 |
 |
 |
 |
 |
 |
|
American Greetings Reports Significantly Improved Second Quarter Performance
CLEVELAND, Sept. 26 /PRNewswire-FirstCall/ -- American Greetings
Corp. (NYSE: AM)
today reported operating results in line with projections and
reflecting year-over-year improvement for the second quarter
of fiscal year 2003, as well as the first half of the year. 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 $10.3 million for the second quarter, compared to
adjusted EBITDA of a $4.4 million loss, which excludes special
charges for the same period last year. EBITDA for the trailing
four quarters adjusted to exclude special charges was $339.1
million, compared to adjusted EBITDA for the year-ago trailing
four quarters of $269.3 million. Reported net sales in the quarter were $396.9 million, a 0.5
percent increase compared to $395.1 million of net sales reported
in the second quarter of last year. The Corporation reported net income of $28.7 million, or 44
cents per share (41 cents assuming full dilution), for the first
six months of fiscal year 2003. Included in these results is
a favorable impact of 11 cents per share (10 cents assuming
full dilution) from the sale of an investment. This compares
to last year's net loss before special charges of $9.6 million,
or 15 cents per share (a net loss of $115.8 million, or $1.82
per share including special charges). Conference Call on the Web American Greetings will broadcast its second quarter conference call on the Internet at 10:30 a.m. Eastern Time on Thursday, Sept. 26, 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
SECOND 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
August 31,
2002 2001
Net sales $396,913 $395,112
Loss before income taxes (26,178) (57,329)
Income tax benefit (10,393) (21,613)
Net loss (15,785) (35,716)
(Loss) per share $(0.24) $(0.56)
(Loss) per share - assuming
dilution $(0.24) $(0.56)
Average number of common
shares outstanding 65,801,676 63,502,624
AMERICAN GREETINGS CORPORATION
SECOND QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2003
(In thousands of dollars except per share amounts)
(Unaudited)
Six Months Ended
August 31,
2002 2001
Net sales $881,143 $789,356
Income (loss) before income taxes 47,622 (185,894)
Income tax expense (benefit) 18,906 (70,082)
Net income (loss) 28,716 (115,812)
Earnings (loss) per share $0.44 $(1.82)
Earnings (loss) per share -
assuming dilution $0.41 $(1.82)
Average number of common
shares outstanding 65,408,114 63,500,674
AMERICAN GREETINGS CORPORATION
SECOND QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2003
(In thousands of dollars except per share amounts)
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
2002 2001 2002 2001
Net sales $396,913 $395,112 $881,143 $789,356
Costs and expenses:
Material, labor and
other production costs 193,584 182,871 380,098 415,698
Selling, distribution
and marketing 148,144 169,782 298,243 331,974
Administrative and
general 65,244 77,429 133,733 143,198
Restructure charges - - - 52,925
Interest expense 20,141 22,089 39,795 35,525
Other (income) expense
- net (4,022) 270 (18,348) (4,070)
423,091 452,441 833,521 975,250
(Loss) income before
income taxes (26,178) (57,329) 47,622 (185,894)
Income tax (benefit)
expense (10,393) (21,613) 18,906 (70,082)
Net (loss) income $(15,785) $(35,716) $28,716 $(115,812)
(Loss) earnings per share $(0.24) $(0.56) $0.44 $(1.82)
(Loss) earnings per share
and (loss) earnings per
share - assuming dilution $(0.24) $(0.56) $0.41 $(1.82)
Average number of common
shares outstanding 65,801,676 63,502,624 65,408,114 63,500,674
AMERICAN GREETINGS CORPORATION
SECOND QUARTER STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 28, 2003
(In thousands of dollars)
(Unaudited)
August 31,
2002 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $174,174 $74,883
Trade accounts receivable, less
allowances of $79,425 and $143,725,
respectively (principally
for sales returns) 337,817 369,544
Inventories 353,348 429,657
Deferred and refundable income
taxes 164,853 164,924
Prepaid expenses and other 210,285 215,298
Total current assets 1,240,477 1,254,306
GOODWILL - NET 205,998 227,202
OTHER ASSETS 828,329 906,291
PROPERTY, PLANT AND EQUIPMENT - NET 394,845 454,587
$2,669,649 $2,842,386
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $15,145 $141,311
Accounts payable 159,117 152,574
Accrued liabilities 129,974 198,340
Accrued compensation and benefits 81,152 86,667
Dividends payable - 6,367
Income taxes 174,058 128,303
Other current liabilities 138,100 132,014
Total current liabilities 697,546 845,576
LONG-TERM DEBT 845,985 850,250
OTHER LIABILITIES 131,963 199,585
DEFERRED INCOME TAXES 22,741 23,005
SHAREHOLDERS' EQUITY
Common shares - Class A 61,233 58,877
Common shares - Class B 4,603 4,626
Capital in excess of par value 310,271 286,054
Treasury stock (438,786) (447,124)
Accumulated other comprehensive loss (55,428) (58,844)
Retained earnings 1,089,521 1,080,381
Total shareholders' equity 971,414 923,970
$2,669,649 $2,842,386
AMERICAN GREETINGS CORPORATION
SECOND QUARTER STATEMENT OF CASH FLOWS
FISCAL YEAR ENDING FEBRUARY 28, 2003
(In thousands of dollars)
(Unaudited)
Six Months Ended
August 31,
2002 2001
OPERATING ACTIVITIES:
Net income (loss) $28,716 $(115,812)
Adjustments to reconcile to net
cash provided (used) by operating
activities:
Restructure charges - 50,264
(Gain) on sale of marketable
security (12,027) -
Depreciation and amortization 33,167 42,401
Deferred and refundable income
taxes 30,481 27,170
Changes in operating assets and
liabilities, net of effects from
acquisitions:
(Increase) decrease in trade
accounts receivable (44,875) 18,717
Increase in inventories (59,105) (64,399)
Decrease (increase) in other
current assets 3,126 (2,287)
Decrease (increase) in
deferred cost - net 75,996 (60,555)
Decrease in accounts payable
and other liabilities (35,891) (71,266)
Other - net 8,813 7,344
Cash Provided (Used) by
Operating Activities 28,401 (168,423)
INVESTING ACTIVITIES:
Property, plant & equipment
additions (8,085) (20,988)
Proceeds from sale of fixed assets 1,460 164
Investment in corporate owned life
insurance 3,911 2,467
Other - net 33,082 (4,449)
Cash Provided (Used) by
Investing Activities 30,368 (22,806)
CASH FLOW BEFORE FINANCING
ACTIVITIES 58,769 (191,229)
FINANCING ACTIVITIES:
Reduction of long-term debt (6,614) (78,402)
Increase in long-term debt - 540,555
Increase (decrease) in short-term
debt 294 (234,580)
Sale of stock under benefit plans 20,813 137
Purchase of treasury shares (67) (214)
Dividends to shareholders - (13,075)
Cash Provided by Financing
Activities 14,426 214,421
INCREASE IN CASH AND EQUIVALENTS 73,195 23,192
Cash and Equivalents at
Beginning of Year 100,979 51,691
Cash and Equivalents at End of
Period $174,174 $74,883
AMERICAN GREETINGS CORPORATION
SECOND 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 six months ended
August 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 six months ended
August 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 $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 $54,130 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, $10,084 of non-recurring project-related pre-tax costs associated
with the restructure efforts were incurred during the six months.
The total pre-tax impact of these special charges was $117,139 ($72,978
net of tax) or $1.15 per share.
Also during the six months ended August 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 $56,207 and
$10,068, respectively, as well as implementation costs of $7,216, for a
net pre-tax impact of approximately $53,355 ($33,241 net of tax) or $0.52
per share.
The total pre-tax impact of special charges and the implementation of the
scan-based trading business model was $170,494:
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 54,130
Scan-based trading initiative 53,355
Non-recurring administrative costs 10,084
Total special charges $170,494
Of the $170,494 incurred during the six months ended August 31, 2001,
$12,367 was incurred during the three months ended August 31, 2001.
During the six months ended August 31, 2002, the Corporation made payments
of $10,724, principally for severance benefits. Included in accrued
liabilities at August 31, 2002 is $9,059 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 $22,319 and $3,530 for the six and
three months ended August 31, 2001, respectively; and selling,
distribution and marketing costs of $182,290 and $89,583 for the six and
three months ended August 31, 2001, respectively, with corresponding
decreases in net sales in those periods. These reclassifications did not
affect pre-tax 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 six and three months ended August 31, 2001, the
Corporation's results included $5,678 and $2,647, respectively, 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. 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.
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. The Corporation has not yet
determined the impact, if any, that this Statement will have on the
financial statements of the Corporation.
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. The Corporation
has not yet determined the impact, if any, this Statement will have on the
financial statements of the Corporation.
MAKE YOUR OPINION COUNT - Click Here
http://tbutton.prnewswire.com/prn/11690X10994266
SOURCE American Greetings Corporation
|
