American Greetings Reports Third Quarter Financial
Results in Line with Projections
Corporation announces suspension of dividend
CLEVELAND, Dec. 18 /PRNewswire/ -- American Greetings Corporation
(NYSE: AM)
today reported operating results in line with projections for the
third quarter of fiscal 2002.
The Corporation achieved after-tax earnings before special charges
of $40.9 million, or 64 cents per share (54 cents per share assuming
full dilution), for the third quarter ended Nov. 30, 2001. These
results compare to net income of $32.0 million, or 50 cents per
share, up 28 percent from the third quarter last year. Including
the after-tax impact of special charges amounting to $34.3 million
($55.0 million pre-tax), or 54 cents per share, for the quarter,
American Greetings reported net income of $6.6 million, or 10 cents
per share.
Special charges for the third quarter include the following:
Pre-tax Basic
income EPS
(millions) (after-tax)
Reported results $10.6 $.10
Impact of special charges:
Scan-based trading 31.0 .31
Business reorganization 24.0 .23
Earnings before special charges $65.6 $.64
Reported sales in the third quarter were $705.4 million, compared
to $766.1 million in the same period last year. After removing the
impact of scan-based trading conversion initiatives and the Corporation's
brand and product line size reduction initiatives, sales for the
quarter were down 5.0 percent from the same period in fiscal 2001.
The revenue impact of the pay from scan conversion was complete
as of the end of the third quarter in fiscal 2002.
Morry Weiss, chairman and chief executive officer of American
Greetings, said synergies from the integration of recent acquisitions
helped the Corporation achieve expectations for the quarter. "We
are pleased to have made our earnings projections, considering that
the economic conditions this quarter negatively impacted us and
some of our retailers," Weiss said. "Revenue was down slightly,
due in part to unfavorable exchange rates and reduced shipments
from our Plus Mark subsidiary. However, cost reductions related
to the integration of the Gibson Greetings and CPS Corporation acquisitions,
along with continued process improvements, are having a positive
impact on our bottom line.
"We remain confident that we will deliver the anticipated cost savings
outlined in our restructuring plan," Weiss added.
The Corporation achieved after-tax earnings before special charges
of $31.3 million, or 49 cents per share, for the first nine months
of fiscal 2002. Including the after-tax impact of special charges
amounting to $140.5 million ($225.5 million pre-tax), or $2.21 for
the nine months to date, the Corporation reported a net loss of
$109.2 million, or $1.72 per share. These results compare to net
income of $13.9 million, or 22 cents per share (47 cents per share
excluding the cumulative effect of an accounting change and a one-time
gain on the sale of an asset), for the first nine months of fiscal
year 2001.
Special charges for the nine months include the following:
Pre-tax Basic
income EPS
(millions) (after-tax)
Reported results ($175.3) ($1.72)
Impact of special charges:
Scan-based trading 84.4 .83
Business reorganization 123.4 1.21
Internet contract changes 17.7 .17
Earnings before special charges $50.2 $.49
Net sales for the nine months ended Nov. 30, 2001, were $1.70
billion, compared to $1.86 billion for the first three quarters
of fiscal 2001. The decrease in net sales reflects the impact of
the Corporation's retail inventory reduction initiative in the first
half of the year, as well as the rollout of its new value pricing
strategy, the implementation of its scan- based trading business
model, and its brand and product line size reduction initiatives.
Earnings before interest, taxes, depreciation and amortization adjusted
to exclude special charges (EBITDA) were $109.1 million for the
third quarter and $169.2 million for the nine months ended Nov.
30. EBITDA for the trailing four quarters adjusted to exclude special
charges was $287.1 million.
The Corporation also said that its electronic subsidiary, AmericanGreetings.com,
was break-even in the third calendar quarter, will be
profitable in the fourth quarter as previously announced, and will
be cash flow positive for the year. AmericanGreetings.com recently
launched a major initiative to increase the amount of paid content
on its Web sites to diversify its revenue streams. "While we cannot
yet say how successful this strategy will be, we expect AmericanGreetings.com
to be a positive contributor to earnings next year," Weiss said.
American Greetings also reaffirmed its previously stated basic earnings
projections (excluding special charges) of $1.10 to $1.20 ($.98
to $1.08 assuming full dilution) for the full year.
Dividend Suspension
The Board of Directors of American Greetings voted to suspend
the Corporation's quarterly dividend, effective immediately. "While
we are in compliance with the debt covenants regarding our ability
to pay a dividend, we have decided that focusing on generating cash
and debt reduction should be our primary objectives and are in the
best interests of our shareholders," Weiss said.
Conference Call on the Web
American Greetings will broadcast its third quarter conference call
live on the Internet at 10:30 a.m. Eastern time on Tuesday, Dec.
18, 2001.
The conference call will be accessible through the Investor Relations
section of the American Greetings corporate Web site at
http://corporate.americangreetings.com/
. Minimum requirements to listen to the Web cast are Windows Media
Player software (available free at http://www.microsoft.com/
), audio capabilities, and at least a 14.4Kbps connection to the
Internet. A replay of the call will also be available on the site.
About American Greetings
American Greetings Corporation (NYSE: AM)
is the world's largest publicly held creator, manufacturer and distributor
of greeting cards and social expression products. Its staff of artists,
designers and writers comprises one of the largest creative departments
in the world and helps consumers "say it best" by supplying more
than 15,000 greeting card designs to retail outlets in nearly every
English-speaking country. Located in Cleveland, Ohio, American Greetings
generates annual sales of more than $2.5 billion. For more
information on the Corporation, visit http//www.americangreetings.com
on the World Wide Web.
The statements contained in this release that are not historical
facts are forward-looking statements. Actual results may differ
materially from those projected in the forward-looking statements.
These forward-looking statements involve risks and uncertainties,
including but not limited to: retail bankruptcies and consolidations,
successful implementation of the Corporation's restructuring, a
weak retail environment, consumer acceptance of products as priced
and marketed, the impact of technology on core product sales and
competitive terms of sale offered to customers. Risks pertaining
specifically to the Corporation's electronic marketing business
include the viability of online advertising as a revenue generator
and the public's acceptance of online social expression products
and subscriptions thereto.
AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2002
(In thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended
November 30,
2001 2000
Net sales $705,433 $766,095
Income before income taxes 10,635 50,321
Income tax expense 4,010 18,306
Net income 6,625 32,015
Earnings per share and earnings per
share - assuming dilution $0.10 $0.50
Average number of common
shares outstanding 63,705,743 63,506,387
AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2002
(In thousands of dollars except per share amounts)
(Unaudited)
Nine Months Ended
November 30,
2001 2000
Net sales $1,699,398 $1,855,568
(Loss) income before income taxes
and cumulative effect of
accounting change $(175,259) $55,023
Income tax (benefit) expense (66,072) 20,007
(Loss) income before cumulative
effect of accounting change (109,187) 35,016
Cumulative effect of accounting
change, net of tax - (21,141)
Net (loss) income $(109,187) $13,875
(Loss) earnings per share and
(loss) earnings per
share - assuming dilution:
Before cumulative effect of
accounting change $(1.72) $0.55
Cumulative effect of accounting
change, net of tax - (0.33)
$(1.72) $0.22
Average number of common
shares outstanding 63,569,030 63,699,617
AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2002
(In thousands of dollars except per share amounts)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
2001 2000 2001 2000
Net sales $705,433 $766,095 $1,699,398 $1,855,568
Costs and expenses:
Material, labor and
other production costs 313,512 355,858 751,529 754,293
Selling, distribution
and marketing 284,785 277,327 799,049 810,083
Administrative and
general 71,290 70,326 214,488 208,896
Restructure charges - - 52,925 -
Interest expense 23,619 15,066 59,144 39,649
Other expense (income)
- net 1,592 (2,803) (2,478) (12,376)
Total 694,798 715,774 1,874,657 1,800,545
Income (loss) before
income taxes and cumulative
effect of accounting change 10,635 50,321 (175,259) 55,023
Income tax expense
(benefit) 4,010 18,306 (66,072) 20,007
Income (loss) before
cumulative effect of
accounting change 6,625 32,015 (109,187) 35,016
Cumulative effect of
accounting change,
net of tax - - - (21,141)
Net income (loss) $6,625 $32,015 $(109,187) $13,875
Earnings (loss) per share:
Before cumulative
effect of accounting
change $0.10 $0.50 $(1.72) $0.55
Cumulative effect of
accounting change,
net of tax - - - (0.33)
Earnings (loss) per share
and earnings (loss) per
share - assuming dilution $0.10 $0.50 $(1.72) $0.22
Average number of common
shares outstanding 63,705,743 63,506,387 63,569,030 63,699,617
AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED SALES AND INCOME
FISCAL YEAR ENDING FEBRUARY 28, 2002
(In thousands of dollars except per share amounts)
Note A: Seasonal Nature of Business: The Corporation's business is
seasonal in nature. Therefore, the results of operations for
interim periods are not necessarily indicative of the results for
the fiscal year taken as a whole.
Note B: Reclassifications: Certain amounts in the prior year financial
statements have been reclassified to conform to the 2001
presentation.
Note C: Cumulative Effect of Accounting Change: In December 1999, the
Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101), which among other guidance, clarifies the Staff's
views on various revenue recognition and reporting matters. As a
result, effective March 1, 2000, the Corporation adopted a change
in its method of accounting for certain shipments of seasonal
product. Under the new accounting method, the Corporation
recognizes revenue on these seasonal shipments at the approximate
date the merchandise is received by the customer and not upon
shipment from the distribution facility. Customer receipt is a
more preferable method of recording revenue due to the large
volumes of seasonal product shipment activity and the time
required to achieve customer requested delivery dates. The
implementation of this change was accounted for as a change in
accounting principle and applied cumulatively as if the change
occurred at March 1, 2000. The effect of the change was a one-
time reduction to the Corporation's earnings of $21,141, which is
included in operations for the nine months ended November 30,
2000.
Note D: Acquisitions: On September 12, 2001, the Corporation completed
the acquisition of the BlueMountain.com division of At Home
Corporation in a cash transaction. The consolidated results
include the results of BlueMountain.com from the date of
acquisition forward.
On March 19, 2001, the Corporation completed the acquisition of
all outstanding shares of Egreetings Network, Inc. ("Egreetings")
in a cash transaction. The Corporation had previously held a
minority interest in Egreetings. The consolidated results
include the results of Egreetings from the date of acquisition
forward.
On July 13, 2000, the Corporation completed its acquisition of
CPS Corporation ("CPS") for cash and shares of the Corporation's
common stock. The consolidated results include the results of CPS
from the date of acquisition forward.
On March 9, 2000, the Corporation completed the acquisition of
all outstanding shares of Gibson Greetings, Inc. ("Gibson") in
a cash transaction. The consolidated results include the results
of Gibson from the date of acquisition forward.
Note E: Deferred Costs: The major components of prepaid expenses and
other and other assets are deferred costs relating to agreements
with certain customers. Total commitments under the agreements
are capitalized as deferred costs and future payment commitments,
if any, are recorded as liabilities when the agreements are
consummated. Deferred costs are charged to operations on a
straight-line basis over the effective period of each agreement,
generally three to six years. Deferred costs estimated to be
charged to operations during the next twelve months are
classified with prepaid expenses and other.
Note F: Special Charges: During the nine months ended November 30, 2001,
the Corporation recorded a pre-tax restructuring charge of
$52,925. The primary components of this charge were costs
associated with the shutdown of certain of the Corporation's
domestic and foreign manufacturing and distribution operations,
including employee severance and benefit termination costs. The
Corporation's Internet unit also recorded a pre-tax charge to
write off the value of a partner contract in the amount of
$17,727. In addition, the Corporation recorded a pre-tax charge
of $54,014 during the period to write down inventory in its
domestic operations to net realizable value associated with its
previously-announced one-time efforts. This amount is classified
as material, labor, and other production costs. The Corporation
also incurred pre-tax costs of $34,140 for other project-related
expenses. The total pre-tax impact of the restructuring and
inventory charges was $141,079 ($87,892 net of tax), or $1.38 per
share.
Also during the period, the Corporation began implementing its
scan-based trading business model with certain of its retailers.
The impact of its implementation was a $65,485 reduction in its
net sales and a $10,149 reduction in its material, labor and
other production costs. In addition, the Corporation incurred
implementation and other costs of $29,057 for a total pre-tax
impact of $84,393 ($52,577 net of tax), or $0.83 per share.
AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2002
(In thousands of dollars except per share amounts)
(Unaudited)
November 30,
2001 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $45,353 $78,846
Accounts receivable, less allowances
of $185,499 and $179,618, respectively
(principally for sales returns) 538,546 612,990
Inventories 341,962 344,981
Deferred and refundable income taxes 151,048 219,460
Prepaid expenses and other 207,742 232,328
Total current assets 1,284,651 1,488,605
GOODWILL - NET 256,259 211,949
OTHER ASSETS 901,061 788,164
PROPERTY, PLANT AND EQUIPMENT - NET 438,333 472,107
$2,880,304 $2,960,825
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $35,056 $647,717
Accounts payable and accrued
liabilities 346,379 247,322
Accrued compensation and benefits 97,762 89,179
Dividends payable 6,368 19,677
Income taxes 118,787 20,366
Other current liabilities 143,775 136,186
Total current liabilities 748,127 1,160,447
LONG-TERM DEBT 995,239 423,263
OTHER LIABILITIES 198,258 146,066
DEFERRED INCOME TAXES 23,351 56,326
SHAREHOLDERS' EQUITY
Common shares - Class A 59,125 58,857
Common shares - Class B 4,620 4,629
Capital in excess of par value 288,453 304,970
Treasury stock (447,080) (447,244)
Accumulated other comprehensive loss (70,026) (64,358)
Retained earnings 1,080,237 1,317,869
Total shareholders' equity 915,329 1,174,723
Total $2,880,304 $2,960,825
AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2002
(In thousands of dollars except per share amounts)
(Unaudited)
Nine Months Ended
November 30,
2001 2000
OPERATING ACTIVITIES:
Net (loss) income $(109,187) $13,875
Adjustments to reconcile to net
cash provided by operating activities:
Cumulative effect of accounting
change, net of tax - 21,141
Restructure charges 46,439 -
Depreciation and amortization 62,284 71,948
Deferred and refundable income
taxes 41,636 262
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Increase in trade accounts
receivable (153,099) (208,740)
Decrease (increase) in
inventories 20,589 (25,418)
Decrease (increase) in other
current assets 6,394 (14,614)
Increase in deferred cost -
net (46,551) (1,296)
Decrease in accounts payable
and other liabilities (67,251) (61,896)
Other - net 7,263 (9,486)
Cash Used by Operating
Activities (191,483) (214,224)
INVESTING ACTIVITIES:
Business acquisitions (35,000) (179,993)
Property, plant & equipment
additions (21,597) (56,730)
Proceeds from sale of fixed assets 3,459 24,484
Investment in corporate owned life
insurance 5,745 2,526
Other - net (14,058) 24,200
Cash Used by Investing
Activities (61,451) (185,513)
FINANCING ACTIVITIES:
Increase in long-term debt 688,485 -
Reduction of long-term debt (80,622) (35,003)
(Decrease) increase in short-term
debt (341,058) 537,420
Sale of stock under benefit plans 92 -
Purchase of treasury shares (99) (45,448)
Dividends to shareholders (20,202) (39,396)
Cash Provided by Financing
Activities 246,596 417,573
(DECREASE) INCREASE IN CASH AND
EQUIVALENTS (6,338) 17,836
Cash and Equivalents at
Beginning of Year 51,691 61,010
Cash and Equivalents at End of
Period $45,353 $78,846
|
