-----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, ACcGWCzL4DUUVuTLT1LH8mjywDw6gBWxmgUCwTAeIOAmQ9QUQ6gAUT4k9zuKsM3Y Gn2ARrBZhxesZ0iMlt+P7g== 0000950152-97-005102.txt : 19970715 0000950152-97-005102.hdr.sgml : 19970715 ACCESSION NUMBER: 0000950152-97-005102 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970714 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: 97639971 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 EXCHANGE ACT OF 1934 X - ----------------- For the quarterly period ended May 31, 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 May 31, 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 70,850,213 Class B Common 4,391,286 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...............................................................................8 Item 5. Other Information ............................................................................. 8 Item 6. Exhibits and Reports on Form 8-K................................................................9 SIGNATURES....................................................................................................... 9 - ----------
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, ---------------------------- 1997 1996 ----------- ----------- Net sales $ 475,059 $ 438,212 Other income 2,277 1,915 ----------- ----------- Total revenue 477,336 440,127 Costs and expenses: Material, labor and other production costs 161,474 154,667 Selling, distribution and marketing 204,990 181,791 Administrative and general 58,868 54,317 Interest 5,808 7,590 ----------- ----------- Total costs and expenses 431,140 398,365 ----------- ----------- Income before income taxes 46,196 41,762 Income taxes 15,937 13,990 ----------- ----------- Net income $ 30,259 $ 27,772 =========== =========== Net income per share $ 0.40 $ 0.37 =========== =========== Dividends per share $ 0.17 $ 0.16 =========== =========== Average number of common shares outstanding 75,127,722 74,735,967
See notes to consolidated financial statements. Page 1 4 AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Thousands of dollars)
(Unaudited) (Unaudited) May 31, 1997 Feb. 28, 1997 May 31, 1996 ------------ ------------- ------------ ASSETS Current assets Cash and equivalents $ 53,263 $ 35,050 $ 42,970 Trade accounts receivable, less allowances of $93,762, $137,120 and $113,444, respectively (principally for sales returns) 351,112 375,324 352,691 Total inventories 340,747 303,611 376,471 Deferred income taxes 87,322 100,732 88,340 Prepaid expenses and other 191,419 190,174 156,599 ---------- ---------- ---------- Total current assets 1,023,863 1,004,891 1,017,071 Other assets 646,240 667,442 611,930 Property, plant and equipment - at cost 925,285 920,194 867,846 Less accumulated depreciation 468,082 457,407 421,280 ---------- ---------- ---------- Property, plant and equipment - net 457,203 462,787 446,566 ---------- ---------- ---------- $2,127,306 $2,135,120 $2,075,567 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Debt due within one year $ 170,538 $ 133,171 $ 228,994 Accounts payable and accrued liabilities 157,166 157,628 132,183 Accrued compensation and benefits 50,644 82,569 57,157 Income taxes 4,395 5,475 8,403 Other current liabilities 38,494 63,900 70,525 ---------- ---------- ---------- Total current liabilities 421,237 442,743 497,262 Long-term debt 215,838 219,639 235,224 Other liabilities 62,426 67,839 46,812 Deferred income taxes 43,190 43,244 44,863 Shareholders' equity 1,384,615 1,361,655 1,251,406 ---------- ---------- ---------- $2,127,306 $2,135,120 $2,075,567 ========== ========== ==========
Page 2 5 AMERICAN GREETINGS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of dollars)
(Unaudited) Three Months Ended May 31, ------------------------ 1997 1996 -------- --------- OPERATING ACTIVITIES: $ 30,259 $ 27,772 Net income Adjustments to reconcile to net cash provided (used) by operating activities: Depreciation 16,684 15,857 Deferred income taxes 13,371 14,346 Change in operating assets and liabilities (59,558) (128,338) Other - net 1,960 1,898 -------- --------- Cash Provided (Used) by Operating Activities 2,716 (68,465) INVESTING ACTIVITIES: Property, plant & equipment additions (13,376) (23,324) Investment in corporate-owned life insurance 3,979 6,876 Other - net (1,620) (3,670) -------- --------- Cash Used by Investing Activities (11,017) (20,118) FINANCING ACTIVITIES: Increase in long-term debt 11,412 8,917 Reduction of long-term debt (1,188) (6,924) Increase in short-term debt 24,922 110,539 Sale of stock under benefit plans 4,460 1,361 Purchase of treasury shares (305) (513) Dividends to shareholders (12,787) (11,957) -------- --------- Cash Provided by Financing Activities 26,514 101,423 -------- --------- INCREASE IN CASH AND EQUIVALENTS 18,213 12,840 Cash and Equivalents at Beginning of Year 35,050 30,130 -------- --------- Cash and Equivalents at End of Period $ 53,263 $ 42,970 ======== =========
See notes to consolidated financial statements. Page 3 6 AMERICAN GREETINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Thousands of dollars) Three Months Ended May 31, 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 - Inventories Components of inventories are as follows:
May 31, 1997 February 28, 1997 May 31, 1996 ------------ ----------------- ------------ Raw materials $ 43,298 $ 48,299 $ 53,368 Work in process 52,572 47,113 58,308 Finished products 292,830 253,096 312,873 -------- -------- -------- 388,700 348,508 424,549 Less LIFO reserve 90,703 89,061 93,002 -------- -------- -------- 297,997 259,447 331,547 Display materials and factory supplies 42,750 44,164 44,924 -------- -------- -------- Inventories $340,747 $303,611 $376,471 ======== ======== ========
Page 4 7 Note D - 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, 1997, February 28, 1997 and May 31, 1996 deferred costs and future payment commitments are included in the following financial statement captions:
May 31, 1997 February 28, 1997 May 31, 1996 ------------ ----------------- ------------ Prepaid expenses and other $ 158,844 $ 161,601 $ 125,498 Other assets 445,761 464,599 429,425 Other current liabilities (25,703) (51,153) (58,544) Other liabilities (48,951) (54,199) (31,135) --------- --------- --------- $ 529,951 $ 520,848 $ 465,244 ========= ========= =========
Note E - 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 F - Earnings Per Share Income per share information is based on the average number of shares outstanding during each year. For the years presented, stock options do not have a material dilutive effect. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 "Earnings Per Share". This statement simplifies the standards for computing earnings per share ("EPS") and makes them comparable to international EPS standards. The Corporation plans to adopt this standard, as required, in fiscal year 1998. The Corporation is currently analyzing the effect of adopting the Statement. Page 5 8 Part 1., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS - ----------------------------------------------------- Results of Operations - --------------------- Net sales of $475.1 million for the first quarter ended May 31, 1997 were up 8.4% over the same period in the prior year. The increase was due primarily to sales of everyday cards and accessories and other non-card products. Unit sales of greeting cards decreased 1% from the same period in the prior year. Material, labor and other production costs were 34.0% of net sales for the quarter, down from 35.3% in the prior year. These improvements were due to generally overall improved cost controls. Selling, distribution and marketing expenses were 43.2% of net sales for the quarter, up from 41.5% in the same period in the prior year. The increase is due to competitive costs and the timing of field sales costs. Administrative and general expenses were $58.9 million for the quarter, up from $54.3 million for the same period in the prior year due primarily to the timing of expenses, and to a lesser extent, some costs associated with the conversion of information systems to be year 2000 compliant. The Corporation has established a task force to coordinate the identification, evaluation and implementation of changes to computer systems and applications necessary to ensure that the systems and applications will recognize and process the year 2000 and beyond. Major areas of potential business impact have been identified and project plans, which may include the replacement of certain systems, are underway. Interest expense decreased from the prior year by $1.8 million for the quarter due primarily to lower borrowing requirements resulting from the strong cash flow provided by operating activities. The effective tax rate for the quarter was 34.5%, up from 33.5% in the prior year due to the decreased tax benefit from the corporate owned life insurance program. 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, 1996 has been included. Operations provided $2.7 million for the first three months, a $71.2 million improvement from the $68.5 million cash use for the same period last year. This improvement was due to the increase in net income, the improvement in receivables, improved management of payables, and reduced growth of deferred costs. Page 6 9 Accounts receivable decreased $23.1 million from February 28, 1997, compared to no change during the same period in the prior year, reflecting strong collections. Net accounts receivable were 16.0% of the prior twelve months' sales at May 31, 1997, compared to 17.6% at May 31, 1996. Inventories increased by $36.4 million from February 28, 1997, compared to an increase of $41.9 million during the same period in the prior year. Inventories as a percent of the prior twelve months' material, labor, and other production costs improved to 42.0% at May 31, 1997, compared to 48.7% at May 31, 1996. Investing activities used $9.1 million less cash for the three months than in the same period in the prior year, reflecting a lower level of capital spending. Financing activities provided $74.9 million less cash during the three months than in the same period in the prior year, due to lower borrowing requirements during the period compared to prior year. Debt as a percentage of debt plus equity was 21.8% at May 31, 1997, a decrease from 27.1% in the prior year, reflecting the lower debt levels. On a per share basis, shareholders' equity increased from $16.74 at May 31, 1996 to $18.40 at May 31, 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 May 31, 1997, the end of its last fiscal quarter and the date of the most recent balance sheet included in this report, nor from May 31, 1996, the end of the corresponding fiscal quarter last year, to May 31, 1997, except the changes discussed above and aside from normal seasonal fluctuations. 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 and competitive terms of sale offered to customers to expand and 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. Page 7 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- (a) Kentucky Department of Environmental Protection, Division of Waste Management, I.D. No. 1528-063. The Corporation received a Notice of Violation dated May 28, 1997, alleging that a release of hazardous waste occurred at the Corbin, Kentucky plant. A site investigation has commenced. (b) Custom Expression Royalty, Inc., et al. v. American Greetings Corporation, Case No. 3:97CV356-H, United States District Court, Northern District of North Carolina. On June 24, 1997, the above lawsuit was filed against the Corporation alleging a breach of fiduciary duties, breach of contract, and violation of the North Carolina trade practices act. The complaint arises out of the merger on July 16, 1992, between Custom Expressions, Inc. and American Greetings. The complaint alleges that American Greetings has acted unfairly by manipulating commercial dealings to benefit itself at the expense of Custom Expressions, Inc. and that American Greetings has failed to account for and pay royalties to Custom Expressions Royalty, Inc. under a related patent license agreement. The complaint seeks damages in the amount of at least $30 million, and treble damages for violation of North Carolina law. The Corporation denies the allegations and will vigorously defend against all of the claims. Item 5. Other Information ----------------- On June 19, 1997 the Corporation signed a binding letter agreement to sell principally all of 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. The transaction is subject to customary conditions, including Hart-Scott-Rodino approval. As a result of the transaction, the Corporation expects to record a one-time pre-tax gain of approximately $22 million ($14 million after taxes) upon closing. Also, on June 19, 1997, the Corporation's Board of Directors authorized the repurchase of up to 4.5 million shares of its stock (or about 6 percent of the current 75.2 million shares outstanding) over time on open market transactions. Page 8 11 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 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, 1997 Page 9 EX-11 2 EXHIBIT 11 1 Exhibits 11 (a) and (b) AMERICAN GREETINGS CORPORATION COMPUTATION OF EARNINGS PER SHARE ---------------------------------
(Unaudited) Three Months Ended May 31, ----------------------------------- 1997 1996 --------------- ----------- Average number of common shares outstanding 75,127,722 74,735,967 =============== =========== Net income (thousands) $ 30,259 $ 27,772 =============== =========== Primary earnings per share $ 0.40 $ .37 =============== ===========
Computation of Fully-diluted Earnings Per Share (a) -----------------------------------------------
(Unaudited) Three Months Ended May 31, ----------------------------------- 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) 76,506,975 75,673,431 =============== =========== Net income (thousands) $ 30,259 $ 27,772 =============== =========== Fully-diluted earnings per share $ 0.40 $ .37 =============== ===========
(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) Ending market price was used for three months ended May 31, 1997. Average market price was used for the three months ended May 31, 1996. EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART I, ITEM 1 OF THE FIRST-QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS FEB-28-1998 MAR-01-1997 MAY-31-1997 53,263 0 351,112 16,519 340,747 1,023,863 925,285 468,082 2,127,306 421,237 0 75,241 0 0 1,309,374 2,127,306 475,059 477,336 161,474 161,474 0 1,983 5,808 46,196 15,937 30,259 0 0 0 30,259 .40 .40
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