American Greetings Announces Fourth Quarter and Full Year Earnings
CLEVELAND, April 26, 2012 /PRNewswire/ -- American Greetings Corporation (NYSE: AM) today announced its financial results for both the fiscal fourth quarter and year ended February 29, 2012.
Management Comments
Chief Executive Officer Zev Weiss said, "I am pleased with our overall performance. We achieved a 6% revenue increase for the year as we remained focused on our product leadership strategy and many of our customers performed better than our expectations."
Fourth Quarter Results
For the fourth quarter of fiscal 2012, the Company reported total revenue of $456.2 million, a pre-tax loss of $7.6 million, and a net loss of $10.1 million or 27 cents per share (all per-share amounts assume dilution). Compared to the prior year, revenue increased approximately $32 million, or about 7%. The increase includes approximately $18 million of organic growth, approximately $13 million of revenue resulting from the Watermark acquisition in the U.K., and a benefit from foreign exchange of about $1 million. During the quarter, the Company recognized non-cash pre-tax goodwill impairment charges, a portion of which were not tax deductible, of $27.2 million (after-tax $19.0 million, reducing earnings per share by about 50 cents). There were pre-tax goodwill impairment charges of $21.3 million recorded within the North American Social Expression Products segment and $5.9 million recorded within the International Social Expression Products segment. Also incurred within the quarter were costs associated with scan-based trading conversions of $2.7 million (after-tax $1.7 million, reducing earnings per share by about 4 cents), severance costs of $4.1 million (after-tax $2.5 million, reducing earnings per share by about 7 cents) and costs associated with the Company's debt refinancing of $30.8 million (after-tax $18.8 million, reducing earnings per share by about 50 cents).
For the fourth quarter of fiscal 2011, the Company reported total revenue of $424.6 million, pre-tax income of $36.4 million, and net income of $15.5 million or 37 cents per share. The Company recorded costs of $5.5 million (after-tax $3.4 million, reducing earnings per share by about 8 cents) as a result of scan-based trading conversions. The Company also recorded severance costs of $4.0 million (after-tax $2.4 million, reducing earnings per share by about 6 cents) and costs associated with the integrations of Papyrus and Recycled Paper Greetings of $0.7 million (after-tax $0.4 million, reducing earnings per share by about 1 cent). These costs were partially offset by a $2.8 million gain associated with a building sale (after-tax $1.7 million, increasing earnings per share by about 4 cents) and $1.3 million of dividend income (after-tax $0.8 million, increasing earnings per share by about 2 cents). Both the building sale and the dividend were reported as other non-operating income. The Company also effectively settled ten years of domestic tax audits which increased income tax expense by $6.9 million (reducing earnings per share by about 17 cents).
Full Year Results
For the full year fiscal 2012, the Company reported total revenue of $1,695.1 million, pre-tax income of $97.8 million, and net income of $57.2 million or $1.42 per share. Compared to the prior year, revenues were approximately $97 million higher, or about 6%. The increase includes approximately $43 million of revenue resulting from the Watermark acquisition, organic growth of approximately $32 million, and a benefit from foreign exchange of about $22 million. The Company recognized non-cash pre-tax goodwill impairment charges of $27.2 million (after-tax $19.0 million, reducing earnings per share by 47 cents). Scan-based trading conversions during the year had a pre-tax income impact of $5.8 million (after-tax $3.5 million, reducing earnings per share by about 9 cents). The Company incurred roll-out costs associated with expanded distribution of $12.3 million (after-tax $7.5 million, reducing earnings per share by about 19 cents).The Company also recorded severance costs of $5.2 million (after-tax $3.2 million, reducing earnings per share by about 8 cents) and costs associated with its debt refinancing of $30.8 million (after-tax $18.8 million, reducing earnings per share by about 47 cents). These costs were partially offset by a pre-tax benefit from the sale of certain minor characters in our intellectual property portfolio of $4.5 million (after-tax $2.8 million, increasing earnings per share by about 7 cents per share).
For the full year fiscal 2011, the Company reported total revenue of $1,597.9 million, pre-tax income of $156.0 million, and net income of $87.0 million or $2.11 per share. The Company recorded pre-tax costs of $5.7 million (after-tax $3.5 million, reducing earnings per share by about 9 cents) as a result of scan-based trading conversions. The Company also recorded $10.3 million of costs associated with the integrations of Papyrus and Recycled Paper Greetings (after-tax $6.3 million, reducing earnings per share by about 15 cents) and severance costs of $6.9 million (after-tax $4.2 million, reducing earnings per share by about 10 cents). These costs were partially offset by a $3.8 million gain associated with the sales of two buildings (after-tax $2.3 million, increasing earnings per share by about 5 cents) and $1.3 million of dividend income (after-tax $0.8 million, increasing earnings per share by about 2 cents). During fiscal 2011, the Company also effectively settled ten years of domestic tax audits which increased income tax expense by $6.9 million (reducing earnings per share by about 17 cents).
Financing Activities
Under the Company's previously authorized $75 million share repurchase program, the Company purchased approximately 1.9 million shares of its common stock for about $28.0 million during the fourth fiscal quarter.
Outlook
For fiscal 2013, the Company expects its revenues to be flat compared to fiscal 2012. The Company expects cash flow from operating activities of approximately $145 million to $165 million and capital expenditures between $85 million and $110 million, resulting in cash flow from operating activities minus capital expenditures of approximately $45 million to $65 million. The increased level of capital expenditures compared to prior year is expected to be driven primarily by incremental investments in our information technology systems refresh project as well as by some capital investments associated with the new world headquarters project. The cash flow estimate includes a modest benefit from the combination of working capital, deferred costs, and taxes.
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 and liquidity 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 and that cash flow from operating activities minus capital expenditures provides a liquidity measure useful to investors in analyzing the cash generation of the Company.
Factors That May Affect Future Results
Certain statements in this release, including those under Management Comments and Outlook, 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 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 |
|||||||||
FOURTH QUARTER CONSOLIDATED STATEMENT OF OPERATIONS |
|||||||||
FISCAL YEAR ENDED FEBRUARY 29, 2012 |
|||||||||
(In thousands of dollars except share and per share amounts) |
|||||||||
(Unaudited) |
|||||||||
Three Months Ended |
Year Ended |
||||||||
February 29, |
February 28, |
February 29, |
February 28, |
||||||
Net sales |
$ 445,481 |
$ 414,065 |
$1,663,281 |
$1,565,539 |
|||||
Other revenue |
10,766 |
10,524 |
31,863 |
32,355 |
|||||
Total revenue |
456,247 |
424,589 |
1,695,144 |
1,597,894 |
|||||
Material, labor and other production costs |
194,946 |
179,465 |
741,645 |
682,368 |
|||||
Selling, distribution and marketing expenses |
141,197 |
132,329 |
533,827 |
483,553 |
|||||
Administrative and general expenses |
63,957 |
73,526 |
250,691 |
260,476 |
|||||
Goodwill impairment |
27,154 |
- |
27,154 |
- |
|||||
Other operating income - net |
(880) |
(627) |
(7,738) |
(3,205) |
|||||
Operating income |
29,873 |
39,896 |
149,565 |
174,702 |
|||||
Interest expense |
35,365 |
6,248 |
53,073 |
25,389 |
|||||
Interest income |
(144) |
(267) |
(982) |
(853) |
|||||
Other non-operating expense (income) - net |
2,280 |
(2,519) |
(341) |
(5,841) |
|||||
(Loss) Income before income tax expense |
(7,628) |
36,434 |
97,815 |
156,007 |
|||||
Income tax expense |
2,489 |
20,950 |
40,617 |
68,989 |
|||||
Net (loss) income |
$ (10,117) |
$ 15,484 |
$ 57,198 |
$ 87,018 |
|||||
(Loss) earnings per share - basic |
$ (0.27) |
$ 0.39 |
$ 1.44 |
$ 2.18 |
|||||
(Loss) earnings per share - assuming dilution |
$ (0.27) |
$ 0.37 |
$ 1.42 |
$ 2.11 |
|||||
Average number of common shares outstanding |
37,820,659 |
40,194,003 |
39,624,694 |
39,982,784 |
|||||
Average number of common shares outstanding -assuming dilution |
37,820,659 |
41,479,079 |
40,288,189 |
41,244,903 |
|||||
Dividends declared per share |
$ 0.15 |
$ 0.14 |
$ 0.60 |
$ 0.56 |
|||||
AMERICAN GREETINGS CORPORATION |
||||||
FOURTH QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION |
||||||
FISCAL YEAR ENDED FEBRUARY 29, 2012 |
||||||
(In thousands of dollars) |
||||||
(Unaudited) |
||||||
February 29, |
February 28, |
|||||
ASSETS |
||||||
CURRENT ASSETS |
||||||
Cash and cash equivalents |
$ 132,438 |
$ 215,838 |
||||
Trade accounts receivable, net |
113,840 |
119,779 |
||||
Inventories |
208,945 |
179,730 |
||||
Deferred and refundable income taxes |
58,118 |
64,898 |
||||
Assets held for sale |
- |
7,154 |
||||
Prepaid expenses and other |
127,618 |
128,372 |
||||
Total current assets |
640,959 |
715,771 |
||||
GOODWILL |
- |
28,903 |
||||
OTHER ASSETS |
509,680 |
436,137 |
||||
DEFERRED AND REFUNDABLE INCOME TAXES |
121,228 |
124,789 |
||||
Property, plant and equipment - at cost |
900,779 |
849,552 |
||||
Less accumulated depreciation |
623,182 |
607,903 |
||||
PROPERTY, PLANT AND EQUIPMENT - NET |
277,597 |
241,649 |
||||
$1,549,464 |
$1,547,249 |
|||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||
CURRENT LIABILITIES |
||||||
Accounts payable |
$ 86,166 |
$ 87,105 |
||||
Accrued liabilities |
58,657 |
58,841 |
||||
Accrued compensation and benefits |
68,317 |
72,379 |
||||
Income taxes payable |
7,409 |
10,951 |
||||
Deferred revenue |
35,519 |
37,108 |
||||
Other current liabilities |
49,013 |
65,178 |
||||
Total current liabilities |
305,081 |
331,562 |
||||
LONG-TERM DEBT |
225,181 |
232,688 |
||||
OTHER LIABILITIES |
269,367 |
187,505 |
||||
DEFERRED INCOME TAXES AND |
||||||
NONCURRENT INCOME TAXES PAYABLE |
22,377 |
31,736 |
||||
SHAREHOLDERS' EQUITY |
||||||
Common shares - Class A |
34,011 |
37,470 |
||||
Common shares - Class B |
2,842 |
2,937 |
||||
Capital in excess of par value |
513,163 |
492,048 |
||||
Treasury stock |
(1,020,838) |
(952,206) |
||||
Accumulated other comprehensive loss |
(11,830) |
(2,346) |
||||
Retained earnings |
1,210,110 |
1,185,855 |
||||
Total shareholders' equity |
727,458 |
763,758 |
||||
$1,549,464 |
$1,547,249 |
|||||
AMERICAN GREETINGS CORPORATION |
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FOURTH QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS |
|||||||
FISCAL YEAR ENDED FEBRUARY 29, 2012 |
|||||||
(In thousands of dollars) |
|||||||
(Unaudited) |
|||||||
Year Ended |
|||||||
February 29, |
February 28, |
||||||
OPERATING ACTIVITIES: |
|||||||
Net income |
$ 57,198 |
$ 87,018 |
|||||
Adjustments to reconcile net income |
|||||||
to cash flows from operating activities: |
|||||||
Goodwill impairment |
27,154 |
- |
|||||
Stock-based compensation |
10,982 |
13,017 |
|||||
Net gain on dispositions |
(4,500) |
(254) |
|||||
Net gain on disposal of fixed assets |
(461) |
(3,463) |
|||||
Loss on extinguishment of debt |
30,812 |
- |
|||||
Depreciation and intangible assets amortization |
39,225 |
41,048 |
|||||
Deferred income taxes |
15,391 |
28,642 |
|||||
Fixed asset impairments |
- |
119 |
|||||
Other non-cash charges |
3,034 |
3,663 |
|||||
Changes in operating assets and liabilities, |
|||||||
net of acquisitions: |
|||||||
Trade accounts receivable |
9,271 |
15,296 |
|||||
Inventories |
(23,321) |
(13,097) |
|||||
Other current assets |
6,392 |
(1,922) |
|||||
Income taxes |
(11,411) |
19,947 |
|||||
Deferred costs - net |
(31,254) |
14,262 |
|||||
Accounts payable and other liabilities |
(13,560) |
(31,015) |
|||||
Other - net |
1,586 |
6,538 |
|||||
Total Cash Flows From Operating Activities |
116,538 |
179,799 |
|||||
INVESTING ACTIVITIES: |
|||||||
Property, plant and equipment additions |
(70,943) |
(36,346) |
|||||
Cash payments for business acquisitions, net of cash acquired |
(5,899) |
(500) |
|||||
Proceeds from sale of fixed assets |
9,310 |
14,242 |
|||||
Proceeds from escrow related to party goods transaction |
- |
25,151 |
|||||
Proceeds from sale of intellectual properties |
4,500 |
- |
|||||
Other - net |
- |
5,663 |
|||||
Total Cash Flows From Investing Activities |
(63,032) |
8,210 |
|||||
FINANCING ACTIVITIES: |
|||||||
Increase in long-term debt |
225,000 |
- |
|||||
Payments associated with reduction of long-term debt |
(263,787) |
(98,250) |
|||||
Decrease in short-term debt |
- |
(1,000) |
|||||
Sale of stock under benefit plans |
10,153 |
16,620 |
|||||
Excess tax benefits from share-based payment awards |
3,468 |
4,512 |
|||||
Purchase of treasury shares |
(82,459) |
(13,521) |
|||||
Dividends to shareholders |
(23,893) |
(22,354) |
|||||
Debt issuance costs |
(5,391) |
(3,199) |
|||||
Total Cash Flows From Financing Activities |
(136,909) |
(117,192) |
|||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
3 |
7,072 |
|||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
(83,400) |
77,889 |
|||||
Cash and Cash Equivalents at Beginning of Year |
215,838 |
137,949 |
|||||
Cash and Cash Equivalents at End of Year |
$ 132,438 |
$ 215,838 |
|||||
AMERICAN GREETINGS CORPORATION |
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FOURTH QUARTER CONSOLIDATED SEGMENT DISCLOSURES |
|||||||||
FISCAL YEAR ENDED FEBRUARY 29, 2012 |
|||||||||
(In thousands of dollars) |
|||||||||
(Unaudited) |
|||||||||
Three Months Ended |
Year Ended |
||||||||
February 29, |
February 28, |
February 29, |
February 28, |
||||||
Total Revenue: |
|||||||||
North American Social Expression Products |
$ 326,215 |
$ 314,781 |
$1,228,548 |
$1,196,809 |
|||||
International Social Expression Products |
98,418 |
69,300 |
347,866 |
261,712 |
|||||
AG Interactive |
18,850 |
22,252 |
68,514 |
78,206 |
|||||
Non-reportable segments |
12,764 |
18,256 |
50,216 |
61,167 |
|||||
$ 456,247 |
$ 424,589 |
$1,695,144 |
$1,597,894 |
||||||
Segment Earnings (Loss) Before Tax: |
|||||||||
North American Social Expression Products |
$ 36,646 |
$ 50,411 |
$ 149,655 |
$ 194,199 |
|||||
International Social Expression Products |
4,968 |
5,431 |
20,276 |
19,572 |
|||||
AG Interactive |
2,972 |
3,598 |
13,942 |
13,991 |
|||||
Non-reportable segments |
(433) |
2,570 |
17,034 |
9,477 |
|||||
Unallocated |
(51,781) |
(25,576) |
(103,092) |
(81,232) |
|||||
$ (7,628) |
$ 36,434 |
$ 97,815 |
$ 156,007 |
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