American Greetings Reports Improved Second-Quarter Results
- EPS ahead of prior-year second quarter
- Integration of 1,400 stores from major account on budget and on
schedule
- Supply chain transformation progress continues
CLEVELAND, Sept. 25 /PRNewswire-FirstCall/ -- American Greetings
Corporation (NYSE: AM) today reported results in line with its estimate for
the second quarter of fiscal 2004.
American Greetings realized a net loss of $9.7 million, or 15 cents per
share, on net sales of $403.5 million, for the fiscal 2004 second quarter
ended Aug. 31, 2003 (all per-share amounts assume dilution). These results
compare to a net loss of $15.8 million, or 24 cents per share, on net sales of
$396.9 million in the second quarter last year. The Corporation historically
realizes a net loss in its second quarter because of the seasonal nature of
its business.
The Corporation reported net income of $10.0 million, or 15 cents per
share, on net sales of $857.9 million, for the first half of fiscal 2004. This
compares to net income of $28.7 million, or 41 cents per share, on net sales
of $881.1 million, for the same period last year. Last year's first-half
results include a $12 million pretax gain from the sale of an equity
investment.
EBITDA for the second quarter of fiscal 2004 was $17.6 million, compared
to $10.3 million in the second quarter of fiscal 2003. EBITDA for the trailing
four quarters ended Aug. 31, 2003, was $313.1 million, compared to EBITDA for
the year-ago trailing four quarters of $339.1 million. 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
"Our second-quarter performance is in line with our projections," said
Chief Executive Officer Zev Weiss. "We had a meaningful improvement in our
second-quarter results, due in part to our focus on cost management. Our cost
management efforts included supply chain benefits that offset their related
costs within the quarter. We are pleased with the progress of the supply chain
initiative to date. We are also pleased with the progress we are making in the
conversion of 1,400 stores for a major account, a project that is on budget
and on schedule for completion before calendar year end due to the exceptional
effort of our associates."
American Greetings projects earnings per share of 68 cents to 73 cents for
the third quarter of fiscal 2004. The Corporation realized earnings per share
of 62 cents for the third quarter of fiscal 2003.
Conference Call on the Web
American Greetings will broadcast its second-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.
AMERICAN GREETINGS CORPORATION
SECOND 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 Six Months Ended
August 31, August 31,
2003 2002 2003 2002
Net sales $403,546 $396,913 $857,852 $881,143
Costs and expenses:
Material, labor and
other production costs 201,425 193,584 386,408 380,098
Selling, distribution
and marketing 153,722 148,144 303,580 298,243
Administrative and
general 56,685 65,244 122,810 133,733
Interest expense 17,537 20,141 40,337 39,795
Other (income) - net (9,746) (4,022) (11,884) (18,348)
419,623 423,091 841,251 833,521
(Loss) income before
income tax (benefit) expense (16,077) (26,178) 16,601 47,622
Income tax (benefit)
expense (6,382) (10,393) 6,591 18,906
Net (loss) income $(9,695) $(15,785) $10,010 $28,716
(Loss) earnings per share $(0.15) $(0.24) $0.15 $0.44
(Loss) earnings per share -
assuming dilution $(0.15) $(0.24) $0.15 $0.41
Average number of common
shares outstanding 66,315,954 65,801,676 66,114,817 65,408,114
Average number of common
shares outstanding -
assuming dilution 66,315,954 65,801,676 66,114,817 78,917,978
AMERICAN GREETINGS CORPORATION
SECOND QUARTER STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 29, 2004
(In thousands of dollars)
(Unaudited)
August 31,
2003 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $40,494 $174,174
Trade accounts receivable,
less allowances for sales
returns of $40,812 ($45,614
in 2002) and for doubtful
accounts of $24,280 ($33,811
in 2002) 287,431 337,817
Inventories 370,992 353,348
Deferred and refundable income
taxes 158,237 164,853
Prepaid expenses and other 240,602 210,285
Total current assets 1,097,756 1,240,477
GOODWILL 214,424 205,998
OTHER ASSETS 729,429 828,329
PROPERTY, PLANT AND EQUIPMENT - NET 376,580 394,845
$2,418,189 $2,669,649
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $13,082 $15,145
Accounts payable 145,524 159,117
Accrued liabilities 136,541 129,974
Accrued compensation and benefits 62,357 81,152
Income taxes 9,288 174,058
Other current liabilities 95,598 138,100
Total current liabilities 462,390 697,546
LONG-TERM DEBT 727,331 845,985
OTHER LIABILITIES 111,336 131,963
DEFERRED INCOME TAXES 11,025 22,741
SHAREHOLDERS' EQUITY
Common shares - Class A 61,866 61,233
Common shares - Class B 4,596 4,603
Capital in excess of par value 317,679 310,271
Treasury stock (438,717) (438,786)
Accumulated other comprehensive loss (31,138) (55,428)
Retained earnings 1,191,821 1,089,521
Total shareholders' equity 1,106,107 971,414
$2,418,189 $2,669,649
AMERICAN GREETINGS CORPORATION
SECOND QUARTER STATEMENT OF CASH FLOWS
FISCAL YEAR ENDING FEBRUARY 29, 2004
(In thousands of dollars except share and per share amounts)
(Unaudited)
Six Months Ended
August 31,
2003 2002
OPERATING ACTIVITIES:
Net income $10,010 $28,716
Adjustments to reconcile to net
cash (used) provided by operating
activities:
(Gain) on sale of marketable
security - (12,027)
Depreciation and amortization 32,078 33,167
Deferred income taxes 15,097 (23,342)
Changes in operating assets and
liabilities:
Decrease (increase) in trade
accounts receivable 23,315 (44,875)
Increase in inventories (89,608) (59,105)
Decrease in other current
assets 34,782 56,949
Decrease in deferred costs -
net 20,420 75,996
Decrease in accounts payable
and other liabilities (90,239) (35,891)
Other - net 3,336 8,813
Cash (Used) Provided by
Operating Activities (40,809) 28,401
INVESTING ACTIVITIES:
Property, plant & equipment
additions (19,478) (8,085)
Proceeds from sale of fixed assets 2,106 1,460
Investment in corporate owned life
insurance 6,072 3,911
Other - net (2,640) 29,875
Cash (Used) Provided by
Investing Activities (13,940) 27,161
FINANCING ACTIVITIES:
Reduction of long-term debt (3,313) (6,614)
(Decrease) increase in short-term
debt (117,053) 294
Sale of stock under benefit plans 6,106 20,813
Purchase of treasury shares (266) (67)
Cash (Used) Provided by Financing
Activities (114,526) 14,426
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 1,306 3,207
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (167,969) 73,195
Cash and Cash Equivalents at
Beginning of Year 208,463 100,979
Cash and Cash Equivalents at End
of Period $40,494 $174,174
AMERICAN GREETINGS CORPORATION
SECOND 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.
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. The effective date for this Interpretation
for the Corporation is September 1, 2003. The Corporation has
not yet determined the impact, if any, this Interpretation will
have 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
Corporation has not yet determined the impact, if any, this
Statement will have 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 $17.6 million for the three months ended August 31, 2003.
Below is a reconciliation of net loss to EBITDA (in millions):
Three Months Ended
August 31
2003 2002
Net loss $(9.7) $(15.8)
Interest expense 17.6 20.1
Income tax benefit (6.4) (10.4)
Depreciation and amortization 16.1 16.4
EBITDA $17.6 $10.3
Below is a reconciliation of "Cash used by operating activities" to
EBITDA (in millions):
Three Months Ended
August 31
2003 2002
Cash used by operating activities $(64.5) $(12.1)
Deferred income taxes (15.4) 6.5
Changes in operating assets and liabilities 86.3 6.2
Interest expense 17.6 20.1
Income tax benefit (6.4) (10.4)
EBITDA $17.6 $10.3
Below are reconciliations of net income (loss) to adjusted EBITDA for the
four quarters ended August 31, 2003 and 2002 (in millions):
Net income:
Year ended February 28, 2003 $121.1
Less: six months ended August 31, 2002 28.7
Add: six months ended August 31, 2003 10.0
Net income, four quarters ended August 31, 2003 102.4
Interest expense, four quarters ended August 31, 2003 79.6
Income tax expense, four quarters ended August 31, 2003 67.4
Depreciation and amortization, four quarters
ended August 31, 2003 63.7
Adjusted EBITDA, four quarters ended August 31, 2003 $313.1
Net income (loss):
Year ended February 28, 2002 $(122.3)
Less: six months ended August 31, 2001 (115.8)
Add: six months ended August 31, 2002 28.7
Net income, four quarters ended August 31, 2002 22.2
Interest expense, four quarters ended August 31, 2002 82.9
Income tax expense, four quarters ended August 31, 2002 15.0
Depreciation and amortization, four quarters ended
August 31, 2002 75.1
Charges, four quarters ended August 31, 2002 (see
note below) 143.9
Adjusted EBITDA, four quarters ended August 31, 2002 $339.1
Note: Charges for the four quarters ended August 31,
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 August 31, 2003 and
2002 (in millions):
Cash provided (used) by operating activities:
Year ended February 28, 2003 $77.0
Less: six months ended August 31, 2002 28.4
Add: six months ended August 31, 2003 (40.8)
Cash provided by operating activities, four quarters
ended August 31, 2003 7.8
Deferred income taxes (13.9)
Changes in operating assets and liabilities 156.6
Interest expense, four quarters ended August 31, 2003 79.6
Income tax expense, four quarters ended August 31, 2003 67.4
Charges (see note above) 15.6
Adjusted EBITDA, four quarters ended August 31, 2003 $313.1
Cash provided (used) by operating activities:
Year ended February 28, 2002 $36.3
Less: six months ended August 31, 2001 (168.4)
Add: six months ended August 31, 2002 28.4
Cash provided by operating activities, four quarters
ended August 31, 2002 233.1
Gain on sale of marketable security (12.0)
Deferred income taxes 37.0
Changes in operating assets and liabilities (160.8)
Interest expense, four quarters ended August 31, 2002 82.9
Income tax expense, four quarters ended August 31, 2002 15.0
Impairment charge 37.0
Charges (see note above) 106.9
Adjusted EBITDA, four quarters ended August 31, 2002 $339.1
Summary of Statement of Cash Flows (in millions):
Six Months Ended
August 31,
2003 2002
Cash (Used) Provided by Operating Activities $(40.8) $28.4
Cash (Used) Provided by Investing Activities $(13.9) $27.2
Cash (Used) Provided by Financing Activities $(114.5) $14.4
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
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