10-Q 1 e10-q.txt AMERICAN GREETINGS CORPORATION 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 May 31, 2000 ------------------------------------------------- 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 1-13859 ------------ 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 May 31, 2000, the date of this report, the number of shares outstanding of each of the issuer's classes of common stock was: Class A Common 59,766,995 Class B Common 4,650,850 2 AMERICAN GREETINGS CORPORATION INDEX Page Number ------ PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements.......................................1 Item 2. Management's Discussion and Analysis......................11 PART II - OTHER INFORMATION --------------------------- Item 6. Exhibits and Reports on Form 8-K......................... 16 SIGNATURES..................................................................16 ---------- 3 PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements -------------------- AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF INCOME (Thousands of dollars except per share amounts)
(Unaudited) Three Months Ended May 31, ------------ ------------ 2000 1999 ------------ ------------ Net sales $ 595,741 $ 458,757 Costs and expenses: Material, labor and other production costs 203,324 159,765 Selling, distribution and marketing 263,557 219,322 Administrative and general 68,755 54,603 Interest 10,775 7,140 Other (income) expense - net (11,214) 979 ------------ ------------ Total costs and expenses 535,197 441,809 ------------ ------------ Income before income taxes and cumulative effect of accounting change 60,544 16,948 Income taxes 22,038 6,101 ------------ ------------ Income before cumulative effect of accounting change 38,506 10,847 Cumulative effect of accounting change, net of tax (21,141) - ------------ ------------ Net income $ 17,365 $ 10,847 ============ ============ Earnings per share and earnings per share asssuming dilution: Before cumulative effect of accounting change $ 0.60 $ 0.16 Cumulative effect of accounting change, net of tax (0.33) - ------------ ------------ Earnings per share and earnings per share asssuming dilution: $ 0.27 $ 0.16 ============ ============ Dividends per share* $ - $ - ============ ============ Average number of common shares outstanding 64,503,935 67,678,717
See notes to condensed consolidated financial statements. * Dividend per share of $0.20 paid June 9, 2000 was declared in February 2000. Dividend per share of $0.19 paid June 10, 1999 was declared in February 1999. 1 4 AMERICAN GREETINGS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Thousands of dollars)
(Unaudited) (Note A) (Unaudited) May 31, 2000 Feb. 29, 2000 May 31, 1999 ------------ ------------- ------------ ASSETS Current assets Cash and equivalents $ 71,293 $ 61,010 $ 130,107 Trade accounts receivable, less allowances of $152,444, $136,037 and $91,115,respectively (principally for sales returns) 428,630 430,825 335,108 Inventories 312,124 249,433 257,755 Deferred and refundable income taxes 223,615 99,709 127,085 Prepaid expenses and other 214,007 259,707 225,121 ---------- ---------- ---------- Total current assets 1,249,669 1,100,684 1,075,176 Goodwill 177,439 149,437 138,741 Other assets 891,246 820,447 680,816 Property, plant and equipment - at cost 1,037,554 1,019,121 965,125 Less accumulated depreciation 587,820 571,706 539,014 ---------- ---------- ---------- Property, plant and equipment - net 449,734 447,415 426,111 ---------- ---------- ---------- $2,768,088 $2,517,983 $2,320,844 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Debt due within one year $ 310,284 $ 109,694 $ 35,902 Accounts payable and accrued liabilities 272,979 213,180 158,555 Accrued compensation and benefits 69,780 84,456 55,013 Dividends payable 12,904 25,808 12,806 Income taxes 23,562 13,090 5,307 Other current liabilities 153,719 136,260 92,191 ---------- ---------- ---------- Total current liabilities 843,228 582,488 359,774 Long-term debt 414,120 442,102 455,074 Other liabilities 223,400 195,985 125,490 Deferred income taxes 47,415 44,997 52,349 Shareholders' equity 1,239,925 1,252,411 1,328,157 ---------- ---------- ---------- $2,768,088 $2,517,983 $2,320,844 ========== ========== ==========
See notes to condensed consolidated financial statements. 2 5 AMERICAN GREETINGS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of dollars)
(Unaudited) Three Months Ended May 31, ------------------------ 2000 1999 --------- --------- OPERATING ACTIVITIES: Net income $ 17,365 $ 10,847 Adjustments to reconcile to net cash provided by operating activities: Depreciation 16,361 16,044 Deferred income taxes 8,884 5,402 Cumulative effect of accounting change 21,141 - Change in operating assets and liabilities, net of effects from acquisition (55,162) 47 Other - net (1,731) 3,990 --------- --------- Cash Provided by Operating Activities 6,858 36,330 INVESTING ACTIVITIES: Business acquisitions (137,575) - Property, plant & equipment additions (11,477) (7,061) Proceeds from sale of fixed assets 22,024 108 Investment in corporate-owned life insurance 3,697 4,393 Other - net (17,354) (2,842) --------- --------- Cash Used by Investing Activities (140,685) (5,402) FINANCING ACTIVITIES: Increase in long-term debt 1,016 17,685 Reduction of long-term debt (12,863) (1,690) Increase (decrease) in short-term debt 170,627 (8,017) Sale of stock under benefit plans 31 404 Purchase of treasury shares (1,797) (41,028) Dividends to shareholders (12,904) (12,730) --------- --------- Cash Provided (Used) by Financing Activities 144,110 (45,376) --------- --------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 10,283 (14,448) Cash and Equivalents at Beginning of Year 61,010 144,555 --------- --------- Cash and Equivalents at End of Period $ 71,293 $ 130,107 ========= =========
See notes to condensed consolidated financial statements. 3 6 AMERICAN GREETINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Thousands of dollars) Three Months Ended May 31, 2000 and 1999 Note A - Basis of Presentation ------------------------------ The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The balance sheet at February 29, 2000 has been derived from the audited financial statements at that date but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Corporation's annual report on Form 10-K for the year ended February 29, 2000. Note B - Change in Accounting Principle --------------------------------------- In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which among other guidance, clarifies the Staff's views on various revenue recognition and reporting matters. As a result, effective March 1, 2000, the Corporation adopted a change in its method of accounting for certain shipments of seasonal product which carry implied acceptance provisions. Under the new accounting method adopted retroactive to March 1, 2000, the Corporation now recognizes revenue on these seasonal shipments at the approximate date the merchandise is received by the customer and not upon shipment from the distribution facility. The cumulative effect of the change on prior years resulted in a one-time non-cash reduction to the Corporation's earnings of $21,141 (net of tax of $12,564) or approximately $0.33 per share, which is included in income for the three months ended May 31, 2000. On a pro forma basis, assuming the Corporation had adopted SAB 101 effective March 1, 1999, the reduction in earnings for the three months ended May 31, 1999 would have approximated the cumulative effect recorded effective March 1, 2000. For the three months ended May 31, 2000, the Corporation recognized approximately $44,400 in net sales that is included in the cumulative effect adjustment as of March 1, 2000. The effect of those net sales in the first quarter was to increase income by $21,141 (net of tax of $12,564) during that period. 4 7 Note C - 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 D - Acquisition of Gibson Greetings, Inc. ---------------------------------------------- On March 9, 2000, the Corporation completed its acquisition of Gibson Greetings, Inc. for a cash price of $10.25 per share. Gibson Greetings distributes more than 24,000 individual relationship communication products, including greeting cards, gift wrap, party goods and licensed products. E-mail greetings featuring Gibson Greetings content are available through the Egreetings Network in which Gibson holds a minority equity interest. The acquisition has been accounted for by the purchase method of accounting, and accordingly, the statements of consolidated income include the results of Gibson Greetings beginning with the first quarter of fiscal 2001. The assets acquired and liabilities assumed were recorded at estimated fair values as determined by the Corporation's management based on information currently available and on current assumptions as to future operations. The allocation of the purchase price to the assets acquired and liabilities assumed is subject to revision as a result of the final determination of appraised and other fair values. For financial statement purposes, the excess of cost over net assets acquired is amortized by the straight-line method over 40 years. A summary of the assets acquired and liabilities assumed in the acquisition follows: Estimated Fair Values Assets Acquired $296,086 Liabilities Assumed (142,919) Excess of cost over net assets acquired 24,555 -------- Purchase price 177,722 Less cash acquired 10,147 -------- Net cash paid (including $30,000 paid in prior fiscal year) $167,575 ======== The acquisition of Gibson was primarily financed through short-term borrowings; however, the Corporation will continue to evaluate long-term financing options. 5 8 Unaudited pro forma results of operations for the three month period ended May 31, 1999, as if the Corporation and Gibson Greetings had been combined as of the beginning of that period, follow. Consolidated results for the first three months ended May 31, 2000, as reported, include the results of Gibson Greetings for the entire period. The pro forma results include preliminary estimates and assumptions which the Corporation's management believes are reasonable. However, the pro forma results do not include any cost savings or other effects of the planned integration of the Corporation and Gibson Greetings, and are not necessarily indicative of the results which would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future. Pro forma Three months ended May 31, 1999 ------------------ Net sales $552,973 Net income 3,368 Earnings per share and earnings per share assuming dilution $ 0.05 6 9 Note E - Earnings Per Share --------------------------- The following table sets forth the computation of earnings per share and earnings per share - assuming dilution:
Three Months Ended May 31, --------------------- 2000 1999 --------- ------- Numerator: Net income for earnings per share and earnings per share - assuming dilution $ 17,365 $10,847 ========= ======= Denominator (thousands): Denominator for earnings per share -weighted average shares outstanding 64,504 67,679 Effect of dilutive securities - stock options - - --------- ------- Denominator for earnings per share-assuming dilution -adjusted weighted average shares outstanding 64,504 67,679 ========= ======= Earnings per share $ 0.27 $ 0.16 ========= ======= Earnings per share - assuming dilution $ 0.27 $ 0.16 ========= =======
Certain stock options have been excluded for the three months ended May 31, 2000 and 1999 because they would have been anitdilutive. 7 10 Note F - Comprehensive Income (Loss) ------------------------------------ The Corporation's total comprehensive income (loss) was as follows: Three Months Ended May 31, ---------------------- 2000 1999 -------- -------- Net income $ 17,365 $ 10,847 Other comprehensive (loss) income Foreign currency translation adjustments (14,933) 4,708 Unrealized (loss) gain on available-for-sale securities (13,151) 6,212 -------- -------- Other comprehensive (loss) income (28,084) 10,920 -------- -------- Total comprehensive (loss) income $(10,719) $ 21,767 ======== ======== 8 11 Note G - Business Segment Information ------------------------------------- Three Months Ended May 31, -------------------------- 2000 1999 --------- --------- Net Sales Social Expressions Products $ 522,603 $ 387,714 Intersegment items (17,127) (18,035) --------- --------- Net 505,476 369,679 AmericanGreetings.com 4,743 3,447 Non-reportable segments 87,294 84,992 Exchange rate adjustment-net (1,772) 639 --------- --------- Consolidated total $ 595,741 $ 458,757 ========= ========= Earnings Social Expressions Products $ 105,802 $ 58,583 Intersegment items (12,640) (13,113) --------- --------- Total 93,162 45,470 AmericanGreetings.com (10,527) 96 Non-reportable segments (249) 2,383 Exchange rate adjustment - net 48 (508) Unallocated items - net (21,890) (30,493) --------- --------- Consolidated total $ 60,544 $ 16,948 ========= ========= 9 12 Note H - New Accounting Standards --------------------------------- In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued. This standard, along with its subsequent amendments, which establishes new accounting and reporting standards for derivative financial instruments, must be adopted no later than the fiscal quarter beginning March 1, 2001. The Corporation is currently analyzing the effect of this standard and does not expect it to have a material effect on the Corporation's consolidated financial position, results of operations or cash flows. Note I - Inventories --------------------
May 31, 2000 February 29, 2000 May 31, 1999 ------------------- ------------------------------- Raw materials $ 49,116 $ 38,218 $ 34,772 Work in process 37,735 27,099 28,424 Finished products 274,916 229,887 244,551 -------- -------- -------- 361,767 295,204 307,747 Less LIFO reserve 90,843 90,343 91,693 -------- -------- -------- 270,924 204,861 216,054 Display materials and factory supplies 41,200 44,572 41,701 -------- -------- -------- Inventories $312,124 $249,433 $257,755 ======== ======== ========
Note J - 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 May 31, 2000, February 29, 2000 and May 31, 1999 deferred costs and future payment commitments are included in the following financial statement captions:
May 31, 2000 February 29, 2000 May 31, 1999 ------------------- ------------------------------- Prepaid expenses and other $157,198 $200,517 $192,618 Other assets 777,395 679,214 566,829 Other current liabilities (138,095) (118,250) (92,191) Other liabilities (182,084) (163,865) (94,551) -------- -------- -------- $614,414 $597,616 $572,705 ======== ======== ========
10 13 Part 1., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS ----------------------------------------------------- BUSINESS DEVELOPMENTS On June 12, 2000, the Corporation announced an agreement to acquire the stock of CPS Corporation, a leading supplier of gift wrap and decorative packaging, and headquartered in Franklin, Tennessee. This acquisition expands the Corporation's seasonal boxed card, gift wrap, and decorative packaging product offering, adds new customers and channels of distribution, and includes two state-of-the-art manufacturing and distribution facilities in Tennessee and Kentucky. CPS will become part of Plus Mark, the promotional giftwrap and Christmas boxed card unit of American Greetings. On May 11, 2000, the Corporation withdrew an initial public offering to sell a minority interest in its internet division, AmericanGreetings.com, due to unfavorable market conditions. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which among other guidance, clarifies the Staff's views on various revenue recognition and reporting matters. As a result, effective March 1, 2000, the Corporation adopted a change in its method of accounting for certain shipments of seasonal product which carried implied acceptance provisions. Under the new accounting method adopted retroactive to March 1, 2000, the Corporation now recognizes revenue on these seasonal shipments at the approximate date the merchandise is received by the customer and not upon shipment from the distribution facility. The cumulative effect of the change on prior years resulted in a one-time non-cash reduction to the Corporation's earnings of $21,141 (net of tax of $12,564) or approximately $0.33 per share, which is included in income for three months ended May 31, 2000. RESULTS OF OPERATIONS Net sales for the first quarter of fiscal 2001 increased 29.9% to $595.7 million over the same period in the prior year. The increase in net sales was primarily due to the Gibson acquisition and to a change in accounting for recording seasonal product shipments effective March 1, 2000 (see note B). On a normalized basis, excluding the impact of the Gibson acquisition and the seasonal sales shift resulting from the accounting change discussed above of $69.8 million and $44.4 million respectively, net sales improved 4.9% compared to the prior year. Key components of this performance were strong sales in the UK and increased sales of accessory product in the U.S. Unit sales of total greeting cards increased approximately 30% for the quarter from the same period in the prior year. Excluding the Gibson acquisition and the seasonal sales shift, unit sales of total greeting cards decreased approximately 2%. Material, labor and other production costs as a percentage of net sales for the quarter decreased to 34.1% from 34.8% in the prior year. Excluding the Gibson acquisition and the seasonal sales shift, the percentage would have been relatively flat in comparison to prior year. 11 14 Selling, distribution and marketing expenses as a percentage of net sales were 44.2% for the three months ended May 31, 2000. Excluding the Gibson acquisition and the seasonal sales shift, this percentage increased to 48.9% from 47.8% in the prior year. The increase was primarily due to additional costs relating to the internet division and to higher order fulfillment costs. Administrative and general expenses increased $14.2 million to $68.8 million in comparison to the same period in the prior year. The acquisition of Gibson contributed $9.8 million to this increase while increased expenses associated with the internet division accounted for $2.4 million of the increase. Interest expense increased from the prior year by $3.6 million for the quarter. This increase was primarily due to higher borrowing levels to fund the Corporation's recent acquisition of Gibson and to fund the Corporation's common stock repurchase program. Other (income) expense was $11.2 million of income for the quarter compared to $1.0 million of expense in the prior year. The improvement was due primarily to an $8.4 million gain on the sale of a Canadian building. The effective tax rate for the three months was 36.4%, up slightly from 36.0% in the prior year due to higher foreign income, particularly in the United Kingdom. Earnings per share before cumulative effect of accounting change were $0.60 for the quarter. This includes a $0.33 profit impact for the change in recording certain seasonal sales, a $0.10 loss associated with the Corporation's internet division and an $0.08 gain on the sale of a Canadian building. Excluding these items, adjusted earnings per share for the quarter were $0.29 per share compared to $0.16 last year. RESTRUCTURING ACTIVITIES AND SPECIAL CHARGES Fiscal 2000 - Fourth Quarter During the fourth quarter of fiscal 2000, the Corporation recorded a $6.1 million ($4.8 million net of tax, or earnings per share of $.08) restructure charge related to various foreign operations. The primary component of this charge was for the rationalization of various warehouse, distribution and manufacturing facilities in the United Kingdom in order to increase operating efficiency and lower fixed expenses. Additional initiatives include, to a lesser extent, the integration of Mexican manufacturing in the United States and the realignment of various business functions in Australia. The restructure charge included $5.2 million for costs of severing employees, $.6 million for lease exit costs, $.3 million for the write off of assets no longer in use and other restructure costs. In total, approximately 336 positions will be eliminated comprised of 304 hourly and 32 salaried employees. As of May 31, 2000, 35 hourly and 7 salaried employees have been severed. All activities are expected to be completed by the end of FY2001 and the Corporation anticipates annual cost savings to be approximately $4.0 million. 12 15 Fiscal 2000 - Second Quarter In connection with the Corporation's initiative to streamline its international operations, the Corporation recorded a $40.4 million ($24.2 million net of tax, or earnings per share of $0.36) special charge during the second quarter of Fiscal 2000 relating primarily to the consolidation of the Canadian manufacturing and distribution in the United States. Included in this special charge is a $32.7 million restructure charge primarily for exit costs associated with the closure of certain Canadian facilities and to a lesser extent, costs to exit certain minor United Kingdom businesses. The remaining $7.7 million of the special charge was recorded in material, labor, and other production costs for the write-down of Canadian inventory to net realizable value. The restructure charge of $32.7 million includes $25.8 million of severance, pension and personnel related items, $4.6 million of facility shut-down costs, $1.5 million of lease exit costs and $0.8 million related to other restructure costs. As of May 31, 2000, 709 Canadian employees have been terminated as a result of the Corporation's realignment of its manufacturing and distribution operations. All initiatives associated with the Canadian restructuring are expected to be completed by the end of August 2000 and the Corporation anticipates annual aggregate cost savings to be approximately $12 million. The following table summarizes the provisions, payments and remaining reserves associated with the restructure charges recorded in 2000.
Facility Kiosk Lease Termination Shut-Down Exit Exit Other Benefits Costs Costs Costs Costs Total -------- -------- -------- -------- -------- -------- (Thousands of dollars) Balance February 29, 2000 $ 25,156 $ 4,081 $ 48 $ 1,016 $ 626 $ 30,927 Cash Expenditures (12,600) (667) (13) (12) (22) (13,314) Non-Cash Charges (2,334) (2,334) Change in Estimate 45 (35) (10) -------- -------- -------- -------- -------- -------- Balance May 31, 2000 $ 12,601 $ 1,080 $ 0 $ 1,004 $ 594 $ 15,279 ======== ======== ======== ======== ======== ========
Included in accounts payable and accrued liabilities at May 31, 2000 is $15.3 million related to severance and other exit costs for those actions not completed. The Corporation believes the remaining accrued restructure liability is adequate for its remaining cash and non-cash obligations. 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 May 31, 1999 has been included. 13 16 Operations provided $6.9 million of cash for the first three months, a decrease of $29.5 million from the same period last year due primarily to an unfavorable change in working capital partially offset by an increase in earnings. The unfavorable working capital movements were due primarily to increased levels of accounts receivable and inventory partially offset by lower income tax payments. Accounts receivable, net of the effect of acquisitions, decreased $32.3 million from February 29, 2000, compared to a decrease of $56.6 million during the same period in the prior year, due to increased sales levels and timing of receipts of several customers remittances that were received early in the second quarter. Net accounts receivable increased to 18.5% (17.4% excluding acquisitions) of the prior twelve months' sales at May 31, 2000 compared to 15.4% at May 31, 1999. Inventories, net of the effect of acquisitions, used $21.4 million of cash for the first three months compared to a use of $4.2 million during the same period in the prior year. The majority of this increase is attributable to the consumer products group as increased inventory levels are needed to meet anticipated higher sales volumes. Inventories as a percent of the prior twelve months' material, labor, and other production costs increased to 36.6% (32.8% excluding acquisitions) at May 31, 2000 from 34.0% at May 31, 1999. Amortization of deferred costs exceeded payments by $15.2 million for the first three months compared to $19.8 million during the same period in the prior year. Both years performance reflects lower payments under agreements with certain retailers. Accounts payable and other liabilities used $56.9 million of cash for the first three months compared to $73.3 million over the same period last year due to lower income tax payments. Investing activities used $140.7 million in cash for the first three months this year which includes $134.9 million of cash for the Gibson acquisition. Excluding the Gibson acquisition, investing activities used $5.8 million of cash for the quarter compared to $5.4 million in the prior year. The current year usage reflects the proceeds from the sale of a Canadian building partially offset by the impact of foreign currency exchange. Financing activities provided $144.1 million for the three months compared to using $45.4 million during the same period in the prior year. The current period activity reflects an increase in short-term borrowings to fund the Gibson acquisition; however, the Corporation will continue to evaluate long term financing options. The Corporation continued, but to a much lesser extent, the repurchase of its Class A common stock as 0.1 million shares of common stock were purchased for $1.8 million at an average price of $17.07 per share. During the same period last year, 1.7 million shares of stock had been purchased for $41.0 million. As a result of the Gibson acquisition, total debt less cash increased from $360.9 million at May 31, 1999 to $653.1 million at May 31, 2000. Debt as a percentage of debt plus equity increased to 36.9% at May 31, 2000 from 27.0% at May 31, 1999. On a per-share basis, shareholders' equity decreased from $19.71 per share at May 31, 1999 to $19.25 at May 31,2000. 14 17 There were no material changes in the financial condition, liquidity or capital resources of the Corporation from February 29, 2000, the end of its preceding fiscal year, to May 31, 2000, the end of its last fiscal quarter and the date of the most recent balance sheet included in this report, nor from May 31,1999, the end of the corresponding fiscal quarter last year, to May 31, 2000, except the changes discussed above and aside from normal seasonal fluctuations. PROSPECTIVE INFORMATION 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, except those mentioned above. However, the Corporation's future results could be negatively impacted by such factors as retail bankruptcies, a weak retail environment, loss of retail accounts to other suppliers or as a result of retail consolidation and competitive terms of sale offered to customers to expand or maintain business. Other risks, which are not all-inclusive, include the demand for the Corporation's goods and services; competitive factors in the industries in which the Corporation competes; the ability to achieve anticipated synergies and other cost savings in connection with acquisitions; the timing, impact and other uncertainties of future acquisitions, as well as economic conditions in the various markets served by the Corporation's operations. Please see the Corporation's Form 10-K for the year ended February 28, 2000 for other risks and uncertainties that may affect future results. 15 18 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits (exhibit reference numbers refer to Item 601 of Regulation S-K) 27 Financial Data Schedule (b) Reports on Form 8-K On March 24, 2000, the Corporation filed Form 8-K with the Securities and Exchange Commission. This filing reported that the Corporation had completed its acquisition of Gibson Greetings, Inc. On May 23, 2000, the Corporation filed Form 8-K/A with the Securities and Exchange Commission. This filing amended the Form 8-K filed March 24, 2000 to include the historical and pro forma information required for the combined entity. On May 11, 2000, the Corporation filed Form 8-K with the Securities and Exchange Commission. This filing reported that the Corporation had adopted a change in its method of accounting for certain shipments of seasonal product which carry implied acceptance provisions. 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 July 14, 2000 16