American Greetings Announces Financial Results
for Fiscal 2001 in Line With Revised Projections
Corporation announces $90 million in expected ongoing
savings from
restructuring; records one-time, non-cash charge for potential tax
exposure
CLEVELAND, March 27 /PRNewswire/ -- American Greetings Corporation
(NYSE: AM)
today reported fourth quarter operating results in line with its
revised projections for fiscal year 2001.
Fourth quarter net income from ongoing operations before certain
charges was $48.4 million, or 76 cents per share. Those results
compare to net income before nonrecurring items of $56.4 million,
or 87 cents per share, for the same period last year. Including
one-time, after-tax, non-cash charges of $176 million, or $2.77
per share, the corporation reported a net loss of $127.7 million,
or $2.01 cents per share, for the quarter. That compares to net
income of $51.6 million, or 79 cents per share, last year. Last
year's fourth quarter net income included a one-time charge of 8
cents per share related to consolidation efforts primarily in the
United Kingdom.
The $176 million one-time, after-tax charge consists of two components.
The first is the previously announced write-down of the corporation's
equity investment in Egreetings Network, Inc., which resulted in
an after-tax charge of $33 million. The second is the corporation's
recording of a reserve for its estimated maximum potential tax exposure
on deductions claimed for corporate-
owned life insurance (COLI) plans, totaling $143 million, for which
American Greetings has received a proposed adjustment from the Internal
Revenue Service (IRS). American Greetings had previously disclosed
this potential exposure in periodic filings with the Securities
and Exchange Commission, but learned last month of an unfavorable
decision to another corporation with COLI issues,
which drove the decision to record the charge in the current quarter.
Notwithstanding the recording of this charge, management does not
agree with the IRS' position and plans to vigorously contest the
proposed adjustment, as it believes it can distinguish certain of
its COLI programs from those addressed in previous litigation.
Sales in the fourth quarter were $663.2 million, which compares
to $615.3 million last year.
"We are pleased to have met our revised projections for the year,
but we are also aware that Wall Street had greater expectations
of us," said Morry Weiss, chairman and chief executive officer.
"The marketplace realities we encountered this year, including such
factors as consumer price resistance, continued retail inventory
pressure, general retail sales weakness, and impact from the Internet,
contributed to our earnings revision and underscore the need for
our impending restructuring."
Full-year net income before the charges noted above, and before
the cumulative effect of an accounting change made in accordance
with the SEC's Staff Accounting Bulletin 101, which clarified its
guidance for revenue recognition in financial statements, was $83.5
million, or $1.31 per share, which includes a 36-cent per share
loss from AmericanGreetings.com. That compares to net income before
nonrecurring charges of $119.1 million, or $1.81 per share, for
the same period last year, which includes a 19-cent per share loss
from AmericanGreetings.com. Including the aforementioned one-time,
non-cash charges, the corporation reported a net loss of $113.8
million, or $1.79 per share, which compares to net income of $90
million, or $1.37 per share, last year.
Sales for the year totaled $2.52 billion, up 16 percent from $2.18
billion a year ago. The sales increase relates primarily to contributions
from the acquisitions of Gibson Greetings and CPS Corporation.
Restructuring details and other nonrecurring charges in FY
2002
American Greetings also updated its previously announced corporate-wide
restructuring and announced two other initiatives, all of which
will take place in fiscal year 2002 and result in one-time charges:
- The reorganization of the core business, which is expected
to result in a pre-tax charge of $200 to $220 million. The implementation
of this new business structure will result in expected ongoing
pre-tax cost savings of about $90 million beginning in fiscal
2003. Included in the restructuring are a brand rationalization
process, product line size reduction program, the consolidation
of six facilities, and a headcount reduction of approximately
1,500 associates, or about 13 percent of the
corporation's full-time workforce. American Greetings expects
the reorganization to begin immediately and conclude by the
end of fiscal year 2002.
Weiss said the restructuring should provide ongoing efficiencies
characteristic of a streamlined, efficient, process-driven organization
that is aligned with the marketplace. "By the end of fiscal
2002, we will have established a new organization consisting
of process teams, each of which will be responsible for completing
one entire, essential function of our business," Weiss said.
"The result will be a greater focus on and responsiveness to
the productivity needs of our retail partners."
American Greetings also announced that Jim Spira, who is leading
the restructuring effort, has been named president and chief
operating officer. In his new role, Spira will continue to oversee
the restructuring effort, take an active role in the management
of the core business, and develop new growth strategies.
- Implementing scan-based trading at select retailers will result
in an expected pre-tax charge of $80 to $90 million. While the
charge associated with the conversion will have a one-time negative
impact on profitability, American Greetings is optimistic that
scan-based trading will ultimately reduce costs, result in a
reduction in working capital, maximize retail productivity and
throughput, and continue to enhance retailer relationships.
- Anticipated changes in certain contractual relationships with
strategic partners related to the corporation's Internet business
will result in an expected pre-tax, non-cash charge of about
$18 million. The corporation expects these forthcoming contractual
changes, coupled with recent acquisitions and organic growth
that have made AmericanGreetings.com one of the top 15 most-visited
Web sites in the world, to ensure that the online business reaches
profitability during the fourth calendar quarter of 2001.
The corporation expects that these three initiatives will result
pre-tax costs of $300 to $330 million. Combined, these efforts are
expected to use $110 to $120 million in net after-tax cash, with
the majority of the cash usage coming in fiscal 2002.
Fiscal year 2002 projections
American Greetings said that its net income for fiscal 2002 should
fall between $1.10 and $1.20 per share, exclusive of any of the
aforementioned nonrecurring charges. These projections assume a
continuation of many retail trends witnessed in fiscal 2001, including
anticipated price and unit decline, along with completion of the
final phase of the corporation's retail inventory reduction program
into the coming year. Also factored into next year's estimates is
the forecasted overall domestic economic downturn, which is
expected to impact store traffic and, therefore, impulse purchases
of greeting cards.
"Our estimates for next year take into consideration all the trends
that have been impacting the greeting card industry recently," Weiss
said. "However, we are confident that successful implementation
of our restructuring plan during fiscal 2002 will establish a solid
base from which we can grow our business in fiscal 2003 and beyond."
Conference call on the Web
American Greetings will hold a conference call today at 2:30 p.m.
EST. The live 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 RealPlayer
software (available free at http://www.real.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 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 drives annual sales of more
than $2.5 billion. For more information on the company, 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 integration of acquisitions, 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 ability
of
AmericanGreetings.com to attract strategic partners as investors,
the viability of online advertising as a revenue generator, and
the public's acceptance of online greetings and other social expression
products.
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2001
(In thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended Percent
February 28 or 29, Change
2001 2000
Net sales $663,246 $615,340 7.8%
Income before income taxes 43,610 80,576 (45.9%)
Income taxes 171,299 29,008 -
Net (loss) income (127,689) 51,568 -
(Loss) earnings per share and
(loss) earnings per share
- assuming dilution $(2.01) $.79 -
Average number of common
shares outstanding 63,486,767 64,520,218 -
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2001
(In thousands of dollars except per share amounts)
Twelve Months Ended Percent
February 28 or 29, Change
2001 2000
Net sales $2,518,814 $2,175,236 15.8%
Income before income taxes
and cumulative effect of
accounting change 98,633 140,624 (29.9%)
Income taxes 191,306 50,625 -
(Loss) income before cumulative
effect of accounting change (92,673) 89,999 -
Cumulative effect of accounting
change, net of tax (21,141) - -
Net (loss) income $(113,814) $89,999 -
(Loss) earnings per share:
Before cumulative effect of
accounting change $(1.46) $1.37 -
Cumulative effect of accounting
change, net of tax (0.33) - -
(Loss) earnings per share and
(loss) earnings per share
- assuming dilution $(1.79) $1.37 -
Average number of common
shares outstanding 63,646,405 65,591,798 -
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2001
(In thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
February 28 or 29, February 28 or 29,
2001 2000 2001 2000
Net sales $663,246 $615,340 $2,518,814 $2,175,236
Costs and expenses:
Material, labor and
other production costs 244,978 209,988 999,271 809,347
Selling, distribution
and marketing 258,460 245,207 1,068,543 921,392
Administrative
& general 71,306 62,132 280,202 227,075
Non-recurring items - 6,126 - 38,873
Interest 15,738 7,711 55,387 34,255
Other expense-net 29,154 3,600 16,778 3,670
Total 619,636 534,764 2,420,181 2,034,612
Income before income
taxes and cumulative
effect of accounting
change 43,610 80,576 98,633 140,624
Income taxes 171,299 29,008 191,306 50,625
(Loss) income before
cumulative effect of
accounting change (127,689) 51,568 (92,673) 89,999
Cumulative effect of
accounting change,
net of tax - - (21,141) -
Net (loss) income $(127,689) $51,568 $(113,814) $89,999
(Loss) earnings per share:
Before cumulative
effect of accounting
change $(2.01) $0.79 $(1.46) $1.37
Cumulative effect of
accounting change,
net of tax - - (0.33) -
(Loss) earnings
per share $(2.01) $0.79 $(1.79) $1.37
(Loss) earnings per share
assuming dilution $(2.01) $0.79 $(1.79) $1.37
Average number of common
shares outstanding 63,486,767 64,520,218 63,646,405 65,591,798
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2001
(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.
Note D: Other Expense - Net: In 2001, other expense - net included
$32,554 related to the write-down of the Corporation's investment
in Egreetings Network, Inc. to $0.85 per share and a gain of
approximately $8,400 on the sale of a building in Canada. In
2000, other expense - net included costs to convert the
Corporation's computer systems to be Year 2000 compliant. In the
years presented, other expense - net also included amortization
of goodwill, foreign exchange gains and losses on asset
disposals, and royalty and interest income.
Note E: Income Tax Expense: In 2001, income tax expense included a
charge of approximately $143,000 for potential tax exposure for
the fiscal years ended 1992 through 1999 relating to the
Corporation's corporate-owned life insurance program (COLI).
This charge represents the effect of proposed adjustments by the
Internal Revenue Service for the disallowance of certain
deductions related to this insurance program. The Corporation
believes that it has fully complied with the tax law as it
related to its COLI program and plans to vigorously contest the
proposed adjustments or any subsequent assessments and believes
it can distinguish certain of its COLI plans from those addressed
in previous litigation.
Note F: Acquisitions: 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 G: 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 s
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 H: Special Charges: During the three months ended August 31, 1999,
the Corporation recorded a restructuring charge of $32,747. The
primary components of this charge were costs associated with the
shutdown of the Corporation's Canadian manufacturing and
distribution operations, including employee severance and benefit
termination costs and the costs of closing down the facilities
used for those operations. In addition, the Corporation recorded
a charge of $7,682 during the period to write down inventory in
the Canadian operations. This amount is classified as material,
labor, and other production costs. The total impact of the
restructuring and inventory charges net of tax was $24,224, or
$0.36 per share.
During the three months ended February 29, 2000, the Corporation
recorded a restructuring charge of $6,126 ($4,849 net of tax, or
earnings per share of $0.08) related to various foreign
operations. The primary component of this charge was for the
rationalization of various warehouse, distribution and
manufacturing facilities in the United Kingdom. The balance of
the charge is composed of costs associated with the integration
of Mexican manufacturing in the United States and the realignment
of various business functions in Australia.
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER REPORT OF CONSOLIDATED FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 28, 2001
(In thousands of dollars except per share amounts)
February 28 or 29,
ASSETS 2001 2000
CURRENT ASSETS
Cash and cash equivalents $51,691 $61,010
Accounts receivable, less allowances of
$184,799 and $136,037 respectively
(principally for sales returns) 387,534 430,825
Inventories 365,221 249,433
Deferred and refundable income taxes 190,241 99,709
Prepaid expenses and other 211,049 259,707
Total current assets 1,205,736 1,100,684
GOODWILL - NET 229,802 149,437
OTHER ASSETS 799,348 820,447
PROPERTY, PLANT AND EQUIPMENT - NET 477,188 447,415
Total $2,712,074 $2,517,983
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $378,904 $109,694
Accounts payable and accrued liabilities 304,063 213,180
Accrued compensation and benefits 89,936 84,456
Dividends payable 12,732 25,808
Income taxes 192,936 13,090
Other current liabilities 132,710 136,260
Total current liabilities 1,111,281 582,488
LONG-TERM DEBT 380,124 442,102
OTHER LIABILITIES 146,187 195,985
DEFERRED INCOME TAXES 27,292 44,997
SHAREHOLDERS' EQUITY
Common shares - Class A 58,860 59,873
Common shares - Class B 4,629 4,647
Capital in excess of par value 304,970 304,946
Treasury stock (447,127) (445,758)
Accumulated other comprehensive loss (58,179) (27,572)
Retained earnings 1,184,037 1,356,275
Total shareholders' equity 1,047,190 1,252,411
Total $2,712,074 $2,517,983
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER REPORT OF CONSOLIDATED CASH FLOW
FISCAL YEAR ENDING FEBRUARY 28, 2001
(In thousands of dollars except per share amounts)
Twelve Months Ended
February 28 or 29,
2001 2000
OPERATING ACTIVITIES:
Net (loss) income $(113,814) $89,999
Adjustments to reconcile to net cash
provided by operating activities:
Cumulative effect of accounting change,
net of tax 21,141 -
Write-down of equity investment 32,554 -
Restructuring charge - 30,704
Depreciation and amortization 98,057 76,600
Deferred income taxes 61,227 54,248
Changes in operating assets and liabilities,
net of effects from acquisitions:
Decrease (increase) in trade
accounts receivable 29,201 (35,883)
(Increase) decrease in inventories (46,587) 11,655
Increase in other current assets (67,292) (57,261)
Decrease (increase) in deferred
cost - net 4,110 (5,640)
Decrease (increase) in accounts payable
and other liabilities 87,256 (689)
Other - net 3,947 4,786
Cash Provided by Operating Activities 109,800 168,519
INVESTING ACTIVITIES:
Business acquisitions (179,993) (65,947)
Property, plant & equipment additions (74,382) (50,753)
Proceeds from sale of fixed assets 22,294 1,490
Investment in corporate owned life insurance 181 2,746
Other - net 33,944 (25,183)
Cash Used by Investing Activities (197,956) (137,647)
FINANCING ACTIVITIES:
Increase in long-term debt - 1,076
Reduction of long-term debt (80,431) (16,397)
Increase in short-term debt 257,541 81,097
Sale of stock under benefit plans - 1,171
Purchase of treasury shares (45,530) (130,151)
Dividends to shareholders (52,743) (51,213)
Cash Provided (Used) by
Financing Activities 78,837 (114,417)
DECREASE IN CASH AND EQUIVALENTS (9,319) (83,545)
Cash and Equivalents at Beginning of Year 61,010 144,555
Cash and Equivalents at End of Year $51,691 $61,010
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