American Greetings Reports Significantly Improved Net Income and
Stronger Balance Sheet for Fourth Quarter and Fiscal 2003
Anticipates EPS and cash flow improvements, as well as debt repayments, in '04
Reiterates confidence in senior management team; reaffirms strategic direction
CLEVELAND, April 3 /PRNewswire-FirstCall/ -- American Greetings Corp.
(NYSE: AM) today reported a $243 million year-over-year improvement in net
income and a $107 million increase in its cash balance for the fiscal year
ended Feb. 28, 2003. The Corporation also said it has funded its previously
announced $143 million corporate-owned life insurance (COLI) net tax liability
and announced its intent to repay its $118 million term loan in the first
quarter of fiscal 2004.
The Corporation achieved net income of $45.4 million, or 60 cents per
share, on net sales of $525.9 million, for the fourth quarter ended Feb. 28,
2003. (Note: All per share numbers assume dilution.) This compares to a net
loss of $13.1 million, or 20 cents per share, on net sales of $562.1 million
in the fourth quarter last year. The 2002 fourth quarter and full year results
have been reclassified to conform to EITF 01-09 (see Note 7).
These results represent a $96.4 million improvement in fourth-quarter
pretax income compared to last year. Excluding the $89.0 million of charges
detailed in Note 8, pretax income increased $7.4 million, or 11 percent.
Chairman and Chief Executive Officer Morry Weiss said the Corporation's
fourth quarter results show net income growth, despite sales shortfalls due to
previously disclosed store losses. "Our prior year restructuring effort and
ongoing initiatives to align our costs with our revenue base benefited our
bottom line in the fourth quarter and throughout the year," Weiss said.
For the full year, the Corporation reported net income of $121.1 million,
or $1.63 per share, on net sales of $1.996 billion. Included in these results
is a pretax gain of $12.0 million from the sale of an equity investment. This
compares to a net loss of $122.3 million, or $1.92 per share, on net sales of
$1.927 billion in the prior year.
These results represent a $397.2 million improvement in full-year pretax
income compared to last year. Excluding the $314.4 million of charges detailed
in Notes 6 and 8, pretax income increased $82.7 million, or 70 percent.
Excluding these charges and the pretax gain of $12.0 million on the sale of an
equity investment, pretax income increased $70.7 million, or 60 percent.
Adjusted EBITDA for the trailing four quarters was $344.7 million,
compared to adjusted EBITDA for the year-ago trailing four quarters (which
excludes charges) of $278.6 million.
These results represent a $66.1 million, or 24 percent, improvement in
full-year adjusted EBITDA. Excluding the pretax gain of $12.0 million on the
sale of an equity investment, adjusted EBITDA increased $54.1 million, or 19
percent.
Adjusted EBITDA represents a non-GAAP (Generally Accepted Accounting
Principles) financial measure. A table reconciling this measure to the
appropriate GAAP measure is included in the notes to the condensed
consolidated financial statements included in this release.
Weiss said fiscal 2003 was a pivotal year for American Greetings. "We said
at the outset of this year that our goal in fiscal 2003 would be to stabilize
our business, and I'm happy to report that we have accomplished that
objective," Weiss said. "We not only achieved our earnings per share
estimates, but we also finished the year with a higher-than-expected cash
balance and made improvements to our business that will reduce costs in fiscal
2004. In addition to these operational accomplishments, we also greatly
enhanced our leadership team and established our vision for growth going
forward."
Management Transition and Corporate Governance
As previously announced on Feb. 18, American Greetings has named Zev Weiss
chief executive officer and has named Jeffrey Weiss president and chief
operating officer. Morry Weiss, chairman and chief executive officer since
1992, will remain chairman of the board but will relinquish his role as chief
executive officer in June. Jim Spira will resign as president and chief
operating officer but will continue to serve as a member of the board of
directors and as an advisor to management.
"We believe these changes, coupled with the other key additions to our
senior management team that we have announced throughout this year, position
us to further develop and successfully implement our strategic vision for
growth," Spira said. "We know our new team will provide the leadership to
guide us through this pivotal period in our history and I look forward to
working with both Zev and Jeff in my new role."
American Greetings also announced today that Harry H. Stone, a member of
the Corporation's board of directors since 1944, will become a director
emeritus, effective June 1, 2003.
At that time, Jeff Weiss will assume Stone's seat on the board, while Zev
Weiss will fill a vacant seat. The Corporation's board maintains a majority of
independent directors. In addition, its compensation and management
development committee and its audit committee continue to be comprised
entirely of independent directors.
Fiscal Year 2004 Estimates
American Greetings expects its earnings per share for fiscal 2004 to be
between $1.60 and $1.65. These estimates reflect previously disclosed store
losses and gains. Due to the year-over-year impact of store changes, American
Greetings expects stronger sales and net income results in the second half
relative to the first half. These estimates also assume approximately $35
million of expenses to fund previously announced strategic initiatives during
fiscal 2004.
American Greetings also announced that it intends to utilize a portion of
its current cash balance to pay off the entire outstanding amount of its $118
million term loan in the first quarter of fiscal 2004. In addition, the
Corporation said it expects to generate more than $150 million in cash
provided by operating and investing activities in fiscal 2004.
"Our focus during fiscal 2004 will be on implementing the four key
strategic initiatives -- supply chain transformation, category innovation,
strategic account management, and human capital development -- that will serve
as the foundation of our future growth," Zev Weiss said. "We have already
taken steps in these initiatives at the end of fiscal 2003 with the
announcement of our McCrory, Ark., distribution facility consolidation and
with our management changes.
"We will continue to implement changes such as these throughout the coming
year as a major component of our strategic vision for growth to further
improve our operations going forward and to yield $50 million to $75 million
in incremental pretax income over the next two years," Weiss added.
Conference Call on the Web
American Greetings will broadcast its fourth quarter conference call on
the Internet at 10:30 a.m. Eastern time on Thursday, April 3, 2003. 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 finest creative departments in the world and supplies 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
FOURTH QUARTER CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED FEBRUARY 28, 2003
(In thousands of dollars except share and per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
February 28 February 28
2003 2002 2003 2002
Net sales $525,906 $562,109 $1,995,860 $1,927,346
Costs and expenses:
Material, labor and
other
production costs 216,386 229,341 881,771 937,001
Selling, distribution
and marketing 162,914 177,185 620,885 685,942
Administrative and
general 59,352 99,167 240,129 313,655
Restructure charges - 3,790 - 56,715
Interest expense 19,731 19,455 79,095 78,599
Other (income) expense
- net (7,763) 54,236 (26,858) 51,758
450,620 583,174 1,795,022 2,123,670
Income (loss) before
income tax
expense (benefit) 75,286 (21,065) 200,838 (196,324)
Income tax expense
(benefit) 29,888 (7,942) 79,732 (74,014)
Net income (loss) $45,398 $(13,123) $121,106 $(122,310)
Earnings (loss) per share $0.70 $(0.20) $1.85 $(1.92)
Earnings (loss) per share-
assuming dilution $0.60 $(0.20) $1.63 $(1.92)
Average number of common
shares outstanding 65,882,451 63,753,680 65,636,621 63,615,193
Average number of common
shares outstanding-
assuming dilution 79,268,277 63,753,680 78,980,830 63,615,193
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDED FEBRUARY 28, 2003
(In thousands of dollars)
February 28
2003 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $208,463 $100,979
Trade accounts receivable, less
allowances for sales
returns of $86,318 ($102,265 in
2002) and for doubtful
accounts of $35,595 ($34,856 in
2002) 309,967 288,986
Inventories 278,807 290,804
Deferred and refundable income
taxes 202,485 200,206
Prepaid expenses and other 234,766 185,207
Total current assets 1,234,488 1,066,182
GOODWILL - NET 209,664 199,195
OTHER ASSETS 748,540 933,133
PROPERTY, PLANT AND EQUIPMENT - NET 391,428 416,485
$2,584,120 $2,614,995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $133,180 $11,720
Accounts payable 180,498 130,601
Accrued liabilities 132,747 188,356
Accrued compensation and benefits 82,782 109,004
Income taxes 57,813 150,588
Other current liabilities 112,377 125,771
Total current liabilities 699,397 716,040
LONG-TERM DEBT 726,531 853,113
OTHER LIABILITIES 66,379 115,795
DEFERRED INCOME TAXES 14,349 27,628
SHAREHOLDERS' EQUITY
Common shares - Class A 61,299 59,153
Common shares - Class B 4,600 4,608
Capital in excess of par value 310,872 286,158
Treasury stock (438,704) (438,824)
Accumulated other comprehensive loss (42,494) (69,614)
Retained earnings 1,181,891 1,060,938
Total shareholders' equity 1,077,464 902,419
$2,584,120 $2,614,995
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED FEBRUARY 28, 2003
(In thousands of dollars)
Twelve Months Ended
February 28
2003 2002
OPERATING ACTIVITIES:
Net income (loss) $121,106 $(122,310)
Adjustments to reconcile to net
cash
provided by operating activities:
Restructure charges (15,603) 37,510
(Gain) on sale of marketable
security (12,027) -
Depreciation and amortization 64,810 84,308
Impairment charge - 37,000
Deferred income taxes (24,519) 13,416
Changes in operating assets and
liabilities,
net of effects from
acquisitions:
(Increase) decrease in trade
accounts receivable (15,636) 94,906
Decrease in inventories 18,260 63,942
Decrease (increase) in other
current assets 5,933 (9,310)
Decrease (increase) in deferred
costs - net 39,741 (124,798)
Decrease in accounts payable
and other liabilities (106,133) (37,176)
Other - net 1,106 (1,137)
Cash Provided by Operating
Activities 77,038 36,351
INVESTING ACTIVITIES:
Business acquisitions - (22,500)
Property, plant & equipment
additions (31,299) (28,969)
Proceeds from sale of fixed assets 1,613 4,020
Investment in corporate owned life
insurance 10,017 (8,927)
Other - net 32,940 (15,077)
Cash Provided (Used) by
Investing Activities 13,271 (71,453)
FINANCING ACTIVITIES:
Decrease in long-term debt (124,833) (81,122)
Increase in long-term debt - 554,398
Increase (decrease) in short-term
debt 116,747 (363,437)
Sale of stock under benefit plans 21,487 2,929
Purchase of treasury shares (83) (121)
Dividends to shareholders - (26,566)
Cash Provided by Financing
Activities 13,318 86,081
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 3,857 (1,691)
INCREASE IN CASH AND CASH EQUIVALENTS 107,484 49,288
Cash and Cash Equivalents at
Beginning of Year 100,979 51,691
Cash and Cash Equivalents at End
of Year $208,463 $100,979
AMERICAN GREETINGS CORPORATION
FOURTH QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDED FEBRUARY 28, 2003
(In thousands of dollars except 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 with the 2003
presentation. The Corporation adopted the Financial Accounting
Standards Board's 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 7 for further discussion.
Note 3: Acquisitions: On September 12, 2001, the Corporation completed
its acquisition of BlueMountain.com, a 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 its 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 4: 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 5: Other (Income) Expense - net : During the year ended February
28, 2003, 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-net" in the Consolidated
Statement of Operations for the year. The amount of the
proceeds received from the sale of $16,964 is included in
"Other-net" investing activities in the Consolidated Statement
of Cash Flows for the year ended February 28, 2003.
Note 6: Restructure and Other Charges: During the year ended February
28, 2002, the Corporation recorded a pretax restructuring charge
of $56,715. 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 $29,053 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. The Corporation also recorded a pretax impairment charge
of $37,000 to write-down goodwill related to its operating unit
in Australasia. This amount is included in "Other (income)
expense - net."
In addition, the Corporation recorded a charge of $49,082 during
2002 to write down inventory in its domestic operations to net
realizable value associated with its previously-announced
initiatives and a $16,206 reduction in net sales for credits
granted to customers for product on hand at their retail
locations eliminated from the Corporation's brands and product
lines. The inventory write-down is classified as material,
labor, and other production costs. Also, $66,838 of other
project-related costs associated with the restructure efforts
were incurred during the year ended February 28, 2002.
The total pretax impact of these charges was $225,841.
Also during the year ended February 28, 2002, the Corporation
began implementing its scan-based trading business model with
certain of its retail customers. The impact of its
implementation was reductions in its net sales and material,
labor and other production costs of $64,901 and $8,599,
respectively, as well as implementation costs of $32,305, for a
net pretax impact of approximately $88,607. The implementation
was completed in 2002.
The total pretax impact of these charges and the implementation
of the scan-based trading business model was $314,448:
Severance $29,053
Lease exit costs 1,500
Facility rationalization costs 2,054
Change in contractual relationship 17,727
Other costs 6,381
Restructure charge $56,715
Inventory write-down 49,082
Product line reduction 16,206
Scan-based trading initiative 88,607
Other administrative costs 66,838
Impairment loss 37,000
Total charges $314,448
Of the $314,448 incurred during the year ended February 28,
2002, $88,976 was incurred during the three months ended
February 28, 2002, including restructure charge of $3,790.
During the year ended February 28, 2003, the Corporation made
payments of $15,603, principally for severance benefits.
Included in "Accrued liabilities" at February 28, 2003 is $4,180
of costs not yet expended. The payment of certain termination
benefits will not be completed until 2006.
Note 7: 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 $55,244 and $11,375 for the year and
three months ended February 28, 2002, respectively; and selling,
distribution and marketing costs of $373,150 and $82,858 for the
year and three months ended February 28, 2002, 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. Upon
adoption, the Corporation discontinued amortization of its
goodwill in accordance with this Statement. For the year and
three months ended February 28, 2002, the Corporation's results
included $12,389 and $2,912, 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. The
Corporation completed its annual test for impairment on December
2, 2002 and did not record an impairment charge for goodwill in
2003.
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 and for 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. Assets held-for-
sale are stated at the lower of their fair values or carrying
amounts and depreciation is no longer recognized. The
Corporation adopted this Statement effective March 1, 2002.
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 does not
believe that adoption of this Statement will have a significant
impact on the consolidated 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
any future service period. 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. In the normal course of business, in the fourth
quarter of 2003, the Corporation undertook numerous individual
and independent cost reduction programs that included charges
for employee severance costs. While none of the independent
programs were material individually, aggregate severance costs
of $8,864 for approximately 500 positions were accrued at the
end of 2003. All severance is expected to be paid by the end of
2004.
In November 2002, FASB Interpretation (FIN) No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others", was issued. FIN
No. 45 elaborates on the disclosures to be made by a guarantor
in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions of FIN No. 45
are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002 irrespective of the guarantor's
fiscal year-end. The disclosure requirements in FIN No. 45 are
effective for financial statements of interim or annual periods
ending after December 15, 2002. No additional disclosures are
required by the Corporation related to this Interpretation.
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. In February
2003, the Corporation adopted the disclosure provisions of SFAS
No. 148.
Note 8: 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.
The Corporation incurred several charges related to initiatives
that impacted its results last year. As such, the Corporation
generated pretax income excluding charges of $67.9 million for
the fourth quarter of 2002. The Corporation generated pretax
income excluding charges of $118.1 million for the full year in
2002.
Below is a reconciliation of these results (in millions):
2002
Fourth Year
Quarter
Pretax loss $(21.1) ($196.3)
Charges:
Scan-based trading 4.2 88.6
Business reorganization 84.8 208.1
Internet contract changes 17.7
Total charges 89.0 314.4
Pretax income before charges $67.9 $ 118.1
Certain covenants of the Corporation's debt agreements are based on
calculations of adjusted earnings before interest expense, income taxes,
depreciation and amortization (EBITDA). As such, adjusted EBITDA was $278.6
million for the full year. The Corporation incurred several charges related to
initiatives that impacted its calculation of adjusted EBITDA last year.
Below is a reconciliation of pretax income to adjusted EBITDA
(in millions):
2003 2002
Pretax income (loss) $ 200.8 $(196.3)
Interest expense 79.1 78.6
Depreciation & amortization 64.8 84.3
Charges - 312.0*
Adjusted EBITDA $344.7 $278.6
* Refinancing costs totaling $2.4 million are excluded in the calculation
of adjusted EBITDA.
Below is a reconciliation of "Cash provided by operating activities" to
adjusted EBITDA.
2003 2002
Cash provided by operating activities $77.0 $36.4
Restructure and impairment charges 15.6 (74.5)
Gain on sale of marketable security 12.0 -
Deferred income taxes 24.5 (13.4)
Changes in operating assets and liabilities 56.8 13.5
Interest expense 79.1 78.6
Income tax expense (benefit) 79.7 (74.0)
Charges - 312.0
Adjusted EBITDA $344.7 $ 278.6
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 adjusted EBITDA as a
performance measure.
The other non-GAAP financial measures presented in the earnings release
exclude charges related to initiatives that impacted the Corporation's results
last year. These measures are presented because management uses this
information in evaluating the results of the continuing operations of the
Corporation and believes that this information provides the users of the
financial statements a valuable insight into the operating results.
SOURCE American Greetings Corporation
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