Exhibit 99(a)
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, 2003) - 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.
###
CONTACT:
DAVID D. POPLAR
INVESTOR AND CORPORATE MEDIA RELATIONS MANAGER
(216) 252-4864
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 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
3
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
=========== ===========
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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
========== ========
5
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".
6
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.
7
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.
8
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
========= =========
9
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.
10
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
=======
11
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.
12