Table of Contents

 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): December 20, 2007
American Greetings Corporation
(Exact Name of Registrant as Specified in its Charter)
         
Ohio   1-13859   34-0065325
         
(State or other jurisdiction of
incorporation)
  (Commission File Number)   (I.R.S. Employer Identification No.)
     
One American Road    
    Cleveland, Ohio      44144
     
   (Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (216) 252-7300
 
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
     
o
  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o
  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o
  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o
  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


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Item 2.02 Results of Operations and Financial Condition
Item 9.01 Financial Statements and Exhibits
SIGNATURES
EX-99.1


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Item 2.02 Results of Operations and Financial Condition.
On December 20, 2007, American Greetings Corporation issued a press release reporting its results for the quarter ended November 23, 2007. A copy of this press release is attached hereto as Exhibit 99.1.
The information in this Item 2.02 of this Current Report on Form 8-K (including the exhibit attached hereto) is being furnished under Item 2.02 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of such section, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
c) Exhibits.
     
Exhibit   Description
 
   
Exhibit 99.1
  Press Release — reporting results for the quarter ended November 23, 2007.

2


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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  American Greetings Corporation
(Registrant)
 
 
  By:   /s/ Joseph B. Cipollone  
    Joseph B. Cipollone, Vice President,   
          Corporate Controller and
      Chief Accounting Officer 
 
 
Date: December 20, 2007

3

 

Exhibit 99.1
AMERICAN GREETINGS ANNOUNCES THIRD QUARTER RESULTS
CLEVELAND (December 20, 2007) — American Greetings Corporation (NYSE: AM) today announced its third quarter results for the fiscal quarter ended November 23, 2007 and announced a 10 cent per share cash dividend.
Third Quarter Results
For the third quarter of fiscal 2008, the Company reported total revenue of $485.7 million, pre-tax income from continuing operations of $44.5 million, and income from continuing operations of $29.5 million or 53 cents per share (all per-share amounts assume dilution).
In the prior year’s third fiscal quarter, the Company reported total revenue of $521.2 million, pre-tax income from continuing operations of $68.1 million, and income from continuing operations of $47.0 million or 79 cents per share. Included in the prior year’s results is a $20 million pre-tax gain the Company recognized as a result of retailer consolidations and the effect the consolidations had on several long-term supply agreements between the Company and the affected retailers. The prior year’s third quarter also included approximately $14 million of revenue associated with product lines that have since been divested.
Management Comments and Outlook
Chief Executive Officer Zev Weiss said, “During the third quarter, we continued to see improved performance at retail as a result of our strategic card initiative. We continue to receive positive feedback from our retail partners regarding the improvements in cards and are pleased with the card initiative.”
During the third quarter, the Company also announced that it acquired Webshots and that it entered into an agreement to acquire PhotoWorks, two Internet based digital photo sharing businesses. Weiss said, “The acquisition of Webshots gives us the opportunity to expand our current product offerings of online social expressions into the adjacent area of online photo sharing, while PhotoWorks is expected to bring together both the digital and physical products that we believe consumers desire. These transactions provide the opportunity to establish a leadership position in this growing channel of the social expression industry.”
Weiss affirmed the Company’s previously announced estimate of earnings per share from continuing operations for fiscal 2008 to be between $1.35 to $1.55 per share. “While we believe that the earnings guidance provided in April of this year is still appropriate, considering the balance of risks and opportunities it is possible that we will perform around the higher end of the range,” added Weiss.
Investing and Financing Activities
The Company used $45.2 million of cash during the quarter to acquire Webshots.
Under the Company’s $100 million share repurchase program, during the third quarter, the Company purchased approximately 1.7 million shares of its Class A common stock for about

 


 

$41 million. The Company has reduced its diluted share count by about 35% over the past 30 months.
The Company’s Board of Directors authorized a cash dividend of 10 cents per share to be paid on January 14, 2008 to shareholders of record at the close of business on January 4, 2008.
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 Investor Relations 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
American Greetings Corporation (NYSE: AM) is one of the world’s largest manufacturers of social expression products. Along with greeting cards, its product lines include gift wrap, party goods, stationery, calendars, ornaments and electronic greetings. Located in Cleveland, Ohio, American Greetings generates annual revenue of approximately $1.7 billion. For more information on the Company, visit http://corporate.americangreetings.com.
###
CONTACT:
Gregory M. Steinberg
Treasurer and Director of Investor Relations
American Greetings Corporation
216-252-4864
investor.relations@amgreetings.com
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:
    retail consolidations, acquisitions and bankruptcies, including the possibility of resulting adverse changes to retail contract terms;
 
    the Company’s ability to successfully implement its strategy to invest in its core greeting card business;
 
    the timing and impact of investments in new retail or product strategies as well as new product introductions and achieving the desired benefits from those investments;

 


 

    the timing and impact of converting customers to a scan-based trading model;
 
    the ability to execute share repurchase programs or the ability to achieve the desired accretive effect from such repurchases;
 
    the ability to successfully complete the proposed acquisition of PhotoWorks and the ability to successfully integrate acquisitions;
 
    the Company’s ability to successfully complete, or achieve the desired benefits associated with, dispositions;
 
    a weak retail environment;
 
    consumer acceptance of products as priced and marketed;
 
    the impact of technology on core product sales;
 
    competitive terms of sale offered to customers;
 
    successful implementation of supply chain improvements and achievement of projected cost savings from those improvements;
 
    increases in the cost of material, energy, freight, and other production costs;
 
    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;
 
    escalation in the cost of providing employee health care; 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 public’s acceptance of online greetings and other social expression products.
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 Annual Report on Form 10-K for the fiscal year ended February 28, 2007.

 


 

AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF INCOME
FISCAL YEAR ENDING FEBRUARY 29, 2008
(In thousands of dollars except share and per share amounts)
                                 
    (Unaudited)  
    Three Months Ended     Nine Months Ended  
    November 23,     November 24,     November 23,     November 24,  
    2007     2006     2007     2006  
Net sales
  $ 474,995     $ 510,102     $ 1,258,829     $ 1,271,755  
Other revenue
    10,751       11,052       24,309       26,537  
 
                       
Total revenue
    485,746       521,154       1,283,138       1,298,292  
 
                               
Material, labor and other production costs
    223,329       245,187       547,509       593,232  
Selling, distribution and marketing expenses
    159,420       157,364       444,695       451,419  
Administrative and general expenses
    60,481       65,287       178,291       183,516  
Other operating income — net
    (127 )     (20,541 )     (807 )     (20,963 )
 
                       
 
                               
Operating income
    42,643       73,857       113,450       91,088  
 
                               
Interest expense
    4,835       6,951       14,431       27,024  
Interest income
    (2,115 )     (1,258 )     (5,834 )     (6,716 )
Other non-operating (income) expense — net
    (4,582 )     91       (7,478 )     (2,811 )
 
                       
 
                               
Income from continuing operations before income tax expense
    44,505       68,073       112,331       73,591  
Income tax expense
    15,017       21,058       43,495       22,583  
 
                       
 
                               
Income from continuing operations
    29,488       47,015       68,836       51,008  
 
                               
(Loss) income from discontinued operations, net of tax
    (472 )     2,692       (1,395 )     3,593  
 
                       
 
                               
Net income
  $ 29,016     $ 49,707     $ 67,441     $ 54,601  
 
                       
 
                               
Earnings per share — basic:
                               
Income from continuing operations
  $ 0.54     $ 0.79     $ 1.25     $ 0.87  
(Loss) income from discontinued operations
    (0.01 )     0.05       (0.03 )     0.06  
 
                       
Net income
  $ 0.53     $ 0.84     $ 1.22     $ 0.93  
 
                       
 
                               
Earnings per share — assuming dilution:
                               
Income from continuing operations
  $ 0.53     $ 0.79     $ 1.24     $ 0.82  
(Loss) income from discontinued operations
    (0.01 )     0.04       (0.03 )     0.06  
 
                       
Net income
  $ 0.52     $ 0.83     $ 1.21     $ 0.88  
 
                       
 
                               
Average number of common shares outstanding
    55,022,689       59,502,276       55,350,736       58,590,857  
 
                               
Average number of common shares outstanding - assuming dilution
    55,466,351       59,902,127       55,726,990       64,361,644  
 
                               
Dividends declared per share
  $ 0.10     $ 0.08     $ 0.30     $ 0.24  

 


 

AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FISCAL YEAR ENDING FEBRUARY 29, 2008
(In thousands of dollars)
                 
    (Unaudited)  
    November 23,     November 24,  
    2007     2006  
ASSETS
               
CURRENT ASSETS
               
Cash and cash equivalents
  $ 71,117     $ 86,216  
Trade accounts receivable, net
    205,702       239,207  
Inventories
    239,209       244,181  
Deferred and refundable income taxes
    76,568       160,983  
Assets of businesses held for sale
    2,216       13,310  
Prepaid expenses and other
    213,529       295,866  
 
           
Total current assets
    808,341       1,039,763  
 
               
GOODWILL
    267,308       219,093  
OTHER ASSETS
    389,324       459,269  
DEFERRED AND REFUNDABLE INCOME TAXES
    111,959        
 
               
Property, plant and equipment — at cost
    975,721       968,755  
Less accumulated depreciation
    684,170       668,524  
 
           
PROPERTY, PLANT AND EQUIPMENT — NET
    291,551       300,231  
 
           
 
  $ 1,868,483     $ 2,018,356  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Debt due within one year
  $ 46,490     $ 142,000  
Accounts payable
    131,099       126,956  
Accrued liabilities
    89,751       91,108  
Accrued compensation and benefits
    58,969       58,720  
Income taxes
    31,255       17,412  
Liabilities of businesses held for sale
    1,383       1,629  
Other current liabilities
    96,896       91,162  
 
           
Total current liabilities
    455,843       528,987  
 
               
LONG-TERM DEBT
    200,975       223,985  
OTHER LIABILITIES
    149,869       101,003  
DEFERRED INCOME TAXES AND NONCURRENT INCOME TAXES PAYABLE
    31,877       25,306  
 
               
SHAREHOLDERS’ EQUITY
               
Common shares — Class A
    49,929       53,775  
Common shares — Class B
    3,442       4,224  
Capital in excess of par value
    443,326       417,444  
Treasury stock
    (780,044 )     (643,540 )
Accumulated other comprehensive income
    22,982       36,067  
Retained earnings
    1,290,284       1,271,105  
 
           
Total shareholders’ equity
    1,029,919       1,139,075  
 
           
 
  $ 1,868,483     $ 2,018,356  
 
           

 


 

AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDING FEBRUARY 29, 2008
(In thousands of dollars)
                 
    (Unaudited)  
    Nine Months Ended  
    November 23,     November 24,  
    2007     2006  
OPERATING ACTIVITIES:
               
Net income
  $ 67,441     $ 54,601  
Loss (income) from discontinued operations
    1,395       (3,593 )
 
           
Income from continuing operations
    68,836       51,008  
Adjustments to reconcile to net cash provided (used) by operating activities:
               
Net (gain) loss on disposal of fixed assets
    (481 )     754  
Loss on extinguishment of debt
          5,055  
Depreciation and amortization
    36,002       37,229  
Deferred income taxes
    (7,994 )     5,827  
Other non-cash charges
    5,719       9,180  
Changes in operating assets and liabilities, net of acquisitions and dispositions:
               
Increase in trade accounts receivable
    (99,268 )     (92,821 )
Increase in inventories
    (49,911 )     (27,202 )
Decrease (increase) in other current assets
    18,090       (96,250 )
Decrease in deferred costs — net
    29,338       110,076  
Increase (decrease) in accounts payable and other liabilities
    38,295       (5,894 )
Other — net
    4,718       (6,265 )
 
           
Cash Provided (Used) by Operating Activities
    43,344       (9,303 )
 
               
INVESTING ACTIVITIES:
               
Proceeds from sale of short-term investments
    692,985       1,026,280  
Purchases of short-term investments
    (692,985 )     (817,540 )
Property, plant and equipment additions
    (37,394 )     (29,600 )
Cash payments for business acquisitions, net of cash acquired
    (51,256 )     (11,154 )
Cash receipts related to discontinued operations
    4,283       12,559  
Proceeds from sale of fixed assets
    2,656       695  
 
           
Cash (Used) Provided by Investing Activities
    (81,711 )     181,240  
 
               
FINANCING ACTIVITIES:
               
Increase in long-term debt
          200,000  
Reduction of long-term debt
          (440,588 )
Increase in short-term debt
    23,800       142,000  
Sale of stock under benefit plans
    26,198       5,630  
Purchase of treasury shares
    (74,572 )     (186,331 )
Dividends to shareholders
    (16,657 )     (13,909 )
Debt issuance costs
          (8,344 )
 
           
Cash Used by Financing Activities
    (41,231 )     (301,542 )
 
               
DISCONTINUED OPERATIONS:
               
Cash used by operating activities from discontinued operations
    (839 )     (2,377 )
Cash provided by investing activities from discontinued operations
          1,656  
 
           
Cash Used by Discontinued Operations
    (839 )     (721 )
 
               
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    6,841       2,929  
 
           
 
               
DECREASE IN CASH AND CASH EQUIVALENTS
    (73,596 )     (127,397 )
 
               
Cash and Cash Equivalents at Beginning of Year
    144,713       213,613  
 
           
Cash and Cash Equivalents at End of Period
  $ 71,117     $ 86,216  
 
           


 

AMERICAN GREETINGS CORPORATION
THIRD QUARTER CONSOLIDATED SEGMENT DISCLOSURES
FISCAL YEAR ENDING FEBRUARY 29, 2008
(In thousands of dollars)
                                 
            (Unaudited)          
    Three Months Ended     Nine Months Ended  
    November 23,     November 24,     November 23,     November 24,  
    2007     2006     2007     2006  
Total Revenue:
                               
North American Social Expression Products
  $ 339,543     $ 371,726     $ 892,518     $ 908,909  
Intersegment items
    (19,423 )     (14,953 )     (41,532 )     (47,811 )
Exchange rate adjustment
    2,972       218       4,318       325  
 
                       
Net
    323,092       356,991       855,304       861,423  
 
                               
International Social Expression Products
    80,604       82,526       199,648       209,019  
Exchange rate adjustment
    8,606       794       17,958       (1,527 )
 
                       
Net
    89,210       83,320       217,606       207,492  
 
                               
Retail Operations
    39,550       42,252       115,856       125,206  
Exchange rate adjustment
    2,467       178       3,540       299  
 
                       
Net
    42,017       42,430       119,396       125,505  
 
                               
AG Interactive
    18,912       21,663       55,964       62,151  
Exchange rate adjustment
    (2 )     31       (1 )     76  
 
                       
Net
    18,910       21,694       55,963       62,227  
 
Non-reportable segments
    12,486       16,679       34,754       41,510  
 
                               
Unallocated
    31       40       115       135  
 
                               
 
                       
 
  $ 485,746     $ 521,154     $ 1,283,138     $ 1,298,292  
 
                       
 
                               
Segment Earnings (Loss):
                               
North American Social Expression Products
  $ 64,549     $ 98,533     $ 192,288     $ 182,111  
Intersegment items
    (14,481 )     (10,296 )     (31,203 )     (34,125 )
Exchange rate adjustment
    1,557       80       2,360       129  
 
                       
Net
    51,625       88,317       163,445       148,115  
 
                               
International Social Expression Products
    10,037       6,092       11,470       7,148  
Exchange rate adjustment
    1,117       (30 )     1,464       34  
 
                       
Net
    11,154       6,062       12,934       7,182  
 
                               
Retail Operations
    (5,833 )     (5,056 )     (15,098 )     (21,428 )
Exchange rate adjustment
    86       4       83       1  
 
                       
Net
    (5,747 )     (5,052 )     (15,015 )     (21,427 )
 
                               
AG Interactive
    2,194       2,249       8,667       5,498  
Exchange rate adjustment
    15       (18 )     (2 )     (17 )
 
                       
Net
    2,209       2,231       8,665       5,481  
 
                               
Non-reportable segments
    636       3,668       3,598       8,308  
 
                               
Unallocated
    (15,312 )     (27,157 )     (61,161 )     (73,919 )
Exchange rate adjustment
    (60 )     4       (135 )     (149 )
 
                       
Net
    (15,372 )     (27,153 )     (61,296 )     (74,068 )
 
                               
 
                       
 
  $ 44,505     $ 68,073     $ 112,331     $ 73,591