-----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, NRoUTW7H6/RaeQlS5F5LYfHsKbqb8U3D29oWlX+mgAUOFuaFonfqixiLQXtfIVIX BONR2O8grkB3p28/+kxW6g== 0000950152-96-000082.txt : 19960116 0000950152-96-000082.hdr.sgml : 19960116 ACCESSION NUMBER: 0000950152-96-000082 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960112 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: 1934 Act SEC FILE NUMBER: 000-01502 FILM NUMBER: 96503064 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 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 X SECURITIES EXCHANGE ACT OF 1934 - ------------------ For the quarterly period ended November 30, 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 0-502 --------- AMERICAN GREETINGS CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Ohio 34-0065325 - --------------------------------------- --------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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, 1995, the date of this report, the number of shares outstanding of each of the issuer's classes of common stock was: Class A Common 70,070,984 Class B Common 4,566,312 2 AMERICAN GREETINGS CORPORATION INDEX
Page Number ------ PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Management's Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . . .6 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings . . . . . . . . . . .. . . .. . . . . .. . . . . . . . . . . .9 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . .9 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..10 - ----------
-i- 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, -------------------------------------- 1995 1994 ---------- ---------- Net sales $1,457,282 $1,368,575 Other income 5,192 6,046 ---------- ---------- Total revenue 1,462,474 1,374,621 Costs and expenses: Material, labor and other production costs 562,815 502,769 Selling, distribution and marketing 560,254 529,678 Administrative and general 163,888 167,150 Asset impairment loss 52,061 -- Interest 17,358 12,766 ---------- ---------- Total costs and expenses 1,356,376 1,212,363 ---------- ---------- Income before income taxes 106,098 162,258 Income taxes 36,285 56,790 ---------- ---------- Net income $69,813 $105,468 ========== ========== Net income per share $0.94 $1.42 ========== ========== Dividends per share $0.46 $0.405 ========== ========== Average number of common shares outstanding 74,488,463 74,294,081
See notes to consolidated financial statements. Page 1 4 AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF INCOME (Thousands of dollars except per share amounts)
(Unaudited) Three Months Ended November 30, ---------------------------------------- 1995 1994 ---------- -------------- Net sales $587,602 $551,036 Other income 1,087 1,704 ---------- -------------- Total revenue 588,689 552,740 Costs and expenses: Material, labor and other production costs 247,170 211,365 Selling, distribution and marketing 199,436 187,559 Administrative and general 56,094 58,367 Asset impairment loss 52,061 -- Interest 7,116 4,960 ---------- -------------- Total costs and expenses 561,877 462,251 ---------- -------------- Income before income taxes 26,812 90,489 Income taxes 9,328 31,599 ---------- -------------- Net income $17,484 $58,890 ========== ============== Net income per share $0.24 $0.79 ========== ============== Dividends per share $0.16 $0.14 ========== ============== Average number of common shares outstanding 74,616,823 74,373,753
See notes to consolidated financial statements. Page 2 5 AMERICAN GREETINGS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Thousands of dollars)
(Unaudited) (Unaudited) Nov. 30, 1995 Feb. 28, 1995 Nov. 30, 1994 ASSETS -------------- ------------- ------------- Current assets Cash and equivalents $ 52,183 $ 87,151 $ 36,472 Trade accounts receivable, less allowances of $130,169, $116,972 and $112,186, respec- tively (principally for sales returns) 582,129 324,329 557,686 Inventories: Raw material 52,540 54,196 44,378 Work in process 39,781 40,608 40,445 Finished products 280,134 225,959 230,567 --------------- ------------ ------------ 372,455 320,763 315,390 Less LIFO reserve 89,481 86,169 86,995 --------------- ------------ ------------ 282,974 234,594 228,395 Display material and factory supplies 39,464 44,676 38,920 --------------- ------------ ------------ Total inventories 322,438 279,270 267,315 Deferred income taxes 73,478 66,409 56,103 Prepaid expenses and other 153,000 136,290 124,295 --------------- ------------ ------------ Total current assets 1,183,228 893,449 1,041,871 Other assets 454,532 419,477 268,168 Property, plant and equipment 794,004 861,979 833,233 Less accumulated depreciation 399,640 413,154 405,731 --------------- ------------ ------------ Property, plant and equipment - net 394,364 448,825 427,502 --------------- ------------ ------------ $2,032,124 $1,761,751 $1,737,541 =============== ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Debt due within one year $ 360,057 $ 123,407 $ 217,179 Accounts payable 114,724 140,660 101,521 Payroll and payroll taxes 54,479 53,136 46,125 Retirement plans 11,165 20,633 15,732 Dividends payable 11,969 10,426 10,453 Income taxes 17,928 13,988 49,666 Other current liabilities 79,515 - - --------------- ------------ ------------ Total current liabilities 649,837 362,250 440,676 Long-term debt 89,886 74,480 80,172 Postretirement benefit obligation 18,305 17,815 21,716 Other liabilities 34,150 90,969 - Deferred income taxes 39,808 56,696 59,529 Shareholders' equity 1,200,138 1,159,541 1,135,448 --------------- ------------ ------------ $2,032,124 $1,761,751 $1,737,541 =============== ============ ============ See notes to consolidated financial statements. Page 3
6 AMERICAN GREETINGS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of dollars)
(Unaudited) Nine Months Ended November 30, ---------------------------- 1995 1994 ----------- ----------- OPERATING ACTIVITIES: Net income $69,813 $105,468 Adjustments to reconcile to net cash provided (used) by operating activities: Asset impairment loss 52,061 -- Depreciation 58,876 51,945 Deferred income taxes (24,127) 3,347 Change in operating assets and liabilities (361,261) (272,404) Other - net 8,897 11,170 ----------- ----------- Cash Used by Operating Activities (195,741) (100,474) INVESTING ACTIVITIES: Property, plant & equipment additions (48,851) (58,666) Other - net (13,355) 8,006 ----------- ----------- Cash Used by Investing Activities (62,206) (50,660) FINANCING ACTIVITIES: Increase in long-term debt 14,917 32,524 Reduction of long-term debt (134) (25,363) Increase in short-term debt 235,780 103,368 Sale of stock under benefit plans 9,541 6,305 Purchase of treasury shares (2,885) (165) Dividends to shareholders (34,240) (30,129) ----------- ----------- Cash Provided by Financing Activities 222,979 86,540 ----------- ----------- DECREASE IN CASH AND EQUIVALENTS (34,968) (64,594) Cash and Equivalents at Beginning of Year 87,151 101,066 ----------- ----------- Cash and Equivalents at End of Period $52,183 $36,472 =========== ===========
See notes to consolidated financial statements. Page 4 7 AMERICAN GREETINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Thousands of dollars) Nine Months Ended November 30, 1995 and 1994 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 - Asset Impairment Loss In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Corporation recorded an impairment loss on the long-lived assets of its CreataCard business. The trends in the CreataCard business indicated that the undiscounted future cash flows from this business would be less than the carrying value of the long-lived assets related to that business. Therefore, on November 1, 1995 the Corporation recognized an asset impairment loss of $52,061 ($35,094 net of tax, or $.47 per share). This loss is the difference between the carrying value of the CreataCard machines and related goodwill and other intangibles, and the fair value of these assets based on discounted estimated future cash flows. Note D - Deferred Costs The major components of both the Other Assets and Prepaid Expenses and Other classifications are deferred costs relating to agreements with certain customers. Deferred costs 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 twelve months are classified with Prepaid Expenses and Other. Deferred costs included in the Prepaid Expenses and Other classification are $128,013, $110,890 and $100,866 at November 30, 1995, February 28, 1995 and November 30, 1994, respectively. Deferred costs included in the Other Assets classification at the same dates are $347,079, $311,503 and $164,680, respectively. Future payment commitments relating to these agreements are classified as Other Current Liabilities or Other Liabilities. Page 5 8 Part I., Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS - ----------------------------------------------------- Results of Operations - --------------------- Net sales of $587.6 million for the third quarter and $1,457.3 million for the nine months ended November 30, 1995 were up 6.6% and 6.5%, respectively, over the same periods in the prior year. These increases were due primarily to higher sales of greeting cards. The unit volume of cards was flat for both the quarter and nine months compared to the prior year. Material, labor and other production costs were 42.1% of net sales for the quarter compared to 38.4% for the third quarter last year and 38.6% for the nine months, up from 36.7% for the same period last year. These increases were due primarily to higher production costs of greeting cards as a result of transitional costs associated with the Corporation's North American Plan. For the quarter, selling, distribution and marketing expenses were 33.9% of net sales compared to 34.0% last year. Through nine months, selling, distribution and marketing expenses were 38.4% of net sales, down from 38.7% last year, due primarily to the CreataCard national advertising program which has not been repeated at the same level this year. For the quarter, administrative and general expenses were $56.1 million, down from $58.4 million for the same period in the prior year. Through nine months these expenses were $163.9 million, down from $167.2 million in the prior year. These decreases are a result of overall cost containment and lower profit sharing expense. Interest expense increased $2.2 million for the quarter and $4.6 million for the nine months due to both higher rates and higher levels of borrowing to support operating cash requirements. The effective tax rate was 34.8% for the quarter and 34.2% for nine months, lower than the rates of 34.9% and 35.0% for the same periods of the prior year. This rate decrease is due to the increased benefit from the corporate owned life insurance program and the reduction in foreign losses with no tax benefit. During the third quarter, the Corporation recorded a one-time charge of $52.1 million resulting from the early adoption of Statement of Financial Accounting Standards No. 121, reflecting the write down of long-lived assets and other intangible costs related to CreataCard. See Note C to the Consolidated Financial Statements for a further discussion of this charge. Excluding this charge, net income for the quarter would have been $52.6 million or $.71 per share compared to $58.9 million or $.79 per share last year. For the nine months, net income excluding this charge would have been $104.9 million or $1.41 per share compared to $105.5 million or $1.42 per share last year. Page 6 9 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, 1994 has been included. Operations for the first nine months required $95.3 million more cash than the same period last year due primarily to increases in accounts receivable, deferred costs related to agreements with customers and inventories. Accounts receivable growth required $24.6 million more in cash this year compared to last year, reflecting increased sales levels. Net accounts receivable were 28.4% of the prior twelve months' net sales at November 30, 1995, an improvement from 29.0% last year. Also, deferred costs related to agreements with customers required $23.2 million more in cash for the nine months compared to the prior year. Inventory growth required $18.3 million more in cash this year than last year due primarily to higher levels of non-card product to support new product offerings. Inventories as a percent of the prior twelve months' material, labor and other production costs were 43.8% at November 30, 1995 and 40.4% at November 30, 1994. Investing activities used $11.5 million more cash for the nine months than in the same period in the prior year, due primarily to investments related to expanded product offerings. Financing activities provided $136.4 million more cash during the first nine months of this year than in the prior year, due to higher borrowing levels to support operating requirements. Debt as a percentage of debt plus equity was 27.3% at November 30, 1995, an increase from 20.8% in the prior year. On a per share basis, shareholders' equity increased from $15.26 at November 30, 1994 to $16.08 at November 30, 1995. There were no material changes in the financial condition, liquidity or capital resources of the Corporation from February 28, 1995, the end of its preceding fiscal year, to November 30, 1995, the end of its last fiscal quarter and the date of the most recent balance sheet included in this report, nor from November 30, 1994, the end of the corresponding fiscal quarter last year, to November 30, 1995, except the changes discussed above and aside from normal seasonal fluctuations. Other Information - ----------------- On December 3, 1995, the Corporation announced that it had signed an agreement in principle to acquire the assets of John Sands Group, the largest greeting card company in Australia and New Zealand. The Corporation is continuing its due diligence procedures and the cash transaction is expected to close during January, 1996. The Corporation's results for the year will not be materially impacted. Page 7 10 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, other than those set forth herein. Page 8 11 PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings ----------------- J.E. and Z.B. Butler Foundation, Inc. v American Greetings Corp., Morry Weiss, Edward Fruchtenbaum, John M. Klipfell, Irving I. Stone and Dale A. Cable, Case No. 1:95CV 2411, United States District Court, Northern District of Ohio. On November 14, 1995, the above class action lawsuit was filed against the Corporation and certain of its officers, alleging violations of (i) Section 10 (b) of the Securities Exchange Act of 1934 (the "Act") and Rule 10b-5 promulgated thereunder and (ii) Section 20(a) of the Act. The Complaint is based on the alleged failure to disclose, as well as misleading disclosure, of material information regarding the Corporation's CreataCard unit prior to the Corporation's November 10, 1995 announcement that it had elected to write down certain of CreataCard's assets pursuant to Statement of Financial Accounting Standards No. 121. The Complaint also alleges that certain of the Corporation's officers improperly benefitted from this activity. The Complaint in this action seeks unspecified compensatory and punitive damages (as well as attorney fees) on behalf of all purchasers of the Corporation's publicly traded shares who were allegedly injured during the period of the alleged wrongdoing, March 30-November 10, 1995. The Corporation and the individual defendants have filed an Answer denying liability and asserting numerous defenses. 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/ William S. Meyer ----------------------------- William S. Meyer Senior Vice President Chief Financial Officer January 12, 1996 Page 10 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 American Greetings Corporation ------------------------------ Computation of Earnings Per Share ---------------------------------
(Unaudited) (Unaudited) Nine Months Ended November 30, Three Months Ended November 30, ----------------------------- ------------------------------ 1995 1994 1995 1994 ---- ---- ---- ---- Average number of common shares outstanding 74,488,463 74,294,081 74,616,823 74,373,754 ============= =========== =========== =========== Net income (thousands) $ 69,813 $ 105,468 $ 17,484 $ 58,890 ============= =========== =========== =========== Primary earnings per share $ 0.94 $ 1.42 $ 0.24 $ 0.79 ============= =========== =========== =========== Computation of Fully-Diluted Earnings Per Share (a) ----------------------------------------------- (Unaudited) (Unaudited) Nine Months Ended November 30, Three Months Ended November 30, ------------------------------ ----------------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Average number of common shares outstanding on a fully diluted basis assuming exercise of stock options based on the treasury stock method using the average market price which was higher than the ending market price 75,584,381 75,362,206 75,745,828 75,410,957 ============= =========== =========== =========== Net income (thousands) $ 69,813 $ 105,468 $ 17,484 $ 58,890 ============= =========== =========== =========== Fully-diluted earnings per share $ 0.92 $ 1.40 $ 0.23 $ 0.78 ============= =========== =========== =========== (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.
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-29-1996 MAR-01-1995 NOV-30-1995 52,183 0 582,129 16,559 322,438 1,183,228 794,004 399,640 2,032,124 649,837 0 74,637 0 0 1,125,501 2,032,124 1,457,282 1,462,474 562,815 562,815 776,203 7,516 17,358 106,098 36,285 69,813 0 0 0 69,813 .94 .92
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