Business Segment Information

3 Months Ended

May 27, 2011

Business Segment Information [Abstract]

Note 14 — Business Segment Information

The Corporation has North American Social Expression Products, International Social Expression Products, AG Interactive and non-reportable segments. The North American Social Expression Products and International Social Expression Products segments primarily design, manufacture and sell greeting cards and other related products through various channels of distribution with mass merchandise retailers as the primary channel. AG Interactive distributes social expression products, including electronic greetings, personalized printable greeting cards and a broad range of graphics and digital services and products, through a variety of electronic channels, including Web sites, Internet portals, instant messaging services and electronic mobile devices. The Corporation’s non-reportable operating segments primarily include licensing activities and the design, manufacture and sale of display fixtures.

During the current quarter, certain items that were previously considered corporate expenses are now included in the calculation of segment earnings for the North American Social Expression Products segment. This change is the result of modifications to organizational structures, and is intended to better align the segment financial results with the responsibilities of segment management and the way management evaluates the Company’s operations. In addition, segment results are now reported using actual foreign exchange rates for the periods presented. Previously, segment results were reported at constant exchange rates to eliminate the impact of foreign currency fluctuations. Prior year segment results have been presented to be consistent with the current methodologies.


	Total Revenue				Segment Earnings (Loss)
	Three Months Ended				Three Months Ended
(In thousands)	May 27, 2011		May 28, 2010		May 27, 2011			May 28, 2010
North American Social Expression Products	$	303,228	$	308,309	$	59,618		$	64,063
International Social Expression Products		70,205		57,573		3,303			2,834
AG Interactive		16,717		18,554		2,312			2,372
Non-reportable segments		12,199		11,872		4,606			2,152
Unallocated		—		—		(19,049	)		(20,404	)

	$	402,349	$	396,308	$	50,790		$	51,017

For the three months ended May 27, 2011, “Unallocated” includes interest expense for centrally incurred debt, domestic profit-sharing expense and stock-based compensation expense of $6.1 million, $3.7 million and $2.7 million, respectively. For the three months ended May 28, 2010, these amounts totaled $6.2 million, $3.5 million and $2.6 million, respectively. “Unallocated” also includes costs associated with corporate operations including senior management, corporate finance, legal and insurance programs. These costs totaled $6.5 million and $8.1 million for the three months ended May 27, 2011 and May 28, 2010, respectively.

Termination Benefits

Termination benefits are primarily considered part of an ongoing benefit arrangement, accounted for in accordance with ASC Topic 712, “Compensation — Nonretirement Postemployment Benefits,” and are recorded when payment of the benefits is probable and can be reasonably estimated.

The balance of the severance accrual was $5.8 million, $8.0 million and $11.6 million at May 27, 2011, February 28, 2011 and May 28, 2010, respectively. The payments expected within the next twelve months are included in “Accrued liabilities” while the remaining payments beyond the next twelve months are included in “Other liabilities” on the Consolidated Statement of Financial Position.

Expenses associated with Royalty Revenue

The Corporation has agreements for licensing the Care Bears and Strawberry Shortcake characters and other intellectual property. These license agreements provide for royalty revenue to the Corporation, which is recorded in “Other revenue.” These license agreements may include the receipt of upfront advances, which are recorded as deferred revenue and earned during the period of the agreement. Expenses associated with the servicing of these agreements, primarily relating to the licensing activities included in non-reportable segments, are summarized as follows:


	Three Months Ended
(In thousands)	May 27, 2011		May 28, 2010
Material, labor and other production costs	$	2,426	$	2,065
Selling, distribution and marketing expenses		1,345		1,429
Administrative and general expenses		389		433

	$	4,160	$	3,927

Deferred Revenue

Deferred revenue, included in “Other current liabilities” and “Other liabilities” on the Consolidated Statement of Financial Position, totaled $38.0 million, $39.4 million and $39.1 million at May 27, 2011, February 28, 2011 and May 28, 2010, respectively. The amounts relate primarily to subscription revenue in the Corporation’s AG Interactive segment and the licensing activities included in non-reportable segments.

Acquisitions

Continuing the strategy of focusing on growing its core greeting card business, on March 1, 2011, the Corporation’s European subsidiary, UK Greetings Ltd., acquired Watermark Publishing Limited and its wholly owned subsidiary Watermark Packaging Limited (“Watermark”). Watermark is a privately held company located in Corby, England, and is considered a leader in the United Kingdom in the innovation and design of greeting cards. Under the terms of the transaction, the Corporation acquired 100% of the equity interests of Watermark for approximately $17.1 million in cash. Cash paid for Watermark, net of cash acquired was approximately $6.0 million and is reflected in investing activities in the Consolidated Statement of Cash Flows.

The total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based upon their estimated fair values at the date of the acquisition. The estimated purchase price allocation is preliminary and subject to revision as valuation work is still being conducted. The following represents the preliminary purchase price allocation:


Purchase price (in millions):
Cash paid	$	17.1
Cash acquired		(11.1	)

	$	6.0

Allocation (in millions):
Current assets	$	8.7
Property, plant and equipment		0.4
Intangible assets		2.7
Goodwill		1.4
Liabilities assumed		(7.2	)

	$	6.0

The financial results of this acquisition are included in the Corporation’s consolidated results from the date of acquisition. Pro forma results of operations have not been presented because the effect of this acquisition was not deemed material. The Watermark business is included in the Corporation’s International Social Expression Products segment.