September 28, 2012 at 07:30 AM EDT
American Greetings Announces Second Quarter Earnings

CLEVELAND, Sept. 28, 2012 /PRNewswire-FirstCall/ -- American Greetings Corporation (NYSE: AM) today announced its results for the second fiscal quarter ended August 24, 2012.

Second Quarter Results

For the second quarter of fiscal 2013, the Company reported total revenue of $393.8 million, a pre-tax loss of $6.1 million and a net loss of $4.3 million or 13 cents per share (all per-share amounts assume dilution).   

The Company 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.  As a result of the acquisition, the Company recognized during the second quarter of fiscal 2013 a revenue increase of approximately $39.9 million from the operations of the Clintons retail stores, reflected in the Company's new Retail Operations segment.  This revenue increase was offset partially by the revenue reduction of approximately $13.5 million from inter-segment sales eliminations, reflected in the Company's International Segment, resulting in a net increase in consolidated revenue of approximately $26.3 million in the quarter.  The sales being eliminated would have been third party sales in the prior year quarter.

Also as a result of the acquisition, the Company incurred, during the second quarter, pre-tax transaction costs and fees of approximately $3.9 million (after-tax of approximately $2.4 million or 7 cents per share) and pre-tax costs of approximately $2.3 million (after-tax of approximately $1.4 million or 4 cents per share) associated with impairment of the acquired Clinton Cards senior secured debt.  The Company also recognized a reduction in pre-tax income of approximately $7.4 million (after-tax of approximately $5.6 million or 16 cents per share) as a result of inter-segment profit eliminations.  The Company recognized a loss of $5.1 million (after-tax of approximately $3.1 million or 9 cents per share) from the operation of its retail stores.  The total consolidated net reduction in pre-tax income associated with the acquisition and operation of the Clintons retail stores was approximately $18.7 million (after-tax of approximately $12.4 million or 37 cents per share).

In addition, revenue was reduced by $4.4 million as a result of scan-based trading conversions that occurred during the current-year's second quarter.  The impact of scan-based trading conversions on pre-tax income was $3.6 million (after-tax of approximately $2.2 million or 7 cents per share).  Also included within these results was a pre-tax benefit of $3.2 million (after-tax of approximately $1.9 million or 6 cents per share) from a gain on the sale of a portion of a legacy minority investment.

For the second quarter of the prior fiscal year 2012, the Company reported total revenue of approximately $370.2 million, pre-tax income of approximately $25.0 million, and net income of approximately $14.5 million or 35 cents per share.  Revenue was reduced by approximately $0.6 million as a result of scan-based trading conversions that occurred during the quarter.  The impact of scan-based trading conversions on pre-tax income was approximately $0.7 million (after-tax of approximately $0.4 million or 1 cent per share). Included within these results was a pre-tax benefit from the sale of certain minor characters in our intellectual property portfolio of approximately $4.5 million (after-tax of approximately $2.8 million or 7 cents per share).

Financing Activities

During the second quarter of fiscal 2013, under the Company's previously authorized $75 million share repurchase program announced January 2012, the Company purchased approximately 0.3 million shares of its common stock for approximately $4.4 million and completed that repurchase program.  Under the Company's $75 million share repurchase program announced July 2012, the Company purchased approximately 1.2 million shares of its common stock for approximately $15.7 million during the second quarter of fiscal 2013.  Total share repurchases during the second quarter of fiscal 2013 were 1.5 million shares for approximately $20.1 million

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 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

SECOND 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


Six Months Ended






August 24, 2012


August 26, 2011


August 24, 2012


August 26, 2011













Net sales



$         386,518


$         361,141


$         775,771


$         759,265

Other revenue



7,318


9,053


11,171


14,625

Total revenue



393,836


370,194


786,942


773,890













Material, labor and other production costs

176,732


158,198


340,596


316,127

Selling, distribution and marketing expenses

148,995


126,489


276,158


251,129

Administrative and general expenses


70,870


60,926


151,038


126,224

Other operating (income) expense - net

(778)


(5,122)


796


(6,045)













Operating (expense) income


(1,983)


29,703


18,354


86,455













Interest expense



4,434


5,763


8,810


11,887

Interest income



(94)


(310)


(232)


(631)

Other non-operating (income) expense - net

(252)


(703)


5,427


(544)













(Loss) income before income tax (benefit) expense

(6,071)


24,953


4,349


75,743

Income tax (benefit) expense 


(1,817)


10,477


1,353


28,674













Net (loss) income



$           (4,254)


$           14,476


$            2,996


$           47,069

























(Loss) earnings per share - basic


$             (0.13)


$              0.36


$              0.09


$              1.16

























(Loss) earnings per share - assuming dilution

$             (0.13)


$              0.35


$              0.08


$              1.12

























Average number of common shares outstanding

33,753,382


40,696,961


34,629,565


40,598,659













Average number of common shares outstanding - 








assuming dilution

33,753,382


41,688,787


35,328,913


41,842,760













Dividends declared per share                        

$              0.15


$              0.15


$              0.30


$              0.30













 

AMERICAN GREETINGS CORPORATION

SECOND QUARTER CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FISCAL YEAR ENDING FEBRUARY 28, 2013












(In thousands of dollars)
















(Unaudited)





Three Months Ended


Six Months Ended





August 24, 2012


August 26, 2011


August 24, 2012


August 26, 2011












Net (loss) income


$           (4,254)


$           14,476


$            2,996


$           47,069












Other comprehensive income (loss), net of tax:









Foreign currency translation adjustments

5,629


(1,444)


(2,771)


3,038


Pension and postretirement benefit adjustments

23


87


498


71


Unrealized (loss) gain on securities

(1)


-


(1)


1

Other comprehensive income (loss), net of tax:

5,651


(1,357)


(2,274)


3,110

Comprehensive income 


$            1,397


$           13,119


$               722


$           50,179












 

AMERICAN GREETINGS CORPORATION

SECOND QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FISCAL YEAR ENDING FEBRUARY 28, 2013












(In thousands of dollars)









(Unaudited)









August 24, 2012


August 26, 2011












ASSETS









CURRENT ASSETS









Cash and cash equivalents




$           61,743


$         209,326


Trade accounts receivable, net



97,564


111,691


Inventories






275,978


248,805


Deferred and refundable income taxes



78,713


59,876


Assets held for sale




-


5,282


Prepaid expenses and other



134,114


106,775



Total current assets




648,112


741,755












GOODWILL 






-


29,044

OTHER ASSETS





472,613


425,423

DEFERRED AND REFUNDABLE INCOME TAXES


120,103


129,594












Property, plant and equipment - at cost



968,956


895,045

Less accumulated depreciation




637,382


634,722

PROPERTY, PLANT AND EQUIPMENT - NET


331,574


260,323









$      1,572,402


$      1,586,139























LIABILITIES AND SHAREHOLDERS' EQUITY





CURRENT LIABILITIES








Accounts payable 




$         135,247


$         118,162


Accrued liabilities




66,336


56,056


Accrued compensation and benefits



55,122


47,916


Income taxes payable




14,476


15,812


Deferred revenue




30,517


31,884


Other current liabilities




46,837


65,718



Total current liabilities




348,535


335,548












LONG-TERM DEBT





280,181


233,970

OTHER LIABILITIES





262,923


184,258

DEFERRED INCOME TAXES AND






  NONCURRENT INCOME TAXES PAYABLE


22,008


32,740












SHAREHOLDERS' EQUITY








Common shares - Class A




29,887


37,561


Common shares - Class B




2,860


2,781


Capital in excess of par value



517,019


507,256


Treasury stock





(1,078,922)


(962,747)


Accumulated other comprehensive (loss) income


(14,104)


764


Retained earnings




1,202,015


1,214,008



Total shareholders' equity



658,755


799,623









$      1,572,402


$      1,586,139












 

AMERICAN GREETINGS CORPORATION

SECOND QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS

FISCAL YEAR ENDING FEBRUARY 28, 2013

(In thousands of dollars)


















(Unaudited)








Six Months Ended








August 24, 2012


August 26, 2011











OPERATING ACTIVITIES:







Net income 




$            2,996


$           47,069


Adjustments to reconcile net income








to cash flows from operating activities:









Stock-based compensation


4,841


5,362



Net gain on dispositions



-


(4,500)



Net loss (gain) on disposal of fixed assets


154


(484)



Depreciation and intangible assets amortization

23,310


22,158



Provision for doubtful accounts


17,567


4,620



Impairment of Clinton Cards debt


10,043


-



Deferred income taxes



(2,379)


4,039



Gain on sale of Party City investment



(3,152)


-



Other non-cash charges



619


1,814



Changes in operating assets and liabilities,








       net of acquisitions:










Trade accounts receivable


(1,684)


8,209




Inventories



(51,668)


(64,515)




Other current assets



(12,188)


4,457




Income taxes



(9,532)


2,785




Deferred costs - net



40,598


16,400




Accounts payable and other liabilities


35,854


(8,751)




Other - net



(6,499)


1,049



Total Cash Flows From Operating Activities


48,880


39,712











INVESTING ACTIVITIES:







Property, plant and equipment additions


(46,058)


(30,434)


Cash payments for business acquisitions, net of cash acquired

621


(5,992)


Proceeds from sale of fixed assets


488


2,567


Proceeds from sale of intellectual properties


-


4,500


Purchase of Clinton Cards debt


(56,560)


-



Total Cash Flows From Investing Activities


(101,509)


(29,359)











FINANCING ACTIVITIES:







Increase in long-term debt



55,000


-


Issuance or exercise of share-based payment awards

(591)


12,222


Tax (deficiency) benefit from share-based payment awards

(413)


2,370


Purchase of treasury shares



(60,700)


(20,791)


Dividends to shareholders



(10,440)


(12,176)



Total Cash Flows From Financing Activities


(17,144)


(18,375)











EFFECT OF EXCHANGE RATE CHANGES ON CASH

(922)


1,510











DECREASE IN CASH AND CASH EQUIVALENTS


(70,695)


(6,512)













Cash and Cash Equivalents at Beginning of Year

132,438


215,838



Cash and Cash Equivalents at End of Period


$           61,743


$         209,326











 

AMERICAN GREETINGS CORPORATION

SECOND QUARTER CONSOLIDATED SEGMENT DISCLOSURES

FISCAL YEAR ENDING FEBRUARY 28, 2013

(In thousands of dollars)


















(Unaudited)






Three Months Ended


Six Months Ended






August 24, 2012


August 26, 2011


August 24, 2012


August 26, 2011

Total Revenue:











North American Social Expression Products

$         265,856


$         264,345


$         574,415


$         569,028













International Social Expression Products

74,834


75,891


137,514


146,096

Intersegment items



(13,542)


-


(13,542)


-

Net





61,292


75,891


123,972


146,096













Retail Operations (1)



39,884


-


39,884


-













AG Interactive




15,777


16,177


31,273


32,786













Non-reportable segments



11,027


13,781


17,398


25,980


















$         393,836


$         370,194


$         786,942


$         773,890

























Segment (Loss) Earnings:









North American Social Expression Products

$           20,440


$           25,699


$           76,658


$           84,993













International Social Expression Products

289


2,468


(22,268)


5,771

Intersegment items



(7,402)


-


(7,402)


-

Net





(7,113)


2,468


(29,670)


5,771













Retail Operations (1)



(5,106)


-


(5,106)


-













AG Interactive




4,609


4,597


8,382


7,233













Non-reportable segments



2,300


10,493


2,242


15,099













Unallocated 




(21,201)


(18,304)


(48,157)


(37,353)


















$           (6,071)


$           24,953


$            4,349


$           75,743

























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





























 

AMERICAN GREETINGS CORPORATION

SUPPLEMENTAL EXHIBIT

(Dollars in millions)





















During the six months ended August 24, 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








August 24, 2012















Contract asset
impairment


Bad debt
expense


Legal and
advisory fees


Impairment of
debt purchased


Total

Net sales

-


-


-


-


-

Administrative and general expenses

-


-


$3.9


-


$3.9

Other non-operating expense

-


-


-


$2.3


$2.3


-


-


$3.9


$2.3


$6.2


























(Unaudited)









Six Months Ended








August 24, 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


$6.0


-


$23.2

Other non-operating expense

-


-


-


$10.0


$10.0


$4.0


$17.2


$6.0


$10.0


$37.2











 

SOURCE American Greetings Corporation

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