-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DVkNbn1+GS5SYeP493ei/g3OE5KphRld33BVMHWI+BNZuIbsYeSDhGcL6mpRDmVk h7Kt02lzB35v+3SwsWtGBg== 0000950152-98-000210.txt : 19980115 0000950152-98-000210.hdr.sgml : 19980115 ACCESSION NUMBER: 0000950152-98-000210 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GREETINGS CORP CENTRAL INDEX KEY: 0000005133 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 340065325 STATE OF INCORPORATION: OH FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-01502 FILM NUMBER: 98506339 BUSINESS ADDRESS: STREET 1: 10500 AMERICAN RD CITY: CLEVELAND STATE: OH ZIP: 44144 BUSINESS PHONE: 2162527300 MAIL ADDRESS: STREET 1: 10500 AMERICAN ROAD CITY: CLEVELAND STATE: OH ZIP: 44144 10-Q 1 AMERICAN GREETINGS CORPORATION FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES X EXCHANGE ACT OF 1934 - ------------ For the quarterly period ended November 30, 1997 ------------------------------------------------- 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 0-502 --------- AMERICAN GREETINGS CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Ohio 34-0065325 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One American Road, Cleveland, Ohio 44144 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (216) 252-7300 -------------------------------------------------- Registrant's telephone number, including area code Indicate by check mark 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. Yes X No ----- ----- As of November 30, 1997, the date of this report, the number of shares outstanding of each of the issuer's classes of common stock was: Class A Common 68,459,020 Class B Common 4,333,271 2 AMERICAN GREETINGS CORPORATION INDEX
Page Number ------ PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements........................................1 Item 2. Management's Discussion and Analysis........................7 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings...........................................9 Item 6. Exhibits and Reports on Form 8-K............................9 SIGNATURES...................................................................10 - ----------
3 PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements -------------------- AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF INCOME (Thousands of dollars except per share amounts)
(Unaudited) Nine Months Ended November 30, ---------------------------- 1997 1996 ------------ ------------ Net sales $ 1,599,456 $ 1,552,471 Other income 7,623 7,754 ------------ ------------ Total revenue 1,607,079 1,560,225 Costs and expenses: Material, labor and other production costs 591,741 593,081 Selling, distribution and marketing 633,784 595,005 Administrative and general 179,509 175,392 Non-recurring gain (22,125) -- Interest 17,462 23,539 ------------ ------------ Total costs and expenses 1,400,371 1,387,017 ------------ ------------ Income before income taxes 206,708 173,208 Income taxes 71,314 59,410 ------------ ------------ Net income $ 135,394 $ 113,798 ============ ============ Net income per share $ 1.82 $ 1.52 ============ ============ Dividends per share $ 0.53 $ 0.50 ============ ============ Average number of common shares outstanding 74,324,220 74,780,755
See notes to condensed consolidated financial statements (unaudited). Page 1 4 AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF INCOME (Thousands of dollars except per share amounts)
(Unaudited) Three Months Ended November 30, -------------------------- 1997 1996 ------------ ------------ Net sales $ 639,655 $ 647,723 Other income 3,122 3,351 ------------ ------------ Total revenue 642,777 651,074 Costs and expenses: Material, labor and other production costs 242,331 250,155 Selling, distribution and marketing 212,693 217,256 Administrative and general 60,753 61,128 Interest 6,332 8,275 ------------ ------------ Total costs and expenses 522,109 536,814 ------------ ------------ Income before income taxes 120,668 114,260 Income taxes 41,630 39,663 ------------ ------------ Net income $ 79,038 $ 74,597 ============ ============ Net income per share $ 1.07 $ 1.00 ============ ============ Dividends per share $ 0.18 $ 0.17 ============ ============ Average number of common shares outstanding 73,420,783 74,836,808
See notes to condensed consolidated financial statements (unaudited). Page 2 5 AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Thousands of dollars)
(Unaudited) (Unaudited) Nov. 30, 1997 Feb. 28, 1997 Nov. 30, 1996 ------------ ------------ ------------ ASSETS Current assets Cash and equivalents $ 31,220 $ 35,050 $ 35,830 Trade accounts receivable, less allowances of $140,245, $137,120 and $137,355, respectively (principally for sales returns) 581,763 375,324 621,942 Total inventories 283,113 303,611 338,300 Deferred income taxes 101,393 100,732 104,103 Prepaid expenses and other 207,769 190,174 176,284 ------------ ------------ ------------ Total current assets 1,205,258 1,004,891 1,276,459 Other assets 665,693 667,442 601,475 Property, plant and equipment - at cost 917,396 920,194 888,556 Less accumulated depreciation 482,127 457,407 447,531 ------------ ------------ ------------ Property, plant and equipment - net 435,269 462,787 441,025 ------------ ------------ ------------ $ 2,306,220 $ 2,135,120 $ 2,318,959 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Debt due within one year $ 286,106 $ 133,171 $ 340,677 Accounts payable and accrued liabilities 136,845 157,628 142,371 Accrued compensation and benefits 68,056 82,569 76,002 Income taxes 33,342 5,475 32,790 Other current liabilities 56,124 63,900 60,095 ------------ ------------ ------------ Total current liabilities 580,473 442,743 651,935 Long-term debt 214,134 219,639 255,250 Other liabilities 100,723 67,839 48,260 Deferred income taxes 39,950 43,244 43,984 Shareholders' equity 1,370,940 1,361,655 1,319,530 ------------ ------------ ------------ $ 2,306,220 $ 2,135,120 $ 2,318,959 ============ ============ ============
See notes to condensed consolidated financial statements (unaudited). Page 3 6 AMERICAN GREETINGS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of dollars)
(Unaudited) Nine Months Ended November 30, ---------------------------- 1997 1996 ------------ ------------ OPERATING ACTIVITIES: Net income $ 135,394 $ 113,798 Adjustments to reconcile to net cash provided (used) by operating activities: Non-recurring gain (22,125) -- Depreciation 49,601 47,936 Deferred income taxes (3,874) (2,346) Change in operating assets and liabilities, net of effect from divestiture (252,750) (306,358) Other - net 5,970 6,499 ------------ ------------ Cash Used by Operating Activities (87,784) (140,471) INVESTING ACTIVITIES: Proceeds from divestiture 82,000 -- Property, plant & equipment additions (37,608) (50,291) Investment in corporate-owned life insurance 3,196 3,747 Other - net 205 (7,658) ------------ ------------ Cash Provided (Used) by Investing Activities 47,793 (54,202) FINANCING ACTIVITIES: Increase in long-term debt 37,048 12,778 Reduction of long-term debt (3,512) (2,987) Increase in short-term debt 127,794 224,252 Sale of stock under benefit plans 10,616 4,360 Purchase of treasury shares (96,645) (625) Dividends to shareholders (39,140) (37,405) ------------ ------------ Cash Provided by Financing Activities 36,161 200,373 ------------ ------------ (DECREASE) INCREASE IN CASH AND EQUIVALENTS (3,830) 5,700 Cash and Equivalents at Beginning of Year 35,050 30,130 ------------ ------------ Cash and Equivalents at End of Period $ 31,220 $ 35,830 ============ ============
See notes to condensed consolidated financial statements (unaudited). Page 4 7 AMERICAN GREETINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Thousands of dollars) Nine Months Ended November 30, 1997 and 1996 Note A - Basis of Presentation - ------------------------------ The accompanying financial statements have been prepared in accordance with the instructions to Form 10-Q. Although they are unaudited, the Corporation believes that all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations have been made. Note B - Seasonal Nature of Business - ------------------------------------ The Corporation's business is seasonal in nature. Therefore, the results of operations for interim periods are not necessarily indicative of the results for the fiscal year taken as a whole. Note C - Non-Recurring Gain - --------------------------- On August 12, 1997, the Corporation divested the net assets of two subsidiaries, Acme Frame Products, a manufacturer and distributor of picture frames, and Wilhold, Inc., a manufacturer and distributor of hair accessories. As a result of the transaction, the Corporation recorded a one-time pre-tax gain of $22,125 ($13,192 net of tax, or $.18 per share). Note D - Inventories - -------------------- Components of inventories are as follows:
November 30, February 28, November 30, 1997 1997 1996 ------------ ------------ ------------ Raw materials $ 36,282 $ 48,299 $ 49,730 Work in process 28,727 47,113 43,422 Finished products 270,725 253,096 292,950 ------------ ------------ ------------ 335,734 348,508 386,102 Less LIFO reserve 90,618 89,061 93,844 ------------ ------------ ------------ 245,116 259,447 292,258 Display materials and factory supplies 37,997 44,164 46,042 ------------ ------------ ------------ Total inventories $ 283,113 $ 303,611 $ 338,300 ============ ============ ============
Page 5 8 Note E - Deferred Costs - ----------------------- Deferred costs relating to agreements with certain customers are charged to operations on a straight-line basis over the effective period of each agreement, generally three to six years. Deferred costs estimated to be charged to operations during the next year are classified with prepaid expenses and other. Total commitments under the agreements are capitalized as deferred costs and future payment commitments, if any, are recorded as liabilities when the agreements are consummated. As of November 30, 1997, February 28, 1997 and November 30, 1996 deferred costs and future payment commitments are included in the following financial statement captions:
November 30, February 28, November 30, 1997 1997 1996 ------------ ------------ ------------ Prepaid expenses and other $ 175,411 $ 161,601 $ 145,791 Other assets 477,020 464,599 410,175 Other current liabilities (56,124) (51,153) (60,095) Other liabilities (87,440) (54,199) (32,852) ------------ ------------ ------------ $ 508,867 $ 520,848 $ 463,019 ============ ============ ============
Note F - Stock Options - ---------------------- The Corporation has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options and intends to continue to do so. Because the exercise price of the Corporation's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Note G - Recently Issued Accounting Standards - --------------------------------------------- During calendar 1997, the Financial Accounting Standards Board issued final statements that change the method for calculating and reporting earnings per share (EPS), that require the disclosure of total comprehensive income, and that change the method for determining and reporting business segment information. The Corporation is required to adopt Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, during the fourth quarter of fiscal 1998. The impact of Statement 128 on the calculation of earnings per share is not expected to be material. The Corporation will adopt the disclosure requirements of SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, in fiscal 1999. The Corporation is currently assessing the impact of these statements. Page 6 9 Part 1., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS - ----------------------------------------------------- Results of Operations - --------------------- Net sales of $639.7 million for the third quarter were down 1.2% but were up 3.0% for the nine months ended November 30, 1997, to $1,599.5 million. The decrease for the quarter reflects the divestiture of the net assets of Acme Frame Products, Inc., a manufacturer and distributor of picture frames, and Wilhold, Inc., a manufacturer and distributor of hair accessories, on August 12, 1997. The increase for the nine months was due primarily to continued strong sales of everyday cards, which more than offset the decrease in sales resulting from the divestiture. Unit sales of greeting cards,after being flat with the prior year for the six months, increased 2% over the same period in the prior year for the quarter, due to the strength of Christmas shipments. Material, labor and other production costs were 37.9% of net sales for the quarter, down from 38.6% for the third quarter last year due to the divestiture of the business units with lower margins. For the nine month period, material, labor, and other production costs were 37.0% of net sales, down from 38.2% in the same period last year. This decrease in the year to date results reflects the strength of everyday card sales, which have higher margins than non-card product. For the nine month period, selling, distribution and marketing expenses were 39.6% of net sales, up from 38.3% in the prior year. The increase for the nine month period was due primarily to higher amortization of competitive costs. These costs moderated somewhat during the third quarter and selling, distribution and marketing expenses were 33.3% of net sales, compared to 33.5% in the same quarter in the prior year. Administrative and general expenses were $60.8 million for the third quarter, down slightly from $61.1 million for the same period in the prior year. For the nine months, administrative and general expenses were $179.5 million, up from $175.4 million in the prior year. The increase from prior year is due to costs related to the conversion of information systems to be year 2000 compliant. During the third quarter, these costs were offset by lower expenses in other areas. The non-recurring gain of $22.1 million ($13.2 million net of tax, or $.18 per share) was for the divestiture of the net assets of Acme Frame Products, Inc. and Wilhold, Inc. Interest expense continued the trend of the first six months, decreasing from the prior year by $1.9 million for the quarter and by $6.1 million for the nine months. These decreases were due primarily to lower borrowing requirements resulting from the strong cash flow provided by operating and investing activities. The effective tax rate for the nine months was 34.5%, in line with the 34.3% in the prior year. Page 7 10 Liquidity and Capital Resources - ------------------------------- The seasonality of the Corporation's business precludes a useful comparison of the current period and the year-end financial statements; therefore, a Statement of Financial Position for November 30, 1996 has been included. Operations used $87.8 million for the first nine months of the fiscal year, an improvement of $52.7 million from the same period last year. This improvement was due to the reduced growth of both deferred costs and trade account receivables. Accounts receivable, net of effect from divestiture, increased $228.7 million from February 28, 1997, down from an increase of $267.2 million during the same period in the prior year, due to strong cash collections. Net accounts receivable were 26.3% of the prior twelve months' sales at November 30, 1997, compared to 27.0% at November 30, 1996. Inventories, net of effect from divestiture, increased only $5.2 million from February 28, 1997, after decreasing $1.1 million during the same period in the prior year, reflecting the Corporation's continued emphasis on inventory management. Inventories as a percent of the prior twelve months' material, labor, and other production costs were 35.2% at November 30, 1997, an improvement from 42.7% at November 30, 1996. Investing activities provided $47.8 million in cash for the nine months, including $82.0 million in proceeds from the divestiture. Excluding these proceeds, investing activities used $34.2 million for the nine months, an improvement of $20.0 million from the prior year, reflecting a lower level of capital spending. Financing activities provided $36.2 million for the nine months compared to providing $200.4 million during the same period in the prior year. The current period includes $95.9 million expended on purchasing 2.7 million shares of the Corporation's common stock as part of the Corporation's share repurchase program. Financing activities in the prior year period included higher short-term borrowings required to meet higher working capital requirements. Debt as a percentage of debt plus equity was 26.7% at November 30, 1997, a decrease from 31.1% at November 30, 1996, reflecting the significant improvement in cash flow. On a per share basis, shareholders' equity increased from $17.62 per share at November 30, 1996 to $18.83 at November 30, 1997. There were no material changes in the financial condition, liquidity or capital resources of the Corporation from February 28, 1997, the end of its preceding fiscal year, to November 30, 1997, the end of its last fiscal quarter and the date of the most recent balance sheet included in this report, nor from November 30, 1996, the end of the corresponding fiscal quarter last year, to November 30, 1997, except the changes discussed above and aside from normal seasonal fluctuations. Page 8 11 Prospective Information - ----------------------- Although management is not aware of any current trends, events, demands, commitments or uncertainties which reasonably can be expected to have a material effect on the liquidity, capital resources, financial position or results of operations of the Corporation, the Corporation's future results could be negatively impacted by such factors as retail bankruptcies, a weak retail environment, loss of retail accounts and competitive terms of sale offered to customers to expand or maintain business. Please see the Corporation's Form 10-K for the year ended February 28, 1997 for other risks and uncertainties that may affect future results. PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- (a) Thorntons Plc. v. Carlton Cards Limited, in the High Court of Justice, Queen's Bench Division, Birmingham District Registry, 1997 No. ML40017A In December 1995, Thorntons Plc. filed suit in the United Kingdom claiming breach of contract arising out of the discontinuance of 29 franchise agreements after the sale of Carlton Cards Limited's retail stores to Clinton Cards in September 1995. Trial on the issue of liability began on September 30, 1997, resulting in a judgment in Carlton's favor. Thorntons has appealed. An appeal is not likely to be heard until calendar 1999. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits (exhibit reference numbers refer to Item 601 of Regulation S-K) 11(a) Calculation of Primary Earnings Per Share 11(b) Calculation of Fully-Diluted Earnings Per Share 27 Financial Data Schedule (b) Reports on Form 8-K None Page 9 12 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. AMERICAN GREETINGS CORPORATION By: /s/ Patricia L. Ripple -------------------------------- Patricia L. Ripple Controller Chief Accounting Officer January 14, 1998 Page 10 EX-11.1 2 EXHIBIT 11.1 1 Exhibit 11 (a) & (b)
AMERICAN GREETINGS CORPORATION COMPUTATION OF EARNINGS PER SHARE --------------------------------- (Unaudited) (Unaudited) Nine Months Ended November 30, Three Months Ended November 30, --------------------------- ------------ ------------ 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Average number of common shares outstanding 74,324,220 74,780,755 73,420,783 74,836,808 ============ ============ ============ ============ Net income (thousands) $ 135,394 $ 113,798 $ 79,038 $ 74,597 ============ ============ ============ ============ Primary earnings per share $ 1.82 $ 1.52 $ 1.07 $ 1.00 ============ ============ ============ ============ Computation of Fully-diluted Earnings Per Share (a) --------------------------------------------------- (Unaudited) (Unaudited) Nine Months Ended November 30, Three Months Ended November 30, --------------------------- ------------ ------------ 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Average number of common shares outstanding on a fully diluted basis assuming exercise of stock options based on the treasury stock method using the higher of average market price or ending market price (b) 75,768,754 75,731,104 74,865,317 75,817,527 ============ ============ ============ ============ Net income (thousands) $ 135,394 $ 113,798 $ 79,038 $ 74,597 ============ ============ ============ ============ Fully-diluted earnings per share $ 1.79 $ 1.50 $ 1.06 $ .98 ============ ============ ============ ============ (a) This calculation is submitted in accordance with the Securities Exchange Act of 1934, although not required by Accounting Principles Board Opinion No. 15, since less than a 3% dilution results. (b) Average market price was used for the three months ended November 30, 1996. Ending market price was used for the other periods presented.
EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART I, ITEM 1 OF THE THIRD-QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS FEB-28-1998 MAR-01-1997 NOV-30-1997 31,220 0 581,763 17,761 283,113 1,205,258 917,396 482,127 2,306,220 580,473 0 0 0 72,792 1,298,148 2,306,220 1,599,456 1,607,079 591,741 591,741 0 6,824 17,462 206,708 71,314 135,394 0 0 0 135,394 1.82 1.79
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