American Greetings Announces Second Quarter Earnings
CLEVELAND, September 27, 2011 /PRNewswire/ --
American Greetings Corporation (NYSE: AM) today announced its results for the second fiscal quarter ended August 26, 2011.
Second Quarter Results
For the second quarter of fiscal 2012, the Company reported total revenue of $368.8 million, pre-tax income of $25.0 million, and net income of $14.5 million or 35 cents per share (all per-share amounts assume dilution). Compared to the prior year, revenue increased approximately $26 million. Included within these results was a pre-tax benefit from the sale of certain minor characters in our intellectual property portfolio of $4.5 million (after-tax of approximately $2.8 million) or approximately 7 cents per share.
For the second quarter of fiscal 2011, the Company reported total revenue of $342.8 million, pre-tax income of $17.0 million, and net income of $8.5 million or 21 cents per share. During the quarter, the Company incurred pre-tax costs associated with the integrations of Papyrus and Recycled Paper Greetings of $5.2 million (after-tax of approximately $3.2 million) or approximately 8 cents per share.
Management Comments and Outlook
Chief Executive Officer Zev Weiss said, "I am very pleased with our innovative new products and revenue growth this quarter, which resulted in market share gains both domestically and internationally. As we look at the balance of this year, we are certainly more cautious than we were at the beginning of the year about the global economy and the effect it is having on the consumer. However, while this could create earnings volatility during the second half of the year, we remain steadfast in our investments to continue our product leadership and remain focused on our longer term goals."
Financing Activities
Under the Company's $75 million share repurchase program, during the second fiscal quarter the Company purchased approximately 0.5 million shares of its common stock for about $11.1 million. The share repurchases this second fiscal quarter are a continuation of a multi-year effort where the Company has reduced its diluted share count by about 50 percent over the past six-and-a-half years.
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 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-wrap and boxed cards. American Greetings also has one of the largest collections of electronic greetings on the Web, including cards available at AmericanGreetings.com through AG Interactive, Inc. (the Company's online division). In addition to its product lines, American Greetings also creates and licenses popular character brands through the American Greetings Properties group. Headquartered in Cleveland, Ohio, American Greetings generates annual revenue of approximately $1.6 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 earnings per share amounts included in this 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%. The earnings per share amounts were calculated based on the average number of common shares outstanding assuming dilution for the period presented. Management believes that after-tax and earnings per share 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 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 financial performance, include, but are not limited to, the following:
- a weak retail environment and general economic conditions;
- competitive terms of sale offered to customers;
- retail consolidations, acquisitions and bankruptcies, including the possibility of resulting adverse changes to retail contract terms;
- the timing and impact of expenses incurred and investments made to support new retail or product strategies 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 associated with, any information 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 acceptance of products as priced and marketed;
- the impact of technology, including social media, on core 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. 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 financial 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 Fiscal 2011 Annual Report on Form 10-K.
AMERICAN GREETINGS CORPORATION
SECOND QUARTER CONSOLIDATED STATEMENT OF INCOME
FISCAL YEAR ENDING FEBRUARY 29, 2012
(In thousands of dollars except share and per share amounts)
(Unaudited)
Three Months Ended
------------------
August 26, August 27,
2011 2010
----------- -----------
Net sales $359,741 $333,339
Other revenue 9,052 9,480
----- -----
Total revenue 368,793 342,819
Material, labor and other
production costs 158,198 145,713
Selling, distribution and
marketing expenses 125,089 112,318
Administrative and general
expenses 60,926 62,193
Other operating income - net (5,122) (936)
------ ----
Operating income 29,702 23,531
Interest expense 5,763 6,718
Interest income (310) (197)
Other non-operating income - net (704) (3)
---- ---
Income before income tax expense 24,953 17,013
Income tax expense 10,477 8,481
------ -----
Net income $14,476 $8,532
======= ======
Earnings per share - basic $0.36 $0.21
Earnings per share -assuming
dilution $0.35 $0.21
Average number of common shares
outstanding 40,696,961 40,026,649
Average number of common shares
outstanding - 41,688,787 40,875,329
assuming dilution
Dividends declared per share $0.15 $0.14
(Unaudited)
Six Months Ended
----------------
August 26, August 27,
2011 2010
----------- -----------
Net sales $756,517 $725,444
Other revenue 14,625 13,683
------ ------
Total revenue 771,142 739,127
Material, labor and other
production costs 316,127 303,726
Selling, distribution and
marketing expenses 248,381 229,869
Administrative and general
expenses 126,224 128,225
Other operating income - net (6,045) (1,530)
------ ------
Operating income 86,455 78,837
Interest expense 11,887 12,920
Interest income (631) (410)
Other non-operating income - net (544) (1,703)
---- ------
Income before income tax expense 75,743 68,030
Income tax expense 28,674 28,659
------ ------
Net income $47,069 $39,371
======= =======
Earnings per share - basic $1.16 $0.99
Earnings per share -assuming
dilution $1.12 $0.96
Average number of common shares
outstanding 40,598,659 39,832,609
Average number of common shares
outstanding - 41,842,760 40,861,761
assuming dilution
Dividends declared per share $0.30 $0.28
AMERICAN GREETINGS CORPORATION
SECOND QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 29, 2012
(In thousands of dollars)
(Unaudited)
-----------
August 26, August 27,
2011 2010
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $209,326 $133,834
Trade accounts receivable, net 111,691 89,408
Inventories 248,805 189,366
Deferred and refundable income
taxes 45,029 61,742
Assets held for sale 5,282 13,711
Prepaid expenses and other 110,598 113,112
------- -------
Total current assets 730,731 601,173
GOODWILL 29,044 29,929
OTHER ASSETS 430,344 413,808
DEFERRED AND REFUNDABLE INCOME
TAXES 129,594 153,775
Property, plant and equipment -
at cost 872,455 845,497
Less accumulated depreciation 620,875 607,215
------- -------
PROPERTY, PLANT AND EQUIPMENT -
NET 251,580 238,282
------- -------
$1,571,293 $1,436,967
========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable $118,162 $88,668
Accrued liabilities 56,056 59,283
Accrued compensation and benefits 47,916 48,287
Income taxes payable 15,812 23,052
Other current liabilities 97,602 87,872
------ ------
Total current liabilities 335,548 307,162
LONG-TERM DEBT 233,970 231,525
OTHER LIABILITIES 184,259 190,457
DEFERRED INCOME TAXES AND
NONCURRENT INCOME TAXES PAYABLE 32,740 32,194
SHAREHOLDERS' EQUITY
Common shares - Class A 37,561 37,137
Common shares - Class B 2,781 2,923
Capital in excess of par value 507,256 482,035
Treasury stock (962,747) (951,682)
Accumulated other comprehensive
income (loss) 764 (30,815)
Retained earnings 1,199,161 1,136,031
--------- ---------
Total shareholders' equity 784,776 675,629
------- -------
$1,571,293 $1,436,967
========== ==========
AMERICAN GREETINGS CORPORATION
SECOND QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDING FEBRUARY 29, 2012
(In thousands of dollars)
(Unaudited)
Six Months Ended
----------------
August 26, August 27,
2011 2010
----------- -----------
OPERATING ACTIVITIES:
Net income $47,069 $39,371
Adjustments to reconcile net income
to cash flows from operating
activities:
Stock-based compensation 5,362 6,261
Net gain on dispositions (4,500) (254)
Net gain on disposal of fixed
assets (484) (1,268)
Depreciation and intangible assets
amortization 19,986 20,463
Deferred income taxes 4,039 10,618
Other non-cash charges 1,814 1,949
Changes in operating assets and
liabilities,
net of acquisitions:
Trade accounts receivable 12,829 44,279
Inventories (64,515) (24,908)
Other current assets 4,258 (2,169)
Income taxes 2,785 15,125
Deferred costs - net 16,400 27,905
Accounts payable and other
liabilities (8,751) (54,639)
Other - net (63) 5,814
--- -----
Total Cash Flows From Operating
Activities 36,229 88,547
INVESTING ACTIVITIES:
Property, plant and equipment
additions (26,951) (14,128)
Cash payments for business
acquisitions, net of cash acquired (5,992) -
Proceeds from sale of fixed assets 2,567 2,997
Proceeds from escrow related to
party goods transaction - 25,151
Proceeds from sale of intellectual
properties 4,500 -
----- ---
Total Cash Flows From Investing
Activities (25,876) 14,020
FINANCING ACTIVITIES:
Net decrease in long-term debt - (98,250)
Net decrease in short-term debt - (1,000)
Sale of stock under benefit plans 12,222 16,540
Excess tax benefits from share-
based payment awards 2,370 2,485
Purchase of treasury shares (20,791) (13,052)
Dividends to shareholders (12,176) (11,127)
Debt issuance costs - (2,917)
--- ------
Total Cash Flows From Financing
Activities (18,375) (107,321)
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 1,510 639
----- ---
DECREASE IN CASH AND CASH
EQUIVALENTS (6,512) (4,115)
Cash and Cash Equivalents at
Beginning of Year 215,838 137,949
------- -------
Cash and Cash Equivalents at End of
Period $209,326 $133,834
======== ========
AMERICAN GREETINGS CORPORATION
SECOND QUARTER CONSOLIDATED SEGMENT DISCLOSURES
FISCAL YEAR ENDING FEBRUARY 29, 2012
(In thousands of dollars)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
August 26, August 27, August 26, August 27,
2011 2010 2011 2010
----------- ----------- ----------- -----------
Total Revenue:
North American
Social
Expression
Products $262,944 $252,158 $566,280 $560,467
International
Social
Expression
Products 75,891 54,736 146,096 112,309
AG Interactive 16,177 18,167 32,786 36,721
Non-reportable
segments 13,781 17,758 25,980 29,630
$368,793 $342,819 $771,142 $739,127
======== ======== ======== ========
Segment Earnings
(Loss):
North American
Social
Expression
Products $25,699 $28,627 $84,993 $92,690
International
Social
Expression
Products 2,468 1,325 5,771 4,159
AG Interactive 4,597 2,886 7,233 5,258
Non-reportable
segments 10,493 3,317 15,099 5,469
Unallocated (18,304) (19,142) (37,353) (39,546)
$24,953 $17,013 $75,743 $68,030
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