American Greetings Announces First Quarter Earnings
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).
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.”
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.
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