American Greetings Reports Strong First Quarter
Performance
Results reflect restructuring benefits, greeting
card sales increases
CLEVELAND, June 27 /PRNewswire-FirstCall/ -- American Greetings
Corporation (NYSE: AM)
today reported operating results exceeding its projections for the
first quarter of its 2003 fiscal year and reflecting strong year-over-year
sales growth.
The Corporation achieved after-tax earnings of $44.5 million, or
60 cents per share assuming dilution (68 cents per share before
dilution), for the first quarter ended May 31, 2002. Included in
these results was a 10-cent per share assuming dilution (11-cent
per share before dilution) favorable impact from the sale of an
investment. These results compare to net income before special charges
of $18.4 million, or 29 cents per share, for the first quarter of
fiscal 2002 and a reported net loss (including all special charges)
of
$80.1 million, or $1.26 per share.
The Corporation's results also reflect earnings before interest,
taxes, depreciation and amortization (EBITDA) of $110.3 million
for the first quarter, compared to $64.4 million last year. EBITDA
adjusted to exclude special charges was $324.4 million for the trailing
four quarters, compared to $261.5 million at this time last year.
Morry Weiss, chairman and chief executive officer of American Greetings,
said improved everyday greeting card and accessory sales, coupled
with the fact that downward pressure on greeting card pricing at
retail is diminishing, were key factors in the Corporation's improved
performance. "We were pleased with our seasonal point-of-sale results
at most of our major retailers, driven by a strong Mother's Day
performance," Weiss said. "We expect performance at retail to continue
to improve relative to last year's results as the year progresses."
Weiss also reaffirmed the Corporation's previously announced earnings
estimate of $1.45 to $1.55 per share assuming dilution (excluding
the one-time gain on the sale of an investment) for the full year.
"We are pleased with the fact that we have exceeded our projections
for the quarter," Weiss said. "While our plan does not call for
similar revenue growth for the balance of the fiscal year, we are
comfortable with our projections for the full year."
Net sales in the first quarter were $484.2 million, a 22.8 percent
increase compared to $394.2 million in the same period last year
(a 7.4 percent increase compared to last year's first quarter sales
results before special charges). This year's first quarter results
reflect the adoption of EITF Issue No. 01-09, "Accounting for Consideration
Given by a Vendor to a Customer/Reseller;" last year's first quarter
results have been reclassified to reflect this new accounting pronouncement.
These reclassifications in the prior year's results resulted in
decreases in the material, labor and other production costs and
selling, distribution and marketing lines, with corresponding decreases
in net sales, but did not affect pretax income.
The first quarter earnings performance also reflects the successful
implementation of the Corporation's recently completed restructuring.
"The restructuring changes that we implemented last year will have
a significant positive impact on our results this year, but our
cost-reduction initiatives are far from complete," Weiss said. "We
are viewing the restructuring as a platform for continuous improvement
to improve both top and bottom line performance, and we have retained
a core team of associates to focus on identifying additional opportunities
to drive future savings."
Conference Call on the Web
American Greetings will broadcast its first quarter conference call
on the Internet at 10:30 a.m. Eastern Time on Thursday, June 27,
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.
Shareholder Meeting
American Greetings will hold its 2002 annual shareholders' meeting
at 2:30 p.m., Friday, June 28, 2002 at the Corporation's World Headquarters
in Cleveland. A live audio broadcast and accompanying slides 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
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, 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
FIRST QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2003
(In thousands of dollars except share and per share amounts)
(Unaudited)
Three Months Ended
May 31,
2002 2001
Net sales $484,230 $394,244
Income (loss) before income taxes 73,800 (128,565)
Income tax expense (benefit) 29,299 (48,469)
Net income (loss) 44,501 (80,096)
Earnings (loss) per share $0.68 $(1.26)
Earnings (loss) per share -
assuming dilution $0.60 $(1.26)
Average number of common shares
outstanding 65,014,552 63,498,724
AMERICAN GREETINGS CORPORATION
FIRST QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2003
(In thousands of dollars except share and per share amounts)
(Unaudited)
Three Months Ended
May 31,
2002 2001
Net sales $484,230 $394,244
Costs and expenses:
Material, labor and other
production costs 186,514 232,827
Selling, distribution and marketing 150,099 162,192
Administrative and general 68,489 65,769
Restructure charges -- 52,925
Interest expense 19,654 13,436
Other (income) - net (14,326) (4,340)
Total 410,430 522,809
Income (loss) before income taxes 73,800 (128,565)
Income tax expense (benefit) 29,299 (48,469)
Net income (loss) $44,501 $(80,096)
Earnings (loss) per share $0.68 $(1.26)
Earnings (loss) per share - assuming
dilution $0.60 $(1.26)
Average number of common shares
outstanding 65,014,552 63,498,724
AMERICAN GREETINGS CORPORATION
FIRST QUARTER STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 28, 2003
(In thousands of dollars)
(Unaudited)
May 31,
2002 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $178,084 $115,012
Trade accounts receivable, less
allowances of $143,666 and $213,813,
respectively (principally
for sales returns) 335,304 352,217
Inventories 304,410 358,884
Deferred and refundable income taxes 215,285 196,669
Prepaid expenses and other 189,772 198,672
Total current assets 1,222,855 1,221,454
GOODWILL - NET 202,928 227,957
OTHER ASSETS 886,277 831,874
PROPERTY, PLANT AND EQUIPMENT - NET 404,834 469,674
Total $2,716,894 $2,750,959
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $12,932 $507,482
Accounts payable and accrued liabilities 319,360 314,189
Accrued compensation and benefits 80,543 81,137
Dividends payable -- 6,371
Income taxes 178,497 146,363
Other current liabilities 144,830 137,906
Total current liabilities 736,162 1,193,448
LONG-TERM DEBT 847,599 367,416
OTHER LIABILITIES 132,964 194,318
DEFERRED INCOME TAXES 25,769 27,999
SHAREHOLDERS' EQUITY
Common shares - Class A 61,174 58,865
Common shares - Class B 4,602 4,635
Capital in excess of par value 309,599 286,054
Treasury stock (438,809) (447,192)
Accumulated other comprehensive loss (67,478) (58,270)
Retained earnings 1,105,312 1,123,686
Total shareholders' equity 974,400 967,778
Total $2,716,894 $2,750,959
AMERICAN GREETINGS CORPORATION
FIRST QUARTER STATEMENT OF CASH FLOWS
FISCAL YEAR ENDING FEBRUARY 28, 2003
(In thousands of dollars)
(Unaudited)
Three Months Ended
May 31,
2002 2001
OPERATING ACTIVITIES:
Net income (loss) $44,501 $(80,096)
Adjustments to reconcile to net
cash provided (used) by operating
activities:
Restructure charges -- 52,925
(Gain) on sale of marketable security (12,027) --
Depreciation and amortization 16,825 21,431
Deferred and refundable income taxes (16,857) 475
Changes in operating assets and
liabilities, net of effects from
acquisitions:
(Increase) decrease in trade
accounts receivable (43,867) 35,291
(Increase) decrease in inventories (10,831) 5,582
Decrease in other current assets 2,821 6,016
Decrease in deferred cost - net 50,821 6,464
Increase (decrease) in accounts payable
and other liabilities 1,752 (91,663)
Other - net 7,328 214
Cash Provided (Used) by
Operating Activities 40,466 (43,361)
INVESTING ACTIVITIES:
Property, plant & equipment additions (2,625) (6,679)
Proceeds from sale of fixed assets 116 61
Investment in corporate owned life
insurance 4,451 4,610
Other - net 19,771 1,958
Cash Provided (Used) by
Investing Activities 21,713 (50)
CASH FLOW BEFORE FINANCING ACTIVITIES 62,179 (43,411)
FINANCING ACTIVITIES:
Reduction of long-term debt (5,289) (13,996)
Increase in short-term debt 58 127,064
Sale of stock under benefit plans 20,204 --
Purchase of treasury shares (47) --
Dividends to shareholders -- (6,336)
Cash Provided by Financing Activities 14,926 106,732
INCREASE IN CASH AND EQUIVALENTS 77,105 63,321
Cash and Equivalents at
Beginning of Year 100,979 51,691
Cash and Equivalents at End of
Period $178,084 $115,012
AMERICAN GREETINGS CORPORATION
FIRST 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 year 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.
Note E: Other Income: 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 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 three months ended
May 31, 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 $26,470 for costs
of severing employees, $3,727 for facility rationalization costs,
$2,296 for lease exit costs, $17,727 for a change in the
contractual relationship with a partner of the Corporation's
Internet unit and $2,705 of other costs.
In addition, the Corporation recorded a charge of $53,550 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. The total impact of the restructuring
and inventory charges net of tax was $1.05 per share.
Also during the three months ended May 31, 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 $56,500 and $9,900, respectively, as well as
non-recurring administrative costs of $3,871, for a net pre-tax
impact of approximately $50,500 or a net of tax impact of
$0.50 per share.
The total pre-tax impact of special charges and the
implementation of the scan-based trading business model was
$158,127:
Severance $26,470
Lease exit costs 2,296
Facility rationalization costs 3,727
Change in contractual relationship 17,727
Other costs 2,705
Restructure charge $52,925
Inventory write-down 53,550
Scan-based trading initiative 46,600
Non-recurring administrative costs 5,052
Total special charges $158,127
During the three months ended May 31, 2002, the Corporation made
payments of $6,474, principally for severance benefits. Included
in accounts payable and accrued liabilities at May 31, 2002 is
$13,309 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; and selling, distribution and marketing
costs of $18,789, and $92,707, respectively, with corresponding
decreases in net sales. These reclassifications did not affect
pre-tax income.
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 three months ended
May 31, 2001, the Corporation's results included $3,031 of
amortization expense related to goodwill included in other
(income) - net.
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," using a two-step process.
This Statement provides that the Corporation has until the end of
the second quarter of 2003 to complete the first step of the
impairment testing and until the end of 2003 to complete the
second step of the impairment testing during this initial
adoption of SFAS No. 142. In accordance with this provision, the
Corporation has begun the process of testing its goodwill for
impairment, but has not yet completed the first step of the two-
step testing process.
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 long-lived assets to be disposed of.
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 distinction is
important because assets held-for-sale are stated at the lower of
their fair values or carrying amounts and depreciation is no
longer recognized. The Corporation has adopted SFAS No. 144
effective March 1, 2002 as required. There was no material
impact on the Corporation's results of operations, financial
position or cash flow.
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