           230,059
       Deferred and refundable income
        taxes                                       164,079           165,123
       Assets of businesses held for sale            10,978            22,154
       Prepaid expenses and other                   211,611           209,983
                                                  ---------         ---------
         Total current assets                     1,035,702         1,238,548

    GOODWILL                                        208,973           261,450
    OTHER ASSETS                                    528,352           621,954

    Property, plant and equipment - at
     cost                                           965,947           980,031
    Less accumulated depreciation                   661,524           652,747
                                                  ---------         ---------
    PROPERTY, PLANT AND EQUIPMENT - NET             304,423           327,284
                                                  ---------         ---------
                                                 $2,077,450        $2,449,236
                                                  =========         =========

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT LIABILITIES
       Debt due within one year                    $159,122           $10,184
       Accounts payable                             123,457           115,569
       Accrued liabilities                           75,937           109,732
       Accrued compensation and benefits             45,217            40,374
       Income taxes                                  24,857            31,177
       Liabilities of businesses held for
        sale                                          3,102             4,219
       Other current liabilities                     93,202           121,817
                                                  ---------         ---------
         Total current liabilities                  524,894           433,072

    LONG-TERM DEBT                                  239,838           476,152
    OTHER LIABILITIES                                98,729           147,883
    DEFERRED INCOME TAXES                            25,144            34,612

    SHAREHOLDERS' EQUITY
       Common shares - Class A                       53,386            63,365
       Common shares - Class B                        4,225             4,213
       Capital in excess of par value               401,644           376,586
       Treasury stock                              (732,890)         (487,563)
       Accumulated other comprehensive
        income                                       23,952            14,894
       Retained earnings                          1,438,528         1,386,022
                                                  ---------         ---------
         Total shareholders' equity               1,188,845         1,357,517
                                                  ---------         ---------
                                                 $2,077,450        $2,449,236
                                                  =========         =========



                          AMERICAN GREETINGS CORPORATION
                FIRST QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS
                       FISCAL YEAR ENDING FEBRUARY 28, 2007
                            (In thousands of dollars)

                                                         (Unaudited)
                                                      Three Months Ended
                                                ------------------------------
                                                May 26, 2006      May 27, 2005
                                                ------------      ------------
    OPERATING ACTIVITIES:
      Net income                                    $15,392           $26,414
      Loss from discontinued operations                 645               494
                                                    -------            -------
      Income from continuing operations              16,037            26,908
      Adjustments to reconcile to net cash
       provided by operating activities:
        (Gain) loss on disposal of fixed
         assets                                         (79)              944
        Loss on extinguishment of debt                4,963               862
        Depreciation and amortization                11,777            14,467
        Deferred income taxes                        (1,913)            7,740
        Other non-cash charges                        3,926               516
        Changes in operating assets and
         liabilities, net of acquisitions:
           Decrease (increase) in trade
            accounts receivable                      22,203           (12,433)
           Increase in inventories                  (17,607)          (13,759)
           (Increase) decrease in other
            current assets                           (8,711)           14,415
           Decrease in deferred costs - net          13,017            25,051
           Decrease in accounts payable and
            other liabilities                       (24,266)          (47,924)
           Other - net                                1,983               920
                                                    -------            -------
           Cash Provided by Operating
            Activities                               21,330            17,707

    INVESTING ACTIVITIES:
      Proceeds from sale of short-term
       investments                                  448,320           575,785
      Purchases of short-term investments          (322,680)         (575,795)
      Property, plant and equipment
       additions                                     (9,604)           (8,538)
      Proceeds from sale of fixed assets                182                36
      Other - net                                     3,223              (650)
                                                    -------            -------
         Cash Provided (Used) by Investing
          Activities                                119,441            (9,162)

    FINANCING ACTIVITIES:
      Increase in long-term debt                    200,000                 -
      Reduction of long-term debt                  (281,363)                -
      Sale of stock under benefit plans               1,052             8,511
      Purchase of treasury shares                   (59,529)          (45,533)
      Dividends to shareholders                      (4,605)           (5,500)
      Debt issuance costs                            (7,276)                -
                                                    -------            -------
       Cash Used by Financing Activities           (151,721)          (42,522)

    DISCONTINUED OPERATIONS:
      Cash used by operating activities
       from discontinued operations                  (1,293)             (392)
      Cash provided by investing
       activities from discontinued
       operations                                     1,657               208
                                                    -------            -------
       Cash Provided (Used) by
        Discontinued Operations                         364              (184)

    EFFECT OF EXCHANGE RATE CHANGES ON
     CASH                                             2,441            (2,682)
                                                    -------            -------

    DECREASE IN CASH AND CASH EQUIVALENTS            (8,145)          (36,843)

       Cash and Cash Equivalents at
        Beginning of Year                           213,613           247,799
                                                    -------            -------
       Cash and Cash Equivalents at End of
        Period                                     $205,468          $210,956
                                                    =======            =======

Source: American Greetings Corporation

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