NOTE 19 – BUSINESS SEGMENT INFORMATION

The Corporation is organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution.

The North American Social Expression Products segment primarily designs, manufactures and sells greeting cards and other related products through various channels of distribution with mass merchandising as the primary channel. The International Social Expression Products primarily designs and sells greeting cards and other related products through various channels of distribution and is located principally in the United Kingdom, Australia and New Zealand. As permitted under ASC Topic 280, “Segment Reporting,” certain operating segments have been aggregated into the International Social Expression Products segment. The aggregated operating segments have similar economic characteristics, products, sourcing processes, types of customers and distribution methods. In each of 2016, 2015 and 2014, approximately 58% of the North American Social Expression Products segment’s revenue is attributable to its top five customers. Approximately 59%, 54% and 50% of the International Social Expression Products segment’s revenue in 2016, 2015 and 2014, respectively, is attributable to its top three customers.

At February 29, 2016, the Corporation operated 397 card and gift retail stores in the United Kingdom through its Retail Operations segment. The stores sell products purchased from the International Social Expression Products segment as well as products purchased from other vendors. Intersegment sales and profits from the International Social Expression Products segment to the Retail Operations segment are eliminated in consolidation.

AG Interactive distributes social expression products, including electronic greetings and a broad range of graphics and digital services and products, through a variety of electronic channels, including Web sites, Internet portals and electronic mobile devices.

The Corporation’s Non-reportable operating segment primarily includes licensing activities and, prior to the disposition of AGI In-Store on August 29, 2014, the design, manufacture and sale of display fixtures. AGI In-Store had operating income of $53 through the date of sale in 2015 and $18,707 of operating income in 2014. See Note 3 for additional information regarding the sale of AGI In-Store.

The Corporation’s senior management evaluates segment performance based on earnings before foreign currency exchange gains or losses, interest income, interest expense, centrally-managed costs and income taxes. The accounting policies of the reportable segments are the same as those described in Note 1, except those that are related to LIFO or applicable to only corporate items.

The reporting and evaluation of segment assets include net accounts receivable, inventory on a FIFO basis, display materials and factory supplies, prepaid expenses, other assets and net property, plant and equipment. Unallocated and intersegment items include primarily cash, taxes and LIFO.

Centrally incurred and managed costs are not allocated back to the operating segments. The unallocated items include interest expense on centrally-incurred debt, domestic profit-sharing and 401(k) matching contributions expense, settlement charges and, prior to the Merger, stock-based compensation expense. In addition, the costs associated with corporate operations including the senior management, corporate finance, legal and insurance programs, among other costs, are included in the unallocated items.

Operating Segment Information


	Total Revenue
	2016			2015			2014
North American Social Expression Products	$	1,317,277		$	1,316,617		$	1,253,842
International Social Expression Products		273,477			319,825			306,519
Intersegment items		(67,126	)		(62,229	)		(56,729	)

Net		206,351			257,596			249,790
Retail Operations		313,759			336,860			332,066
AG Interactive		56,483			58,995			61,084
Non-reportable segment		6,920			40,901			72,884

	$	1,900,790		$	2,010,969		$	1,969,666


	Segment Earnings (Loss) Before Tax
	2016			2015			2014
North American Social Expression Products	$	203,859		$	193,176		$	172,502
International Social Expression Products		(14,039	)		10,530			11,380
Intersegment items		2,329			(3,022	)		(2,110	)

Net		(11,710	)		7,508			9,270
Retail Operations		(22,904	)		(35,007	)		(4,637	)
AG Interactive		19,126			21,668			15,540
Non-reportable segment		59,135			9,810			24,521
Unallocated:
Interest expense		(27,201	)		(36,020	)		(27,363	)
Profit-sharing and 401(k) match expense		(14,200	)		(13,755	)		(14,219	)
Stock-based compensation expense		—			—			(13,812	)
Corporate overhead expense		(15,116	)		(36,674	)		(48,576	)

		(56,517	)		(86,449	)		(103,970	)

	$	190,989		$	110,706		$	113,226

Non-reportable segment earnings for 2016 include a net gain of $61,234 from the sale of Strawberry Shortcake. See Note 3 for further information.

For 2016, “Corporate overhead expense” includes income recognized from state non-income based tax credits of $9,141. See Note 4 for further information.

For 2015, “Corporate overhead expense” included a gain of $35,004 from the sale of AGI In-Store and a non-cash charge of $21,924 in connection with the impairment of the Clinton Cards tradename. In addition, during 2015, the Corporation sold its current world headquarters location and recognized a non-cash loss on disposal of $15,544, of which $13,361 was recorded within the North American Social Expression Products segment and $2,183 was recorded in “Corporate overhead expense”.

For 2014, “Stock-based compensation expense” included stock-based compensation prior to the Merger and the impact of the settlement of stock options and the cancellation or modification of outstanding restricted stock units and performance shares concurrent with the Merger, a portion of which is non-cash. There has been no stock-based compensation subsequent to the Merger as these plans were converted into cash compensation plans at the time of the Merger.

See Note 2 for charges associated with the Merger, which were reflected in the Unallocated segment in 2014, with no comparative amounts in 2015 and 2016.


	Depreciation and Intangible Assets Amortization						Capital Expenditures
	2016		2015		2014		2016		2015		2014
North American Social Expression Products	$	41,712	$	41,443	$	37,751	$	63,937	$	37,429	$	37,618
International Social Expression Products		3,602		4,437		4,748		3,251		16,496		2,759
Retail Operations		8,496		10,417		6,630		2,752		22,779		8,054
AG Interactive		1,190		1,523		2,395		4,382		1,961		267
Non-reportable segment		212		1,128		1,773		32		32		2,718
Unallocated		522		905		1,728		11,664		12,469		2,681

	$	55,734	$	59,853	$	55,025	$	86,018	$	91,166	$	54,097


	Assets
	2016		2015
North American Social Expression Products	$	1,078,176	$	1,053,178
International Social Expression Products		89,177		108,709
Retail Operations		83,820		106,600
AG Interactive		8,812		5,874
Non-reportable segment		15,166		14,101
Unallocated and intersegment items		328,298		247,233

	$	1,603,449	$	1,535,695

Geographical Information


	Total Revenue						Property, Plant and Equipment - Net
	2016		2015		2014		2016		2015
United States	$	1,270,589	$	1,291,053	$	1,258,328	$	415,379	$	309,935
United Kingdom		492,134		555,961		538,684		46,572		62,968
Other international		138,067		163,955		172,654		5,759		7,394

	$	1,900,790	$	2,010,969	$	1,969,666	$	467,710	$	380,297

Product Information


	Total Revenue
	2016		2015		2014
Everyday greeting cards	$	895,556	$	944,768	$	915,794
Seasonal greeting cards		468,299		499,113		479,623
Gift packaging and party goods		343,437		331,710		298,953
Other revenue		10,796		24,617		27,857
All other products		182,702		210,761		247,439

	$	1,900,790	$	2,010,969	$	1,969,666

The “All other products” classification includes, among other things, stationery, ornaments, custom display fixtures (prior to August 2014 when that business was sold), stickers, online greeting cards, other online digital products and specialty gifts.

Termination Benefits and Facility Closings

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 Corporation recorded severance charges of $4,805, $5,418 and $6,890 in 2016, 2015 and 2014, respectively, related to headcount reductions and facility closures at several locations.

The following table summarizes the severance charges by segment:


	2016		2015		2014
North American Social Expression Products	$	1,552	$	2,706	$	3,020
International Social Expression Products		2,801		2,420		2,094
Retail Operations		452		208		585
AG Interactive		—		84		1,004
Non-reportable		—		—		187

Total	$	4,805	$	5,418	$	6,890

The remaining balance of the severance accrual was $3,479 and $4,303 at February 29, 2016 and February 28, 2015, 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.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Thousands of dollars

The following is a summary of the unaudited quarterly results of operations for the years ended February 29, 2016 and February 28, 2015:


Fiscal 2016	Quarter Ended
	May 29		Aug 28		Nov 27		Feb 29
Net sales	$	471,892	$	418,611	$	480,700	$	518,791
Total revenue		473,443		421,028		484,031		522,288
Gross profit		277,969		243,043		245,535		289,404
Net income		72,764		24,480		6,550		26,048

As disclosed in Note 3, 2016 included a pre-tax gain of $61,234 from the sale of Strawberry Shortcake. Of this amount, $61,666 was initially recognized in the first quarter. Unfavorable adjustments to the gain of $41 and $391 were recorded in the second and third quarters, respectively.

The third quarter reflects a favorable adjustment of $853 for the recovery of a portion of the contract asset impairment charge recorded in 2015 for the bankruptcy of a customer within the North American Social Expression Products segment.

The fourth quarter included fixed asset impairment charges of $4,083 in the Retail Operations segment and a contract asset impairment of $8,510 primarily related to a change in expected future economic benefit on certain fixed term customer agreements in the International Social Expression Products segment.


Fiscal 2015	Quarter Ended
	May 30		Aug 29		Nov 28		Feb 28
Net sales	$	497,274	$	427,090	$	508,006	$	553,982
Total revenue		503,584		432,425		514,058		560,902
Gross profit		302,798		252,316		264,540		308,978
Net income (loss)		43,739		22,840		11,261		(12,733	)

As disclosed in Note 3, fiscal 2015 included a pre-tax gain of $35,004 from the disposal of AGI In-Store. Of this amount, $38,802 was initially recognized in the second quarter. Unfavorable adjustments to the gain for final working capital adjustments of $139 and $3,659 were recorded in the third and fourth quarters, respectively. The Corporation also recognized a pre-tax loss of $15,544 from the sale of its current world headquarters in the second quarter.

The fourth quarter included fixed asset impairment charges of $3,660 in the Retail Operations segment and a contract asset impairment of $4,422 related to a customer bankruptcy within the North American Social Expression Products segment. Also in the fourth quarter, as disclosed in Note 9, a non-cash charge of $21,924 was recorded in connection with the impairment of the Clinton Cards tradename.