Gibson Greetings, Inc.

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Gibson Greetings, Inc.

2100 Section Road
Cincinnati, Ohio 45237
U.S.A.
(513) 841-6600
Fax: (513) 841-6739

Public Company
Incorporated: 1895 as The Gibson Art Company
Employees: 4,600
Sales: $546.2 million
Stock Exchanges: NASDAQ
SICs: 2771 Greeting Cards, 2679 Converted Paper Products,
Not Elsewhere Classified

Gibson Greetings, Inc. is the nation’s third largest greeting card manufacturer, ranking just behind Hallmark Cards, Inc. and American Greetings Corporation. In addition to greeting cards, Gibson also produces gift wraps and bags, boxed cards, calendars, party goods, and related items. Gibson is headquartered in Cincinnati, Ohio, while its gift wrap division, Cleo Inc., is based in Memphis, Tennessee. The company also has subsidiaries in Mexico and the United Kingdom.

Gibson Greeting’s history can be traced to 1850, when George Gibson and his family emigrated to the United States from Scotland, where Gibson had operated a lithographic and copperplate engraving business. The family journeyed to the “land of opportunity” with a small French-made lithography press. While Gibson, his wife, and daughters eventually settled in St. Louis, one of Gibson’s five sons found work with a canal system that led him to Cincinnati. His three brothers followed and decided they would go into business using the small press. In 1850, the Gibson brothers, Stephen, 34, Robert, 18, George, 14, and Samuel, 12, founded Gibson & Company, Lithographers.

Together, the brothers printed bonds, stock certificates, checks, business cards, and labels. From the start, the Gibsons preferred to produce their own goods for sale at retail stores, rather than hiring out their printing services for commercial purposes. Gibson & Co. sold such products as patriotically decorated stationery, Civil War prints, honor and reward cards for schools and Sunday schools, and Valentine novelties, which were marketed through stationery, novelty, and art stores.

During the 1870s, the brothers began “jobbing” other artists’ products, such as the popular chromo-litho Currier and Ives prints. The company also jobbed imported German lithographed Christmas cards and oversaw production of the first American line of Christmas, New Year, and Valentine greeting cards, developed by L. Prang & Co., a Boston lithographer, in about 1866. Five years later, Prang had achieved sales of five million such cards a year, and the Gibson brothers were soon designing and making their own line of Christmas cards, Valentines, and Easter novelties.

In 1883, Robert Gibson, the business manager of the four, purchased his brothers’ interest in the company, becoming the sole owner of the company until his death two years later. At that time, Robert’s will dictated that the business was to be incorporated as The Gibson Art Company, with shares distributed equally to his four children: Charles, Arabella, William, and Edwin.

As Americans communicated with their loved ones overseas, World War I prompted an increase in greeting card popularity. During this time, many new companies entered the market, and competition led to the refining of printing processes, art techniques, and decorative finishing treatments. Gibson was credited with popularizing the “French Fold” card—one sheet of paper folded in half twice—which became the best-selling greeting card form and an industry standard.

In the 1930s Gibson began to focus on helping its retail customers market Gibson products. The company developed new merchandising methods and created display fixtures to help control inventory and improve retail sales. Gibson was the first in the industry to develop an electronic reorder system which allowed stores to maintain a profitable product mix.

The greeting card business weathered the Great Depression better than most industries, primarily because while most people couldn’t afford expensive gifts on special occasions, they could still afford to give greeting cards. The period after World War II brought an improved economic climate as well as increasingly sophisticated printing, embossing, and finishing techniques, with better greeting cards produced each year.

In 1960 the company’s name was changed to Gibson Greeting Cards, Inc., and by 1963, Gibson was reporting sales of more than $26 million, with net earnings of $1.8 million. As the country’s third largest greeting card company, Gibson was involved in the production of conventional lines of greeting cards for all seasons, as well as foreign language cards, special designs of cards for supermarkets and discount stores, and a full line of gift wrappings. Gibson common stock was listed on the New York Stock Exchange in 1962.

Two years later, however, Gibson’s private ownership ended when the company’s assets were purchased by CIT Financial Corporation, as part of that company’s plans to expand the scope of its operations. Later that year, CIT also acquired the Memphis-based Cleo Wrap Corporation, which bolstered Gibson’s product line significantly. Under CIT’s parentage, Gibson’s product lines and facilities were enhanced, as CIT funded several plant expansions and continued to improve the company’s production equipment.

In 1980, when the RCA Corporation acquired CIT, Gibson became a subsidiary of RCA. Two years later, however, a group of Gibson executives and The Wesray Corporation purchased Gibson from RCA. In 1983, Gibson’s name was changed to Gibson Greetings, Inc. and it once again became a publicly owned company, trading shares on the NASDAQ exchange.

Like other industries during the 1980s, the paper products industry began to focus on improving production methods and materials in order to help conserve natural resources and preserve the environment. Gibson’s gift wrap subsidiary, Cleo Inc., switched from the traditional solvent-based inks to safer water-based inks in 1986, and in 1989 Cleo began production of its first line of completely recyclable gift wrap, cards, and related products. The technology and research developed for the Cleo line was also implemented at Gibson, beginning with a line of recyclable cards made of recycled paper. In fact, Gibson became the first greeting card company to receive an endorsement from Renew America, a Washington-based non-profit environmental organization.

Gibson’s international expansion began in the early 1990s, when the company formed Gibson Greetings International, Limited, a Delaware corporation, to market the company’s products in the United Kingdom and other European countries. Gibson also formed Gibson de Mexico, S.A. de C.V., a Mexican corporation, which purchased the net assets of a Mexican manufacturer and marketer of greeting cards, to market the Gibson products in Mexico. Approximately two percent of Gibson’s revenues in 1993 were from export sales and royalty income from foreign sources.

In the early and mid-1990s, Gibson’s product lines consisted of traditional greeting cards for holidays and birthdays, as well as alternative cards intended for other more personal occasions. The company introduced its Life As We Know It line of cards in 1991 to enter the fast growing market for alternative cards. By 1993 Gibson had reshaped its alternative card line, making it easier for consumers to shop by dividing its new lines under the titles of A Good Laugh, for humorous cards, and With Thoughts of You, for non-humorous cards, including those designed with messages of love or encouragement, as well as blank cards for the sender to inscribe personally.

By 1994, Gibson was also the mass market leader in multicultural stationery products, focusing primarily on cards and gifts for the Hispanic, Jewish, and African-American populations. Specifically, Gibson’s The Family Collection celebrated African-American family life, while another line of cards was introduced for marking Kwanzaa, an African-American celebration. A line of Chinese New Year cards was also launched during this time as was a Spanish card line called Expresiones Por Gibson for the Hispanic community. Gibson’s Cleo subsidiary also marketed multicultural products, including gift wraps for Hanukkah and gift wraps featuring an African-American Santa Claus designed by Ardie and Gale Sayers.

Many of Gibson’s products during this time incorporated well-known entertainment industry characters. Already maintaining a license to reproduce the Sesame Street characters and Disney’s Mickey Mouse on cards and party favors, Gibson expanded its licenses in 1993, striking a deal to produce cards based on MAD magazine characters as well as an enhanced long-term agreement with Walt Disney Co. to reproduce its characters on cards, gift wraps, and other items. Gibson’s licensed properties also included the movie Jurassic Park, the top selling video Aladdin, and the top-rated television shows Home Improvement and The Simpsons. Net sales associated with licensed properties accounted for approximately 14 percent of Gibson’s overall 1993 sales. In 1994, Gibson licensed products based on the movie The Lion King and the World Cup soccer games which were viewed in more than 170 countries. Gibson’s licenses, which in 1994 grew to almost 50, were mostly exclusive and generally for terms of one to four years with renewal options.

Gibson also maintained its commitment to servicing the retail outlets in which its products were sold. In 1993, the company’s products were sold in more than 50,000 retail outlets worldwide, including supermarkets, deep discounters, mass merchandisers, variety stores, and drug stores. The company’s five largest customers in 1993 accounted for approximately 35 percent of net sales, with Wal-Mart Stores, Inc., alone, accounting for more than ten percent of the company’s net sales. Because of the value consumers placed on convenience, the company concentrated its distribution through one-stop-shopping outlets, using what it referred to as its “Store-Within-A-Store” concept. This original Gibson notion transformed retail space into a mini-store with a variety of “social expression” products, such as collectibles, picture frames, and other gift items, normally carried in traditional card and gift shops. Strategic alliances with more than 15 well-known quality manufacturers of social expression items helped Gibson ensure that shoppers could make all their gift purchases at a Gibson “Store-Within-A-Store.” Gibson ordered and merchandised all such products at no cost to the retailer.

Gibson restructured its sales and service organizations in the 1990s, forming dedicated teams to serve its top 35 accounts. In addition, the company maintained a full-time staff of artists, writers, art directors, and creative planners who designed a majority of its products. The design of everyday products typically began approximately 12 months in advance of shipment, while design of seasonal products began approximately 18 months before the holiday date. In general, production increased throughout the year until late September, gearing up for the end-of-year holidays. A substantial portion of the company’s shipments were typically concentrated in the latter half of year, requiring the company to carry large inventories.

In the spring of 1994, Gibson awarded Cleveland’s W.B. Doner agency a contract to become the company’s first outside advertising agency. The $5 million Gibson account included a first-ever major push into broadcast media. Industry analysts speculated that Gibson’s focus on advertising may have been a response to competitive pressure from American Greetings, which had recently launched its own card outlet as well as Create-A-Card kiosks, a popular concept whereby shoppers designed and printed their own cards via a computer terminal. Moreover, competition intensified from industry leader Hallmark, which announced plans to extend its retail base by experimenting with several vertical retail outlets.

As Gibson moved into the mid-1990s, it experienced several financial and legal challenges. First, due to a change in product mix, pricing pressures, and customer discounts, Gibson’s Cleo division operated at a loss in 1993. As a cost containment measure, Cleo moved its Bloomington, Indiana, gift tag operations to Reynosa, Mexico and Me Allen, Texas.

Also during this time, Phar-Mor, Inc., a significant retailer of Gibson products, filed for Chapter 11 bankruptcy. As Phar-Mor had contributed 13 percent of Gibson’s sales, Gibson’s financial results that year reflected a 7.3 percent decrease in total revenues. Nevertheless, Gibson’s revenues rebounded later in 1993, increasing 12.6 percent, which was attributed to a better market for domestic and international greeting cards as well as Gibson’s acquisition of The Paper Factory of Wisconsin, Inc. The Paper Factory acquisition allowed Gibson to strengthen its position in the booming party products segment of the industry.

On July 1, 1994, the company announced that it had determined the year-end inventory of Cleo had been overstated by $8.8 million, resulting in an approximate 20 percent overstatement of previously reported 1993 consolidated net income. Five purported class action suits against Gibson were commenced by certain stockholders for violations of federal security laws. The Securities and Exchange Commission began conducting a private investigation to determine if the company or any of its officers engaged in conduct in violation of any rules or regulations of The Securities Exchange Act of 1934.

Additional legal issues ensued for Gibson in 1994. In October, the company sued its New York banks, Bankers Trust and its affiliate BT Securities Corp., for $73 million over losses resulting from derivatives purchases, then heralded as complex and risky investment vehicles. In November, Gibson and Bankers Trust reached an out-of-court settlement, which ended Gibson’s exposure to losses of as much as $27.5 million. According to company officials, Gibson paid Banker’s Trust $6.18 million, part of which would come from the $3.4 million Bankers Trust paid to Gibson in earnings on earlier derivative contracts.

With the bankruptcy of primary customers, a major earnings misstatement, and the derivative calamity, Gibson also experienced some public relations challenges. Faced with criticism from investors and Wall Street, Gibson began an effort to mend its wounded relations with hostile investors and frustrated industry analysts with a concentrated effort at “opening up.” They invited industry analysts to visit their headquarters and made concerted efforts at improving communications at all levels.

Some industry watchers and investors such as Chicago’s Harris Associates increased their holdings in Gibson during 1994. According to a November Forbes article, one Harris portfolio regarded it as “probably a reasonable assumption” that “earnings of this financially solid company have nowhere to go but up. In good years—most recently 1989, 1990, and 1991—Gibson earned over $2.50 a share, averaging more than eight percent on sales.” In 1994, Gibson’s stock was selling at $15, well below its $19-a-share book value.

Gibson announced in early 1995 that it expected to report a $35 million loss for fiscal 1994, more than half of which would be attributable to the Cleo gift wrap division. Gibson also lost money in its core greeting cards business, due to increased competition and the Chapter 11 filing of F&M Distributors, another major customer. Moreover, in January 1995, Hallmark announced that it planned to emphasize selling through mass merchandisers, Gibson’s primary distribution channel. During this time, Gibson officials announced that the company would not pay a dividend in the first quarter of 1995 and expected to report a share loss of $2.20 for 1994.

With its financial outlook not likely to improve during the first two quarters of 1995, given the industry’s seasonal, cyclical nature, Gibson appeared ripe for a takeover, according to some critics. In a February 11, 1995 article in The Cincinnati Enquirer, Jeff Stein, an analyst with McDonald & Co., asserted that the plummeting of Gibson’s stock price “could be the final catalyst that may be needed to put the ‘For Sale’ sign up on this company. They’ve done nothing but disappoint the Street.… The financial health of the company appears very uncertain.”

In response to its financial problems, Gibson stepped up efforts to reduce costs. The company eliminated 128 jobs in December 1994, and analysts believed that additional personnel cuts would be made in 1995. Furthermore, Gibson hired CS First Boston to help them devise strategies for the company’s non-core assets, which some speculated might lead to the divestiture of Cleo. Seeking to offset the loss of some of its major customers, Gibson brought in two new accounts at Safeway Stores Inc. stores and The Vons Cos. stores.

Still, in February 1995, Wal-Mart, Gibson Greetings, Inc.’s largest customer, announced plans to phase out its Gibson merchandise. A Wal-Mart buyer, quoted in The Cincinnati Enquirer, remarked, “the chain will continue to stock gift wrap from Gibson’s Cleo division but will phase the Gibson card line out.” At the time, Gibson sold greeting cards to about 200 of Wal-Mart’s 2,100-plus stores.

As Gibson readied itself for the 21st century, the company with the industry’s hottest licensed properties, strategic alliances, and ethnic market leadership would have to overcome prior losses of customers and mismanagement of finances in order to reach its goal of becoming the leader in the social expression industry.