FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended......................March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________TO________
Commission File Number..................................0-7513
ARTISTIC GREETINGS INCORPORATED
(Exact name of registrant as specified in its charter.)
DELAWARE 16-0909929
(State or other jurisdiction (I.R.S. Employer incorporation
of organization.) Identification Number)
1 KOMER CENTER, ELMIRA, NY 14902
(Address of Principal Executive Offices)
(607) 737-5235
(Registrant's telephone number, including area code)
Indicate by check mark (x) whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15 (d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports) and, 2) has been subject to such
filing requirements for the past 90 days.
X YES NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 12, 1995, the Registrant had issued and outstanding
5,821,293 shares of its $.10 par value Common Stock.
The total number of pages in this Report is 14.
The Index of Exhibits filed with this Report can be found on
Page 14.
<TABLE>
ARTISTIC GREETINGS INCORPORATED
BALANCE SHEETS
MARCH 31, 1995 DECEMBER 31, 1994
(Unaudited) (Audited)
<S> <C> <C>
ASSETS ----------------- -----------------
Cash $1,519,321 $148,681
Investment securities 7,398,312 7,193,176
Accounts receivable - net 2,489,784 2,469,575
Inventories:
Finished Goods 1,476,697 1,481,423
Work-in-process 636,382 570,839
Raw materials and supplies 4,307,223 3,776,407
Catalog and promotional materials 1,583,390 3,421,387
Deferred advertising costs 5,593,931 6,717,466
Prepaid expenses 214,259 213,846
----------------- -----------------
Total current assets 25,219,299 25,992,800
----------------- -----------------
Property, plant, and equipment 19,447,577 18,302,663
Less: accumulated depreciation (7,127,422) (6,634,426)
----------------- -----------------
Net property, plant and equipment 12,320,155 11,668,237
Cash surrender value - life insurance 266,445 242,090
Other assets 10,477 5,477
----------------- -----------------
TOTAL ASSETS $37,816,376 $37,908,604
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable to bank $3,752,000 $4,868,000
Bank Overdraft 0 930,531
Accounts payable - trade 6,611,363 7,659,638
Accrued liabilities 564,798 1,231,803
Customer advances 117,690 183,499
Current portion long-term debt 1,296,145 296,145
Current portion deferred income taxes 1,432,401 1,682,401
----------------- -----------------
Total current liabilities 13,774,397 16,852,017
Long-term debt 5,490,559 1,559,416
Deferred income taxes 189,614 189,614
----------------- -----------------
TOTAL LIABILITIES 19,454,570 18,601,047
----------------- -----------------
SHAREHOLDERS' EQUITY
Common stock, par value $.10
Authorized 10,000,000 shares;
Issued 6,059,500 shares in 1995;
6,036,820 shares in 1994 605,950 603,682
Additional paid-in capital 11,030,927 11,030,837
Unrealized losses on investment securities
held as available-for-sale (103,903) (184,860)
Retained earnings 7,774,019 8,803,085
----------------- -----------------
19,306,993 20,252,744
Less: Treasury stock, at Cost ; 217,790 shares
in 1995 and 217,790 shares in 1994 (945,187) (945,187)
----------------- -----------------
Total shareholders' equity 18,361,806 19,307,557
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $37,816,376 $37,908,604
================= =================
</TABLE>
<TABLE>
ARTISTIC GREETINGS INCORPORATED
STATEMENTS OF INCOME
QUARTER QUARTER
ENDED ENDED
MARCH 31, 1995 MARCH 31, 1994
(Unaudited) (Unaudited)
----------------- -----------------
<S> <C> <C>
Net sales $21,487,626 $23,139,357
Cost of sales 7,974,062 8,115,582
----------------- -----------------
Gross profit 13,513,564 15,023,775
Selling, general and administrative expense 15,289,836 13,446,442
Other (income) expense (210,206) (65,695)
----------------- -----------------
Total expense 15,079,630 13,380,747
Net (loss) income before income taxes (1,566,066) 1,643,028
Income taxes (537,000) 450,000
----------------- -----------------
NET (LOSS) INCOME ($1,029,066) $1,193,028
================= =================
Net (loss) income per share ($0.17) $0.20
================= =================
Weighted average number of common and
common equivalent shares outstanding 5,881,725 5,950,180
================= =================
</TABLE>
<TABLE>
ARTISTIC GREETINGS INCORPORATED
STATEMENTS OF CASH FLOWS
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1995 MARCH 31, 1994
(Unaudited) (Unaudited)
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income ($1,029,066) $1,193,028
Adjustments to reconcile net (loss) income
to net cash (used) provided by operating
activities:
Depreciation 492,996 423,436
Increase in cash surrender value (24,355) (13,800)
Proceeds from sale of trading securities 770,797 903,963
Purchase of trading securities (188,355) --
Net unrealized and realized (gains) losses
on investments (65,665) 8,233
(Increase) decrease in assets:
Receivables (20,209) (1,058)
Inventories (591,633) (1,276,630)
Catalog and promotional materials 1,837,997 (489,278)
Deferred advertising costs 1,123,535 38,210
Prepaid expenses (413) (53,827)
Other assets (5,000) 28,581
Increase (decrease) in liabilities:
Bank Overdraft (930,531) --
Accounts payable, trade (1,048,275) (338,179)
Accrued liabilities (667,005) 161,723
Customer advances (65,809) 157,591
Federal and state income taxes payable 429,810
Deferred income taxes (250,000) --
----------------- -----------------
Net cash (used in) provided by
operating activities (660,991) 1,171,803
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment securities 177,854 --
Purchase of investment securities (818,810) (960,184)
Purchase of property, plant,and equipment, net (1,144,914) (1,015,915)
----------------- -----------------
Net cash used in investing activities (1,785,870) (1,976,099)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of amounts received under
lines of credit (12,579,000) (902,000)
Proceeds received under lines-of-credit 11,463,000 1,619,000
Proceeds received under equipment lines-of-credit 5,000,000 --
Proceeds from issuance of common stock
and options exercised 2,358 --
Payment of long-term debt (68,857) (50,922)
Payment of dividends (145,204)
Purchase of Treasury stock -- (19,606)
----------------- -----------------
Net cash used in financing activities 3,817,501 501,268
----------------- -----------------
Net increase (decrease) in cash 1,370,640 (303,028)
CASH AT BEGINNING OF PERIOD 148,681 549,589
----------------- -----------------
CASH AT END OF PERIOD $1,519,321 $246,561
================= =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest $137,941 $32,294
Income taxes ($136,476) $20,190
</TABLE>
ARTISTIC GREETINGS INCORPORATED
Notes to Condensed Financial Statements
March 31, 1995
1) Statement of Management
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included
in financial statements, prepared in accordance with generally
accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading. The Company incorporated
reclassifications of 1994 information to conform to the current
presentation of its financial statements included herein. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Company's latest Annual Report on Form 10-K.
In the opinion of management, the information contained herein
reflects all adjustments necessary to a fair statement of the
results of operations for the periods presented in the income
statement included herein.
2) Form 10-K
Reference is made to the following footnotes included in the
Company's 1994 Annual Report on Form 10-K:
1) Description Of Operations and Significant
Accounting Policies
2) Marketable Securities
3) Inventories
4) Property, Plant and Equipment
5) Accrued Liabilities
6) Income Taxes
7) Leases
8) Debt
9) Defined Contribution Savings Plan
10) Stock Options
11) Stockholders' Equity
12) Significant Business Relationships
13) Commitments and Contingencies
3) Net Loss or Income Per Share
Net income or loss per common and common equivalent share is
computed on the basis of the weighted average of common and
common equivalent shares outstanding during the period. The
average number of shares outstanding is computed as follows:
For the Three Months
Ended March 31,
---------------------
1995 1994
---- ----
AVERAGE NUMBER
OUTSTANDING:
COMMON SHARES 5,881,608 5,898,639
COMMON EQUIV. SHARES 117 51,541
_________ _________
AVG. NO. OUTSTANDING 5,881,725 5,950,180
========= =========
Fully diluted income per share did not differ materially from
the primary data.
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
RESULTS OF OPERATIONS:
Net sales were $21,487,626 for the first three months of 1995 compared
with $23,139,357 for the same period of 1994, a decrease of $1,651,731, or
7.1%.
In the direct mail/general merchandise category, 1995 sales decreased by
23.7% from the same period of 1994. A portion of this decrease is reflective
of a management effort to limit advertising and generate sales in media where
the advertising cost to sales response rate meets the Company's targeted
expectations. Another portion of this shortfall is attributable to a series of
failed advertisements promoting a smaller size label which the marketplace
rejected. The remaining shortfall is attributable to poor ad selection,
improper timing of licensed product advertising and the apparent market
saturation of a supplementary product, a miniprinter.
First quarter 1995 catalog sales decreased 15.3% from the first quarter
of 1994 catalog sales. Results from one catalog, "Personal Touch" were better
than expectations, while results from the other two catalogs offset this gain.
The Company made the decision in December, 1994 to terminate the "The Amy
Allison Cardshop (TM)" catalog upon the conclusion of its December mailing.
The Company is evaluating the continuance of the "Initials" catalog.
International operations decreased by $470,981 or 46.2% from last year.
The Company discontinued direct operations in the United Kingdom in June of
last year and now operates through a licensee. Canadian efforts were
substantially reduced in the fourth quarter of last year as management elected
to downsize its Canadian program and concentrate on only those programs which
were profitable. Both these operations are now operating profitably and
validate this approach.
Sales from the Company's check business were 200% of last year's volume.
However, the response rates were not in line with the Company's expectations.
A portion of this shortfall in response rates is attributable to poor ad
selection. In addition, as a result of competitive pressures, media
availability is rapidly becoming a major issue. Although the Company received
the approximate circulation it had anticipated, the geographical areas this
circulation was located in were not optimum response areas.
The Company's cost of sales for the first three months of 1995 was
$7,974,062, or 37.1% of sales, versus $8,115,582, or 35.1% of sales, for the
same period of 1994, a 2.0% increase. The major components of cost of goods
sold are material cost, direct labor and manufacturing overhead.
For the first three months of 1995 and 1994, material costs, as a
percentage of sales, increased slightly to 18.8% from 18.6%, primarily
attributable to the check printing operation with its attendant higher
material costs. The check printing operation represents 27.5% of the
Company's volume this quarter as compared to 12.8% of the volume a year ago.
For the first three months of 1995, direct labor costs have increased to
7.2% from 6.4% of sales for the first three months of 1994. Labor costs as a
percentage of sales were also affected by the doubling in volume of the check
printing operation.
For the three months ended March 31, 1995, manufacturing overhead
increased by $55,942, or 1.1% of sales to 11.1% of sales from 10.0% of sales
for the 1994 first quarter. Overhead costs as a percentage of sales were
affected by the inclusion of the check printing operation with its attendant
higher depreciation costs.
Selling, general and administrative (SG&A) expenses were $15,289,836, or
71.2% of sales, for the first quarter of 1995, compared with $13,110,134, or
56.7% of sales, for the first quarter of 1994. The three largest components of
SG&A expenses are advertising, postage and wages.
For the three months ended March 31, 1995 advertising expense was
$11,382,549, or 53.0% of sales, as compared to $9,038,146, or 39.1% of sales,
for 1994, for the reasons discussed above.
For the first quarter of 1995 total postage expense amounted to
$1,972,212, or 9.2% of sales, as compared with $1,841,245, or 8.0% of sales,
in 1994. Effective January 1, 1995, U.S. Postal Service rates increased
14.3%. Postage costs for the check printing operation, as a percentage of
sales, are higher than the Company's other product lines and will be
proportionately higher as the volume of check sales increases.
Administrative costs totaled $1,935,075 or 9.0% of sales for the first
quarter of 1995, as compared to $2,230,743 or 9.6% of sales in 1994. This
reduction in costs is the result of aggressive cost cutting measures
implemented by the Company in the fourth quarter of 1994.
The Company's income tax benefit for the first quarter of 1995 was
($537,000), as compared to an expense of $450,000 for 1994. This is an
effective tax benefit of 34.3% of the loss for this quarter as compared to an
effective tax rate of 27.4% for the same quarter last year. Differences are
attributable to the utilization of certain state income tax credits associated
with the high investment in new equipment and increased employment levels.
Due primarily to decreased sales, less effective advertising, and
material cost increases, which were partially offset by continuation of the
Company's cost containment program, the net loss for the three months ended
March 31, 1995 was ($1,029,067), or ($.17) per share, as compared to net
income of $1,193,029, or $.20 per share, for the three months ended March 31,
1994.
FINANCIAL CONDITION
Working capital increased $2,316,754 for the three month period ended
March 31, 1995.
As of March 31, 1995, net cash used by operating activities amounted to
$658,987. Increases in inventories used $591,633, while decreases in prepaid
advertising, catalogs and promotional material and deferred advertising costs
provided $2,961,532. Decreases in bank overdraft, trade accounts payable and
accrued liabilities utilized $2,645,811. As of March 31, 1995, net cash used
in investing activities totaled $1,787,874. During the first three months of
1995, the Company purchased property, plant and equipment totaling $1,146,918.
Cash provided by financing activities amounted to a net of $3,817,501. The
balance of short term borrowings at the end of the quarter amounted to
$3,752,000.
Payments of long term debt totaled $68,857. In addition, at the end of
March, the Company borrowed $5,000,000 on its equipment lines of credit.
As of March 31, 1995, the Company had total borrowing capacity of
$14,500,000 in secured and unsecured lines of credit with its banks, of which
total approximately $5,748,000 remained available for borrowing as of such
date.
The Company has sufficient resources from its present cash and cash
equivalent position, cash flow from operations and its existing lines of
credit to meet its current obligations. The Company also believes that its
cash and cash equivalent position, combined with operating revenues and
existing credit lines, will be sufficient to finance its internal growth and
capital expenditure needs for at least the next 12 months.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
There were no legal proceedings of significance
during this period.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Exhibit Index.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by
the Company during the quarter for which this report is
being filed.
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 thereunto duly authorized.
ARTISTIC GREETINGS INCORPORATED
(Registrant)
Dated: May 12, 1995 By: /s/Stuart Komer
Stuart Komer, Chairman
Dated: May 12, 1995 By: /s/William Banfield
William Banfield, Controller
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGES
10 Statement re: computation See Note 4 to
of per share earnings the Financial
Statements
contained
in this Report
27 Financial Data Schedule Filed only with EDGAR
filing, per Reg. S-K,
Rule 601(c)(1)(v)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S MARCH 31, 1995 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000007610
<NAME> ARTISTIC GREETINGS INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,519,321
<SECURITIES> 7,398,312
<RECEIVABLES> 2,489,784
<ALLOWANCES> 0
<INVENTORY> 6,420,302
<CURRENT-ASSETS> 25,219,299
<PP&E> 19,447,577
<DEPRECIATION> 7,127,422
<TOTAL-ASSETS> 37,816,376
<CURRENT-LIABILITIES> 13,774,397
<BONDS> 5,490,559<F1>
<COMMON> 605,950
0
0
<OTHER-SE> 17,755,856
<TOTAL-LIABILITY-AND-EQUITY> 37,816,376
<SALES> 21,487,626
<TOTAL-REVENUES> 21,487,626
<CGS> 7,974,062
<TOTAL-COSTS> 15,289,836
<OTHER-EXPENSES> (210,206)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,941
<INCOME-PRETAX> (1,566,066)
<INCOME-TAX> (537,000)
<INCOME-CONTINUING> (1,029,066)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,029,066)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
<FN>
<F1>Total long term debt
</FN>
</TABLE>
