-----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, LLPHjwg0k3R8xDX8zgGe3WMc0PwLRhvQDYwnDI1OZlRcRhdTH2tA6FKkKqExsCjv xg8DGpx3ExDt5nvtLFPQ5Q== 0000950152-96-005193.txt : 19961016 0000950152-96-005193.hdr.sgml : 19961016 ACCESSION NUMBER: 0000950152-96-005193 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961015 SROS: NONE 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: 96643145 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 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 August 31, 1996 ------------------------------------------- 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 August 31, 1996, the date of this report, the number of shares outstanding of each of the issuer's classes of common stock was: Class A Common 70,230,871 Class B Common 4,545,992 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 4. Submission of Matters to a Vote of Security Holders.. . . . . .8 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . .8 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .8 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 - ---------- -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) Six Months Ended August 31, ------------------------------------------- 1996 1995 ---------------- ---------------- Net sales $ 904,748 $ 869,680 Other income 4,403 4,105 -------------- --------------- Total revenue 909,151 873,785 Costs and expenses: Material, labor and other production costs 342,926 315,645 Selling, distribution and marketing 377,749 360,818 Administrative and general 114,264 107,794 Interest 15,264 10,242 -------------- --------------- Total costs and expenses 850,203 794,499 -------------- --------------- Income before income taxes 58,948 79,286 Income taxes 19,747 26,957 -------------- --------------- Net income $ 39,201 $ 52,329 ============== ================ Net income per share $ 0.52 $ 0.70 ============== ================ Dividends per share $ 0.33 $ 0.30 ============== ================ Average number of common shares outstanding 74,752,729 74,424,282
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 August 31, -------------------------- 1996 1995 ----------- ------------ Net sales $ 466,536 $ 431,171 Other income 2,488 1,997 ----------- ----------- Total revenue 469,024 433,168 Costs and expenses: Material, labor and other production costs 188,259 172,059 Selling, distribution and marketing 195,958 178,996 Administrative and general 59,947 54,017 Interest 7,674 5,325 ----------- ----------- Total costs and expenses 451,838 410,397 ----------- ----------- Income before income taxes 17,186 22,771 Income taxes 5,757 7,742 ----------- ----------- Net income $ 11,429 $ 15,029 =========== =========== Net income per share $ 0.15 $ 0.20 =========== =========== Dividends per share $ 0.17 $ 0.16 =========== =========== Average number of common shares outstanding 74,769,491 74,469,837
See notes to consolidated financial statements. Page 2 5 AMERICAN GREETINGS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Thousands of dollars)
(Unaudited) (Unaudited) Aug. 31, 1996 Feb. 29, 1996 Aug. 31, 1995 ------------- -------------- -------------- ASSETS Current assets Cash and cash equivalents $ 26,565 $ 30,130 $ 35,320 Trade accounts receivable, less allowances of $83,561, $157,626 and $69,795, respec- tively (principally for sales returns) 389,623 353,671 366,669 Inventories: Raw material 50,886 57,415 59,555 Work in process 51,650 49,741 47,825 Finished products 337,578 274,713 318,983 ---------- ---------- ---------- 440,114 381,869 426,363 Less LIFO reserve 93,652 92,020 88,293 ---------- ---------- ---------- 346,462 289,849 338,070 Display material and factory supplies 43,650 45,225 42,000 ---------- ---------- ---------- Total inventories 390,112 335,074 380,070 Deferred and refundable income taxes 85,105 102,889 56,330 Prepaid expenses and other 170,442 148,429 151,082 ---------- ---------- ---------- Total current assets 1,061,847 970,193 989,471 Other assets 631,322 595,369 417,957 Property, plant and equipment 878,606 851,143 871,678 Less accumulated depreciation 433,324 410,873 434,726 ---------- ---------- ---------- Property, plant and equipment - net 445,282 440,270 436,952 ---------- ---------- ---------- $2,138,451 $2,005,832 $1,844,380 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Debt due within one year $ 283,488 $ 119,174 $ 215,566 Accounts payable 132,051 144,242 118,409 Payroll and payroll taxes 54,225 57,562 51,595 Retirement plans 7,718 17,151 8,545 Dividends payable 12,710 11,975 11,941 Income taxes 2,852 21,210 677 Other current liabilities 61,416 82,533 56,819 ---------- ---------- ---------- Total current liabilities 554,460 453,847 463,552 Long-term debt 236,124 231,073 77,175 Postretirement benefit obligation 15,499 15,496 18,236 Other liabilities 36,477 25,310 34,150 Deferred income taxes 44,534 45,084 55,356 Shareholders' equity 1,251,357 1,235,022 1,195,911 ---------- ---------- ---------- $2,138,451 $2,005,832 $1,844,380 ========== ========== ==========
See notes to consolidated financial statements Page 3 6 AMERICAN GREETINGS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of dollars)
(Unaudited) Six Months Ended August 31, ------------------------ 1996 1995 ---------- ---------- OPERATING ACTIVITIES: Net income $ 39,201 $ 52,329 Adjustments to reconcile to net cash provided (used) by operating activities: Depreciation 31,862 40,394 Deferred and refundable income taxes 17,235 8,532 Change in operating assets and liabilities (193,842) (200,485) Other - net 4,380 5,572 --------- --------- Cash Used by Operating Activities (101,164) (93,658) INVESTING ACTIVITIES: Property, plant & equipment additions (39,272) (29,321) Other - net (5,942) (6,271) --------- --------- Cash Used by Investing Activities (45,214) (35,592) FINANCING ACTIVITIES: Increase in long-term debt 8,550 2,711 Reduction of long-term debt (9,115) (79) Increase in short-term debt 166,832 91,288 Sale of stock under benefit plans 1,706 8,120 Purchase of treasury shares (513) (2,340) Dividends to shareholders (24,647) (22,281) --------- --------- Cash Provided by Financing Activities 142,813 77,419 --------- --------- DECREASE IN CASH AND EQUIVALENTS (3,565) (51,831) Cash and Equivalents at Beginning of Year 30,130 87,151 --------- --------- Cash and Equivalents at End of Period $ 26,565 $ 35,320 ========= =========
See notes to consolidated financial statements. Page 4 7 AMERICAN GREETINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Thousands of dollars) Six Months Ended August 31, 1996 and 1995 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 - Deferred Costs The major components of Prepaid Expenses and Other and Other Assets are deferred costs relating to agreements with certain customers. 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. 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 $137,686, $121,937, and $118,795 at August 31, 1996, February 29, 1996 and August 31, 1995, respectively. Deferred costs included in the Other Assets classification at the same dates are $439,961, $410,110 and $308,498, respectively. The Other Liabilities and Other Current Liabilities classifications consist of the future payment commitments relating to these agreements. Note D - 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. The Corporation intends to adopt the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" when required for the fiscal year ending February 28, 1997. Page 5 8 Part I., Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS - ----------------------------------------------------- Results of Operations - --------------------- Net sales of $466.5 million for the second quarter and $904.7 million for the six months ended August 31, 1996 were up 8.2% and 4.0%, respectively, over the same periods in the prior year. These increases were due primarily to increased sales of everyday cards and accessories during the second quarter. Unit sales of greeting cards increased 4% over the same period in the prior year for the quarter, but decreased 2% from the prior year for the six month period. The unit sales decrease for the six months is due to a shift in the timing of seasonal shipments out of the first six months of the fiscal year as a result of efforts to work with retailers to reduce lead times in inventories. Material, labor and other production costs were 40.4% of net sales for the quarter, compared to 39.9% for the second quarter last year and 37.9% for the six months, up from 36.3% in the same period last year. The increases were due primarily to higher product costs associated with subsidiaries acquired since last year. Selling, distribution and marketing expenses were 42.0% of net sales for the quarter, up from 41.5% in the same period in the prior year. For the six month period, selling, distribution and marketing expenses were 41.8% of net sales, up slightly from 41.5% in the prior year. These increases were due primarily to higher amortization of deferred costs related to agreements with certain customers. Administrative and general expenses were $59.9 million for the quarter, up from $54.0 million for the same period in the prior year. For the six months, administrative and general expenses were $114.3 million, up from $107.8 million in the prior year. These increases are due to the addition of the subsidiaries acquired since last year. Interest expense increased over the prior year by $2.3 million for the quarter and $5.0 million for the six month period due primarily to higher debt levels incurred to finance the John Sands acquisition. 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 August 31, 1995 has been included. Operations for the first six months required $7.5 million more in cash than the same period last year. This increased use is due to the decrease in net income, and an increase in net deferred costs related to agreements with customers offset by slower growth of both accounts receivable and inventories. Accounts receivable increased $37.3 million from February 29, 1996, compared to a $42.2 million increase in the same period in the prior year. Net accounts receivable were 19.1% of the prior twelve months' sales at both August 31, 1996 and 1995, as the increased sales levels were offset by improved collections. Inventory growth required $43.8 million less cash for the six months compared to the prior year, reflecting the Corporation's continued efforts to manage growth in this area. Inventories as a percent of the prior twelve months' material, labor and other production costs improved to 49.4% at August 31, 1996 from 54.3% for the prior year. Investing activities used $9.6 million more cash for the six months than in the same period in the prior year, due primarily to property, plant and equipment additions. Financing activities provided $65.4 million more cash during the first six months of this year than last year, due to higher borrowing levels to support operating requirements, including payments made under competitive agreements. Debt as a percentage of debt plus equity was 29.3% at August 31, 1996, an increase from 19.7% in the prior year, reflecting the debt incurred to finance the acquisition of the John Sands Group during the fourth quarter of fiscal 1996. On a per share basis, shareholders' equity increased from $16.03 at August 31, 1995 to $16.74 at August 31, 1996. There were no material changes in the financial condition, liquidity or capital resources of the Corporation from February 29, 1996, the end of its preceding fiscal year, to August 31, 1996, the end of its last fiscal quarter and the date of the most recent balance sheet included in this report, nor from August 31, 1995, the end of the corresponding fiscal quarter last year, to August 31, 1996, 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, other than those set forth herein. Page 7 10 PART II - OTHER INFORMATION --------------------------- Item 4. Submission of Matters to a Vote of Security Holders ---------------------------------------------------- (a) The Annual Meeting of Shareholders of the Corporation was held on June 28, 1996. (c)-1 The following individuals were elected to Class I of the Corporation's Board of Directors: Herbert H. Jacobs, Jeanette Sarkisian Wagner and Morry Weiss. The vote was as follows for the above-listed nominees:
Nominee Votes For Votes Withheld ------- --------- -------------- Herbert H. Jacobs 97,735,347 2,413,035 Jeanette Sarkisian Wagner 98,900,791 1,247,591 Morry Weiss 98,558,377 1,590,005
(c)-2 A proposal to approve the 1996 Employee Stock Option Plan was approved by the shareholders. The vote was as follows: Affirmative 96,723,596 Negative 3,052,617 Abstain 372,169 Item 5. Other Information ----------------- On August 26, 1996, the Corporation announced that it had signed a non-binding letter of intent to purchase the Foster Grant Group from BEC Group, Inc. On September 24, 1996, the Corporation announced that it had terminated discussions to acquire the Foster Grant Group. 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 8 11 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 October 15, 1996 Page 9 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 American Greetings Corporation ------------------------------ Computation of Earnings Per Share ---------------------------------
(Unaudited) (Unaudited) Six Months Ended August 31, Three Months Ended August 31, --------------------------- ----------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Average number of common shares outstanding 74,752,729 74,424,282 74,769,491 74,469,837 ============= =============== ============== ================ Net income (thousands) $ 39,201 $ 52,329 $ 11,429 $ 15,029 ============= =============== ============== ================ Primary earnings per share $ .52 $ .70 $ .15 $ .20 ============= =============== ============== ================ Computation of Fully-Diluted Earnings Per Share (a) ---------------------------------------------------- (Unaudited) (Unaudited) Six Months Ended August 31, Three Months Ended August 31, --------------------------- ----------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- 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 75,608,970 75,610,620 75,548,141 75,656,175 ============= =============== ============== ================ Net income (thousands) $ 39,201 $ 52,329 $ 11,429 $ 15,029 ============= =============== ============== ================ Fully-diluted earnings per share $ .52 $ .69 $ .15 $ .20 ============= =============== ============== ================ (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 six months ended August 31, 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 SECOND QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS FEB-28-1997 MAR-01-1996 AUG-31-1996 26,565 0 389,623 19,552 390,112 1,061,847 878,606 433,324 2,138,451 554,460 0 74,804 0 0 1,176,553 2,138,451 904,748 909,151 342,926 342,926 0 3,634 15,264 58,948 19,747 39,201 0 0 0 39,201 .52 .52
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