American Greetings Reports Improved Third Quarter
Performance
Corporation reaffirms full-year outlook
CLEVELAND, Dec. 23 /PRNewswire-FirstCall/ -- American Greetings
Corp. (NYSE: AM)
today announced a $40.4 million increase in reported net income
over prior year, on sales growth of 2.2 percent, for the third quarter
of fiscal year 2003. Excluding prior year's special charges, third
quarter net income was up 15 percent compared to prior year.
The Corporation realized net income of $47.0 million, or 62 cents
per share, for the third quarter ended Nov. 30, 2002. (Note: All
EPS numbers assume full dilution.) These results compare to net
income before special charges of $40.9 million, or 56 cents per
share, for the third quarter of fiscal 2002. Including all special
charges in the third quarter of the prior year, the Corporation
reported net income of $6.6 million, or 10 cents per share.
Reported net sales in the third quarter were $588.8 million, a 2.2
percent increase compared to reported net sales of $575.9 million
in the third quarter of last year. Excluding prior year's special
charges, net sales were down 4.7 percent.
Chairman and chief executive officer Morry Weiss said the Corporation's
results for the third quarter were very encouraging. "We are very
pleased that our cost savings initiatives drove double-digit EPS
growth, despite previously disclosed account losses," Weiss said.
"We are also pleased that cash flow continues to improve compared
to the prior year."
For the first three quarters of fiscal 2003, the Corporation reported
net income of $75.7 million, or $1.03 per share. Included in these
results is a favorable impact of 10 cents per share from the sale
of an investment. This compares to last year's net income excluding
special charges of $31.3 million, or 49 cents per share. Prior year's
reported net loss was $109.2 million, or $1.72 per share.
Year to date net sales were $1.47 billion, a 7.7 percent increase
compared to $1.365 billion in the same period last year. Excluding
prior year special charges, net sales for the first nine months
were up 0.5 percent. This year's results reflect the adoption of
EITF Issue No. 01-09, "Accounting for Consideration Given by a Vendor
to a Customer/Reseller;" last year's results have been reclassified
to reflect this new pronouncement. These reclassifications in the
prior year resulted in decreases in the material, labor and other
production costs and selling, distribution and marketing captions,
with a corresponding decrease in net sales and had no effect on
net
income.
Certain covenants of the Corporation's debt agreements are based
on calculations of adjusted earnings before interest, taxes, depreciation
and amortization (EBITDA). As such, adjusted EBITDA was $113.4 million
for the third quarter, compared to adjusted EBITDA of $109.1 million
(which excludes special charges) for the same period last year.
EBITDA for the trailing four quarters (which excludes special charges)
was $343.4 million, compared to adjusted EBITDA for the year-ago
trailing four quarters of $287.1 million.
Business outlook
Weiss reaffirmed the Corporation's previously announced full-year
earnings estimate of $1.45 to $1.55 per share (excluding the one-time
gain on the sale of an investment). "We expect the challenging retail
conditions that we encountered this quarter to continue for the
balance of the year, but our cost-savings initiatives will continue
to benefit our bottom line," Weiss said. "As such, we remain comfortable
with our earnings estimate."
Conference Call on the Web
American Greetings will broadcast its third quarter conference call
on the Internet at 10:30 a.m. Eastern time on Monday, Dec. 23, 2002.
The live 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 a 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 net sales of approximately $2 billion. For more
information on the Corporation, visit http://corporate.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 and
supply chain transformation, 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, 2003
(In thousands of dollars except per share amounts)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
2002 2001 2002 2001
Net sales $588,811 $575,881 $1,469,954 $1,365,237
Costs and expenses:
Material, labor and
other
production costs 285,287 291,962 665,385 707,660
Selling, distribution
and marketing 159,728 176,783 457,971 508,757
Administrative and
general 47,044 71,290 180,777 214,488
Restructure charges - - - 52,925
Interest expense 19,569 23,619 59,364 59,144
Other (income) expense
- net (747) 1,592 (19,095) (2,478)
510,881 565,246 1,344,402 1,540,496
Income (loss) before
income
taxes 77,930 10,635 125,552 (175,259)
Income tax expense
(benefit) 30,938 4,010 49,844 (66,072)
Net income (loss) $46,992 $6,625 $75,708 $(109,187)
Earnings (loss) per share $0.71 $0.10 $1.15 $(1.72)
Earnings (loss) per share
and earnings (loss) per
share - assuming dilution $0.62 $0.10 $1.03 $(1.72)
Average number of common
shares outstanding 65,847,805 63,705,743 65,554,677 63,569,030
AMERICAN GREETINGS CORPORATION
THIRD QUARTER STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 28, 2003
(In thousands of dollars)
(Unaudited)
November 30,
2002 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $21,801 $45,353
Trade accounts receivable, less
allowances of $107,716 and $185,499,
respectively (principally
for sales returns) 513,922 538,546
Inventories 295,224 341,962
Deferred and refundable income
taxes 191,991 151,048
Prepaid expenses and other 228,181 207,742
Total current assets 1,251,119 1,284,651
GOODWILL - NET 207,106 256,259
OTHER ASSETS 766,617 901,061
PROPERTY, PLANT AND EQUIPMENT - NET 387,748 438,333
$2,612,590 $2,880,304
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $37,274 $35,056
Accounts payable 162,153 119,170
Accrued liabilities 140,613 227,209
Accrued compensation and benefits 92,572 97,762
Dividends payable - 6,368
Income taxes 94,046 118,787
Other current liabilities 84,803 143,775
Total current liabilities 611,461 748,127
LONG-TERM DEBT 844,341 995,239
OTHER LIABILITIES 110,233 198,258
DEFERRED INCOME TAXES 24,295 23,351
SHAREHOLDERS' EQUITY
Common shares - Class A 61,255 59,125
Common shares - Class B 4,602 4,620
Capital in excess of par value 310,443 288,453
Treasury stock (438,756) (447,080)
Accumulated other comprehensive loss (51,790) (70,026)
Retained earnings 1,136,506 1,080,237
Total shareholders' equity 1,022,260 915,329
$2,612,590 $2,880,304
AMERICAN GREETINGS CORPORATION
THIRD QUARTER STATEMENT OF CASH FLOWS
FISCAL YEAR ENDING FEBRUARY 28, 2003
(In thousands of dollars except per share amounts)
(Unaudited)
Nine Months Ended
November 30,
2002 2001
OPERATING ACTIVITIES:
Net income (loss) $75,708 $(109,187)
Adjustments to reconcile to net
cash
used by operating activities:
Restructure charges - 46,439
(Gain) on sale of marketable
security (12,027) -
Depreciation and amortization 49,112 62,284
Deferred and refundable income
taxes 4,820 41,636
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Increase in trade accounts
receivable (219,517) (153,099)
(Increase) decrease in
inventories (497) 20,589
Decrease in other current
assets 2,525 6,394
Decrease (increase) in
deferred cost - net 50,170 (46,551)
Decrease in accounts payable
and other liabilities (93,040) (67,251)
Other - net 7,824 7,263
Cash Used by Operating
Activities (134,922) (191,483)
INVESTING ACTIVITIES:
Business acquisitions - (35,000)
Property, plant & equipment
additions (17,768) (21,597)
Proceeds from sale of fixed assets 1,694 3,459
Investment in corporate owned life
insurance 5,257 5,745
Other - net 31,694 (14,058)
Cash Provided (Used) by
Investing Activities 20,877 (61,451)
CASH FLOW BEFORE FINANCING
ACTIVITIES (114,045) (252,934)
FINANCING ACTIVITIES:
Reduction of long-term debt (6,581) (80,622)
Increase in long-term debt - 688,485
Increase (decrease) in short-term
debt 20,476 (341,058)
Sale of stock under benefit plans 21,055 92
Purchase of treasury shares (83) (99)
Dividends to shareholders - (20,202)
Cash Provided by Financing
Activities 34,867 246,596
DECREASE IN CASH AND EQUIVALENTS (79,178) (6,338)
Cash and Equivalents at
Beginning of Year 100,979 51,691
Cash and Equivalents at End of
Period $21,801 $45,353
AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDED FEBRUARY 28, 2003
(Unaudited)
(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 2003
presentation. The Corporation adopted the Financial Accounting
Standards Board Emerging Issues Task Force Issue No. 01-09,
"Accounting for Consideration Given by a Vendor to a
Customer/Reseller" ("EITF 01-09"), effective March 1, 2002. As
a result, certain amounts in the prior year financial statements
have been reclassified. See Note G for further discussion.
Note C: 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.
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.
Note D: Deferred Costs: The Corporation has agreements with certain
customers for the supply of greeting cards and related products.
Deferred costs relating to these agreements are charged to
operations on a straight-line basis over the effective period of
each agreement. The Corporation generally enters into these
agreements for an initial estimated period of five to six years.
The majority of individual agreements include a minimum purchase
commitment to the Corporation on the part of the customer. In
these cases, the Corporation periodically reviews the progress
toward the commitment and adjusts the estimated amortization
period accordingly. Deferred costs estimated to be charged to
operations during the next twelve months are classified with
prepaid expenses and other. Total commitments under the
agreement are capitalized as deferred costs and future payment
commitments, if any, are recorded as liabilities when the
agreements are consummated. Amortization of deferred costs is
classified as a reduction of net sales. Also see Note G.
Note E: Other (Income) Expense - net: During the three months ended
May 31, 2002, the Corporation sold an investment in a marketable
security. The amount of the gain on the sale of $12,027 is
included in other (income) expense in the Statement of
Operations for the period. The amount of the proceeds received
from the sale of $16,964 is included in other net investing
activities in the Statement of Cash Flows for the period.
Note F: Restructure and Special Charges: During the nine months ended
November 30, 2001, the Corporation recorded a pre-tax
restructuring charge of $52,925 ($32,970 net of tax, or earnings
per share of $0.52). This charge was for costs associated with
the consolidation and rationalization of certain of the
Corporation's domestic and foreign manufacturing and
distribution operations, including employee severance and
benefit termination costs. The restructure charge also included
a charge for a change in the contractual relationship with a
partner of the Corporation's Internet unit. The restructure
charge included $25,263 for costs of severing employees, $2,054
for facility rationalization costs, $1,500 for lease exit costs,
$17,727 for a change in the contractual relationship with a
partner of the Corporation's Internet unit and $6,381 of other
costs.
In addition, the Corporation recorded a charge of $54,014 during
the period to write down inventory in its domestic operations to
net realizable value associated with its previously-announced
initiatives. This amount is classified as material, labor, and
other production costs. Also, $34,140 of non-recurring project-
related pre-tax costs associated with the restructure efforts
were incurred during the nine months ended November 30, 2001.
The total pre-tax impact of these special charges was $141,079
($87,892 net of tax) or $1.38 per share.
Also during the nine months ended November 30, 2001, the
Corporation began implementing its scan-based trading business
model with certain of its retailers. The impact of its
implementation was reductions in its net sales and material,
labor and other production costs of $65,485 and $10,149,
respectively, as well as implementation costs of $29,057, for a
net pre-tax impact of approximately $84,393 ($52,577 net of tax)
or $0.83 per share.
The total pre-tax impact of special charges and the
implementation of the scan-based trading business model was
$225,472:
Severance $25,263
Lease exit costs 1,500
Facility rationalization costs 2,054
Change in contractual relationship 17,727
Other costs 6,381
Restructure charge $52,925
Inventory write-down 54,014
Scan-based trading initiative 84,393
Non-recurring administrative costs 34,140
Total special charges $225,472
Of the $225,472 incurred during the nine months ended
November 30, 2001, $54,978 was incurred during the three months
ended November 30, 2001.
During the nine months ended November 30, 2002, the Corporation
made payments of $12,355, principally for severance benefits.
Included in accrued liabilities at November 30, 2002 is $7,428
of costs not yet expended.
Note G: Recent Accounting Pronouncements: In November 2001, the
Financial Accounting Standards Board's Emerging Issues Task
Force ("EITF") issued EITF 01-09, which addresses the accounting
for consideration given by a vendor to a customer including both
a reseller of the vendor's products and an entity that purchases
the vendor's products from a reseller. EITF 01-09 also codifies
and reconciles related guidance issued by the EITF including
EITF No. 00-25, "Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products," and
EITF 00-14, "Accounting for Certain Sales Incentives."
EITF 01-09 outlines the presumption that consideration given by
a vendor to a customer, a reseller or a customer of a reseller
is to be treated as a reduction of revenue. The Corporation
adopted EITF 01-09, effective March 1, 2002, as required.
Certain amounts related to incentive payments, amortization of
deferred costs and other customer benefits have been
reclassified in the prior year results to conform with the 2003
presentation. Those reclassifications resulted in decreases to
material, labor and other production costs of $43,869 and
$21,550 for the nine and three months ended November 30, 2001,
respectively; and selling, distribution and marketing costs of
$290,292 and $108,002 for the nine and three months ended
November 30, 2001, respectively, with corresponding decreases in
net sales in those periods. These reclassifications did not
affect net income for those periods.
On March 1, 2002, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." This Statement, which supersedes APB
Opinion No. 17, "Intangible Assets," eliminates the requirement
to amortize goodwill and indefinite-lived intangible assets,
addresses the amortization of intangible assets with a defined
life and addresses the impairment testing and recognition for
goodwill and intangible assets. SFAS No. 142 applies to
goodwill and intangible assets arising from transactions
completed before and after the Statement's effective date.
Effective March 1, 2002, the Corporation discontinued
amortization of its goodwill in accordance with this Statement.
For the nine and three months ended November 30, 2001, the
Corporation's results included $9,477 and $3,799, respectively,
of amortization expense related to goodwill included in other
(income) expense - net in the Consolidated Statement of
Operations.
In addition, this Statement requires goodwill to be tested for
impairment at least annually at a level of reporting defined in
the Statement as a "reporting unit." The Corporation completed
the first step of the traditional impairment test for goodwill
during the three months ended August 31, 2002 and determined
there were no indicators of impairment as of March 1, 2002. As
such, the Corporation will not record a cumulative effect charge
as of March 1, 2002 for the adoption of SFAS No. 142.
In October 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," was issued. This Statement,
which supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of," provides a single
accounting model for the disposal of long-lived assets.
Although retaining many of the fundamental recognition and
measurement provisions of SFAS No. 121, the Statement
significantly changes the criteria that would have to be met to
classify an asset as held-for-sale. This important distinction
states that assets held-for-sale are to be reported at the lower
of their fair values or carrying amounts and that depreciation
is no longer recognized. The Corporation has adopted SFAS No.
144 effective March 1, 2002. There was no material impact on
the Corporation's results of operations, financial position or
cash flow upon adoption of this Statement.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," was issued. SFAS No. 145 is effective for fiscal
years beginning after May 15, 2002. SFAS No. 145 requires that
debt extinguishment must meet the criteria under APB Opinion No.
30 to be classified as an extraordinary item. This Statement
also amends SFAS No. 13 to require sale-leaseback accounting for
certain lease modifications that have economic effects similar
to sale-leaseback transactions.
In June 2002, SFAS No. 146, "Accounting for Exit or Disposal
Activities," was issued. SFAS No. 146 is effective for disposal
activities initiated after December 31, 2002. SFAS No. 146
requires that liabilities for one-time termination benefits that
will be incurred over future service periods should be measured
at the fair value as of the termination date and recognized over
the future service period. This Statement also requires that
liabilities associated with disposal activities should be
recorded when incurred instead of when it is probable as
currently required by SFAS No. 5 "Accounting for Contingencies."
These liabilities should be adjusted for subsequent changes
resulting from revisions to either the timing or amount of
estimated cash flows, discounted at the original credit-adjusted
risk-free rate. Interest on the liability would be accreted and
charged to expense as an operating item.
|
