American Greetings Announces Solid Third-Quarter
Results
- Greeting card performance drives 4.6 percent net sales increase in
quarter
- Third-quarter results in line with estimate
- Estimate for fiscal 2004 lowered to $1.48 to $1.53 per share
- Corporation repurchases $64 million of high-yield debt
CLEVELAND, Dec. 23 /PRNewswire-FirstCall/ -- American Greetings
Corporation (NYSE: AM) today announced results in line with its estimate for
the third quarter of fiscal 2004. The Corporation also announced the
repurchase of $63.6 million of its 11.75 percent subordinated notes.
American Greetings reported net income of $46.4 million, or 60 cents per
share, on net sales of $616.0 million, for the fiscal 2004 third quarter ended
Nov. 30, 2003 (all per-share amounts assume dilution). Included in this
quarter's results are $13.8 million in costs related to the debt repurchase.
Excluding these costs, American Greetings realized earnings per share of
70 cents on net income of $54.1 million. These results compare to net income
of $47.0 million, or 62 cents per share, on net sales of $588.8 million in the
third quarter last year.
The Corporation reported net income of $56.4 million, or 78 cents per
share, on net sales of $1.5 billion, for the first three quarters of fiscal
2004. Included in the year-to-date results are $18.4 million of costs incurred
in the first and third fiscal quarters for debt repurchases totaling
$181.6 million. Excluding these costs, American Greetings realized earnings
per share of 91 cents on net income of $66.7 million for the first three
quarters. Last year, the Corporation reported net income of $75.7 million, or
$1.03 per share, on net sales of $1.5 billion for the same period. Last year's
results include a $12.0 million pretax gain from the sale of an equity
investment.
EBITDA for the third quarter of fiscal 2004 was $121.9 million, compared
to $113.4 million in the third quarter of fiscal 2003. EBITDA for the trailing
four quarters ended Nov. 30, 2003, was $321.6 million, compared to EBITDA for
the year-ago trailing four quarters of $343.4 million. Last year's results
include a $12.0 million pretax gain from the sale of an equity investment.
EBITDA represents a non-GAAP financial measure, and is presented because
certain of the Corporation's credit agreement covenants incorporate EBITDA as
a component of their calculations. A table reconciling EBITDA to the
appropriate GAAP measure is included in the notes to this release.
Management Comments and Outlook
"We are satisfied with our year-to-date performance, including our recent
debt repurchases; however, despite strong sales and cash flow in the third
quarter, early holiday sales are below our expectations," said Chief Executive
Officer Zev Weiss. "This softness in our seasonal business will most likely
impact our greeting card, gift wrap and retail operations in the fourth
quarter. As a result, we are revising our earnings per share estimate for the
full fiscal year 2004 to $1.48 to $1.53."
Conference Call on the Web
American Greetings will broadcast its third-quarter conference call live
on the Internet at 9:30 a.m. Eastern time today. The conference call will be
accessible through the Investor Relations section of the American Greetings
Web site at http://corporate.americangreetings.com/ . A replay of the call will
be available on the site.
About American Greetings Corporation
American Greetings Corporation (NYSE: AM) is one of the world's largest
manufacturers of social expression products. Along with greeting cards, its
product lines include gift wrap, party goods, reading glasses, candles,
stationery, calendars, educational products, ornaments and electronic
greetings. 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/ .
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,
successful transition of management, a weak retail environment, consumer
acceptance of products as priced and marketed, the impact of technology on
core product sales, competitive terms of sale offered to customers,
successfully implementing supply chain improvements and achieving projected
cost savings from those improvements, and the Corporation's ability to comply
with its debt covenants. Risks pertaining specifically to
AmericanGreetings.com include the viability of online advertising and
subscriptions as revenue generators and the public's acceptance of online
greetings and other social expression products.
In addition, this release contains time-sensitive information that
reflects management's best analysis only as of the date of this release.
American Greetings does not undertake any obligation to publicly update or
revise any forward-looking statements to reflect future events, information or
circumstances that arise after the date of this release. Further information
concerning issues that could materially affect financial performance related
to forward-looking statements can be found in the Corporation's periodic
filings with the Securities and Exchange Commission.
AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 29, 2004
(In thousands of dollars except share and per share amounts)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
2003 2002 2003 2002
Net sales $616,046 $588,811 $1,473,898 $1,469,954
Costs and expenses:
Material, labor and
other production costs 296,341 285,287 682,749 665,385
Selling, distribution
and marketing 171,117 159,728 474,697 457,971
Administrative and
general 56,720 47,044 179,530 180,777
Interest expense 30,587 19,569 70,924 59,364
Other (income) - net (14,079) (747) (25,963) (19,095)
540,686 510,881 1,381,937 1,344,402
Income before income
tax expense 75,360 77,930 91,961 125,552
Income tax expense 28,998 30,938 35,589 49,844
Net income $46,362 $46,992 $56,372 $75,708
Earnings per share $0.70 $0.71 $0.85 $1.15
Earnings per share -
assuming dilution $0.60 $0.62 $0.78 $1.03
Average number of common
shares outstanding 66,699,848 65,847,805 66,309,827 65,554,677
Average number of common
shares outstanding -
assuming dilution 80,478,413 79,311,123 79,817,702 78,971,775
AMERICAN GREETINGS CORPORATION
THIRD QUARTER STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 29, 2004
(In thousands of dollars)
(Unaudited)
November 30,
2003 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $51,694 $21,801
Trade accounts receivable,
less allowances for sales returns
of $91,271 ($80,153 in 2002) and for
doubtful accounts of $23,829
($27,563 in 2002) 462,547 513,922
Inventories 306,614 295,224
Deferred and refundable income
taxes 181,981 191,991
Prepaid expenses and other 246,704 228,181
Total current assets 1,249,540 1,251,119
GOODWILL 223,240 207,106
OTHER ASSETS 698,608 766,617
PROPERTY, PLANT AND EQUIPMENT - NET 373,677 387,748
$2,545,065 $2,612,590
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $85,414 $37,274
Accounts payable 141,506 145,071
Accrued liabilities 156,142 157,695
Accrued compensation and benefits 69,871 92,572
Income taxes 51,113 94,046
Other current liabilities 69,455 84,803
Total current liabilities 573,501 611,461
LONG-TERM DEBT 665,554 844,341
OTHER LIABILITIES 110,026 110,233
DEFERRED INCOME TAXES 9,894 24,295
SHAREHOLDERS' EQUITY
Common shares - Class A 62,241 61,255
Common shares - Class B 4,592 4,602
Capital in excess of par value 322,643 310,443
Treasury stock (438,655) (438,756)
Accumulated other comprehensive loss (2,858) (51,790)
Retained earnings 1,238,127 1,136,506
Total shareholders' equity 1,186,090 1,022,260
$2,545,065 $2,612,590
AMERICAN GREETINGS CORPORATION
THIRD QUARTER STATEMENT OF CASH FLOWS
FISCAL YEAR ENDING FEBRUARY 29, 2004
(In thousands of dollars except share and per share amounts)
(Unaudited)
Nine Months Ended
November 30,
2003 2002
OPERATING ACTIVITIES:
Net income $56,372 $75,708
Adjustments to reconcile to net cash
used by operating activities:
(Gain) on sale of marketable security - (12,027)
Depreciation and amortization 47,986 49,112
Deferred income taxes (8,110) (49,003)
Changes in operating assets and liabilities:
Increase in trade accounts receivable (144,679) (219,517)
Increase in inventories (19,464) (497)
Decrease in other current assets 27,860 56,348
Decrease in deferred costs - net 24,891 50,170
Decrease in accounts payable
and other liabilities (35,771) (93,040)
Other - net 6,137 7,824
Cash Used by Operating Activities (44,778) (134,922)
INVESTING ACTIVITIES:
Property, plant & equipment additions (26,511) (17,768)
Proceeds from sale of fixed assets 2,140 1,694
Investment in corporate owned life insurance 8,943 5,257
Other - net 3,814 29,285
Cash (Used) Provided by
Investing Activities (11,614) 18,468
FINANCING ACTIVITIES:
Reduction of long-term debt (68,673) (6,581)
(Decrease) increase in short-term debt (45,955) 20,476
Sale of stock under benefit plans 10,478 21,055
Purchase of treasury shares (439) (83)
Cash (Used) Provided by
Financing Activities (104,589) 34,867
EFFECT OF EXCHANGE RATE CHANGES ON CASH 4,212 2,409
DECREASE IN CASH AND CASH EQUIVALENTS (156,769) (79,178)
Cash and Cash Equivalents at
Beginning of Year 208,463 100,979
Cash and Cash Equivalents at End
of Period $51,694 $21,801
AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 29, 2004 (Unaudited)
(In thousands of dollars except share and per share amounts)
Note 1: Seasonal Nature of Business: A significant portion of 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 2: Reclassifications: Certain amounts in the prior year financial
statements have been reclassified to conform to the 2004
presentation.
Note 3: Deferred Costs: In the normal course of its business, the
Corporation enters into agreements with certain customers for the
supply of greeting cards and related products. Under these
agreements, the customer typically receives from the Corporation
a combination of cash payments, credits, discounts, allowances
and other incentive considerations to be earned by the customer
as product is purchased from the Corporation over the effective
time period of the agreement to meet a minimum purchase volume
commitment. In the event a contract is not completed, the
Corporation has a claim for unearned advances under the
agreement. The Corporation periodically reviews the progress
toward the commitment and adjusts the estimated amortization
period accordingly to match the costs with the revenue associated
with the agreement. The agreements may or may not specify the
Corporation as the sole supplier of social expression products to
the customer.
The Corporation classifies the total contractual amount of the
incentive consideration committed to the customer but not yet
earned as a deferred cost asset at the inception of an agreement,
or any future amendments. Deferred costs estimated to be earned
by the customer and charged to operations during the next twelve
months are classified as "Prepaid expenses and other" in the
Consolidated Statement of Financial Position, and the remaining
amounts to be charged beyond the next twelve months are
classified as "Other assets".
A portion of the total consideration may be payable by the
Corporation at the time the agreement is consummated. All future
payment commitments are classified as liabilities at inception
until paid. The payments that are expected to be made in the
next twelve months are classified as "Other current liabilities"
in the Consolidated Statement of Financial Position, and the
remaining payment commitments beyond the next twelve months are
classified as "Other liabilities". The Corporation maintains
adequate reserves for deferred costs related to supply agreements
and does not expect that the non-completion of any particular
contract would result in a material loss.
Note 4: Other (Income) - Net : During the three months ended May 31,
2002, "Other (income) -- net" included $12,027 of income on the
sale of a marketable security investment. The amount of the
proceeds received from the sale of the marketable security
investment of $16,964 is included in "Other" investing
activities in the Statement of Cash Flows for the period.
Note 5: Recent Accounting Pronouncements: In April 2002, Statement of
Financial Accounting Standards (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 adopted this Statement effective March 1, 2003.
During the three months ended May 31, 2003, the Corporation paid
the outstanding balance of its $117,988 term loan and recorded a
charge of $4,639 for the write-off of the deferred financing
costs and a premium associated with the early retirement of that
loan. During the three months ended November 30, 2003 the
Company repurchased $63,630 of its 11.75% senior subordinated
notes and recorded a charge of $13,750 for the write-off of
deferred financing costs and the premium associated with the
note repurchase. The write-offs for the deferred financing fees
and premium related to these transactions were included in
Interest Expense.
In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure" was issued. SFAS
No. 148 amends the disclosure provisions of SFAS No. 123 and
requires expanded and more prominent disclosure of the effects of
an entity's accounting policy in respect to stock-based employee
compensation. The disclosure requirements in SFAS No. 148 are
effective for financial statements for fiscal years ending after
December 15, 2002 and for financial reports containing condensed
consolidated financial statements for interim periods beginning
after December 15, 2002. Beginning with its financial statements
for the year ended February 28, 2003, the Corporation has adopted
the disclosure provisions of SFAS No. 148.
In January 2003, Interpretation No. 46, "Consolidation of
Variable Interest Entities" was issued. Interpretation No. 46
provides guidance for identifying a controlling interest in a
Variable Interest Entity ("VIE") established by means other
than voting interests. Interpretation No. 46 also requires
consolidation of a VIE by an enterprise that holds such a
controlling interest. On December 17, 2003, the FASB completed
deliberations of the proposed modifications to Interpretation
No. 46; the decisions reached include:
(1) Deferral of the effective date;
(2) Provisions for additional scope exceptions for certain
other variable interests; and
(3) Clarification of the impact of troubled debt restructurings
on the requirement with respect to VIEs.
Based on the Board's decisions, all public companies must apply
the provisions of the Interpretation or the Revised
Interpretation to variable interests in a special purpose entity
("SPE") created before February 1, 2003 no later than periods
ending after December 15, 2003. Companies are required to apply
the revised provisions to variable interests in non-SPEs held in
the entity no later than the end of the first interim or annual
reporting period ending after March 15, 2004. The Corporation
does not believe that this Interpretation will have a material
impact on the financial statements of the Corporation.
In May 2003, SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity",
was issued. SFAS No. 150 establishes standards for how certain
financial instruments with characteristics of both liabilities
and equity are classified. This Statement requires that a
financial instrument that is within its scope be classified as a
liability (or as an asset in some circumstances). SFAS No. 150
is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. This
Statement had no impact on the financial statements of the
Corporation.
Note 6: Reconciliation of Non-GAAP Measures: This earnings release
contains non-GAAP financial measures. For purposes of Regulation
G, a non-GAAP financial measure is a numerical measure of a
registrant's historical or future financial performance,
financial position or cash flows that excludes amounts, or is
subject to adjustments that have the effect of excluding amounts,
that are included in the most directly comparable measure
calculated and presented in accordance with GAAP in the statement
of income, balance sheet, or statement of cash flows (or
equivalent statements) of the issuer; or includes amounts, or is
subject to adjustments that have the effect of including amounts,
that are excluded from the most directly comparable measure so
calculated and presented. In this regard, GAAP refers to
generally accepted accounting principles in the United States.
Pursuant to the requirements of Regulation G, the Corporation has
provided a reconciliation of the non-GAAP financial measures to
the most directly comparable GAAP financial measures.
Certain covenants of the Corporation's debt agreements are based
on calculations of earnings before interest expense, income
taxes, depreciation and amortization (EBITDA). As such, EBITDA
was $121.9 million for the three months ended November 30, 2003.
Below is a reconciliation of net income to EBITDA (in millions):
Three Months Ended
November 30
2003 2002
Net income $46.4 $47.0
Interest expense 30.6 19.6
Income tax expense 29.0 30.9
Depreciation and amortization 15.9 15.9
EBITDA $121.9 $113.4
Below is a reconciliation of "Cash used by operating activities"
to EBITDA (in millions):
Three Months Ended
November 30
2003 2002
Cash used by operating
activities $(4.0) $(163.3)
Deferred income taxes 23.2 25.7
Changes in operating assets
and liabilities 43.1 200.5
Interest expense 30.6 19.6
Income tax expense 29.0 30.9
EBITDA $121.9 $113.4
Below are reconciliations of net income (loss) to adjusted EBITDA for the
four quarters ended November 30, 2003 and 2002 (in millions):
Net income:
Year ended February 28, 2003 $121.1
Less: nine months ended November 30, 2002 75.7
Add: nine months ended November 30, 2003 56.4
Net income, four quarters ended November 30, 2003 101.8
Interest expense, four quarters ended November 30, 2003 90.7
Income tax expense, four quarters ended November 30, 2003 65.5
Depreciation and amortization, four quarters ended
November 30, 2003 63.6
Adjusted EBITDA, four quarters ended November 30, 2003 $321.6
Net income (loss):
Year ended February 28, 2002 $(122.3)
Less: nine months ended November 30, 2001 (109.2)
Add: nine months ended November 30, 2002 75.7
Net income, four quarters ended November 30, 2002 62.6
Interest expense, four quarters ended November 30, 2002 78.8
Income tax expense, four quarters ended November 30, 2002 41.9
Depreciation and amortization, four quarters ended
November 30, 2002 71.1
Charges, four quarters ended November 30, 2002
(see note below) 89.0
Adjusted EBITDA, four quarters ended November 30, 2002 $343.4
Note: Charges for the four quarters ended November 30, 2002 include the
costs associated with the consolidation and rationalization of
certain of the Corporation's operations, including employee
severance and benefit termination costs, the implementation of the
scan-based trading business model and other costs.
Below are reconciliations of ''Cash provided (used) by operating
activities'' to adjusted EBITDA for the four quarters ended November 30,
2003 and 2002 (in millions):
Cash provided (used) by operating activities:
Year ended February 28, 2003 $77.0
Less: nine months ended November 30, 2002 (134.9)
Add: nine months ended November 30, 2003 (44.7)
Cash provided by operating activities, four quarters ended
November 30, 2003 167.2
Deferred income taxes (16.4)
Changes in operating assets and liabilities (1.0)
Interest expense, four quarters ended November 30, 2003 90.7
Income tax expense, four quarters ended November 30, 2003 65.5
Charges (see note above) 15.6
Adjusted EBITDA, four quarters ended November 30, 2003 $321.6
Cash provided (used) by operating activities:
Year ended February 28, 2002 $36.3
Less: nine months ended November 30, 2001 (191.5)
Add: nine months ended November 30, 2002 (134.9)
Cash provided by operating activities, four quarters ended
November 30, 2002 92.9
Gain on sale of marketable security 12.0
Deferred income taxes 77.2
Changes in operating assets and liabilities (20.3)
Interest expense, four quarters ended November 30, 2002 78.8
Income tax expense, four quarters ended November 30, 2002 41.9
Charges (see note above) 60.9
Adjusted EBITDA, four quarters ended November 30, 2002 $343.4
Summary of Statement of Cash Flows (in millions):
Nine Months Ended
November 30
2003 2002
Cash (Used) by Operating
Activities $(44.7) $(134.9)
Cash (Used) Provided by
Investing Activities $(11.6) $18.5
Cash (Used) Provided by
Financing Activities $(104.6) $34.9
EBITDA is presented in the earnings release because management believes
that it is of interest to its investors and lenders in relation to its
debt covenants, as certain of the debt covenants include EBITDA as a
component of a covenant calculation.
SOURCE American Greetings Corporation
|
