Quantcast
Last updated on April 24, 2014 at 21:24 EDT

American Greetings Announces Third Quarter Earnings

December 20, 2012

CLEVELAND, Dec. 20, 2012 /PRNewswire-FirstCall/ — American Greetings Corporation (NYSE: AM) today announced its results for the third fiscal quarter ended November 23, 2012.

Third Quarter Results

For the third quarter of fiscal 2013, the Company reported total revenue of $506.8 million, a pre-tax loss of $2.1 million, and a net loss of $0.8 million or 3 cents per share (all per-share amounts assume dilution).

The Company announced, on June 7, 2012, the acquisition of certain assets of United Kingdom-based Clinton Cards, including approximately 400 stores and related overhead as well as the Clinton Cards and related brands. As a result of the acquisition, the Company recognized during the third quarter of fiscal 2013 a revenue increase of approximately $67.6 million from the operations of the Clintons retail stores, reflected in the Company’s new Retail Operations segment. This revenue increase was partially offset by the revenue reduction of approximately $25.5 million from inter-segment sales eliminations, reflected in the Company’s International Social Expressions segment, resulting in a net increase in consolidated revenue of approximately $42.1 million in the quarter. The revenue being eliminated would have been third party sales in the prior year quarter.

The Company recognized a loss of $11.5 million (after-tax of approximately $7.0 million or 22 cents per share) from the operation of its Retail Operations segment. The Company also recognized a reduction in pre-tax income of approximately $4.1 million (after-tax of approximately $2.5 million or 8 cents per share) as a result of inter-segment items within the International Social Expressions segment. The total consolidated net reduction in pre-tax income associated with the operation of the Clintons retail stores during the third fiscal quarter was approximately $15.6 million (after-tax of approximately $9.5 million or 30 cents per share).

During the quarter, consolidated revenue was also reduced by $0.6 million as a result of scan-based trading conversions that occurred during the current year’s third quarter while the impact of scan-based trading conversions on pre-tax income was $0.6 million (after-tax of approximately $0.4 million or 1 cent per share).

Also impacting the consolidated results was a pre-tax non-operating income benefit of $1.1 million (after-tax of approximately $0.7 million or 2 cents per share) from a gain on the sale of a portion of a legacy minority investment. A separate but related gain from this minority investment was previously recognized during our second fiscal quarter of 2013.

In the prior year’s third quarter, the Company reported total revenue of $465.0 million, pre-tax income of $29.7 million, and net income of $20.2 million or 50 cents per share. Scan-based trading conversions reduced revenue by approximately $1.2 million during the quarter and reduced pre-tax income by approximately $1.1 million (after-tax of approximately $0.7 million or 2 cents per share).

Financing Activities

During the third quarter of fiscal 2013, under the Company’s $75 million share repurchase program announced July 2012, the Company purchased approximately 1.1 million shares of its common stock for approximately $15.9 million. Purchases under this share repurchase program were suspended as of September 26, 2012.

Conference Call on the Web

American Greetings will broadcast its conference call live on the Internet at 9:00 a.m. Eastern time today. The conference call will be accessible through the Investors section of the American Greetings Web site at http://investors.americangreetings.com. A replay of the call will also be available on the site.

About American Greetings Corporation

For more than 100 years, American Greetings Corporation (NYSE: AM) has been a creator and manufacturer of innovative social expression products that assist consumers in enhancing their relationships to create happiness, laughter and love. The Company’s major greeting card lines are American Greetings, Carlton Cards, Gibson, Recycled Paper Greetings and Papyrus, and other paper product offerings include DesignWare party goods and American Greetings and Plus Mark gift-packaging and boxed cards. American Greetings also has one of the largest collections of greetings on the Web, including greeting cards available at Cardstore.com and electronic greeting cards available at AmericanGreetings.com. In addition to its product lines, American Greetings creates and licenses popular character brands through the American Greetings Properties group. Headquartered in Cleveland, Ohio, American Greetings generates annual revenue of approximately $1.7 billion, and its products can be found in retail outlets worldwide. For more information on the Company, visit http://corporate.americangreetings.com.

Non-GAAP Measures

Certain after-tax amounts included in the earnings release may be considered non-GAAP measures under the Securities and Exchange Commission’s Regulation G. The after-tax amounts were calculated based on the Company’s statutory tax rate of approximately 38.9% for U.S. based items and the appropriate rates for international jurisdictions. Management believes that after-tax information is useful in analyzing the Company’s results.

Factors That May Affect Future Results

Certain statements in this release may constitute forward-looking statements within the meaning of the Federal securities laws. These statements can be identified by the fact that they do not relate strictly to historic or current facts. They use such words as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. These forward-looking statements are based on currently available information, but are subject to a variety of uncertainties, unknown risks and other factors concerning the Company’s operations and business environment, which are difficult to predict and may be beyond the control of the Company. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Company’s future performance, include, but are not limited to, the following:

  • a weak retail environment and general economic conditions;
  • the loss of one or more retail customers and/or retail consolidations, acquisitions and bankruptcies, including the possibility of resulting adverse changes to retail contract terms;
  • competitive terms of sale offered to customers, including costs and other terms associated with new and expanded customer relationships;
  • the ability to successfully integrate Clinton Cards and achieve the anticipated revenue and operating profits, together with the outcome of negotiations with landlords and the ultimate number of stores acquired;
  • the ability of the administrators to generate sufficient proceeds from the liquidation of the remaining Clinton Cards business to repay the remaining secured debt owed to American Greetings;
  • the timing and impact of expenses incurred and investments made to support new retail or product strategies, including increased marketing expenses, as well as new product introductions and achieving the desired benefits from those investments;
  • the timing of investments in, together with the ability to successfully implement or achieve the desired benefits and cost savings associated with, any information technology systems refresh the Company may implement;
  • the timing and amount of expenses incurred by the Company in connection with the non-binding proposal dated September 25, 2012 from Zev Weiss, its Chief Executive Officer, and Jeffrey Weiss, its President and Chief Operating Officer, on behalf of themselves and certain other members of the Weiss family and related parties to acquire all of the outstanding Class A and Class B common shares of the Company not currently owned by the them;
  • the timing and impact of converting customers to a scan-based trading model;
  • the ability to achieve the desired benefits associated with the Company’s cost reduction efforts;
  • Schurman Fine Papers’ ability to successfully operate its retail operations and satisfy its obligations to the Company;
  • consumer demand for social expression products generally, shifts in consumer shopping behavior, and consumer acceptance of products as priced and marketed including the success of new and expanded advertising and marketing efforts, such as the Company’s on-line efforts through Cardstore.com;
  • the impact and availability of technology, including social media, on product sales;
  • escalation in the cost of providing employee health care;
  • the Company’s ability to achieve the desired accretive effect from any share repurchase programs;
  • the Company’s ability to comply with its debt covenants;
  • fluctuations in the value of currencies in major areas where the Company operates, including the U.S. Dollar, Euro, U.K. Pound Sterling, and Canadian Dollar; and
  • the outcome of any legal claims known or unknown.

Risks pertaining specifically to AG Interactive include the viability of online advertising, subscriptions as revenue generators, and the ability to adapt to rapidly changing social media and the digital photo sharing space.

In addition, this release contains time-sensitive information that reflects management’s best analysis as of the date of this release; however the risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that the Company believes to be immaterial also may adversely affect American Greetings. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have a material adverse effect on our business, financial condition and results of operations. American Greetings does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release. Further information concerning issues that could materially affect performance related to forward-looking statements can be found in the Company’s periodic filings with the Securities and Exchange Commission, including without limitation the risk factors described in the Company’s most recent annual report on Form 10-K and in each of its subsequent quarterly reports on Form 10-Q.

                                                                          AMERICAN GREETINGS CORPORATION
                                                                THIRD QUARTER CONSOLIDATED STATEMENT OF OPERATIONS
                                                                       FISCAL YEAR ENDING FEBRUARY 28, 2013

                                                           (In thousands of dollars except share and per share amounts)

                                                       (Unaudited)
                                              Three Months Ended                            Nine Months Ended
                                              ------------------                            -----------------
                                                 November 23,                                 November 25,              November 23,             November 25,
                                                                    2012                                         2011                      2012                     2011
                                                                    ----                                         ----                      ----                     ----

    Net sales                                                   $499,368                                     $458,535                $1,275,139               $1,217,800
    Other revenue                                                  7,446                                        6,472                    18,617                   21,097
                                                                   -----                                        -----                    ------                   ------
    Total revenue                                                506,814                                      465,007                 1,293,756                1,238,897

    Material, labor and other production
     costs                                                       244,071                                      230,572                   584,667                  546,699
    Selling, distribution and marketing
     expenses                                                    190,041                                      141,501                   466,199                  392,630
    Administrative and general expenses                           74,483                                       60,510                   225,521                  186,734
    Other operating income - net                                  (2,217)                                        (813)                   (1,421)                  (6,858)
                                                                  ------                                         ----                    ------                   ------

    Operating income                                                 436                                       33,237                    18,790                  119,692

    Interest expense                                               4,504                                        5,821                    13,314                   17,708
    Interest income                                                  (65)                                        (207)                     (297)                    (838)
    Other non-operating (income) expense -
     net                                                          (1,904)                                      (2,077)                    3,523                   (2,621)
                                                                  ------                                       ------                     -----                   ------

    (Loss) income before income tax (benefit)
     expense                                                      (2,099)                                      29,700                     2,250                  105,443
    Income tax (benefit) expense                                  (1,290)                                       9,454                        63                   38,128
                                                                  ------                                        -----                       ---                   ------

    Net (loss) income                                              $(809)                                     $20,246                    $2,187                  $67,315
                                                                   =====                                      =======                    ======                  =======

    (Loss) earnings per share
     -basic                                                       $(0.03)                                       $0.51                     $0.06                    $1.67

    (Loss) earnings per share -assuming
     dilution                                                     $(0.03)                                       $0.50                     $0.06                    $1.63

    Average number of common shares
     outstanding                                              31,877,088                                   39,480,798                33,712,073               40,226,039

    Average number of common shares
     outstanding -
                                                              31,877,088                                   40,436,865                34,478,737               41,381,157
    assuming dilution

    Dividends declared per share                                   $0.15                                        $0.15                     $0.45                    $0.45

                                                                            AMERICAN GREETINGS CORPORATION
                                                             THIRD QUARTER CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                                         FISCAL YEAR ENDING FEBRUARY 28, 2013

                                                                              (In thousands of dollars)

                                               (Unaudited)
                                      Three Months Ended                            Nine Months Ended
                                      ------------------                            -----------------
                                         November 23,                                 November 25,                        November 23,         November 25,
                                                            2012                                         2011                            2012                  2011
                                                            ----                                         ----                            ----                  ----

    Net (loss) income                                      $(809)                                     $20,246                          $2,187               $67,315

    Other comprehensive income
     (loss), net of tax:
                                                           2,680                                      (15,592)                            (91)              (12,554)
        Foreign currency translation
         adjustments
                                                             145                                          536                             643                   607
        Pension and postretirement
         benefit adjustments
                                                               -                                           (1)                             (1)                    -
        Unrealized loss on securities

    Other comprehensive income
     (loss), net of tax:                                   2,825                                      (15,057)                            551               (11,947)
    Comprehensive income                                  $2,016                                       $5,189                          $2,738               $55,368
                                                          ======                                       ======                          ======               =======

                                                                                                     AMERICAN GREETINGS CORPORATION
                                                                                       THIRD QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                                                                  FISCAL YEAR ENDING FEBRUARY 28, 2013

                                                                                                        (In thousands of dollars)
                                                                                                                                                               (Unaudited)
                                                                                                                                                              November 23,                                         November 25,
                                                                                                                                                                                    2012                                                 2011
                                                                                                                                                                                    ----                                                 ----

    ASSETS
    CURRENT ASSETS
                                     Cash and cash equivalents                                                                         $63,291                                              $85,661
                                     Trade accounts receivable, net                                              197,844               235,318
                                     Inventories                                                                                                                                 264,330                                              214,412
                                      Deferred and refundable income
                                      taxes                                                                       80,502                57,400
                                     Prepaid expenses and other                                                  155,543               123,481

                                     Total current assets                                                                              761,510                                              716,272

    GOODWILL                                                                                                                                                                           -                                               27,713
    OTHER ASSETS                                                                                                                                                                 460,647                                              417,479
    DEFERRED AND REFUNDABLE INCOME TAXES                                                                                                                                         120,870                                              128,595

    Property, plant and equipment - at cost                                                                                                                                    1,004,686                                              904,555
    Less accumulated depreciation                                                                                                                                                642,994                                              637,334
                                                                                                                                                                                 -------                                              -------
    PROPERTY, PLANT AND EQUIPMENT - NET                                                                                                                                          361,692                                              267,221
                                                                                                                                                                              $1,704,719                                           $1,557,280
                                                                                                                                                                              ==========                                           ==========

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT LIABILITIES
                                     Accounts payable                                                                                 $194,945                                             $108,254
                                     Accrued liabilities                                                                                82,893                                               67,596
                                     Accrued compensation and benefits                                            60,702                58,411
                                     Income taxes payable                                                                               14,641                                               26,626
                                     Deferred revenue                                                                                   26,404                                               29,477
                                     Other current liabilities                                                                          44,287                                               60,963

                                      Total current
                                      liabilities                                                                                      423,872                                              351,327

    LONG-TERM DEBT                                                                                                                                                               356,832                                              234,642
    OTHER LIABILITIES                                                                                                                                                            259,787                                              182,565
    DEFERRED INCOME TAXES AND
      NONCURRENT INCOME TAXES PAYABLE                                                                                                                                             21,008                                               21,769

    SHAREHOLDERS' EQUITY
                                     Common shares - Class A                                                                            28,849                                               35,562
                                     Common shares - Class B                                                                             2,860                                                2,778
                                     Capital in excess of par value                                              520,119               509,999
                                     Treasury stock                                                                                (1,093,789)                                            (995,338)
                                      Accumulated other comprehensive
                                      loss                                                                       (11,279)              (14,293)
                                     Retained earnings                                                                               1,196,460                                            1,228,269

                                     Total shareholders' equity                                                  643,220               766,977
                                                                                                                 -------               -------
                                                                                                                                                                              $1,704,719                                           $1,557,280
                                                                                                                                                                              ==========                                           ==========
                                                                    AMERICAN GREETINGS CORPORATION
                                                          THIRD QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                 FISCAL YEAR ENDING FEBRUARY 28, 2013
                                                                       (In thousands of dollars)

                                                                                                                (Unaudited)
                                                                                                             Nine Months Ended
                                                                                                             -----------------
                                                                                                             November 23, 2012                      November 25, 2011
                                                                                                             -----------------                      -----------------

    OPERATING ACTIVITIES:
                     Net income                                                                 $2,187                                $67,315
                      Adjustments to
                      reconcile net income
                      to cash flows from
                      operating activities:
                      Stock-based
                      compensation                                          7,806                8,038
                      Gain on
                      dispositions                                                                  -                                 (4,500)
                      Net loss (gain) on
                      disposal of fixed
                      assets                                                  394                 (807)
                      Depreciation and
                      intangible assets
                      amortization                       36,095                       32,993
                      Provision for
                      doubtful accounts                                    17,771                4,879
                      Impairment of
                      Clinton Cards debt                                   10,043                    -
                      Deferred income
                      taxes                                                              809                                  6,412
                      Gain on sale of
                      Party City
                      investment                                           (4,293)                   -
                      Other non-cash
                      charges                                                            892                                  2,747
                      Changes in operating
                      assets and
                      liabilities,
                                                 net of
                                                  acquisitions:
                                              Trade accounts
                                              receivable                           (101,363)                               (122,298)
                                             Inventories                                      (39,105)                               (30,939)
                                              Other
                                              current
                                              assets                                          (17,877)                                  6,470
                                             Income taxes                                     (15,336)                                  3,362
                                              Deferred
                                              costs -net                                        23,702                                 (3,838)
                                              Accounts payable
                                              and other
                                              liabilities                            112,283                                  3,528
                                             Other - net                                        (1,913)                                    98
                                                                                                ------                                    ---
                      Total Cash Flows
                      From Operating
                      Activities                                           32,095             (26,540)

    INVESTING ACTIVITIES:
                      Property, plant and
                      equipment additions                                 (87,408)            (48,956)
                      Cash payments for business
                      acquisitions, net of cash
                      acquired                                               621               (5,899)
                      Proceeds from sale of
                      fixed assets                                            559                9,046
                      Proceeds from sale of
                      intellectual
                      properties                                                          -                                  4,500
                      Proceeds from sale of
                      Party City investment                                 4,920                    -
                      Purchase of Clinton
                      Cards debt                                          (56,560)                   -

                      Total Cash Flows
                      From Investing
                      Activities                                         (137,868)            (41,309)

    FINANCING ACTIVITIES:
                      Net increase in long-
                      term debt                                           131,651                    -
                      Issuance or exercise of
                      share-based payment
                      awards                                                (496)              12,293
                      Tax (deficiency) benefit
                      from share-based payment
                      awards                                                (376)               2,380
                      Purchase of treasury
                      shares                                                         (78,742)                               (55,304)
                      Dividends to
                      shareholders                                                   (15,182)                               (18,146)
                      Total Cash Flows
                      From Financing
                      Activities                                           36,855             (58,777)

    EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                                                    (229)                                (3,551)
                                                                                                                               ----                                 ------

    DECREASE IN CASH AND CASH EQUIVALENTS                                                                                   (69,147)                              (130,177)

                      Cash and Cash
                      Equivalents at
                      Beginning of Year                 132,438                      215,838
                                                        -------                      -------
                      Cash and Cash
                      Equivalents at End
                      of Period                                                      $63,291                                $85,661
                                                                                     =======                                =======
                                                                                         AMERICAN GREETINGS CORPORATION
                                                                                 THIRD QUARTER CONSOLIDATED SEGMENT DISCLOSURES
                                                                                      FISCAL YEAR ENDING FEBRUARY 28, 2013
                                                                                           (In thousands of dollars)

                                                                                 (Unaudited)
                                                                        Three Months Ended                                  Nine Months Ended
                                                                        ------------------                                  -----------------
                                                                         November 23, 2012                                  November 25, 2011           November 23, 2012            November 25, 2011
                                                                         -----------------                                  -----------------           -----------------            -----------------
    Total Revenue:
    North American Social Expression Products                                                  $333,852                                       $333,305                     $908,267                     $902,333

    International Social Expression Products                                                    101,972                                        103,352                      239,486                      249,448
    Intersegment items                                                                          (25,538)                                             -                      (39,080)                           -
                                                                                                -------                                            ---                      -------                          ---
    Net                                                                                          76,434                                        103,352                      200,406                      249,448

    Retail Operations (1)                                                                        67,635                                              -                      107,519                            -

    AG Interactive                                                                               15,982                                         16,878                       47,255                       49,664

    Non-reportable segments                                                                      12,911                                         11,472                       30,309                       37,452

                                                                                               $506,814                                       $465,007                   $1,293,756                   $1,238,897
                                                                                               ========                                       ========                   ==========                   ==========

    Segment (Loss) Earnings:
    North American Social Expression Products                                                   $22,099                                        $28,016                      $98,757                     $113,009

    International Social Expression Products                                                      3,413                                          9,537                      (18,855)                      15,308
    Intersegment items                                                                           (4,123)                                             -                      (11,525)                           -
                                                                                                 ------                                            ---                      -------                          ---
    Net                                                                                            (710)                                         9,537                      (30,380)                      15,308

    Retail Operations (1)                                                                       (11,473)                                             -                      (16,579)                           -

    AG Interactive                                                                                5,331                                          3,737                       13,713                       10,970

    Non-reportable segments                                                                       3,259                                          2,368                        5,501                       17,467

    Unallocated                                                                                 (20,605)                                       (13,958)                     (68,762)                     (51,311)

                                                                                                $(2,099)                                       $29,700                       $2,250                     $105,443
                                                                                                =======                                        =======                       ======                     ========

    (1) Retail Operations segment only includes five months of activity

                                                                                                         AMERICAN GREETINGS CORPORATION
                                                                                                              SUPPLEMENTAL EXHIBIT
                                                                                                             (Dollars in millions)

    During the nine months ended November 23, 2012, the Corporation recorded certain charges associated with activities and transactions related to Clinton Cards PLC ("Clinton Cards") that do not have comparative amounts
     in the prior year period.

                                                                                                                                      (Unaudited)
                                                                     Three Months Ended
                                                                                                                                   November 23, 2012
                                                                                                                                   -----------------

                                            Contract asset impairment                  Bad debt expense                         Legal and advisory fees                       Impairment of debt purchased                    Total
                                            -------------------------                  ----------------                         -----------------------                       ----------------------------                    -----
    Net sales                                          $               -                           $      -                           $                        -                           $                -                       $   -
    Administrative and general expenses                                -                                  -                                                  0.3                                            -                         0.3
    Other non-operating expense                                        -                                  -                                                    -                                            -                           -
                                                                     ---                                ---                                                  ---                                          ---                         ---
                                                       $               -                           $      -                                                 $0.3                           $                -                        $0.3
                                                       =================                           ========                                                 ====                           ==================                        ====

                                                                                                                                      (Unaudited)
                                                                     Nine Months Ended
                                                                                                                                   November 23, 2012
                                                                                                                                   -----------------

                                            Contract asset impairment                  Bad debt expense                         Legal and advisory fees                       Impairment of debt purchased                    Total
                                            -------------------------                  ----------------                         -----------------------                       ----------------------------                    -----
    Net sales                                                       $4.0                           $      -                           $                        -                           $                -                        $4.0
    Administrative and general expenses                                -                               17.2                                                  6.3                                            -                        23.5
    Other non-operating expense                                        -                                  -                                                    -                                         10.0                        10.0
                                                                     ---                                ---                                                  ---                                         ----                        ----
                                                                    $4.0                              $17.2                                                 $6.3                                        $10.0                       $37.5
                                                                    ====                              =====                                                 ====                                        =====                       =====

SOURCE American Greetings Corporation


Source: PR Newswire