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American Greetings Announces First Quarter Earnings

June 28, 2012

CLEVELAND, June 28, 2012 /PRNewswire-FirstCall/ — American Greetings Corporation (NYSE: AM) today announced its results for the first fiscal quarter ended May 25, 2012.

First Quarter Results

For the first quarter of fiscal 2013, the Company reported total revenue of $393.1 million, pre-tax income of $10.4 million and net income of $7.3 million or 20 cents per share (all per-share amounts assume dilution). Revenue was reduced by $1.4 million as a result of scan-based trading conversions that occurred during the quarter. The pre-tax income impact of the scan-based trading conversions was $1.0 million (after-tax $0.6 million, reducing earnings per share by about 2 cents). The Company also incurred pre-tax costs of $2.1 million (after-tax $1.3 million, reducing earnings per share by about 4 cents) associated with the termination of a contract within the Company’s intellectual property licensing group.

Also during the first quarter, on May 9, 2012, the Company announced the acquisition for approximately $56.6 million of the senior secured debt of Clinton Cards PLC (“Clinton Cards”), one of the largest specialty retailers of greeting cards in the United Kingdom (“U.K.”). Subsequently, Clinton Cards was placed into administration, a procedure similar to Chapter 11 bankruptcy in the United States, which gives the company, under the control of its administrators, an opportunity to restructure its business. These events triggered multiple charges that are reflected in the first quarter of fiscal 2013 (also see attached table). Revenue was reduced by $4.0 million as a result of the non-cash impairment of the supply agreement with the Birthdays subsidiary of Clinton Cards. The pre-tax income impact of the contract asset impairment was $4.0 million (after-tax $3.0 million, reducing earnings per share by about 8 cents). The Company incurred pre-tax costs of $17.2 million (after-tax $12.9 million, reducing earnings per share by about 35 cents) associated with a bad debt write-off related to Clinton Cards. The Company also incurred pre-tax costs of $2.0 million (after-tax $1.2 million, reducing earnings per share by about 3 cents) associated with transaction fees. Finally, the Company incurred pre-tax costs of $7.8 million (after-tax $4.8 million, reducing earnings per share by about 13 cents) associated with an impairment of the acquired Clinton Cards senior secured debt.

The Company subsequently announced, on June 7, 2012, the acquisition of assets of Clinton Cards, including approximately 400 stores and related overhead as well as the Clinton Cards and related brands. The impacts of this transaction will be reflected in the second quarter of fiscal 2013.

For the first quarter of fiscal 2012, the Company reported total revenue of $403.7 million, pre-tax income of $50.8 million, and net income of $32.6 million or 78 cents per share. Revenue was reduced by $1.9 million as a result of scan-based trading conversions that occurred during the quarter. The pre-tax income impact of the scan-based trading conversions was $2.3 million (after-tax $1.4 million, reducing earnings per share by about 3 cents).

Management Comments

Chief Executive Officer Zev Weiss said, “I am pleased with the overall performance of our core business in the first fiscal quarter, holding aside the impact of Clinton Cards. Our pipeline of product, breadth of brands and innovation continue to position us as the card company that sells more cards in more places than any other company in the world. Electronically, we are also taking a leadership role. Our justWink mobile application recently surpassed the one million downloads milestone, showing how we are setting the pace when it comes to connecting the digital and paper worlds for greeting cards.”

Weiss continued, “This quarter, we also had our most successful customer acquisition campaign for Cardstore.com, driven by a heavy push for new customers tied to the Mother’s Day holiday. Despite seeing competitors like Shutterfly and others trying to duplicate our formula for success for personalized greeting cards, our momentum fuels our confidence that we will lead in this area. We believe consumers will come to us for bulk cards and stay with us for more expressive, personal cards. We will compete aggressively on the bulk card business leveraging our scale and capacity, pricing it very competitively while offering a significantly better value than the current market. We will also maintain our focus on the more personalized cards, leveraging our intellectual property to deliver a best in class product. We are excited by the opportunities and encouraged by the consumer response we are seeing.”

Financing Activities

Under the Company’s previously authorized $75 million share repurchase program, the Company purchased approximately 2.8 million shares of its common stock for about $42.6 million during the first quarter of fiscal 2013.

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, including those under Management Comments, 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 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 the “Risk Factors” section of the Company’s Annual Report on Form 10-K.

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

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

                                                                                             (Unaudited)
                                                                                         Three Months Ended
                                                                                         ------------------
                                                                                            May 25, 2012           May 27, 2011
                                                                                            ------------           ------------

    Net sales                                                                                            $389,253               $398,124
    Other revenue                                                                                           3,853                  5,572
                                                                                                            -----                  -----
    Total revenue                                                                                         393,106                403,696

    Material, labor and other production costs                                                            163,864                157,929
    Selling, distribution and marketing
     expenses                                                                                             127,163                124,640
    Administrative and general expenses                                                                    80,168                 65,298
    Other operating expense (income) - net                                                                  1,574                   (923)
                                                                                                            -----                   ----

    Operating income                                                                                       20,337                 56,752

    Interest expense                                                                                        4,376                  6,124
    Interest income                                                                                          (138)                  (321)
    Other non-operating expense - net                                                                       5,679                    159
                                                                                                            -----                    ---

    Income before income tax expense                                                                       10,420                 50,790
    Income tax expense                                                                                      3,170                 18,197
                                                                                                            -----                 ------

    Net income                                                                                             $7,250                $32,593
                                                                                                           ======                =======

    Earnings per share - basic                                                                              $0.20                  $0.80

    Earnings per share - assuming dilution                                                                  $0.20                  $0.78

    Average number of common shares
     outstanding                                                                                       35,505,749             40,500,357

    Average number of common shares
     outstanding -
    assuming dilution                                                                                  36,154,078             41,799,366

    Dividends declared per share                                                                            $0.15                  $0.15

                                                  AMERICAN GREETINGS CORPORATION
                                FIRST QUARTER CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME
                                               FISCAL YEAR ENDING FEBRUARY 28, 2013

                                                     (In thousands of dollars)

                                                                                                                (Unaudited)
                                                                                                            Three Months Ended
                                                                                                            ------------------
                                                                                               May 25, 2012          May 27, 2011
                                                                                               ------------          ------------

    Net income                                                                         $7,250               $32,593

    Other comprehensive (loss) income,
     net of tax:
                                         Foreign currency translation
                                         adjustments                                                         (8,400)              4,482
                                         Pension and postretirement benefit
                                         adjustments                                                            475                 (16)
                                        Unrealized gain on securities                                             -                   1

    Other comprehensive (loss) income,
     net of tax:                                                                                             (7,925)              4,467
    Comprehensive (loss) income                                                         $(675)              $37,060
                                                                                        =====               =======

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

                                                                             (In thousands of dollars)
                                                                                                                      (Unaudited)
                                                                                                                     May 25, 2012                             May 27, 2011
                                                                                                                     ------------                             ------------

    ASSETS
    CURRENT ASSETS
                     Cash and cash equivalents                                            $60,180                                 $211,139
                      Trade accounts receivable,
                      net                                              97,657             137,213
                     Inventories                                      214,588             203,346
                      Deferred and refundable
                      income taxes                                     63,910              61,533
                     Assets held for sale                                                     -                                    7,180
                     Prepaid expenses and other                       110,482             113,744

                     Total current assets                             546,817             734,155

    GOODWILL                                                                                                                             -                                  29,701
    OTHER ASSETS                                                                                                                   530,452                                 427,714
    DEFERRED AND REFUNDABLE INCOME TAXES                                                                                           118,385                                 127,731

    Property, plant and equipment - at cost                                                                                        933,328                                 880,496
    Less accumulated depreciation                                                                                                  640,511                                 630,684
                                                                                                                                   -------                                 -------
    PROPERTY, PLANT AND EQUIPMENT - NET                                                                                            292,817                                 249,812
                                                                                                                                $1,488,471                              $1,569,113
                                                                                                                                ==========                              ==========

    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT LIABILITIES
                     Accounts payable                                                     $99,872                                  $98,641
                     Accrued liabilities                               62,610              64,527
                      Accrued compensation and
                      benefits                                         40,582              35,163
                     Income taxes payable                              11,007              18,752
                     Deferred revenue                                  34,351              35,802
                     Other current liabilities                         48,395              64,305

                     Total current liabilities                        296,817             317,190

    LONG-TERM DEBT                                                                                                                 225,181                                 233,298
    OTHER LIABILITIES                                                                                                              265,294                                 187,484
    DEFERRED INCOME TAXES AND
      NONCURRENT INCOME TAXES PAYABLE                                                                                               21,745                                  32,132

    SHAREHOLDERS' EQUITY
                     Common shares - Class A                           31,336              37,942
                     Common shares - Class B                            2,860               2,803
                      Capital in excess of par
                      value                                           513,917             502,131
                     Treasury stock                               (1,060,244)           (951,643)
                      Accumulated other
                      comprehensive (loss) income                     (19,755)              2,121
                     Retained earnings                              1,211,320           1,205,655

                     Total shareholders' equity                                                                                    679,434                                 799,009
                                                                                                                                   -------                                 -------
                                                                                                                                $1,488,471                              $1,569,113
                                                                                                                                ==========                              ==========

                                                                   AMERICAN GREETINGS CORPORATION
                                                         FIRST QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                FISCAL YEAR ENDING FEBRUARY 28, 2013
                                                                      (In thousands of dollars)

                                                                                                                 (Unaudited)
                                                                                                             Three Months Ended
                                                                                                             ------------------
                                                                                                                May 25, 2012                         May 27, 2011
                                                                                                                ------------                         ------------

    OPERATING ACTIVITIES:
                        Net income                                       $7,250                  $32,593
                         Adjustments to
                         reconcile net income
                         to cash flows from
                          operating activities:

                         Stock-based
                         compensation                                     1,869                    2,662
                         Net loss on disposal
                         of fixed assets                                    156                       86
                         Depreciation and
                         intangible assets
                         amortization                                    11,469                   10,988
                         Provision for
                         doubtful accounts                               16,886                      558
                         Deferred income
                         taxes                                           (3,913)                   1,147
                         Other non-cash
                         charges                                          8,085                      872
                         Changes in operating
                         assets
                         and liabilities, net
                          of acquisitions
                                                   Trade accounts
                                                   receivable                          (2,176)                             (12,947)
                                                  Inventories                          (7,161)                             (18,750)
                                                   Other current
                                                   assets                               4,093                                2,378
                                                  Income taxes                          3,445                                7,596
                                                   Deferred costs
                                                   -net                                19,560                               13,099
                                                   Accounts
                                                   payable and
                                                   other
                                                   liabilities                        (12,830)                             (27,922)
                                                  Other - net                           3,165                                  536
                                                                                        -----                                  ---
                         Total Cash Flows
                         From Operating
                         Activities                                      49,898                   12,896

    INVESTING ACTIVITIES:
                         Property, plant and
                         equipment additions                            (16,432)                  (9,825)
                         Cash payments for
                         business acquisitions,
                         net of cash acquired                                 -                   (5,992)
                         Proceeds from sale of
                         fixed assets                                        19                       24
                         Purchase of Clinton
                         Cards debt                                     (56,560)                       -

                         Total Cash Flows
                         From Investing
                         Activities                                     (72,973)                 (15,793)

    FINANCING ACTIVITIES:
                         Issuance or exercise of
                         share-based payment
                         awards                                            (728)                  10,061
                         Tax (deficiency)
                         benefit from share-
                         based payment awards                              (421)                   1,939
                         Purchase of treasury
                         shares                                         (40,542)                  (9,942)
                         Dividends to
                         shareholders                                    (5,369)                  (6,062)

                         Total Cash Flows
                         From Financing
                         Activities                                     (47,060)                  (4,004)

    EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                                                 (2,123)                               2,202
                                                                                                                            ------                                -----

    DECREASE IN CASH AND CASH EQUIVALENTS                                                                                  (72,258)                              (4,699)

                         Cash and Cash
                         Equivalents at
                         Beginning of Year                              132,438                  215,838
                                                                        -------                  -------
                         Cash and Cash
                         Equivalents at End
                         of Period                                      $60,180                 $211,139
                                                                        =======                 ========

                                    AMERICAN GREETINGS CORPORATION
                            FIRST QUARTER CONSOLIDATED SEGMENT DISCLOSURES
                                 FISCAL YEAR ENDING FEBRUARY 28, 2013
                                      (In thousands of dollars)

                                                             (Unaudited)
                                                         Three Months Ended
                                                         ------------------
                                                            May 25, 2012        May 27, 2011
                                                            ------------        ------------
    Total Revenue:
    North American Social
     Expression Products                                              $308,559            $304,684

    International Social
     Expression Products                                                62,680              70,205

    AG Interactive                                                      15,496              16,608

    Non-reportable segments                                              6,371              12,199

                                                                      $393,106            $403,696
                                                                      ========            ========

    Segment Earnings (Loss)
     Before Tax:
    North American Social
     Expression Products                                               $56,218             $59,294

    International Social
     Expression Products                                               (22,557)              3,303

    AG Interactive                                                       3,773               2,636

    Non-reportable segments                                                (58)              4,606

    Unallocated                                                        (26,956)            (19,049)

                                                                       $10,420             $50,790
                                                                       =======             =======

                                                                                          AMERICAN GREETINGS CORPORATION
                                                                                               SUPPLEMENTAL EXHIBIT
                                                                                              (Dollars in millions)

    During the quarter ended May 25, 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
                                                                 May 25, 2012
                                                                 ------------

                                          Contract asset impairment               Bad debt expense              Legal and advisory fees                Impairment of debt      Total
                                                                                                                                                            purchased
                                                                                                                                                                                       ---
    Net sales                                                   $4.0                                 -                                 -                                     -        $4.0
    Administrative and
     general expenses                                              -                             $17.2                              $2.0                                     -       $19.2
    Other non-operating
     expense                                                       -                                 -                                 -                                  $7.8        $7.8
                                                                 ---                               ---                               ---                                  ----        ----
                                                                $4.0                             $17.2                              $2.0                                  $7.8       $31.0
                                                                ====                             =====                              ====                                  ====       =====

SOURCE American Greetings Corporation


Source: PR Newswire