AMERICAN GREETINGS CORPORATION
FORM 8-K CURRENT REPORT
DECEMBER 18, 2001
EXHIBIT 99
AMERICAN GREETINGS REPORTS THIRD QUARTER FINANCIAL RESULTS
IN LINE WITH PROJECTIONS
CORPORATION ANNOUNCES SUSPENSION OF DIVIDEND
CLEVELAND, Ohio (Dec. 18, 2001) - American Greetings Corporation (NYSE: AM)
today reported operating results in line with projections for the third quarter
of fiscal 2002.
The Corporation achieved after-tax earnings before special charges of $40.9
million, or 64 cents per share (54 cents per share assuming full dilution), for
the third quarter ended Nov. 30, 2001. These results compare to net income of
$32.0 million, or 50 cents per share, up 28 percent from the third quarter last
year. Including the after-tax impact of special charges amounting to $34.3
million ($55.0 million pre-tax), or 54 cents per share, for the quarter,
American Greetings reported net income of $6.6 million, or 10 cents per share.
Special charges for the third quarter include the following:
Pre-tax Basic
income EPS
(millions) (after-tax)
------------- ---------------
Reported results $10.6 $.10
Impact of special charges:
Scan-based trading 31.0 .31
Business reorganization 24.0 .23
------------- ---------------
Earnings before special charges $65.6 $.64
============= ===============
Reported sales in the third quarter were $705.4 million, compared to $766.1
million in the same period last year. After removing the impact of scan-based
trading conversion initiatives and the Corporation's brand and product line size
reduction initiatives, sales for the quarter were down 5.0 percent from the same
period in fiscal 2001. The revenue impact of the pay from scan conversion was
complete as of the end of the third quarter in fiscal 2002.
2
Morry Weiss, chairman and chief executive officer of American Greetings, said
synergies from the integration of recent acquisitions helped the Corporation
achieve expectations for the quarter. "We are pleased to have made our earnings
projections, considering that the economic conditions this quarter negatively
impacted us and some of our retailers," Weiss said. "Revenue was down slightly,
due in part to unfavorable exchange rates and reduced shipments from our Plus
Mark subsidiary. However, cost reductions related to the integration of the
Gibson Greetings and CPS Corporation acquisitions, along with continued process
improvements, are having a positive impact on our bottom line.
"We remain confident that we will deliver the anticipated cost savings outlined
in our restructuring plan," Weiss added.
The Corporation achieved after-tax earnings before special charges of $31.3
million, or 49 cents per share, for the first nine months of fiscal 2002.
Including the after-tax impact of special charges amounting to $140.5 million
($225.5 million pre-tax), or $2.21 for the nine months to date, the Corporation
reported a net loss of $109.2 million, or $1.72 per share. These results compare
to net income of $13.9 million, or 22 cents per share (47 cents per share
excluding the cumulative effect of an accounting change and a one-time gain on
the sale of an asset), for the first nine months of fiscal year 2001.
Special charges for the nine months include the following:
Pre-tax Basic
income EPS
(millions) (after-tax)
-------------- --------------
Reported results ($175.3) ($1.72)
Impact of special charges:
Scan-based trading 84.4 .83
Business reorganization 123.4 1.21
Internet contract changes 17.7 .17
------------- -------------
Earnings before special charges $50.2 $.49
============== =============
Net sales for the nine months ended Nov. 30, 2001, were $1.70 billion, compared
to $1.86 billion for the first three quarters of fiscal 2001. The decrease in
net sales reflects the impact of the Corporation's retail inventory reduction
initiative in the first half of the year, as well as the rollout of its new
value pricing strategy, the implementation of its scan-based trading business
model, and its brand and product line size reduction initiatives.
Earnings before interest, taxes, depreciation and amortization adjusted to
exclude special charges (EBITDA) were $109.1 million for the third quarter and
$169.2 million for the nine months ended Nov. 30. EBITDA for the trailing four
quarters adjusted to exclude special charges was $287.1 million.
3
The Corporation also said that its electronic subsidiary, AmericanGreetings.com,
was break-even in the third calendar quarter, will be profitable in the fourth
quarter as previously announced, and will be cash flow positive for the year.
AmericanGreetings.com recently launched a major initiative to increase the
amount of paid content on its Web sites to diversify its revenue streams. "While
we cannot yet say how successful this strategy will be, we expect
AmericanGreetings.com to be a positive contributor to earnings next year," Weiss
said.
American Greetings also reaffirmed its previously stated basic earnings
projections (excluding special charges) of $1.10 to $1.20 ($.98 to $1.08
assuming full dilution) for the full year.
DIVIDEND SUSPENSION
The Board of Directors of American Greetings voted to suspend the Corporation's
quarterly dividend, effective immediately. "While we are in compliance with the
debt covenants regarding our ability to pay a dividend, we have decided that
focusing on generating cash and debt reduction should be our primary objectives
and are in the best interests of our shareholders," Weiss said.
CONFERENCE CALL ON THE WEB
American Greetings will broadcast its third quarter conference call live on the
Internet at 10:30 a.m. Eastern time on Tuesday, Dec. 18, 2001.
The 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
www.microsoft.com), audio capabilities, and at least a 14.4Kbps 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
largest creative departments in the world and helps consumers "say it best" by
supplying more than 15,000 greeting card designs to retail outlets in nearly
every English-speaking country. Located in Cleveland, Ohio, American Greetings
generates annual sales of more than $2.5 billion. For more information on the
Corporation, visit http//www.americangreetings.com on the World Wide Web.
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CONTACTS:
DALE A. CABLE DAVID D. POPLAR
VICE PRESIDENT, TREASURER INVESTOR AND MEDIA RELATIONS MANAGER
(216) 252-7300 (216) 252-4864
dale.cable@amgreetings.com david.poplar@amgreetings.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 implementation of the Corporation's
restructuring, a weak retail environment, consumer acceptance of products as
priced and marketed, the impact of technology on core product sales and
competitive terms of sale offered to customers. Risks pertaining specifically to
the Corporation's electronic marketing business include the viability of online
advertising as a revenue generator and the public's acceptance of online social
expression products and subscriptions thereto.
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AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2002
(In thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended
November 30,
----------------------------------
2001 2000
------------ -----------
Net sales $ 705,433 $ 766,095
Income before income taxes 10,635 50,321
Income tax expense 4,010 18,306
Net income 6,625 32,015
Earnings per share and earnings per share -
assuming dilution $ 0.10 $ 0.50
Average number of common
shares outstanding 63,705,743 63,506,387
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AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2002
(in thousands of dollars except per share amounts)
(Unaudited)
Nine Months Ended
November 30,
---------------------------------
2001 2000
------------ ------------
Net sales $ 1,699,398 $ 1,855,568
============ ============
(Loss) income before income taxes
and cumulative effect of
accounting change $ (175,259) $ 55,023
Income tax (benefit) expense (66,072) 20,007
------------ ------------
(Loss) income before cumulative
effect of accounting change (109,187) 35,016
Cumulative effect of accounting
change, net of tax -- (21,141)
------------ ------------
Net (loss) income $ (109,187) $ 13,875
============ ============
(Loss) earnings per share and (loss) earnings
per share - assuming dilution:
Before cumulative effect of
accounting change $ (1.72) $ 0.55
Cumulative effect of accounting
change, net of tax -- (0.33)
------------ ------------
$ (1.72) $ 0.22
============ ============
Average number of common
shares outstanding 63,569,030 63,699,617
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AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2002
(In thousands of dollars except per share amounts)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
-------------------------------- ---------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales $ 705,433 $ 766,095 $ 1,699,398 $ 1,855,568
Costs and expenses:
Material, labor and other
production costs 313,512 355,858 751,529 754,293
Selling, distribution
and marketing 284,785 277,327 799,049 810,083
Administrative and general 71,290 70,326 214,488 208,896
Restructure charges -- -- 52,925 --
Interest expense 23,619 15,066 59,144 39,649
Other expense (income) - net 1,592 (2,803) (2,478) (12,376)
------------ ------------ ------------ ------------
694,798 715,774 1,874,657 1,800,545
------------ ------------ ------------ ------------
Income (loss) before income
taxes and cumulative effect
of accounting change 10,635 50,321 (175,259) 55,023
Income tax expense (benefit) 4,010 18,306 (66,072) 20,007
------------ ------------ ------------ ------------
Income (loss) before cumulative
effect of accounting change 6,625 32,015 (109,187) 35,016
Cumulative effect of accounting
change, net of tax -- -- -- (21,141)
------------ ------------ ------------ ------------
Net income (loss) $ 6,625 $ 32,015 $ (109,187) $ 13,875
============ ============ ============ ============
Earnings (loss) per share:
Before cumulative effect of
accounting change $ 0.10 $ 0.50 $ (1.72) $ 0.55
Cumulative effect of accounting
change, net of tax -- -- -- (0.33)
------------ ------------ ------------ ------------
Earnings (loss) per share and
earnings (loss) per share -
assuming dilution $ 0.10 $ 0.50 $ (1.72) $ 0.22
============ ============ ============ ============
Average number of common
shares outstanding 63,705,743 63,506,387 63,569,030 63,699,617
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AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED SALES AND INCOME
FISCAL YEAR ENDING FEBRUARY 28, 2002
(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 2001 presentation.
Note C: CUMULATIVE EFFECT OF ACCOUNTING CHANGE: In December
1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" (SAB 101), which among other
guidance, clarifies the Staff's views on various revenue
recognition and reporting matters. As a result, effective
March 1, 2000, the Corporation adopted a change in its
method of accounting for certain shipments of seasonal
product. Under the new accounting method, the Corporation
recognizes revenue on these seasonal shipments at the
approximate date the merchandise is received by the
customer and not upon shipment from the distribution
facility. Customer receipt is a more preferable method of
recording revenue due to the large volumes of seasonal
product shipment activity and the time required to achieve
customer requested delivery dates. The implementation of
this change was accounted for as a change in accounting
principle and applied cumulatively as if the change
occurred at March 1, 2000. The effect of the change was a
one-time reduction to the Corporation's earnings of
$21,141, which is included in operations for the nine
months ended November 30, 2000.
Note D: 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 forward.
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 forward.
8
On July 13, 2000, the Corporation completed its acquisition
of CPS Corporation ("CPS") for cash and shares of the
Corporation's common stock. The consolidated results
include the results of CPS from the date of acquisition
forward.
On March 9, 2000, the Corporation completed the acquisition
of all outstanding shares of Gibson Greetings, Inc.
("Gibson") in a cash transaction. The consolidated results
include the results of Gibson from the date of acquisition
forward.
Note E: DEFERRED COSTS: The major components of prepaid expenses
and other and other assets are deferred costs relating to
agreements with certain customers. Total commitments under
the agreements are capitalized as deferred costs and future
payment commitments, if any, are recorded as liabilities
when the agreements are consummated. Deferred costs are
charged to operations on a straight-line basis over the
effective period of each agreement, generally three to six
years. Deferred costs estimated to be charged to operations
during the next twelve months are classified with prepaid
expenses and other.
Note F: SPECIAL CHARGES: During the nine months ended November
30, 2001, the Corporation recorded a pre-tax restructuring
charge of $52,925. The primary components of this charge
were costs associated with the shutdown of certain of the
Corporation's domestic and foreign manufacturing and
distribution operations, including employee severance and
benefit termination costs. The Corporation's Internet unit
also recorded a pre-tax charge to write off the value of a
partner contract in the amount of $17,727. In addition, the
Corporation recorded a pre-tax charge of $54,014 during the
period to write down inventory in its domestic operations
to net realizable value associated with its
previously-announced one-time efforts. This amount is
classified as material, labor, and other production costs.
The Corporation also incurred pre-tax costs of $34,140 for
other project-related expenses. The total pre-tax impact of
the restructuring and inventory charges was $141,079
($87,892 net of tax), or $1.38 per share.
Also during the period, the Corporation began implementing
its scan-based trading business model with certain of its
retailers. The impact of its implementation was a $65,485
reduction in its net sales and a $10,149 reduction in its
material, labor and other production costs. In addition,
the Corporation incurred implementation and other costs of
$29,057 for a total pre-tax impact of $84,393 ($52,577 net
of tax), or $0.83 per share.
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AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2002
(In thousands of dollars except per share amounts)
(Unaudited)
November 30,
-------------------------------
2001 2000
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 45,353 $ 78,846
Accounts receivable, less allowances of
$185,499 and $179,618, respectively (principally
for sales returns) 538,546 612,990
Inventories 341,962 344,981
Deferred and refundable income taxes 151,048 219,460
Prepaid expenses and other 207,742 232,328
----------- -----------
Total current assets 1,284,651 1,488,605
GOODWILL - NET 256,259 211,949
OTHER ASSETS 901,061 788,164
PROPERTY, PLANT AND EQUIPMENT - NET 438,333 472,107
----------- -----------
$ 2,880,304 $ 2,960,825
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Debt due within one year $ 35,056 $ 647,717
Accounts payable and accrued liabilities 346,379 247,322
Accrued compensation and benefits 97,762 89,179
Dividends payable 6,368 19,677
Income taxes 118,787 20,366
Other current liabilities 143,775 136,186
----------- -----------
Total current liabilities 748,127 1,160,447
LONG-TERM DEBT 995,239 423,263
OTHER LIABILITIES 198,258 146,066
DEFERRED INCOME TAXES 23,351 56,326
SHAREHOLDERS' EQUITY
Common shares - Class A 59,125 58,857
Common shares - Class B 4,620 4,629
Capital in excess of par value 288,453 304,970
Treasury stock (447,080) (447,244)
Accumulated other comprehensive loss (70,026) (64,358)
Retained earnings 1,080,237 1,317,869
----------- -----------
Total shareholders' equity 915,329 1,174,723
----------- -----------
$ 2,880,304 $ 2,960,825
=========== ===========
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AMERICAN GREETINGS CORPORATION
THIRD QUARTER REPORT OF CONSOLIDATED OPERATIONS
FISCAL YEAR ENDING FEBRUARY 28, 2002
(In thousands of dollars except per share amounts)
(Unaudited)
Nine Months Ended
November 30,
------------------------------
2001 2000
------------- ------------
OPERATING ACTIVITIES:
Net (loss) income $(109,187) $ 13,875
Adjustments to reconcile to net cash
provided by operating activities:
Cumulative effect of accounting change, net of tax - 21,141
Restructure charges 46,439 -
Depreciation and amortization 62,284 71,948
Deferred and refundable income taxes 41,636 262
Changes in operating assets and liabilities,
net of effects from acquisitions:
Increase in trade accounts receivable (153,099) (208,740)
Decrease (increase) in inventories 20,589 (25,418)
Decrease (increase) in other current assets 6,394 (14,614)
Increase in deferred cost - net (46,551) (1,296)
Decrease in accounts payable and other liabilities (67,251) (61,896)
Other - net 7,263 (9,486)
--------------- ---------------
Cash Used by Operating Activities (191,483) (214,224)
INVESTING ACTIVITIES:
Business acquisitions (35,000) (179,993)
Property, plant & equipment additions (21,597) (56,730)
Proceeds from sale of fixed assets 3,459 24,484
Investment in corporate owned life insurance 5,745 2,526
Other - net (14,058) 24,200
--------------- ---------------
Cash Used by Investing Activities (61,451) (185,513)
FINANCING ACTIVITIES:
Increase in long-term debt 688,485 -
Reduction of long-term debt (80,622) (35,003)
(Decrease) increase in short-term debt (341,058) 537,420
Sale of stock under benefit plans 92 -
Purchase of treasury shares (99) (45,448)
Dividends to shareholders (20,202) (39,396)
--------------- ---------------
Cash Provided by Financing Activities 246,596 417,573
--------------- ---------------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS (6,338) 17,836
Cash and Equivalents at Beginning of Year 51,691 61,010
--------------- ---------------
Cash and Equivalents at End of Period $ 45,353 $ 78,846
=============== ===============
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