-----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, PBh6oTrZQJ+fLmYm8tpjPwMWsXfk7YACGc/WbvXT83PYaZpRhOTw8dAxUAi9wV/8 griF7DVg7m8OaKCVirmqqQ== 0000950152-97-007191.txt : 19971015 0000950152-97-007191.hdr.sgml : 19971015 ACCESSION NUMBER: 0000950152-97-007191 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971014 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GREETINGS CORP CENTRAL INDEX KEY: 0000005133 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 340065325 STATE OF INCORPORATION: OH FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-01502 FILM NUMBER: 97694743 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 August 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 August 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 69,246,504 Class B Common 4,384,155 2 AMERICAN GREETINGS CORPORATION INDEX
Page Number ------ PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements........................................ 1 Item 2. Management's Discussion and Analysis......................... 7 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings............................................ 9 Item 4. Submission of Matters to a Vote of Security Holders.......... 10 Item 6. Exhibits and Reports on Form 8-K............................. 10 SIGNATURES..................................................................... 11 - ---------
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, 1997 1996 ------------ ------------ Net sales $ 959,801 $ 904,748 Other income 4,501 4,403 ------------ ------------ Total revenue 964,302 909,151 Costs and expenses: Material, labor and other production costs 349,410 342,926 Selling, distribution and marketing 421,091 377,749 Administrative and general 118,756 114,264 Non-recurring gain (22,125) -- Interest 11,130 15,264 ------------ ------------ Total costs and expenses 878,262 850,203 ------------ ------------ Income before income taxes 86,040 58,948 Income taxes 29,684 19,747 ------------ ------------ Net income $ 56,356 $ 39,201 ============ ============ Net income per share $ 0.75 $ 0.52 ============ ============ Dividends per share $ 0.35 $ 0.33 ============ ============ Average number of common shares outstanding 74,775,937 74,752,729 ============ ============
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, ---------------------------- 1997 1996 ------------ ------------ Net sales $ 484,742 $ 466,536 Other income 2,224 2,488 ------------ ------------ Total revenue 486,966 469,024 Costs and expenses: Material, labor and other production costs 187,936 188,259 Selling, distribution and marketing 216,101 195,958 Administrative and general 59,888 59,947 Non-recurring gain (22,125) -- Interest 5,322 7,674 ------------ ------------ Total costs and expenses 447,122 451,838 ------------ ------------ Income before income taxes 39,844 17,186 Income taxes 13,747 5,757 ------------ ------------ Net income $ 26,097 $ 11,429 ============ ============ Net income per share $ 0.35 $ 0.15 ============ ============ Dividends per share $ 0.18 $ 0.17 ============ ============ Average number of common shares outstanding 74,424,152 74,769,491
See notes to consolidated financial statements. Page 2 5 AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Thousands of dollars)
(Unaudited) (Unaudited) Aug. 31, 1997 Feb. 28, 1997 Aug. 31, 1996 ------------- ------------- ------------- ASSETS Current assets Cash and equivalents $ 38,606 $ 35,050 $ 26,565 Trade accounts receivable, less allowances of $73,112, $137,120 and $83,561, respectively (principally for sales returns) 367,185 375,324 389,623 Total inventories 339,563 303,611 390,112 Deferred income taxes 86,692 100,732 85,105 Prepaid expenses and other 183,469 190,174 170,442 ---------- ---------- ---------- Total current assets 1,015,515 1,004,891 1,061,847 Other assets 602,250 667,442 631,322 Property, plant and equipment - at cost 915,025 920,194 878,606 Less accumulated depreciation 473,135 457,407 433,324 ---------- ---------- ---------- Property, plant and equipment - net 441,890 462,787 445,282 ---------- ---------- ---------- $2,059,655 $2,135,120 $2,138,451 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Debt due within one year $ 159,372 $ 133,171 $ 283,488 Accounts payable and accrued liabilities 159,927 157,628 144,761 Accrued compensation and benefits 55,500 82,569 61,943 Income taxes 13,746 5,475 2,852 Other current liabilities 22,144 63,900 61,416 ---------- ---------- ---------- Total current liabilities 410,689 442,743 554,460 Long-term debt 211,005 219,639 236,124 Other liabilties 58,282 67,839 51,976 Deferred income taxes 40,938 43,244 44,534 Shareholders' equity 1,338,741 1,361,655 1,251,357 ---------- ---------- ---------- $2,059,655 $2,135,120 $2,138,451 ========== ========== ==========
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, ---------------------- 1997 1996 --------- --------- OPERATING ACTIVITIES: Net income $ 56,356 $ 39,201 Adjustments to reconcile to net cash provided (used) by operating activities: Non-recurring gain (22,125) -- Depreciation 33,688 31,862 Deferred income taxes 11,764 17,235 Change in operating assets and liabilities (84,609) (193,842) Other - net 2,054 4,380 --------- --------- Cash Used by Operating Activities (2,872) (101,164) INVESTING ACTIVITIES: Proceeds from divestiture 82,000 -- Property, plant & equipment additions (23,578) (39,272) Investment in corporate-owned life insurance 4,406 4,350 Other - net (372) (10,292) --------- --------- Cash Provided (Used) by Investing Activities 62,456 (45,214) FINANCING ACTIVITIES: Increase in long-term debt 21,347 8,550 Reduction of long-term debt (3,478) (9,115) Increase in short-term debt 6,613 166,832 Sale of stock under benefit plans 7,021 1,706 Purchase of treasury shares (61,326) (513) Dividends to shareholders (26,205) (24,647) --------- --------- Cash (Used) Provided by Financing Activities (56,028) 142,813 --------- --------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 3,556 (3,565) Cash and Equivalents at Beginning of Year 35,050 30,130 --------- --------- Cash and Equivalents at End of Period $ 38,606 $ 26,565 ========= =========
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, 1997 and 1996 Note A - Basis of Presentation - ------------------------------ The accompanying financial statements have been prepared in accordance with the instructions to Form 10-Q. Although they are unaudited, the Corporation believes that all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations have been made. Note B - Seasonal Nature of Business - ------------------------------------ The Corporation's business is seasonal in nature. Therefore, the results of operations for interim periods are not necessarily indicative of the results for the fiscal year taken as a whole. Note C - Non-Recurring Gain - --------------------------- On August 12, 1997, the Corporation divested the net assets of two subsidiaries, Acme Frame Products, Inc., a manufacturer and distributor of picture frames, and Wilhold, Inc., a manufacturer and distributor of hair accessories. As a result of the transaction, the Corporation recorded a one-time pre-tax gain of $22,125 ($13,192 net of tax, or $.18 per share). Note D - Inventories - -------------------- Components of inventories are as follows:
August 31, February August 31, 1997 28, 1997 1996 ---------- -------- ---------- Raw materials $ 38,230 $ 48,299 $ 50,886 Work in process 39,773 47,113 51,650 Finished products 311,144 253,096 337,578 -------- -------- -------- 389,147 348,508 440,114 Less LIFO reserve 90,217 89,061 93,652 -------- -------- -------- 298,930 259,447 346,462 Display materials and factory supplies 40,633 44,164 43,650 -------- -------- -------- Inventories $339,563 $303,611 $390,112 ======== ======== ========
Page 5 8 Note E - Deferred Costs - ----------------------- Deferred costs relating to agreements with certain customers are charged to operations on a straight-line basis over the effective period of each agreement, generally three to six years. Deferred costs estimated to be charged to operations during the next year are classified with prepaid expenses and other. Total commitments under the agreements are capitalized as deferred costs and future payment commitments, if any, are recorded as liabilities when the agreements are consummated. As of August 31, 1997, February 28, 1997 and August 31, 1996 deferred costs and future payment commitments are included in the following financial statement captions:
August 31, February August 31, 1997 28, 1997 1996 ---------- -------- ---------- Prepaid expenses and other $ 154,313 $ 161,601 $ 137,686 Other assets 409,106 464,599 439,961 Other current liabilities (22,145) (51,153) (61,416) Other liabilities (45,454) (54,199) (36,311) --------- --------- --------- $ 495,820 $ 520,848 $ 479,920 ========= ========= =========
Note F - Stock Options - ---------------------- The Corporation has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options and intends to continue to do so. Because the exercise price of the Corporation's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Note G - Recently Issued Accounting Standards - --------------------------------------------- During the first half of calendar 1997, the Financial Accounting Standards Board issued final statements that change the method for calculating and reporting earnings per share (EPS), that require the disclosure of total comprehensive income, and that change the method for determining and reporting business segment information. The Corporation will adopt Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, in fiscal 1998. The Corporation will adopt the disclosure requirements of SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, in fiscal 1999. The Corporation is currently assessing the impact of these statements. Page 6 9 Part 1., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS - ----------------------------------------------------- Results of Operations - --------------------- Net sales of $484.7 million for the second quarter and $959.8 million for the six months ended August 31, 1997 were up 3.9% and 6.1%, respectively, over the same periods in the prior year. The increases were due primarily to sales of everyday cards and accessories, which more than offset the decrease in sales resulting from the divestiture of the Acme Frame Products, Inc. and Wilhold, Inc. subsidiaries on August 12, 1997. Unit sales of greeting cards increased 1% over the same period in the prior year for the quarter and were flat with the prior year for the six months. The unit sales increases are due to increased everyday card volume. Material, labor and other production costs were 38.8% of net sales for the quarter, compared to 40.4% for the second quarter last year and 36.4% for the six months, down from 37.9% in the same period last year. These decreases reflect the strength of everyday card sales, which have higher margins than other product categories. Selling, distribution and marketing expenses were 44.6% of net sales for the quarter, compared to 42.0% in the same period in the prior year. For the six month period, selling, distribution and marketing expenses were 43.9% of net sales, up from 41.8% in the prior year. These increases were due primarily to higher amortization of competitive costs. Administrative and general expenses were $59.9 million for the second quarter, flat with $59.9 million for the same period in the prior year. For the six months, administrative and general expenses were $118.8 million, up from $114.3 million in the prior year. The increase from prior year is due to costs related to the conversion of information systems to be year 2000 compliant. During the second quarter, these costs were offset by lower expenses in other areas. A non-recurring gain of $22.1 million ($13.2 million net of tax, or $.18 per share) was recorded during the quarter for the divestiture of the net assets of two subsidiaries, Acme Frame Products, Inc., a manufacturer and distributor of picture frames, and Wilhold, Inc., a manufacturer and distributor of hair accessories. Interest expense decreased from the prior year by $2.4 million for the quarter and by $4.1 million for the six months. These decreases were due primarily to lower borrowing requirements resulting from the strong cash flow provided by operating and investing activities. The effective tax rate for the second quarter and six months was 34.5%, up from 33.5% in the prior year due to the decreased tax benefit from the corporate owned life insurance program. Page 7 10 Liquidity and Capital Resources - ------------------------------- The seasonality of the Corporation's business precludes a useful comparison of the current period and the year-end financial statements; therefore, a Statement of Financial Position for August 31, 1996 has been included. Operations used $2.9 million for the first six months of the fiscal year, an improvement of $98.3 million from the same period last year. This improvement was due to the reduced growth of deferred costs and trade accounts receivable, as well as improved management of accounts payable. Accounts receivable increased $12.5 million from February 28, 1997, compared to an increase of $37.3 million during the same period in the prior year. This slower growth was attained despite the increase in net sales year-to-year, due to strong cash collections. Net accounts receivable were 16.6% of the prior twelve months' sales at August 31, 1997, compared to 19.1% at August 31, 1996. Inventories increased by $59.2 million from February 28, 1997, compared to an increase of $54.7 million during the same period in the prior year. Inventories as a percent of the prior twelve months' material, labor, and other production costs were 41.8% at August 31, 1997, an improvement from 49.4% at August 31, 1996. Investing activities provided $62.5 million in cash for the six months, including $82.0 million in proceeds from the divestiture of subsidiaries. Excluding these proceeds, investing activities used $19.5 million for the six months, an improvement of $25.7 million from the prior year, reflecting a lower level of capital spending. Financing activities used $56.0 million for the six months compared to providing $142.8 million during the same period in the prior year. The current period use includes $59.7 million expended to purchase 1.7 million shares of the Corporation's common stock. Financing activities in the prior year period included higher short-term borrowings required to meet higher working capital requirements. Debt as a percentage of debt plus equity was 21.7% at August 31, 1997, a decrease from 29.3% at August 31, 1996, reflecting the significant improvement in cash flow. On a per share basis, shareholders' equity increased from $16.73 per share at August 31, 1996 to $18.18 at August 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 August 31, 1997, the end of its last fiscal quarter and the date of the most recent balance sheet included in this report, nor from August 31, 1996, the end of the corresponding fiscal quarter last year, to August 31, 1997, except the changes discussed above and aside from normal seasonal fluctuations. Page 8 11 Prospective Information - ----------------------- Although management is not aware of any current trends, events, demands, commitments or uncertainties which reasonably can be expected to have a material effect on the liquidity, capital resources, financial position or results of operations of the Corporation, the Corporation's future results could be negatively impacted by such factors as retail bankruptcies, a weak retail environment, loss of retail accounts and competitive terms of sale offered to customers to expand or maintain business. Please see the Corporation's Form 10-K for the year ended February 28, 1997 for other risks and uncertainties that may affect future results. PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- (a) J.E. and Z.B. Butler Foundation, Inc. v. American Greetings Corporation, et al. This class action, securities lawsuit against the Corporation and certain of its officers has been settled. The Court approved the settlement on August 18, 1997 and entered the Final Judgment and Order of Dismissal. The attorneys representing the plaintiff class are responsible for claims administration and distribution of the Settlement Fund. (b) Kentucky Department of Environmental Protection The Corporation has settled the Notices of Violation dated April and May, 1997, alleging that a release of hazardous waste occurred at the Corbin, Kentucky plant. The Corporation is in the process of conducting an on-site clean up under procedures approved by the Kentucky Department of Environmental Protection. The cost of the clean up will not be material and has been fully provided in the Corporation's financial results. (c) Custom Expression Royalty, Inc. et al. v. American Greetings Corporation There have been no material developments in this proceeding since it was reported in the Corporation's Form 10-Q for the period ending May 31, 1997. Page 9 12 Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The Annual Meeting of Shareholders of the Corporation was held on June 27, 1997. (b) The following individuals were elected to Class II of the Corporation's Board of Directors with term expiring in 2000: Albert B. Ratner, Harry H. Stone and Edward Fruchtenbaum. The following individuals are continuing directors with term expiring in 1998 (Class III): Scott S. Cowen, Irving I. Stone and Milton A. Wolf. The following individuals are continuing directors with term expiring in 1999 (Class I): Herbert H. Jacobs, Jeanette Sarkisian Wagner and Morry Weiss. (c)-1 The vote total was as follows for the election of directors (Class II):
Nominee Votes For Votes Withheld ------- --------- -------------- Albert B. Ratner 103,880,936 2,111,226 Harry H. Stone 103,349,189 2,642,973 Edward Fruchtenbaum 103,821,423 2,170,739
(c)-2 A proposal to approve the 1997 Equity and Performance Incentive Plan was approved by the shareholders. The vote was as follows:
Affirmative 70,594,242 Negative 28,562,002 Abstain 495,365
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 10 13 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 14, 1997 Page 11 EX-11.1 2 EXHIBIT 11.1 1 Exhibit 11(a) and (b) AMERICAN GREETINGS CORPORATION COMPUTATION OF EARNINGS PER SHARE ---------------------------------
(Unaudited) (Unaudited) Six Months Ended August 31, Three Months Ended August 31, --------------------------- ----------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Average number of common shares outstanding 74,775,937 74,752,729 74,424,152 74,769,491 ========== ========== ========== =========== Net inome (thousands) $ 56,356 $ 39,201 $ 26,097 $ 11,429 ========== ========== ========== =========== Primary earnings per share $ .75 $ .52 $ .35 $ .15 ========== ========== ========== ===========
Computation of Fully-diluted Earnings Per Share (a)
(Unaudited) (Unaudited) Six Months Ended August 31, Three Months Ended August 31, ----------------------------- ------------------------------ 1997 1996 1997 1996 ---------- ---------- ---------- ----------- Average number of common shares outstanding on a fully diluted basis assuming exercise of stock options based on the treasury stock method using the higher of average market price or ending market price (b) 76,129,012 75,608,970 75,811,941 75,548,141 ========== ========== ========== =========== Net income (thousands) $ 56,356 $ 39,201 $ 26,097 $ 11,429 ========== ========== ========== =========== Fully-diluted earnings per share $ .74 $ .52 $ .34 $ .15 ========== ========== ========== ===========
(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 the six months ended August 31, 1997 and the three months ended August 31, 1996. Average market price was used for the three months ended August 31, 1997 and the six months ended August 31, 1996. 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-28-1998 MAR-01-1997 AUG-31-1997 38,606 0 367,185 16,588 339,563 1,015,515 915,025 473,135 2,059,655 410,689 0 73,631 0 0 1,265,110 2,059,655 959,801 964,302 349,410 349,410 0 4,394 11,130 86,040 29,684 56,356 0 0 0 56,356 .75 .74
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