-----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, VX6w5CAftphdqzN5cZHDVB14M88SxnCzdsl4A0x85EHZK/dps87GFolTrsHc1ahc guQrPq6CjxRJsEtc13P4ww== 0000950152-98-004532.txt : 19980515 0000950152-98-004532.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950152-98-004532 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980514 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-K SEC ACT: SEC FILE NUMBER: 001-13859 FILM NUMBER: 98621472 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-K 1 AMERICAN GREETINGS CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Commission File Ended February 28, 1998 Number 1-13859 ----------------- ------- AMERICAN GREETINGS CORPORATION ------------------------------------------------- (Exact name of registrant as specified in Charter) OHIO 34-0065325 - ------------------------ ---------------- (State of incorporation) (I.R.S. Employer Identification No.) One American Road , Cleveland, Ohio 44144 - ----------------------------------------- --------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number,including area code (216) 252-7300 ---------------- Securities registered pursuant to Section 12 (b) of the Act: Class A Common Shares, Par Value $1.00 Securities registered pursuant to Section 12 (g) of the Act: Class B Common Shares, Par Value $1.00 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 2 State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of May 1, 1998 - $3,502,834,313 Number of shares outstanding as of May 1, 1998: CLASS A COMMON - 71,411,970 CLASS B COMMON - 6,066,096 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement filed with the Securities and Exchange Commission on May 13 , 1998 with respect to the 1998 Annual Meeting of Shareholders called for June 26, 1998, are incorporated by reference into Part III. PART I Item 1. Business American Greetings Corporation and its subsidiaries operate predominantly in a single industry: the design, manufacture and sale of everyday and seasonal greeting cards and other social expression products. Greeting cards, gift wrap, paper party goods, candles, balloons, stationery and giftware are manufactured and/or sold in the United States by American Greetings Corporation, Plus Mark, Inc., Carlton Cards Retail, Inc., and Quality Greeting Card Distributing Company; in Canada by Carlton Cards Limited; in the United Kingdom by Carlton Cards Limited and Carlton Cards Ltd. (Ireland); in France by Carlton Cards (France) SNC; in Mexico by Carlton Mexico, S.A. de C.V. ; in Australia by John Sands (Australia) Ltd.; in New Zealand by John Sands (N.Z.) Ltd.; and in South Africa by S.A. Greetings Corporation (PTY) Ltd. (80% owned). Personalized greeting cards are sold through CreataCard machines by CreataCard, Inc. in the United States, by CreataCard Canada, Inc. in Canada and by CreataCard (UK) Ltd. in the United Kingdom. CreataCard Interactive, Inc. markets e-mail greetings, personalized greeting cards and other social expression products through the Corporation's website www.americangreetings.com, co-branded websites and on-line services. CreataCard Interactive, Inc. also provides design and verse content which is included in various CD-Rom software products for use on personal computers. Magnivision, Inc. produces and sells non-prescription reading glasses and eyeware accessories, and Learning Horizons distributes supplemental educational products. Design licensing and character licensing are done by AGC, Inc. and Those Characters From Cleveland, Inc., respectively. AG Industries, Inc. manufactures custom display fixtures for the Corporation's products and products of others. (Although other subsidiaries of American Greetings Corporation exist, they are either inactive, of minor importance or of a holding company nature.) In March 1998, the Corporation acquired Camden Graphics Group in the United Kingdom. In May 1998, the Corporation acquired Hanson White Ltd., also in the United Kingdom. While the acquisition of these greeting card companies combined with Carlton Cards Limited gives the Corporation a strong position with the second-largest market share in the UK, the impact on the Corporation's results as a whole will not be material. 2 3 Many of the Corporation's products are manufactured at common production facilities and marketed by a common sales force. Marketing and manufacturing functions in the United States and Canada are combined; dual priced cards are produced and distributed in both countries. Information concerning sales by major product classifications is included in Part II, Item 7. Additionally, information by geographic area is included in Note M to the Consolidated Financial Statements included in Part II, Item 8. The Corporation's products are primarily sold in about 100,000 retail outlets worldwide. In addition, the Corporation licenses its designs to various foreign licensees, so that in total, the Corporation's products and designs are available in more than 84 nations around the world. The greeting card and gift wrap industry is intensely competitive. Competitive factors include quality, design, customer service and terms, which may include payments and other concessions to retail customers under long-term agreements. These agreements are discussed in greater detail below. There are an estimated 500 companies in this industry. The Corporation's principal competitors, however, are Hallmark Cards, Incorporated and Gibson Greetings, Inc. Based upon its general familiarity with the greeting card and gift wrap industry and limited information as to its competitors, the Corporation believes that it is the second largest company in the industry and the largest publicly owned company in the industry. The greeting card and gift wrap industry is generally mature. Total unit sales of greeting cards increased 1% in 1998 after increasing 2% in 1997. Production of the Corporation's products is generally on a level basis throughout the year. Everyday inventories remain relatively constant throughout the year, while seasonal inventories peak in advance of each major holiday season, including Christmas, Valentine's Day, Easter, Mother's Day, Father's Day and Graduation. Also characteristic of the business, accounts receivable for seasonal merchandise are carried for relatively long periods, as product is normally shipped three to five months prior to a holiday. Payments for seasonal shipments are generally received during the month in which the major holiday occurs, or shortly thereafter. Extended payment terms may also be offered in response to competitive situations with individual customers. The Corporation and many of its competitors sell seasonal greeting cards with the right of return. During the fiscal year, the Corporation experienced no difficulty in obtaining raw materials from suppliers. At February 28, 1998, the Corporation employed approximately 15,000 full-time employees and approximately 20,600 part-time employees which, when jointly considered, equate to approximately 20,400 full-time employees. Approximately 3,400 of the Corporation's hourly plant employees are unionized, of which approximately 2,500 are covered by the following collective bargaining agreements: 3 4
Union Plant Location Contract Expiration Date - ---------------------------- ----------------------------- ------------------------ International Brotherhood Bardstown, Kentucky 4/15/03 of Teamsters Corbin, Kentucky 12/01/02 Amalgamated Clothing & Greeneville, Tennessee 10/20/98 Textile Workers Union (Plus Mark) Communication, Energy Toronto, Ontario 1/31/98 and Paperworkers Canada (Carlton Cards Limited) (continued negotiations)
Other locations with unions are Cleveland, Ohio, the United Kingdom, Mexico, Australia, New Zealand, and South Africa. The Corporation's headquarters and other manufacturing locations are not unionized. While labor relations at each location have generally been satisfactory, unionized employees at the Corporation's Bardstown, Kentucky plant initiated a ten-day work stoppage that ended April 30, 1998 under an amended five-year contract. There was no impact on sales attributable to the work stoppage. Also, contract negotiations continue at the Toronto, Canada manufacturing and distribution facilities. The Corporation has a number of patents and registered trademarks which are used in connection with its products. The Corporation's designs and verses are protected by copyright. Although the licensing of copyrighted designs and trademarks produces additional revenue, in the opinion of the Corporation, the Corporation's operations are not dependent upon any individual patent, trademark, copyright or intellectual property license. The collective value of the Corporation's copyrights and trademarks is substantial and the Corporation follows an aggressive policy of protecting its patents, copyrights and trademarks. In fiscal 1998, the Corporation's major channel of distribution continues to be mass retail (which is comprised of mass merchandisers, chain drug stores and supermarkets), where it is the social expression industry leader. Other major channels of distribution include card and gift shops, combo stores (stores combining food, general merchandise and drug items), military post exchanges, variety stores, and department stores. Sales to the Corporation's five largest customers, which include mass merchandisers and major drug stores, accounted for approximately 32.6% of net sales in fiscal 1998. Sales to retail customers are made through 22 sales offices in the United States, Canada, United Kingdom, Australia, New Zealand, France, Mexico and South Africa. The Corporation has agreements with various customers for the supply of greeting cards and related products. Contracts are separately negotiated to meet competitive situations; therefore, while some aspects of the agreements may be the same or similar, important contractual terms often vary from contract to contract. No one contract is significant to the Corporation's financial position. Under the agreements, customers typically receive allowances, discounts and/or advances in consideration for the Corporation being allowed to supply customers' stores for a stated term and/or specify a minimum sales volume commitment. 4 5 Some of these competitive agreements have been negotiated with customers covering a period following that covered by current agreements and requiring the Corporation to make advances prior to the start of such future period. The Corporation views the use of such agreements as advantageous in developing and maintaining business with retail customers. Although risk is inherent in the granting of advances, payments and credits, the Corporation subjects such customers to its normal credit review. Losses attributable to these agreements have historically not been material. Advances, payments and credits made under these agreements are accounted for as deferred costs. The current and long-term portions of such deferred costs, including future payment commitments, are disclosed in Note F to the Consolidated Financial Statements included in Part II, Item 8. Note F also discusses the amortization policy. The Corporation believes that these agreements represent a common practice within the industry. Since Hallmark Cards, one of the Corporation's two principal competitors, is a non-public company, public disclosure of its practices has been limited. Gibson Greetings, the Corporation's other principal competitor and a public company, has made comparable disclosures with respect to such agreements. The operations of the Corporation, like those of other companies in our industry, are subject to various federal, state and local environmental laws and regulation. These laws and regulations may give rise to claims, uncertainties or possible loss contingencies for future environmental remediation liabilities and costs. The Corporation believes it conducts its operations in compliance with applicable environmental laws and regulations and has implemented various programs designed to protect the environment and ensure continued compliance. The costs associated with these compliance and remediation efforts have not and are not expected to have a material adverse effect on the financial condition, cash flows, or operating results of the Corporation. 5 6 Item 2. Properties As of February 28, 1998, the Corporation owns or leases approximately 16.2 million square feet of plant, warehouse, store and office space, of which approximately 5.8 million square feet are leased. Space needs in the United States have been met primarily through long-term leases of properties constructed and financed by community development corporations and municipalities. The following table summarizes the principal plants and materially important physical properties of the Corporation:
Expiration Approximate Square Date of Feet Occupied Material Principal Location Owned Leased Leases Activity - ----------------- ------------- -------------- -------------- --------- Cleveland, 1,635,000 International headquarters; Ohio general offices of U.S. Greeting Card Division, Plus Mark, Inc., AG Industries, Inc., Carlton Cards Retail, Inc., CreataCard Inc., CreataCard Interactive, Inc., Learning Horizons, Inc., and AGC, Inc.; creation and design of greeting cards, gift wrap, paper party goods, candles, balloons, stationery and giftware Bardstown, 413,500 Cutting, folding, finishing, and Kentucky packaging of greeting cards Corbin, 1,010,000 Printing of greeting cards, Kentucky gift wrapping and paper party goods and manufacture of other related products Danville, 1,374,000 2001 Distribution of everyday greeting Kentucky cards and related products Harrisburg, 417,000 2007 Warehousing for seasonal Arkansas greeting cards and related products Lafayette, 194,000 Manufacture of envelopes Tennessee for greeting cards and packaging of cards McCrory, 771,000 2005 Order filling and shipping of Arkansas everyday and seasonal products
6 7
Expiration Approximate Square Date of Feet Occupied Material Principal Location Owned Leased Leases Activity - -------------- ----------------------------- --------------- ---------- Osceola, 2,800,800 Cutting, folding, finishing and Arkansas packaging of seasonal greeting cards and warehousing; distribution of seasonal products Ripley, 165,000 Seasonal card printing and Tennessee forms Philadelphia, 120,000 2017 Hand finishing of greeting cards Mississippi Shelbyville, 250,000 2002 Warehousing for Carlton Kentucky Cards Retail, Inc. and distribution for Learning Horizons, Inc. Forest City, 498,000 327,500 1998 Manufacture of the North Carolina and Corporation's display 1999 fixtures and other custom display fixtures by AG Industries, Inc. Greeneville, 1,410,000 Printing and packaging of Tennessee seasonal wrapping items (2 locations) and order filling and shipping for Plus Mark, Inc. Ft. Lauderdale/ 108,000 1999 General offices of Magnivision, Miami and Inc.; manufacture, order filling and Florida 2000 shipping of non-prescription (2 locations) reading glasses Toronto, 1,084,500 General offices of Carlton Ontario, Cards (Canada) Limited; Canada manufacture and distribution (2 locations) of greeting cards and related products Clayton, 208,000 General offices of John Sands Victoria, (Australia) Ltd.; manufacture of Australia greeting cards and related products
7 8
Expiration Approximate Square Date of Feet Occupied Material Principal Location Owned Leased Leases Activity - -------------- ----------------------------- --------------- ---------- Auckland, 80,000 General offices of John New Zealand Sands (New Zealand) Ltd.; manufacture of greeting cards and related products Dewsbury, 361,000 87,000 2001 General offices of Carlton England and Cards (UK) Limited; (5 locations) 2014 manufacture of greeting cards and related products Corby, 85,000 Distribution of greeting cards England and related products for Carlton Cards (UK) Limited Mexico City, 166,000 General offices of Carlton Mexico Mexico, S.A. de C.V. and manufacture of greeting cards and related products Paris, 70,000 2000 General offices of Carlton France Cards (France) SNC; distribution of greeting cards and related products Roodepoort, 105,000 2000 General offices of South Africa S.A. Greetings Corporation; manufacture and distribution of greeting cards and related products
Item 3. Legal Proceedings 1) BEC Group, Inc. v. American Greetings Corporation, Magnivision, Inc., and Erwin Weiss, in the District Court of Dallas County, Texas, 160th Judicial District, Case Number 97-00761-H On January 27, 1997, BEC Group filed suit alleging breach of confidentiality agreement, unfair competition, and other tort claims following the termination of the purchase negotiations in September 1996. The Corporation was contemplating purchase of the Foster Grant business from BEC Group. The Complaint seeks in excess of $18 million in damages. The Corporation, Magnivision, and Mr. Weiss deny liability, and Mr. Weiss has moved to dismiss for lack of jurisdiction. 8 9 2) Custom Expressions 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, Custom Expressions Royalty, Inc. and its shareholders individually filed suit against American Greetings Corporation alleging breach of fiduciary duties, breach of contract, and violation of the North Carolina Trade Practices Act. The Complaint arises out of a merger on June 16, 1992 between Custom Expressions and American Greetings Corporation. The Complaint alleges American Greetings has acted unfairly by manipulating commercial dealings to benefit itself at the expense of Custom Expressions Royalty, Inc. and that American Greetings has failed to account for and pay royalties under related Patent License Agreements. The Complaint seeks damages in the amount of at least $30 million and treble damages for violation of North Carolina law. The Company denies the allegations and will vigorously defend against all of the claims. 3) Thorntons Plc. v. Carlton Cards Limited, in the High Court of Justice, Queen's Bench Division, Birmingham District Registry, 1997 No. ML40017A In December 1995, Thorntons Plc. filed suit in the United Kingdom claiming breach of contract arising out of the discontinuance of 29 franchise agreements after the sale of Carlton Cards Limited's retail stores to Clinton Cards in September 1995. Trial on the issue of liability began September 30, 1997, resulting in a judgment in Carlton's favor. Thorntons has appealed. An appeal is not likely to be heard until 1999. Item 4. Submission of Matters to Vote of Security Holders None Executive Officers of the Registrant - ------------------------------------ The following is a list of the Corporation's executive officers, their ages as of May 1, 1998, their positions and offices, and number of years in executive office:
Years as Name Age Executive Officer Current Position and Office - ---- --- ----------------- --------------------------- Irving I. Stone 89 48 Founder-Chairman and Chairman of the Executive Committee Morry Weiss 58 26 Chairman and Chief Executive Officer Edward Fruchtenbaum 50 12 President and Chief Operating Officer
9 10
Years as Name Age Executive Officer Current Position and Office - ---- --- ----------------- --------------------------- Michael B. Birkholm 46 --- Senior Vice President Mary Ann Corrigan-Davis 44 1 Senior Vice President Jon Groetzinger, Jr. 49 10 Senior Vice President, General Counsel and Secretary John M. Klipfell 48 15 Senior Vice President Harvey Levin 65 17 Senior Vice President William R. Mason 53 16 Senior Vice President William S. Meyer 51 10 Senior Vice President, Chief Financial Officer Patricia A. Papesh 50 3 Senior Vice President Erwin Weiss 49 8 Senior Vice President Jeffrey M. Weiss 34 --- Senior Vice President George A. Wenz 53 --- Senior Vice President Thomas T. Zinn, Sr. 49 --- Senior Vice President Dale A. Cable 50 6 Vice President, Treasurer Patricia L. Ripple 42 2 Vice President, Corporate Controller
Mr. Irving I. Stone is the father-in-law of Morry Weiss. Morry Weiss and Erwin Weiss are brothers. Jeffrey M. Weiss is the son of Morry Weiss. The Board of Directors annually elects all executive officers; however, executive officers are subject to removal, with or without cause, at any time. All of the executive officers listed above have served in the capacity shown or similar capacities with the Corporation (or major subsidiary) over the past five years, with the following exceptions. Michael B. Birkholm was Plant Manager at Osceola, Arkansas from September 1992 until June 1994; and Vice President, Manufacturing from June 1994 until becoming Senior Vice President in March 1998. Mary Ann Corrigan-Davis was President of Carlton Cards Retail, Inc. from December 1992 until January 1996, and Group Managing Director of the John Sands Group from January 1996 until becoming Senior Vice President in May 1997. Patricia A. Papesh was Vice President, Creative of the U.S. Greeting Card Division from December 1992 until becoming Senior Vice President in April 1995. Patricia L. Ripple was Director, Tax and Financial Reporting of the Corporation from November 1991 until April 1993; and Executive Director, Tax and Financial Reporting of the Corporation from April 1993 until becoming Vice President and Corporate Controller in September 1996. 10 11 Jeffrey M. Weiss was Vice President, Materials Management of the Corporation's U.S. Greeting Card Division from October 1996 until May 1997; and Vice President, Product Management of the Corporation's U.S. Greeting Card Division from May 1997 until becoming Senior Vice President in January 1998. George A. Wenz was Vice President, National Accounts from October 1984 until becoming Senior Vice President in June 1997. Thomas T. Zinn, Sr. was a Principal with Ernst & Young LLP before joining the Corporation January 1995 as Vice President, Information Services. He became Senior Vice President in March 1998. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters (a) Market Information - ---------------------- The Corporation's Class A Common stock was listed on the NASDAQ National Market System through February 10, 1998. Effective February 11, 1998, the Corporation's Class A Common stock, $1.00 par value per share, is listed on the New York Stock Exchange under the trading symbol: AM. The high and low stock prices, as reported in the respective exchange's listing, for the years ended February 28, 1998 and 1997 follow:
1998 1997 ------------------------------- ------------------------------- High Low High Low ----------- ------------ ----------- ----------- 1st Quarter.................... $ 34-1/2 $ 29-1/4 $ 30-1/2 $ 25-7/8 2nd Quarter.................... 37-1/4 33-1/8 27-3/8 23-1/2 3rd Quarter.................... 38-3/4 34 30-1/4 25-1/8 4th Quarter.................... 45-7/8 35-3/8 31-3/8 25
The ratio of the Corporation's share price to earnings per share was 17.7 at February 28, 1998 and 13.9 at February 28, 1997. National City Bank, Cleveland, Ohio, is the Corporation's registrar and transfer agent. There is no public market for the Class B Common Shares of the Corporation. Pursuant to the Corporation's Amended Articles of Incorporation, a holder of Class B Common Shares may not transfer such Class B Common Shares (except to permitted transferees, a group that generally includes members of the holder's extended family, family trusts and charities) unless such holder first offers such shares to the Corporation for purchase at the most recent closing price for the Corporation's Class A Common Shares. If the Corporation does not purchase such Class B Common Shares, the holder must convert such shares, on a share for share basis, into Class A Common Shares prior to any transfer. 11 12 (b) Shareholders - ---------------- At May 1, 1998, there were approximately 31,750 holders of Class A Common Shares and 250 holders of Class B Common Shares of record and individual participants in security position listings. (c) Cash Dividends - -------------------
Dividends Per Share 1998 1997 - ------------------- --------- --------- 1st Quarter (paid June 10, 1997 and 1996) $ .17 $ .16 2nd Quarter (paid September 10, 1997 and 1996) .18 .17 3rd Quarter (paid December 10, 1997 and 1996) .18 .17 4th Quarter (paid March 10, 1998 and 1997) .18 .17 --------- --------- $ .71 $ .67 ========= =========
12 13 Item 6. Selected Financial Data Years ended February 28 or 29 Thousands of dollars except per share amounts* Summary of Operations - ---------------------
1998 1997 1996 1995 1994 ------------ ----------- ----------- ----------- ----------- Net sales ............................................. $ 2,198,765 $ 2,161,089 $ 2,003,038 $ 1,868,927 $ 1,769,964 Gross profit .......................................... 1,408,077 1,355,965 1,241,032 1,192,842 1,097,944 Non-recurring (gain) loss ............................. (22,125) - 52,061 - - Interest expense ...................................... 22,992 30,749 24,290 16,871 16,897 Income before cumulative effect of accounting changes . 190,084 167,095 115,135 148,792 130,884 Cumulative effect of accounting changes, net of tax ... - - - - 17,182 Net income ............................................ 190,084 167,095 115,135 148,792 113,702 Earnings per share: Before cumulative effect of accounting changes .... 2.58 2.23 1.54 2.00 1.77 Cumulative effect of accounting changes, net of tax - - - - .23 Earnings per share ................................ 2.58 2.23 1.54 2.00 1.54 Earnings per share - assuming dilution ............ 2.55 2.22 1.53 1.98 1.52 Cash dividends per share .............................. .71 .67 .62 .55 .48 Fiscal year end market price per share ................ 45.63 31.00 27.38 29.38 27.88 Average number of shares outstanding .................. 73,708,100 74,818,960 74,528,809 74,305,346 73,809,132 Financial Position - ------------------ Accounts receivable ................................... $ 373,594 $ 375,324 $ 353,671 $ 324,329 $ 322,675 Inventories ........................................... 271,205 303,611 335,074 279,270 243,357 Working capital ....................................... 506,029 562,148 516,346 531,199 474,280 Total assets .......................................... 2,145,892 2,135,120 2,005,832 1,761,751 1,565,234 Property, plant and equipment additions ............... 67,898 92,895 91,590 97,290 102,859 Long-term debt ........................................ 148,800 219,639 231,073 74,480 54,207 Shareholders' equity .................................. 1,345,217 1,361,655 1,235,022 1,159,541 1,053,442 Shareholders' equity per share ........................ 18.90 18.16 16.53 15.61 14.21 Net return on average shareholders' equity before cumulative effect of accounting changes .... 14.0% 12.9% 9.6% 13.4% 13.0% Return on net sales before income taxes and cumulative effect of accounting changes ........... 13.3% 11.8% 8.7% 12.2% 11.8%
13 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW The Corporation achieved significant financial success as it reported all-time record sales and earnings, as well as much improved cash flow. The focus on enhancing shareholder value resulted in improved performance in virtually all of the Corporation's businesses. During the year, the Corporation completed a number of strategic repositioning moves. On August 12, 1997, the Corporation divested the net assets of Acme Frame Products, Inc. and Wilhold, Inc., which allowed a re-allocation of resources to initiatives with more potential for long-term, profitable growth. Successful initiatives to manage working capital and improve cash flow continued from 1997 and a share repurchase of 4.5 million shares of Class A common stock was announced and completed. The share repurchase was funded by the divestiture proceeds and internal cash flow. The Corporation continuously reviews its portfolio of businesses on an ongoing basis to ensure that growth opportunities are pursued and return on investments are aligned with its long-term goals. The acquisition of John Sands in 1996 and the 1998 divestiture are examples of this process. In March of 1998 the Corporation acquired London-based Camden Graphics Group which increased our market share and growth potential in the United Kingdom. The Corporation is currently pursuing other growth opportunities in the UK. However, the possible consummation of any such transaction is unlikely to have a material effect on the Corporation's results as a whole. RESULTS OF OPERATIONS REVENUES The net sales increase of 1.7% in 1998 over 1997, while adversely impacted by a number of factors, represented the Corporation's 92nd consecutive year of growth. The divestiture of Acme Frame Products, Inc. and Wilhold, Inc. in the second quarter of 1998, a de-emphasis on sales of lower margin seasonal gift accessories and weakening of certain foreign currencies against the United States dollar, all negatively impacted sales growth. Removing the impact of these factors would result in a normalized net sales increase of approximately 5.5%. Net sales increased 7.9% in 1997 and 7.2% in 1996. Net sales of everyday cards continued to be strong and increased 5.8% in 1998 after increasing 10.3% in 1997. The increase in everyday card sales in 1998 reflected the strength of the everyday card market in the United States and in almost all of the Corporation's foreign markets, particularly the United Kingdom. The 1997 increase also reflected the acquisition of substantially all of the assets of the John Sands Group, the largest greeting card business in Australia and New Zealand. During 1998, the Corporation initiated efforts to improve sell- through of seasonal card sales which included both targeted promotions and reduced shipments. These efforts, which should benefit 1999, resulted in a decrease in seasonal card net sales of 1%. The seasonal card increase of 12.5% in 1997 reflected the improvement in the retail environment compared to 1996. Total unit sales of all greeting cards increased 1% in 1998 after increasing 2% in 1997. Demand for certain consumer products, particularly non-prescription reading glasses and custom display fixtures, rebounded in 1998 after slowing somewhat in 1997, as net sales of non-card products (excluding the divestiture) increased 4.6%, after an increase of only 1.5% in 1997. 14 15 The contribution of each major product category as a percent of net sales for the past three years (due to the divestiture, excludes picture frames and hair accessories from all years) is:
1998 1997 1996 ---- ---- ---- Everyday Greeting Cards................................47% 46% 45% Seasonal Greeting Cards................................22% 23% 22% Gift Wrapping and Party Goods..........................17% 18% 19% All Other Products.....................................14% 13% 14%
The All Other Products classification includes giftware, ornaments, non-prescription reading glasses, educational products, candles, stationery, calendars, balloons, stickers and custom display fixtures. EXPENSES AND PROFIT MARGINS The Corporation's continued focus on profitability resulted in a pre-tax margin of 12.3% in 1998, compared to 11.8% in 1997 and 11.3% in 1996, excluding non-recurring items. Continued manufacturing efficiencies and an improved product mix resulted in material, labor and other production costs which were 36.0% of net sales, down from 37.3% in 1997 and 38.0% in 1996. The improved product mix included both the strength of high margin everyday card sales as well as the divestiture of the low margin picture frame and hair accessory businesses which provided 70 basis points of this improvement. In 1997, strong high margin card sales, along with a $11.7 million decrease in product cost variances related to the conversion of the Canadian manufacturing operations to United States manufacturing processes contributed to the margin improvement. The cost of providing greeting card cabinets and point of purchase displays in the United States has been well managed, remaining flat in 1998 after decreasing $11.1 million in 1997 from 1996. Selling, distribution and marketing expenses were 39.9% of net sales, up from 38.9% in 1997 and 38.4% in 1996. However, these expenses increased only 4.4% after increasing 9.1% in 1997, as competitive costs moderated somewhat. As in prior years, competitive costs increased due to higher amortization of deferred costs and other expenses related to the Corporation's agreements with certain retail customers. Deferred costs and the Corporation's method of accounting for them are described in Note F to the Consolidated Financial Statements. The growth of selling, distribution, and marketing expenses other than competitive costs continued to slow, and increased just 1.7% in 1998 after increasing 3.1% in 1997 and 2.1% in 1996. Administrative and general expenses were $251.3 million, or 11.4% of net sales compared to $242.2 million or 11.2% of net sales in 1997. The increase from prior year is due primarily to costs related to the conversion of information systems to be year 2000 compliant (which is discussed further under "Year 2000"). Excluding the Year 2000 costs, administrative and general expenses increased only 1% in 1998 after increasing 6% in 1997. The increase in 1997 was due to the $6.1 million higher expense of the United States profit sharing plan and additional administrative and general expense from the operations of the John Sands Group. Interest expense decreased $7.8 million in 1998 after increasing $6.5 million in 1997. In 1998 strong cash flow provided by operating and investing activities resulted in lower borrowing requirements. The increase in 1997 was due primarily to the long-term debt incurred to purchase the assets of the John Sands Group. 15 16 The 1998 effective tax rate was 35.0% compared to 34.3% in 1997 and 34.2% in 1996. While the rate for all three years reflected tax benefits of the corporate-owned life insurance, the benefits in 1998 and 1997 were reduced due to the phase out of the Federal income tax deduction for interest on loans associated with these policies. See Note J to the Consolidated Financial Statements for details of the differences between the Federal statutory rate and the effective tax rate. NON-RECURRING ITEMS On August 12, 1997, the Corporation divested the net assets of 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 non-recurring gain of $22.1 million ($13.2 million net of tax, or earnings per share of $.18). In the third quarter of 1996, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In November 1995, the Corporation determined that the trends in the CreataCard business indicated that the undiscounted future cash flows from that business would be less than the carrying value of the long-lived assets related to that business. As a result, the Corporation recognized a pre-tax, non-cash loss of $52.1 million for the asset impairment. After the effect of income taxes, the loss was $35.1 million or earnings per share of $.47. See Note B to the Consolidated Financial Statements for further discussion of the impairment loss. NET INCOME AND EARNINGS PER SHARE Net income in 1998 increased to $190.1 million or earnings per share of $2.58 compared to net income of $167.1 million or earnings per share of $2.23 in 1997 and net income of $115.1 million or earnings per share of $1.54 in 1996. However, net income in 1998 and 1996 included the impact of non-recurring gains and losses. In 1998, a gain was recognized upon the divestiture of the net assets of Acme Frame Products, Inc. and Wilhold, Inc. and without this non-recurring gain, net income would have been $176.9 million or earnings per share of $2.40. In 1996, an asset impairment loss was recognized upon the adoption of SFAS No. 121 and without this non-recurring charge, net income would have been $150.2 million or earnings per share of $2.01. YEAR 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the application year. Any of the Corporation's computer programs that have date-sensitive software may be unable to interpret appropriately the Calendar Year 2000 and thus could cause the disruption of normal business activities. The Corporation uses software in various aspects of its business, including manufacturing, distribution, product development, and many administrative functions, and much of this software will need to be modified or replaced. The Corporation is addressing the Year 2000 issue with an enterprise-wide initiative, led by the Corporation's Senior Vice President of Information Services. 16 17 The Corporation believes that with timely modifications to its existing software and conversion to new software, by both the Corporation and its significant customers, the Year 2000 issue will not have a material impact on the Corporation's operations. Specific factors which might cause a material adverse effect include the availability and cost of trained personnel and the ability to recruit and retain them, as well as the ability to locate all computer codes requiring correction. Based upon information available at this time, the Corporation believes that the cost of modifications, replacements and related testing will not have a material impact on the Corporation's liquidity or results of operations. Year 2000 costs, which are estimated to be $30 million for both modification to existing software and software upgrades, are being funded through operations. LIQUIDITY AND CAPITAL RESOURCES The Corporation's continuing initiatives to manage working capital resulted in significant improvements in cash flow during the past two years. Cash flow from operations increased $41.3 million in 1998 after increasing $121.1 million in 1997. Ongoing controls over inventory in 1998, following a sizable reduction of inventories in 1997, as well as slower growth in accounts receivable in both years contributed to the increase in cash flow. The improvement in 1998 also included lower cash payments related to net deferred costs. The significant improvement achieved in 1997 was also due to higher earnings. Trade accounts receivable used $20.6 million of cash in 1998 compared to $25.4 million in 1997. The receivable performance in both years reflect strong fourth quarter sales of everyday cards and accessories. As a percent of net sales, accounts receivable were 17.0% in 1998, 17.4% in 1997 and 17.7% in 1996. Inventories as a percent of material, labor and other production costs, continued to decrease and were 34.3% in 1998, compared to 37.7% in 1997 and 44% in 1996. The improvements in 1998 and 1997 reflect the Corporation's focused efforts to reduce inventory levels and were driven by the greeting card divisions, where inventories declined $16.3 million in 1998 after decreasing $16.0 million in 1997 from 1996 levels. Payments under agreements with certain retailers (net of related amortization) decreased $79.0 million in 1998, after increasing $10.0 million in 1997. The payments which were made in connection with both new and existing agreements reflect the fluctuations resulting from various contract payment and renewal dates. However, the deferred costs which result from the payments are less volatile as they are amortized over the effective period of the agreement. Total commitments under the agreements are capitalized as deferred costs when the agreements are consummated, and any future payment commitments are recorded as liabilities at that time. Future payment commitments under existing agreements at the end of 1998 were $132.8 million with $51.7 million due within the next year. See Note F to the Consolidated Financial Statements for further discussion of deferred costs related to certain customer agreements. Investing activities include $82.0 million proceeds from the divestiture of the net assets of Acme Frame Products, Inc. and Wilhold, Inc. on August 12, 1997. In 1996, the Corporation acquired substantially all of the assets from the John Sands Group for $85.1 million in cash. 17 18 Capital expenditures decreased $25 million in 1998 from $92.9 million in 1997 which reflected expenditures for the automation of distribution systems, which began in 1996 and continued during 1997. Capital expenditures for 1999 are expected to be approximately $70 million. Investing activities other than capital expenditures and divestitures and acquisitions used $10.0 million less cash in 1998 after decreasing $9.0 million in 1997 from 1996. The Corporation's investment in corporate-owned life insurance required less cash in 1998 due to reduced premium payments while the increase in 1997 resulted from a decrease in policy loans. In June 1997, the Corporation's Board of Directors authorized the repurchase of up to 4.5 million shares of Class A common stock. The entire 4.5 million shares were repurchased during 1998 at an average price of $37.49 per share or $168.7 million. On March 26, 1998, the Corporation announced that its Board of Directors authorized an additional repurchase of up to 4 million shares of Class A common stock. Financing activities, excluding this share repurchase program, used $25.9 million of cash, including $52.0 million in dividend payments, while in 1997, financing activities used $44.0 million of cash, including $50.2 million in dividend payments to shareholders. Dividend payments increased $1.8 million in 1998 and $4.0 million in 1997. In 1996, financing activities included a $154.4 million increase in long-term debt used in part to fund the purchase of assets from the John Sands Group. The increase in 1996 long-term debt also reflected a shift in Canadian borrowings from short-term to long-term. Debt as a percent of total capitalization in 1998 remained at the 1997 level of 20.6% after decreasing from 22.1% in 1996. The Corporation's operating cash flow and existing credit facilities are expected to meet currently anticipated funding requirements. The seasonal nature of the business results in peak working capital requirements which are financed primarily through short term borrowings. See Note G to the Consolidated Financial Statements for further discussion of the Corporation's credit facilities. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, Statement of Financial Accounting Standards (SFAS) No. 129, "Disclosure of Information about Capital Structure," was issued. The Corporation was previously subject to the requirements of already-existing pronouncements in this area, and SFAS No. 129 contains no additional disclosure requirements applicable to the Corporation. In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. SFAS No. 130 establishes a definition and standards for reporting comprehensive income; however, SFAS No. 130 will have no effect on net income or shareholders' equity. The Corporation will adopt SFAS No. 130 in the first quarter of 1999, as required. The Corporation anticipates that comprehensive income will not differ materially from net income. The Corporation anticipates disclosing comprehensive income within its Statement of Shareholders' Equity. Also in June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued. SFAS No. 131 changes the standards for reporting financial results of segments and defines a segment as a component of an enterprise about which separate financial information is available and which is regularly evaluated 18 19 by the "chief operating decision maker." SFAS No. 131 requires financial information about segments to be reported on the basis of measurement that is used internally for evaluating segment performance and allocating resources among the segments. The Corporation will adopt SFAS No. 131 for its 1999 year-end reporting and for quarterly reporting in subsequent years, as required. The Corporation has not yet determined the effect of this standard on its segment reporting. In February 1998, SFAS No. 132, "Employers Disclosures about Pensions and Other Post Retirement Benefits," was issued. SFAS No. 132 supersedes the disclosure requirements in SFAS No. 87, SFAS No. 88 and SFAS No. 106. SFAS No. 132 addresses disclosure issues only and does not change measurement or recognition provisions specified in those statements. SFAS No. 132 eliminates certain existing disclosure requirements but at the same time adds new disclosures, with the overall objective to improve and standardize the disclosures about pensions and other post retirement benefits and to make the required information easier to prepare and more understandable. The Corporation will adopt SFAS No. 132 in 1999, as required. In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP restricts the capitalization of the costs of computer software developed or obtained for internal use to only external direct costs of materials and services, payroll costs for employees who are directly associated with the software development, and interest costs incurred during the development. All other costs of computer software development are to be expensed as incurred. Although the SOP is effective for fiscal years beginning after December 15, 1998, earlier application is encouraged. The Corporation has elected to apply this SOP effective in 1999. The Corporation is currently assessing the effect but does not anticipate a material impact on the results of operations. FACTORS THAT MAY AFFECT FUTURE RESULTS During 1998, the Corporation, while continuing its long-term record of sales growth and profitability, also focused on efforts to enhance shareholder value. These efforts included improved cash flow management, the share repurchase program and the divestiture of non-core businesses. While all of these efforts were successful, future revenue trends, profit margins and customer strength are difficult to predict. The Corporation has maintained a strong customer base in a wide variety of channels of distribution through its investment in deferred costs related to agreements with certain retailers and other competitive arrangements. The agreements have lessened the impact to the Corporation from loss of business due to the retailer consolidations which continued in 1998, particularly in the drug store channel. These agreements have been a strategic element of the Corporation's growth and the financial condition of the retail customers is continually evaluated and monitored to reduce risk. The Corporation has included in the Annual Report certain information other than historical facts that may constitute "forward-looking" information. Actual results may differ materially from these projected in the "forward-looking" statements, including but not limited to the risks discussed above, as well as retail bankruptcies, a weak retail environment and competitive terms of sale offered to customers to expand or maintain business. Other risks, which are not all-inclusive, include costs associated with correcting the Year 2000 issues, as well as economic conditions in the various markets served by the Corporation's operations. 19 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable Item 8. Financial Statements and Supplementary Data CONSOLIDATED STATEMENT OF INCOME Years ended February 28 or 29, 1998, 1997 and 1996 Thousands of dollars except per share amounts
1998 1997 1996 ------------ ------------ ------------ Net sales $ 2,198,765 $ 2,161,089 $ 2,003,038 Other income 13,349 11,209 8,916 ------------ ------------ ------------ Total revenue 2,212,114 2,172,298 2,011,954 Costs and expenses: Material, labor and other production costs 790,688 805,124 762,006 Selling, distribution and marketing 876,822 839,916 770,044 Administrative and general 251,300 242,179 228,544 Non-recurring (gain) charge (22,125) - 52,061 Interest 22,992 30,749 24,290 ------------ ------------ ------------ 1,919,677 1,917,968 1,836,945 ------------ ------------ ------------ Income before income taxes 292,437 254,330 175,009 Income taxes 102,353 87,235 59,874 ------------ ------------ ------------ Net income $ 190,084 $ 167,095 $ 115,135 ============ ============ ============ Earnings per share $ 2.58 $ 2.23 $ 1.54 ============ ============ ============ Earnings per share - assuming dilution $ 2.55 $ 2.22 $ 1.53 ============ ============ ============ Average number of shares outstanding 73,708,100 74,818,960 74,528,809
See notes to consolidated financial statements. 20 21 CONSOLIDATED STATEMENT OF FINANCIAL POSITION February 28, 1998 and 1997 Thousands of dollars
ASSETS 1998 1997 ---------- ---------- CURRENT ASSETS Cash and cash equivalents $ 47,623 $ 35,050 Trade accounts receivable, less allowances for sales returns of $135,584 ($121,856 in 1997) and for doubtful accounts of $15,661 ($15,264 in 1997) 373,594 375,324 Inventories 271,205 303,611 Deferred and refundable income taxes 120,507 100,732 Prepaid expenses and other 210,316 190,174 ---------- ---------- Total current assets 1,023,245 1,004,891 OTHER ASSETS 675,015 667,442 PROPERTY, PLANT AND EQUIPMENT - NET 447,632 462,787 ---------- ---------- $2,145,892 $2,135,120 ========== ==========
21 22 CONSOLIDATED STATEMENT OF FINANCIAL POSITION - CONTINUED February 28, 1998 and 1997 Thousands of dollars
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997 ----------- ----------- CURRENT LIABILITIES Debt due within one year $ 199,640 $ 133,171 Accounts payable and accrued liabilities 145,554 157,628 Accrued compensation and benefits 84,997 82,569 Income taxes 22,536 5,475 Other current liabilities 64,489 63,900 ----------- ----------- Total current liabilities 517,216 442,743 LONG-TERM DEBT 148,800 219,639 OTHER LIABILITIES 91,937 67,839 DEFERRED INCOME TAXES 42,722 43,244 SHAREHOLDERS' EQUITY Common shares - par value $1: Class A - 71,321,420 shares issued less 4,417,399 Treasury shares in 1998 and 70,608,745 shares issued less 14,193 Treasury shares in 1997 66,904 70,594 Class B - 6,066,096 shares issued less 1,787,665 Treasury shares in 1998 and 6,066,096 shares issued less 1,678,197 Treasury shares in 1997 4,278 4,388 Capital in excess of par value 290,820 272,262 Treasury stock (200,380) (34,850) Cumulative translation adjustment (23,437) (19,646) Retained earnings 1,207,032 1,068,907 ----------- ----------- Total shareholders' equity 1,345,217 1,361,655 ----------- ----------- $ 2,145,892 $ 2,135,120 =========== ===========
See notes to consolidated financial statements. 22 23 CONSOLIDATED STATEMENT OF CASH FLOWS Years ended February 28 or 29, 1998, 1997 and 1996
Thousands of dollars 1998 1997 1996 ----------- ----------- ---------- OPERATING ACTIVITIES: Net income $ 190,084 $ 167,095 $ 115,135 Adjustments to reconcile to net cash provided (used) by operating activities: Non-recurring (gain) charge (22,125) - 52,061 Depreciation 65,926 64,566 75,319 Deferred income taxes (20,186) 294 (48,184) Changes in operating assets and liabilities, net of effects from divestiture and acquisition: Increase in trade accounts receivable (20,567) (25,389) (33,967) Decrease (increase) in inventories 5,915 32,371 (43,804) Increase in other current assets (4,232) (2,050) (3,434) Increase in deferred costs - net (15,043) (93,961) (83,939) Increase (decrease) in accounts payable and other liabilities 10,402 5,877 (6,907) Other - net 5,018 5,100 10,542 --------- --------- --------- Cash Provided by Operating Activities 195,192 153,903 32,822 INVESTING ACTIVITIES: Business divestiture (acquisition) 82,000 - (85,056) Property, plant and equipment additions (67,898) (92,895) (91,590) Proceeds from sale of fixed assets 2,148 2,579 2,065 Investment in corporate-owned life insurance (6,358) (8,454) (1,117) Other 2,057 (6,283) (22,103) --------- --------- --------- Cash Provided (Used) by Investing Activities 11,949 (105,053) (197,801) FINANCING ACTIVITIES: Increase in long-term debt 9,430 8,451 154,406 Reduction of long-term debt (6,988) (12,232) (1,012) Increase (decrease) in short-term debt 8,049 4,869 (6,558) Sale of stock under benefit plans 16,915 6,997 9,572 Purchase of treasury shares (170,015) (1,863) (2,251) Dividends to shareholders (51,959) (50,152) (46,199) --------- --------- --------- Cash (Used) Provided by Financing Activities (194,568) (43,930) 107,958 --------- --------- --------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 12,573 4,920 (57,021) Cash and Equivalents at Beginning of Year 35,050 30,130 87,151 --------- --------- --------- Cash and Equivalents at End of Year $ 47,623 $ 35,050 $ 30,130 ========= ========= =========
See notes to consolidated financial statements. 23 24 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Years ended February 28 or 29, 1998, 1997 and 1996 Thousands of dollars except per share amounts
Common Shares Capital in Cumulative -------------------- Excess of Treasury Translation Retained Class A Class B Par Value Stock Adjustment Earnings Total -------- -------- --------- ---------- ----------- ----------- ----------- BALANCE MARCH 1, 1995 $ 69,674 $ 4,628 $ 255,022 $ (30,585) $ (22,226) $ 883,028 $1,159,541 Net income 115,135 115,135 Cash dividends - $0.62 per share (46,199) (46,199) Exchange of shares 15 (15) Sale of shares under benefit plans, including tax benefits 424 36 9,116 486 10,062 Purchase of treasury shares (1) (97) (2,849) (2,947) Sale of treasury shares 8 128 113 249 Translation adjustment (1,976) (1,976) Issuance of shares 36 1,121 1,157 ---------- --------- ----------- -------- --------- ---------- --------- BALANCE FEBRUARY 29, 1996 70,148 4,560 265,387 (32,835) (24,202) 951,964 1,235,022 Net income 167,095 167,095 Cash dividends - $0.67 per share (50,152) (50,152) Exchange of shares 131 (131) Sale of shares under benefit plans, including tax benefits 323 44 6,872 587 7,826 Purchase of treasury shares (8) (85) (2,609) (2,702) Sale of treasury shares 3 7 10 Translation adjustment 4,556 4,556 ---------- -------- ----------- ---------- --------- ---------- ---------- BALANCE FEBRUARY 28, 1997 70,594 4,388 272,262 (34,850) (19,646) 1,068,907 1,361,655 Net income 190,084 190,084 Cash dividends - $0.71 per share (51,959) (51,959) Exchange of shares 107 (107) Sale of shares under benefit plans, including tax benefits 713 33 18,386 438 19,570 Purchase of treasury shares (4,510) (45) (166,105) (170,660) Sale of treasury shares 9 172 137 318 Translation adjustment (3,791) (3,791) ---------- --------- ----------- ---------- ---------- ---------- ----------- BALANCE FEBRUARY 28, 1998 $ 66,904 $ 4,278 $ 290,820 $(200,380) $ (23,437) $1,207,032 $1,345,217 ========== ========= =========== ========== ========== ========== ==========
See notes to consolidated financial statements. 24 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended February 28 or 29, 1998, 1997 and 1996 Thousands of dollars except per share amounts NOTE A - SIGNIFICANT ACCOUNTING POLICIES Consolidation: The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All significant intercompany accounts and transactions are eliminated. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents: The Corporation considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. Financial Instruments: The carrying value of the Corporation's financial instruments approximate their fair market values. Concentration of Credit Risks: The Corporation sells primarily to customers in the retail trade, including those in the mass merchandiser, drug store, supermarket and other channels of distribution. These customers are located throughout the United States, Canada, the United Kingdom, Australia, New Zealand, France, Mexico and South Africa. The Corporation conducts business based on periodic evaluations of its customers' financial condition and generally does not require collateral. While the competitiveness of the retail industry presents an inherent uncertainty, the Corporation does not believe a significant risk of loss from a concentration of credit exists. Inventories: Finished products, work in process and raw material inventories are carried at cost, principally last-in, first-out (LIFO), not in excess of market. Display material and factory supplies are carried at average cost. Investment in Life Insurance: The Corporation's investment in corporate-owned life insurance policies is recorded in other assets net of policy loans. The net life insurance expense, including interest expense, is included in administrative and general expenses in the Consolidated Statement of Income. The related interest expense, which approximates amounts paid, was $59,642, $67,788 and $70,485 in 1998, 1997 and 1996, respectively. 25 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - ACCOUNTING POLICIES (CONTINUED) Property and Depreciation: Property, plant and equipment are carried at cost, except for certain assets as described in Note B. Depreciation and amortization of buildings, equipment and fixtures is computed principally by the straight-line method over the useful lives of the various assets. The cost of buildings is depreciated over 25 to 40 years and equipment and fixtures over 3 to 20 years. Revenue Recognition: Sales and related costs are recorded by the Corporation upon shipment of products to non-related retailers and upon the sale of products at Corporation-owned retail locations. Seasonal cards are sold with the right of return on unsold merchandise. The Corporation provides for estimated returns of seasonal cards when those products are shipped to non-related retailers. Advertising Expense: Advertising costs are expensed as incurred. Advertising expense was $61,062, $58,794 and $61,124 in 1998, 1997 and 1996, respectively. Income Taxes: Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Stock-Based Compensation: 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. 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 has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". 26 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - NON-RECURRING GAIN AND CHARGE During 1998, 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 earnings per share of $0.18). During 1996, 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. Accordingly, on November 1, 1995, the Corporation recognized an asset impairment loss of $52,061 ($35,094 net of tax, or earnings per share of $0.47). 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 C - EARNINGS PER SHARE The Corporation adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128), at the end of 1998, which replaced the calculation of primary and fully diluted earnings per share with earnings per share and earnings per share - assuming dilution. Because common stock equivalents were immaterial in prior years, no difference exists between the application of SFAS No. 128 and previous methods. Accordingly, no restatement of prior years was necessary. The following table sets forth the computation of earnings per share and earnings per share - assuming dilution:
1998 1997 1996 ------------- ------------- ------------- Numerator: Net income, earnings per share and earnings per share - assuming dilution $ 190,084 $ 167,095 $ 115,135 ============= ============= ============= Denominator (thousands): Denominator for earnings per share - weighted average shares outstanding 73,708 74,819 74,529 Effect of dilutive securities - stock options 838 507 583 ------------- ------------- ------------- Denominator for earnings per share - assuming dilution - adjusted weighted average shares outstanding 74,546 75,326 75,112 ============= ============= ============= Earnings per share $ 2.58 $ 2.23 $ 1.54 ============= ============= ============= Earnings per share - assuming dilution $ 2.55 $ 2.22 $ 1.53 ============= ============= =============
27 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - INVENTORIES
1998 1997 -------------- ------------- Raw material $ 42,641 $ 48,299 Work in process 37,204 47,113 Finished products 240,845 253,096 -------------- ------------- 320,690 348,508 Less LIFO reserve 90,130 89,061 -------------- ------------- 230,560 259,447 Display material and factory supplies 40,645 44,164 -------------- ------------- $ 271,205 $ 303,611 ============== =============
NOTE E - PROPERTY, PLANT AND EQUIPMENT
1998 1997 -------------- ------------- Land $ 11,910 $ 10,028 Buildings 279,395 282,726 Equipment and fixtures 647,438 627,440 -------------- ------------- 938,743 920,194 Less accumulated depreciation 491,111 457,407 -------------- ------------- $ 447,632 $ 462,787 ============== =============
28 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - 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. At February 28, 1998 and 1997 deferred costs and future payment commitments are included in the following financial statement captions:
1998 1997 -------------- -------------- Prepaid expenses and other $ 179,818 $ 161,601 Other assets 481,236 464,599 Other current liabilities (51,676) (51,153) Other liabilities (81,080) (54,199) --------------- -------------- $ 528,298 $ 520,848 =============== =============
29 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - LONG AND SHORT-TERM DEBT The borrowings of the Corporation in the United States consist primarily of commercial paper. At February 28, 1998, commercial paper borrowings were $148,855. The commercial paper borrowing arrangements are supported by a $650,000 revolving credit agreement. The agreement provides an option to convert up to $200,000 to a term loan. The agreement extends through June 2002, except for $250,000 which extends through June 1998. The expiration date of $400,000 of the agreement can be extended annually for one year to the June 30 next following the expiration date. A commitment fee is due on the unused portion of the credit facility and can range from 0.08% to 0.25%. As of February 28, 1998, the commitment fee was 0.125% on $400,000 of the facility, and 0.08% on $250,000 of the facility. No borrowings are outstanding under this facility as of February 28,1998. However, the amount available under this facility is reduced by $153,872 of commercial paper issued at February 28, 1998. The borrowings of the Corporation in Canada consist solely of commercial paper. At February 28, 1998, commercial paper borrowings, classified as long-term, were $75,247. The commercial paper borrowing arrangements up to $70,230 are supported by a revolving credit agreement for that amount that extends through January 2000. The expiration date of the agreement can be extended for one year during each of the next two years to the January 15 next following the expiration date. A facility fee is due on the aggregate amount of the facility, and can range from 0.07% to 0.25%. At February 28, 1998, the facility fee was 0.08%. No borrowings are outstanding under this facility as of February 28,1998. However, the amount available under this facility is reduced by $70,230 of commercial paper issued at February 28,1998. Commercial paper borrowings in Canada up to an additional $35,115 are supported by the revolving credit agreement in the United States. The Corporation's subsidiaries in the United Kingdom, Australia, France, Mexico and South Africa have credit agreements permitting borrowings of up to $186,372. At February 28, 1998, $121,562 is outstanding under these foreign revolving credit facilities, of which $71,472 is classified as long-term. All of the Corporation's revolving credit and term loan agreements provide for various borrowing alternatives in their respective currencies with interest rates generally ranging from 3.9% to 8.2% for amounts borrowed as of February 28, 1998. At February 28, 1998 and 1997, debt due within one year consists of the following:
1998 1997 --------------- --------------- Current maturities of long-term debt $ 695 $ 436 Foreign revolving credit facilities 46,505 - --------------- --------------- Aggregate current maturities 47,200 436 Notes payable 3,585 2,991 Commercial paper 148,855 129,744 --------------- --------------- $ 199,640 $ 133,171 =============== ===============
30 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - LONG AND SHORT-TERM DEBT (CONTINUED) At February 28, 1998 and 1997, long-term debt consists of the following:
1998 1997 --------------- --------------- Revolving credit, commercial paper, and term loan agreements $ 193,224 $ 217,240 Other 2,776 2,835 --------------- --------------- 196,000 220,075 Less current maturities 47,200 436 --------------- --------------- $ 148,800 $ 219,639 =============== ===============
Aggregate maturities of long-term debt are as follows: 1999 $ 47,200 2000 75,940 2001 530 2002 71,032 2003 12 Thereafter 1,286 --------------- $ 196,000 ===============
At February 28, 1998 the Corporation had credit arrangements to support the issuance of letters of credit in the amount of $97,023 with $25,260 of open credits outstanding. Interest paid on short-term and long-term debt was $22,735 in 1998, $29,914 in 1997 and $23,395 in 1996. The weighted average interest rate on short-term borrowings outstanding was 5.8% and 5.5% as of February 28, 1998 and 1997, respectively. 31 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - LONG AND SHORT-TERM DEBT (CONTINUED) As of February 28, 1998, the Corporation's subsidiary in Australia has an interest rate swap agreement for notional borrowings of $33,940 under which the Corporation pays a fixed rate and receives a floating rate. The pay rate and receive rate under this agreement are 5.1% and 5.0%, respectively. This agreement matures October 3, 1999. The floating rate under the agreement is based on the three-month Australian Bank Bill Rate. Net payments or receipts under the agreement are recognized as an adjustment to interest expense. The agreement was entered into with a major financial institution, and the Corporation anticipates that the financial institution will satisfy its obligations under the agreement. The Corporation guarantees payment of the subsidiary's obligations under the swap agreement. No collateral is held in relation to the agreement. NOTE H - RETIREMENT PLANS The Corporation has a non-contributory profit-sharing plan with a contributory 401(k) provision covering most of its United States employees. Contributions to the profit-sharing plan were $23,850, $22,990 and $16,846 for 1998, 1997 and 1996, respectively. The Corporation matches a portion of 401(k) employee contributions contingent upon meeting specified annual operating results goals. The Corporation's matching contributions were $2,802, $2,698 and $2,760 for 1998, 1997 and 1996, respectively. The Corporation also has several defined benefit and defined contribution pension plans covering certain employees in foreign countries. The cost of these plans was not material in any of the years presented. In the aggregate, the actuarially computed plan benefit obligation was fully funded. 32 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to full-time United States employees who are age 65 or over at retirement with 15 or more years of service and who were hired on or before December 31, 1991. In addition, for retirements on or after January 2, 1992 the retiree must have been continuously enrolled for health care for a minimum of five years or since January 2, 1992. The plan is contributory, with retiree contributions adjusted periodically, and contains other cost-sharing features such as deductibles and coinsurance. The Corporation maintains a trust for the payment of retiree health care benefits. This trust is funded at the discretion of management. The following table presents the plan's funded status at February 28, 1998 and 1997:
1998 1997 ----------- ----------- Accumulated postretirement benefit obligation: Retirees $ 30,271 $ 22,821 Fully eligible active plan participants 4,917 5,778 Other active plan participants 28,489 22,728 ----------- ----------- Accumulated postretirement benefit obligation 63,677 51,327 Plan assets, primarily listed stocks and bonds (39,760) (32,358) ----------- ------------ Accumulated postretirement benefit obligation in excess of plan assets 23,917 18,969 Unrecognized net loss (13,314) (5,546) ----------- ----------- Accrued postretirement benefit obligation $ 10,603 $ 13,423 ============ ===========
The accrued postretirement benefit obligation is included in the other liabilities financial statement caption. Net periodic postretirement benefit cost includes the following components:
1998 1997 1996 ----------- ------------ ---------- Service cost $ 1,711 $ 1,594 $ 1,280 Interest cost 4,282 3,441 3,239 Actual return on plan assets (4,717) (2,379) (2,864) Asset gain deferred 2,209 274 1,193 Amortization of loss 598 53 - ----------- ------------ ---------- $ 4,083 $ 2,983 $ 2,848 =========== ============ ==========
33 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - OTHER POSTRETIREMENT BENEFITS (CONTINUED) Assumptions used in the computations: Assumed discount rate 7.25% 7.25% 7.25% Expected long-term rate of return on plan assets 8.0% 8.0% 8.0%
A 5% annual rate of increase in per capita cost of covered benefits was assumed. This health care trend rate has a significant impact on the amounts reported. For example, a 1% increase in the trend rate in each year would increase the accumulated postretirement benefit obligation at February 28, 1998 by $10,900 and increase aggregate service and interest cost for the year by $1,140. 34 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - INCOME TAXES Income (loss) before income taxes:
1998 1997 1996 --------------- -------------- -------------- United States $ 298,817 $ 264,077 $ 191,649 Foreign (6,380) (9,747) (16,640) --------------- -------------- -------------- $ 292,437 $ 254,330 $ 175,009 =============== ============== =============
Income taxes have been provided as follows:
1998 1997 1996 --------------- ------------- -------------- Current: Federal $ 107,135 $ 71,582 $ 94,094 Foreign (6,873) 936 (1,045) State and local 21,318 14,400 14,917 --------------- ------------- -------------- 121,580 86,918 107,966 Deferred (principally federal) (19,227) 317 (48,092) --------------- ------------- -------------- $ 102,353 $ 87,235 $ 59,874 =============== ============= =============
Significant components of the Corporation's deferred tax assets and liabilities at February 28, 1998 and 1997 are as follows:
Deferred tax assets: 1998 1997 ------------- ------------- Sales returns $ 39,152 $ 34,643 Other 121,464 109,345 ------------- ------------- 160,616 143,988 Valuation allowance (13,362) (11,515) ------------- ------------- Total deferred tax assets 147,254 132,473 Deferred tax liabilities: Depreciation 44,694 46,005 Other 24,775 28,980 ------------- ------------- Total deferred tax liabilities 69,469 74,985 ------------- ------------- Net deferred tax assets $ 77,785 $ 57,488 ============= =============
The increase in the valuation allowance was due to increases in net operating loss carryforwards in the United Kingdom and Mexico. 35 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - INCOME TAXES (CONTINUED) The statutory federal income tax rate and the effective income tax rate are reconciled as follows:
1998 1997 1996 -------- --------- ------ Statutory rate 35.0% 35.0% 35.0% State and local income taxes, net of federal tax benefit 4.0 3.9 4.0 Asset impairment loss - - 1.8 Subsidiaries' losses without tax benefit 0.7 1.0 1.8 Corporate-owned life insurance investments (3.4) (4.3) (10.6) Other (1.3) (1.3) 2.2 ------- -------- ------- Effective tax rate 35.0% 34.3% 34.2% ======== ======= =======
Income taxes paid were $101,261 in 1998, $99,391 in 1997 and $94,267 in 1996. Deferred taxes have not been provided on approximately $53,779 of undistributed earnings of foreign subsidiaries since substantially all of these earnings are necessary to meet their business requirements. It is not practicable to calculate the deferred taxes associated with these earnings, however, foreign tax credits would be available to reduce federal income taxes in the event of distribution. At February 28, 1998, the Corporation had approximately $58,692 of foreign operating loss carryforwards, of which $31,328 have no expiration dates and $27,364 have expiration dates ranging from 1999 through 2008. The Internal Revenue Service is currently examining the Corporation's federal income tax returns for the fiscal years ended 1993 through 1995 and, as part of its Coordinated Issues Program, has made inquiries related to the Corporation's corporate-owned life insurance programs. Although no adjustments to taxable income have been proposed, the Corporation plans to fully contest any assessments relative to corporate-owned life insurance. 36 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - COMMON SHARES AND STOCK OPTIONS At February 28, 1998 and 1997, common shares authorized consisted of 93,800,000 Class A and 7,916,484 Class B shares. Class A shares have one vote per share and Class B shares have ten votes per share. There is no public market for the Class B common shares of the Corporation. Pursuant to the Corporation's Amended Articles of Incorporation, a holder of Class B common shares may not transfer such Class B common shares (except to permitted transferees, a group that generally includes members of the holder's extended family, family trusts and charities) unless such holder first offers such shares to the Corporation for purchase at the most recent closing price for the Corporation's Class A common shares. If the Corporation does not purchase such Class B common shares, the holder must convert such shares, on a share for share basis, into Class A common shares prior to any transfer. Under the Corporation's Stock Option Plans, options to purchase Class A and Class B shares are granted to directors, officers and other key employees at the then-current market price. In general, subject to continuing employment, options become exercisable commencing one year after date of grant in four annual installments and expire over a period of not more than ten years from the date of grant. The options granted to non-employee directors become exercisable in six installments over five years. The options for certain Class B shares become exercisable commencing one year after date of grant in ten equal annual installments. The Corporation has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, 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. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and has been determined as if the Corporation had accounted for its employee stock options issued subsequent to February 28, 1995 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model. 37 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - COMMON SHARES AND STOCK OPTIONS (CONTINUED) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Corporation's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The pro forma information for stock options indicate decreases in net income of $4,931 in 1998, $2,347 in 1997 and $180 in 1996. The Corporation's pro forma information and related assumptions under the Black-Scholes method follow:
1998 1997 1996 -------------- ------------- ------------- Net income $ 185,153 $ 164,748 $ 114,955 Earnings per share $ 2.51 $ 2.20 $ 1.54 Earnings per share - diluted $ 2.48 $ 2.19 $ 1.53 Assumptions: Risk-free interest rate 6.1% 6.4% 5.7% Dividend yield 2.0% 2.4% 2.3% Expected stock volatility 0.26 0.25 0.27 Expected life in years 5.6 4.6 4.6
38 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - COMMON SHARES AND STOCK OPTIONS (CONTINUED) Stock option transactions and prices are summarized as follow:
Number of Options Options Price Range Per Share ----------------- ----------------------------- Class A Class B Class A Class B ------- ------- ------- ------- Options outstanding March 1, 1995 1,826,965 770,090 $ 6.75 - $ 31.25 $ 7.16 - $ 26.75 Granted 105,291 6,000 25.75 - 31.63 28.13 Exercised (417,959) (36,000) 7.16 - 30.88 19.25 Cancelled (47,300) - --------- --------- 1,466,997 740,090 $ 6.75 - $ 31.63 $ 7.16 - $ 28.13 Weighted-Average Exercise Price Per Share ----------------------------------------- Options outstanding February 29, 1996 1,466,997 740,090 $ 20.29 $ 11.01 Granted 891,595 215,922 27.29 27.32 Exercised (317,409) (43,500) 18.10 19.31 Cancelled (84,800) - 27.13 - --------- --------- Options outstanding February 28, 1997 1,956,383 912,512 $ 23.57 $ 14.42 Granted 1,453,677 470,000 30.45 29.50 Exercised (616,675) (33,500) 21.14 19.85 Cancelled (182,250) - 28.96 - --------- --------- Options outstanding February 28, 1998 2,611,135 1,349,012 $ 27.58 $ 19.54 ========= ========= Options exercisable at February 28: 1998 1,077,035 902,262 $ 24.42 $ 14.84 1997 1,169,083 689,762 20.90 12.79
Exercise prices for options outstanding as of February 28, 1998 ranged from $7.16 to $44.50. The weighted average remaining contractual life of those options is 6.7 years. 39 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - LONG-TERM LEASES The Corporation is committed under noncancelable operating leases for commercial properties (certain of which have been subleased) and equipment, terms of which are generally less than 25 years. Rental expense under operating leases for the years ended February 28 or 29, 1998, 1997 and 1996 follows:
1998 1997 1996 -------------- ------------- ------------- Gross rentals $ 57,320 $ 59,228 $ 61,198 Less sublease rentals 4,985 7,423 7,876 -------------- ------------- ------------- Net rental expense $ 52,335 $ 51,805 $ 53,322 ============== ============= =============
At February 28, 1998, future minimum rental payments for noncancelable operating leases, net of aggregate future minimum noncancelable sublease rentals, follow: Gross Rentals: 1999 $ 44,609 2000 39,849 2001 35,491 2002 29,952 2003 24,389 Later years 61,554 ------------- 235,844 Sublease rentals (17,826) -------------- Net rentals $ 218,018 =============
40 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - BUSINESS SEGMENT INFORMATION The Corporation operates predominantly in a single industry: the design, manufacture and sale of greeting cards and other social expression products. While the Corporation offers a wide range of items for sale, many of them are manufactured at common production facilities and marketed by a common sales force. The Corporation's products are sold primarily to drug stores, mass merchandisers, supermarkets and card and gift stores. In addition to its North American operations, which include the United States and Canada, the Corporation has subsidiaries in Europe, Australia, New Zealand, Mexico and South Africa. Revenue transfers between geographic areas and other intergeographic eliminations are not material. The Corporation does not derive more than 10% of its total revenue from any individual customer, government agency or export sales. Operating profit (loss) by geographic segment is revenue less operating costs, excluding interest and income taxes. Segment information by geographic area for the years ended February 28 or 29, 1998, 1997 and 1996 follows:
North Other America Foreign Consolidated --------------- ---------------- --------------- 1998 - ---- Total revenue $ 2,041,268 $ 170,846 $ 2,212,114 Operating profit before non-recurring gain 283,459 9,845 293,304 Non-recurring gain 22,125 - 22,125 --------------- ---------------- --------------- Operating profit 305,584 9,845 315,429 Total assets excluding cash and equivalents 1,883,244 215,025 2,098,269 1997 - ---- Total revenue $ 2,009,455 $ 162,843 $ 2,172,298 Operating profit 279,212 5,867 285,079 Total assets excluding cash and equivalents 1,870,569 229,501 2,100,070 1996 - ---- Total revenue $ 1,907,942 $ 104,012 $ 2,011,954 Operating profit (loss) before non-recurring charge 257,667 (6,307) 251,360 Non-recurring charge (49,432) (2,629) (52,061) ---------------- ----------------- ---------------- Operating profit (loss) 208,235 (8,936) 199,299 Total assets excluding cash and equivalents 1,744,465 231,237 1,975,702
41 42 QUARTERLY RESULTS OF OPERATIONS - ------------------------------- (Unaudited) Thousands of dollars except per share amounts The following is a summary of the unaudited quarterly results of operations for the years ended February 28, 1998 and 1997.
Quarter Ended -------------------------------------------------------------------- May 31 August 31 November 30 February 28 ------------- --------- ----------- ----------- Fiscal 1998 - ----------- Net sales $ 475,059 $ 484,742 $ 639,655 $ 599,309 Total revenue 477,336 486,966 642,777 605,035 Gross profit 313,585 296,806 397,324 400,362 Non-recurring gain - 22,125 - - Net income 30,259 26,097 79,038 54,690 Earnings per share .40 .35 1.07 .76 Earnings per share - assuming dilution .40 .35 1.05 .75 Fiscal 1997 - ----------- Net sales $ 438,212 $ 466,536 $ 647,723 $ 608,618 Total revenue 440,127 469,024 651,074 612,073 Gross profit 283,545 278,277 397,568 396,575 Net income 27,772 11,429 74,597 53,297 Earnings per share .37 .15 1.00 .71 Earnings per share - assuming dilution .37 .15 .99 .71
42 43 Report of Independent Auditors Board of Directors and Shareholders American Greetings Corporation We have audited the accompanying consolidated statements of financial position of American Greetings Corporation as of February 28, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a)3. These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Greetings Corporation as of February 28, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note B to the consolidated financial statements, in 1996 the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. /s/ Ernst & Young LLP Cleveland, Ohio March 26, 1998 43 44 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no disagreements with the Corporation's independent auditors on accounting or financial disclosure matters within the three year period ended February 28, 1998, or in any period subsequent to such date. PART III The Corporation hereby incorporates by reference the information called for by Part III of Form 10-K from the Corporation's Notice of Annual Meeting of Shareholders to be held June 26, 1998, and related Proxy Statement filed with the Securities and Exchange Commission on May 13, 1998. (Next item is Part IV) 44 45 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 1. Financial Statements -------------------- Included in Part II of this report: Consolidated Statement of Income - Years ended February 28 or 29, 1998, 1997 and 1996 Consolidated Statement of Financial Position - February 28, 1998 and 1997 Consolidated Statement of Cash Flows - Years ended February 28 or 29, 1998, 1997 and 1996 Consolidated Statement of Shareholders' Equity - Years ended February 28 or 29, 1998, 1997 and 1996 Notes to Consolidated Financial Statements - Years ended February 28 or 29, 1998, 1997 and 1996 Quarterly Results of Operations (Unaudited) Report of Ernst & Young LLP, Independent Auditors 2. Exhibits required by Item 601 of Regulation S-K: ------------------------------------------------ (3) Articles of Incorporation and By-laws (i) Amended Articles of Incorporation of the Registrant This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-3 Registration Statement (Registration No. 33-50255) filed on September 15, 1993, and is incorporated herein by reference. (ii) Amended Regulations of the Registrant This Exhibit has been previously filed as an Exhibit to the Amendment No. 1 to the Registrant's Form S-3 Registration Statement Registration No. 33-39726) filed on May 17, 1991, and is incorporated herein by reference. 45 46 PART IV - Continued (10) Material Contracts (i) (A) (i) Officers' contracts * This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the fiscal year ended February 28, 1997, and is incorporated herein by reference. (ii) Employment Agreement with Edward Fruchtenbaum, dated January 1, 1998 * (ii) (A) (i) Shareholders Agreement dated November 19, 1984* This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the fiscal year ended February 28, 1997, and is incorporated herein by reference. (ii) Executive Bonus Plan * This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the fiscal year ended February 28, 1997, and is incorporated herein by reference. (iii) Executive Incentive Compensation Plan (as Amended and Restated as at March 6, 1989)* This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the fiscal year ended February 28, 1997, and is incorporated herein by reference. (iv) Executive Deferred Compensation Plan * This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1993, and is incorporated herein by reference. 46 47 PART IV - Continued (v) 1982 Incentive Stock Option Plan * This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 2-84911) dated July 1, 1983, and is incorporated herein by reference. (vi) 1985 Incentive Stock Option Plan * This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-975) dated November 7, 1985, and is incorporated herein by reference. (vii) Supplemental Executive Retirement Plan * This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1993, and is incorporated herein by reference. (viii) 1987 Class B Stock Option Plan This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-16180) dated July 31, 1987, and is incorporated herein by reference. (ix) Stock Option Agreement with Morry Weiss dated January 25,1988 * This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the fiscal year ended February 28, 1997, and is incorporated herein by reference. (x) Loan Agreement with Edward Fruchtenbaum dated March 1,1990 * This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the fiscal year ended February 28, 1997, and is incorporated herein by reference. (xi) 1992 Stock Option Plan * This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-58582) dated February 22,1993, and is incorporated herein by reference. 47 48 PART IV - Continued (xii) CEO/COO Compensation Plans * This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28,1995, and is incorporated herein by reference. (xiii) 1995 Director Stock Plan * This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-61037) dated July 14, 1995, and is incorporated herein by reference. (xiv) 1996 Employee Stock Option Plan * This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-08123) dated July 15, 1996, and is incorporated herein by reference. (xv) 1997 Equity and Performance Incentive Plan * This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the fiscal year ended February 28, 1997, and is incorporated herein by reference. (iii)(A) (i) Agreement to defer stock option gains with Morry Weiss dated December 15, 1997 * (21) Subsidiaries of the Registrant (23) Consent of Independent Auditors (27) Financial Data Schedule Executive Compensation Plans and Arrangements The Corporation's executive compensation plans and arrangements are listed under Exhibit 10 hereof and marked by an asterisk (*). (b) Reports on Form 8-K None (c) Exhibits listed in Item 14(a) 3. are included herein or incorporated herein by reference. 48 49 PART IV - Continued (d) Financial Statement Schedules The response to this portion of Item 14 is submitted below. 3. Financial Statement Schedules ----------------------------- Included in Part IV of the report: Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 49 50 PART IV - Continued SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 ------------------------------ (Registrant) Date: May 14, 1998 By: /s/ Jon Groetzinger, Jr. -------------- ------------------------------ Jon Groetzinger, Jr. Secretary 50 51 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Irving I. Stone Founder - Chairman; ) - -------------------------------------------- Chairman of the ) Irving I. Stone Executive Committee; ) Director ) ) ) /s/ Morry Weiss Chairman of the Board; ) - -------------------------------------------- Chief Executive Officer; ) Morry Weiss Director ) ) ) /s/ Edward Fruchtenbaum President; ) - -------------------------------------------- Chief Operating Officer; ) Edward Fruchtenbaum Director ) ) ) /s/ Scott S. Cowen Director ) May 14, 1998 - -------------------------------------------- ) Scott S. Cowen ) ) /s/ Herbert H. Jacobs Director ) - -------------------------------------------- ) Herbert H. Jacobs ) ) /s/ Albert B. Ratner Director ) - -------------------------------------------- ) Albert B. Ratner ) ) /s/ Harry H. Stone Director ) - -------------------------------------------- ) Harry H. Stone ) ) /s/ Jeanette S. Wagner Director ) - -------------------------------------------- ) Jeanette S. Wagner ) ) /s/ Milton A. Wolf Director ) - -------------------------------------------- ) Milton A. Wolf ) ) /s/ William S. Meyer Senior Vice President; ) - -------------------------------------------- Chief Financial Officer ) William S. Meyer (principal financial officer) ) ) ) /s/ Patricia L. Ripple Vice President; ) - -------------------------------------------- Corporate Controller ) Patricia L. Ripple (principal accounting officer) ) )
51 52 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AMERICAN GREETINGS CORPORATION AND SUBSIDIARIES (000)
- ------------------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------------------------------------------------------------------------------------------------ ADDITIONS ----------------------------------- Balance (1) (2) Balance Description at Beginning Charged to Costs Charged to Other Deductions-Describe at End of Period and Expense Accounts-Describe of Period - ------------------------------------------------------------------------------------------------------------------------------------ Year ended February 28, 1998: Deduction from asset account: Allowance for doubtful accounts $ 15,264 $ 11,585 $ (1,119) (A) $ 10,069 (B) $ 15,661 ========== ========== ========= ========== ========== Allowance for sales returns $ 121,856 $ 337,320 $ (1,040) (A) $ 322,552 (C) $ 135,584 ========== ========== ========= ========== ========== Allowance for other assets $ 16,400 $ 0 $ 0 $ 0 $ 16,400 ========== ========== ========= ========== ========== Year ended February 28, 1997: Deduction from asset account: Allowance for doubtful accounts $ 16,214 $ 8,210 $ 113 (A) $ 9,273 (B) $ 15,264 ========== ========== ========= ========== ========== Allowance for sales returns $ 141,412 $ 306,755 $ 164 (A) $ 326,475 (C) $ 121,856 ========== ========== ========= ========== ========== Allowance for other assets $ 16,400 $ 0 $ 0 $ 0 $ 16,400 ========== ========== ========= ========== ========== Year ended February 29, 1996: Deduction from asset account: Allowance for doubtful accounts $ 14,968 $ 13,905 $ 367 (A) $ 13,026 (B) $ 16,214 ========== ========== ========= ========== ========== Allowance for sales returns $ 102,004 $ 321,693 $ 238 (A) $ 282,523 (C) $ 141,412 ========== ========== ========= ========== ========== Allowance for other assets $ 5,000 $ 11,400 $ 0 $ 0 $ 16,400 ========== ========== ========= ========== ==========
Note A: Includes translation adjustment on foreign subsidiary balances; business unit disposals for the year ended February 28, 1998 of $1,064 allowance for doubtful accounts and $392 allowance for sales returns; and other minor reclasses and adjustments. Note B: Accounts charged off, less recoveries. Note C: Sales returns charged to the allowance account for actual returns for the year. EX-10.I.A.II 2 EXHIBIT 10(I)(A)(II) 1 10(i)(A)(ii) CONFIDENTIAL EMPLOYMENT AGREEMENT This Agreement ("Agreement") is made this _________ day of ______________ 1997, between Edward Fruchtenbaum ("Fruchtenbaum") and American Greetings Corporation ("AG" or "Company"). In consideration of the mutual promises contained herein, the parties agree as follows: 1. POSITION: Fruchtenbaum is employed by AG as the Company's President and Chief Operating Officer. Fruchtenbaum will perform any and all duties commensurate with those positions. 2. TERM: This Agreement will be in effect for "rolling" three (3) year terms commencing March 1, 1997; successive three (3) year terms will commence on March 2, 1997, and on each day thereafter, and will terminate three (3) years from each commencement date. 3. TERMINATION: It is understood that Fruchtenbaum's employment with AG, whether pursuant to this Agreement or otherwise, is terminable at-will, and may be terminated by either party at any time for any reason or for no reason. This Agreement will end on the date that Fruchtenbaum ends his employment with AG ("Termination Date"). Unless he voluntarily resigns, Fruchtenbaum will continue to receive compensation pursuant to paragraph 4.a. below, at the then current rate, for three (3) years after the Termination Date. As of the Termination Date, Fruchtenbaum will no longer be an employee of AG and will not be entitled to or receive any benefits or privileges of employment, except for those provided herein and those post-employment benefits generally afforded such former employees under AG's then current policies and procedures. 4. COMPENSATION: During the term of this Agreement, in addition to the other regular benefits offered to Executive Officers (as designated by the AG Board of Directors or otherwise), including but not limited to, the profit sharing, 401(k), stock option and supplemental executive retirement plans, health benefits and life insurance, Fruchtenbaum will receive the following salary and benefits: a. Beginning on March 1,1997, Fruchtenbaum will be paid an annual base salary of $455,000, less payroll taxes and other withholdings as required by law ("Base Salary"). Such Base Salary will be reviewed at or around the end of each AG fiscal year thereafter and at that time may be increased at the discretion of the AG Board of Directors. Unless Fruchtenbaum voluntarily resigns, the then current Base Salary will be paid for three years from the Termination Date, but Fruchtenbaum will not be eligible for bonuses under subparagraphs 4.b., 4.c. or 4.e. below. If Fruchtenbaum voluntarily resigns, 2 CONFIDENTIAL he will receive no further Base Salary or bonuses under subparagraphs 4.b., 4.c. or 4.e. below after the Termination Date. b. For each AG fiscal year, March 1 through February 28 ("Fiscal Year") in which AG pays its officers and certain key employees a cash bonus pursuant to the Company's regular Executive Incentive Compensation Plan, Fruchtenbaum will receive such a bonus based upon a target bonus of 40% of his then current annual Base Salary. c. Fruchtenbaum shall further be eligible to receive a cash bonus, if and when paid, under the terms of AG's current three year Special Bonus Plan or other future long-term executive incentive compensation plans for officers and certain key employees, in accordance with its/their terms. If the Special Bonus Plan is not renewed or a similar plan is not instituted at the end of the current three year Special Bonus Plan period, AG agrees to promptly review, but not necessarily act upon, the need for such a bonus as an element of Fruchtenbaum's compensation package. d. 1. On February 28,1993, AG granted Fruchtenbaum 29,000 Class A Shares of AG Common Stock (after adjustment for the September 1993 stock split) (the "1993 Grant"). Fruchtenbaum has a vested ownership in 23,000 shares of the 1993 Grant; and 6,000 shares are not vested. d. 2. On February 29,1996, AG granted Fruchtenbaum 30,000 Class A Shares of AG Common Stock (the "1996 Grant"). The 1996 Grant was subsequently reduced to 26,000 shares when AG failed to attain its profit goal for the fiscal year ending February 26,1996. Fruchtenbaum has a vested ownership in 6,000 shares of the 1996 Grant; and 20,000 shares are not vested. d. 3. The vesting schedules for the 1993 Grant and 1996 Grant are hereby waived as to all shares that are not vested. The 26,000 granted but not yet vested shares shall vest upon the earlier of (1) Fruchtenbaum's retirement, which is defined as the voluntary cessation of all regular, compensated employment in the greeting card industry, or similar self employment, after Fruchtenbaum attains age 60, provided AG receives at least 12 months written notice in advance of the retirement date; (2) Fruchtenbaum's death; (3) Fruchtenbaum's permanent disability, which is defined in subparagraph 4.d.5.(vii); or (4) termination of employment by AG. d. 4. AG will provide Fruchtenbaum with certain registration rights in connection with the 1993 Grant and 1996 Grant. d. 5. The following shall apply to Shares granted pursuant to subparagraphs 4.d.1 and 4.d.2.: i) Declared dividends will be paid on only vested Shares. ii) Voting rights will be exercisable on only vested Shares. -2- 3 CONFIDENTIAL iii) Subject to applicable state and federal law, including but not limited to Section 16 of the Securities Act of 1934, Shares may be sold or otherwise disposed of at any time on or after they have vested. iv) If Fruchtenbaum voluntarily resigns his employment with AG, all Shares that have been granted, but not vested, will be forfeited as of the effective date of such resignation. v) If Fruchtenbaum retires or AG terminates Fruchtenbaum's employment, any Shares that have been granted but have not vested as of the date that Fruchtenbaum retires or AG mails or delivers written notice of termination to Fruchtenbaum, as the case may be ("Notice Date"), shall vest as of the Notice Date. vi) If during the term of this Agreement Fruchtenbaum dies and his death is not the result of suicide, all Shares that have been granted hereunder will upon his death immediately vest in favor of his estate. vii) If during the term of this Agreement Fruchtenbaum becomes totally and permanently disabled, as determined by AG's then current disability insurance carrier, and such disability is not self-inflicted ("Disability Date"), all Shares that have been granted hereunder will immediately vest on the Disability Date. The Shares Fruchtenbaum is entitled to receive under this subparagraph (4.d.5.vii) are in addition to any and all disability benefits he would otherwise be entitled to receive as an AG Executive Officer. d. 6. The number of shares referred to in paragraph 4.d.3. above, will be adjusted to reflect any future adjustments in the price and in the number or kind of shares resulting from (a) any stock dividend, stock split, combination of shares, recapitalisation or other change in the capital structure of AG, (b) any merger, consolidation, separation, reorganization or partial or complete liquidation, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. e. In lieu of any additional stock grants provided under the previous employment of May 18, 1992, as amended, Fruchtenbaum shall be eligible to receive a cash bonus, less payroll taxes and withholdings required by law, payable on or before April 15,1998, and annually thereafter on April 15. The amount of the cash bonus shall be equal to the number of shares set forth in (1) below multiplied by the price per share set forth in (2) below: (1) Number of shares: 10,000 shares; except the number shall be reduced to 6,000 shares if AG as a whole has not attained its profit goal for the fiscal year just ended. (2) Price per share: the closing price of AG Class A Common Stock on March 1 of the current year. If no closing price is established on March 1, the price for the next date thereafter on which a closing price is established shall be used. -3- 4 CONFIDENTIAL f. During the term of this Agreement, Fruchtenbaum shall own at least 30,000 shares of AG Common Stock, which may be in the form of either vested or unvested shares. 5. CONFIDENTIAL AND TRADE SECRET INFORMATION: Fruchtenbaum acknowledges that in the course of his employment with AG he has and will have access to confidential information and trade secrets ("Confidential Information"), misuse or disclosure of which would adversely affect AG's business. Fruchtenbaum agrees that he will not, either during his employment with AG or at any time thereafter, use for himself or others, or disclose or convey to others (except as is necessary in the ordinary course of his employment) any of AG's Confidential Information. Confidential Information shall include documents so marked, as well as any other information, oral or written, which a reasonable person would believe to be confidential to or a trade secret of AG. This paragraph shall not prohibit disclosure of information which has become public, unless it became public through Fruchtenbaum's breach of this Agreement. 6. NON-COMPETITION: In consideration of AG's agreement to employ Fruchtenbaum under the terms of this Agreement, Fruchtenbaum agrees that he will not for the following periods engage anywhere in the United States or Canada, directly or indirectly, in any business activities, either as principal, agent or consultant or through any corporation, firm or organization in which he may be an officer, director, employee, substantial shareholder, partner, member or be otherwise affiliated that are in competition with AG's businesses at such time: (i) for the period of his employment hereunder; (ii) if Fruchtenbaum voluntarily resigns his employment with AG or retires, for three (3) years thereafter; or (iii) if AG terminates Fruchtenbaum's employment with AG, for three (3) years thereafter. 7. CONFLICT OF INTEREST: Fruchtenbaum represents and warrants that he has no interest or obligation that is inconsistent with or in conflict with this Agreement or that would prevent, limit or impair his performance of any part of this Agreement. 8. MISCELLANEOUS: a. This Agreement constitutes the entire understanding between Fruchtenbaum and AG relating to the subject matter contained herein and this Agreement supersedes any previous oral or written agreement(s) and understandings. This Agreement may not be changed, modified, or altered without the express written consent of Fruchtenbaum and AG. b. Either party's failure to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive the other party of his/its rights thereafter to insist upon strict adherence to that term or any other term of this Agreement. c. If any part or section of this Agreement is found to be contrary to law or unenforceable, the remainder shall remain in force and effect. -4- 5 CONFIDENTIAL d. This Agreement will be governed by and construed in accordance with the law of the State of Ohio. Any disputes that cannot be resolved amicably shall be resolved by binding arbitration in Cleveland in accordance with the applicable rules of the Center for Public Resources, or if the Center for Public Resources' facilities are not available, the rules of the American Arbitration Association. e. Upon Fruchtenbaum's termination, regardless of the reason, Fruchtenbaum will promptly surrender to AG any of its property in Fruchtenbaum's possession including, but not limited to, all correspondence, memoranda, notes, records, reports, plans, computer printouts, reproductions, slides, and any other papers or items, and copies of papers and other items, received or made by Fruchtenbaum in connection with his employment with AG. 9. REVIEW BY ADVISORS. Fruchtenbaum acknowledges that he has had ample opportunity to consult with his legal and financial advisors, has carefully considered this Agreement, and fully understands its provisions. He has not relied on any other representations or statements, written or oral. 10. SURVIVAL. he following paragraphs shall survive the expiration or termination of this A em n: 3. 4.a.; 4.d.3.; 4.d.4.; 4.d.5.; 4.d.6.; 5.; 6.; 7.; 8.d.; and 8.e. AMERICAN GREETINGS CORPORATION EDWARD FRUCHTENBAUM BY: /s/ Morry Weiss /s/ Edward Fruchtenbaum ------------------------------- ----------------------------------- NAME: ---------------------------- TITLE: DATE: 1/5/98 ---------------------------- ------------------------------ DATE: ---------------------------- -5- EX-10.III.A.I 3 EXHIBIT 10(II)(A)(I) 1 10(iii)(A)(i) AMERICAN GREETINGS CORPORATION Agreement to Defer Stock Option Gains ------------------------------------- THIS AGREEMENT TO DEFER STOCK OPTION GAINS (this "Agreement") dated December 15, 1997 between American Greetings Corporation (the "Company") and Morry Weiss (the "Optionee"), WITNESSETH: WHEREAS, the Board of Directors of the Company (the "Board") awarded the Optionee on January 25, 1988 options under which the Optionee has the right to purchase 510,000 Class B Common Shares of the Company (the "Option"); WHEREAS, pursuant to the terms of the Stock Option Agreement entered into between the Company and the Optionee to evidence the Option (the "Option Agreement"), the Optionee currently has the right to exercise the Option in full for cash or, subject to approval by the Board, by delivery of Common Shares of either class of the Company ("Common Shares"); and WHEREAS, the Optionee desires to waive certain rights under the Option Agreement in consideration for deferral of delivery of certain of the Common Shares issuable upon exercise of the Option. NOW THEREFORE, in consideration of the promises herein set forth and other good and valuable consideration had and received, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I - DEFINITIONS The following words and phrases when used in this Agreement shall have the following meanings: 1. "ADMINISTRATOR" shall mean the Compensation Committee of the Board or such other person or persons as designated by the Board. 2. "BENEFICIARY" shall mean the person(s) to whom the Optionee's Account (as defined herein) is payable upon his death. The Optionee may, by written instrument delivered to the Administrator during the Optionee's lifetime, designate one or more primary and contingent Beneficiaries to receive amounts payable from his Account following his death and may designate the proportions in which such Beneficiaries are to receive such payment. The Optionee may change such designation from time to time, and the last written designation filed with the Administrator prior to the Optionee's death shall control. If the Optionee fails to specifically designate a Beneficiary or if no designated Beneficiary survives the Optionee, payment shall be made by the Administrator to the Optionee's estate. 2 3. "CHANGE IN CONTROL" shall mean (a) a filing pursuant to any federal or state law in connection with any tender offer for shares of the Company (other than a tender offer by the Company), (b) the signing of any agreement for the merger or consolidation of the Company with another corporation or for the sale of all or substantially all of the assets of the Company, (c) the adoption of any resolution of reorganization or dissolution of the Company by the shareholders, (d) any other event or series of events, which, in the opinion of the Board, will or is likely to, if carried out, result in a change in control of the Company, or (e) if, during any period of two consecutive years, individuals who at the beginning of such period constituted the Board cease for any reason to constitute a majority thereof (unless the election, or the nomination for election by the Company's shareholders, of each Director of the Company first elected during such period was approved by a vote of at least two-thirds of the Directors then still in office who were Directors of the Company at the beginning of any such period). 4. "CODE" shall mean the Internal Revenue Code of 1986 as amended. 5. "DISABILITY" shall mean a physical or mental condition of the Optionee resulting from a bodily injury, disease, or mental disorder which renders him incapable of continuing in the employment of the Company. Such Disability shall be determined by the Administrator based upon appropriate medical evidence and examination. ARTICLE II - WAIVER The Optionee irrevocably waives his rights under the Option Agreement to (1) exercise the Option for cash at any time and (2) exercise the Option in any manner during the period commencing on the date hereof and ending at midnight, Cleveland time on April 24, 1998; provided, however, that such waiver shall be null and void in the event that during such period (a) the Optionee's employment is terminated by the Company, (b) the Optionee's employment terminates as a result of his death or Disability, or (c) there is a Change in Control of the Company. ARTICLE III - DEFERRAL The Optionee irrevocably elects that if he shall exercise the Option, in whole or in part, after the expiration of the period referred to in Article II hereof: 1. Payment of the exercise price for the portion of the Option being exercised shall be made in Common Shares which the Optionee owned for at least 6 months prior to the exercise date. 2. As soon as practicable following exercise of the Option, the Company shall deliver to the Optionee a number of Common Shares covered by the Option equal to the number of Common Shares which were surrendered by the Optionee in payment of the exercise price. 2 3 3. The delivery of the balance of the Common Shares issuable upon such exercise (the "Gain Shares") shall be deferred until April 25, 2001, (the "Deferral Period"), subject to and in accordance with Articles IV and V hereof. Notwithstanding the foregoing, the Deferral Period specified in the preceding sentence may (subject to approval by the Administrator) be extended (with respect to all or a specified portion of the Gain Shares) at the election of the Optionee; provided, however, that (a) any such election must be made in writing (in accordance with rules established by the Administrator) at least six (6) months prior to the expiration of such Deferral Period, and (b) such extension must be for a period of between three (3) and five (5) years. ARTICLE IV - DEFERRAL ACCOUNT The Company shall maintain an account on its books in the name of the Optionee (the "Account") which shall be administered as follows: 1. The Account shall consist of two Sub-Accounts -- (a) the "Common Share" Sub-Account and (b) the "Cash" Sub-Account. The Common Share Sub-Account shall initially be credited with the number of Gain Shares. Such Sub-Account shall be deemed to be invested in Common Shares of the class covered by the Option and shall be credited with stock dividends declared thereon. Appropriate adjustments in the Common Share Sub-Account shall be made as equitably required to prevent dilution or enlargement of the Sub-Account from any stock dividend, stock split, reorganization or other such corporate transaction or event. The Cash Sub-Account shall be credited with an amount equal to the amount of the cash dividend paid periodically with respect to Common Shares multiplied by the number of Common Shares credited to the Common Share Sub-Account as of the record date for the corresponding cash dividend, PLUS, IF APPLICABLE, ANY ACTUAL EARNINGS CREDITED TO THE CASH SUB-ACCOUNT FOLLOWING THE ESTABLISHMENT OF THE GRANTOR TRUST DESCRIBED IN PARAGRAPH 3 BELOW. 2. The value of the Optionee's Account shall be determined from time to time by the Administrator in the following manner: (a) The Account shall be valued as of each December 31 or more frequently as agreed upon by the Administrator, and shall again be valued as of the date that an Optionee receives any payment under the Agreement, in accordance with the procedures established by the Administrator. (b) All allocations to the Account shall be deemed to have been made on the applicable valuation date in the manner set forth in this paragraph, even though actually determined at a later date. 3 4 3. All amounts which are credited to the Account shall be credited solely for purposes of accounting and computation and shall remain assets of the Company subject to the claims of the Company's general creditors. This Agreement is designed to be unfunded, with amounts payable hereunder being paid from the general assets of the Company. Notwithstanding the foregoing, the Company may, but is not required to, deposit the Gain Shares in a grantor trust for the purpose of securing the benefits to be provided to the Optionee pursuant to this Agreement. IN THE EVENT THAT THE GAIN SHARES ARE DEPOSITED IN A GRANTOR TRUST, THE OPTIONEE SHALL HAVE NO AUTHORITY OR RESPONSIBILITY TO REDIRECT THE INVESTMENT OF SUCH GAIN SHARES AND SUCH GAIN SHARES SHALL AT ALL TIMES BE DEEMED INVESTED IN COMMON SHARES OF THE CLASS COVERED BY THE OPTION. The assets of any such trust shall at all times be subject to the claims of the Company's general creditors in the event of insolvency or bankruptcy. ARTICLE V - DISTRIBUTIONS 1. On each June 30 and December 31 while the Agreement is in effect, the Optionee shall be paid a lump sum distribution in cash equal to the balance credited to his Cash Sub-Account and such balance shall be reduced to zero. 2. The Optionee shall receive a distribution of his Account as soon as practicable following the earliest of (a) his termination of employment with the Company for any reason, whether voluntary or involuntary (with or without cause), (b) the expiration of the Deferral Period or (c) a Change in Control. 3. In the event of the death or Disability of the Optionee, the Optionee's Account shall be paid to the Optionee's Beneficiary or guardian (as the case may be) within 30 days following the date on which the Company is notified or otherwise determines that such event has occurred. 4. Distributions from the Optionee's Account shall be made in a single lump sum payment unless the Optionee elects to receive such payment in the form of annual installment payments over a three (3) or five (5) year period. Any election to receive installment payments must be made in writing (in accordance with rules established by the Administrator) at least six (6) months prior to the date on which the payment is due to be made. Notwithstanding the foregoing, any remaining installment payments shall be accelerated and paid in a single payment in the event of the death of the Optionee, a Change in Control of the Company or the Optionee's involuntary termination of employment from the Company. All payments under the Agreement (except for the semi-annual distributions from the Cash Sub-Account described in paragraph 1 above) shall be in the form of Common Shares of the class covered by the Option (with any fractional shares being paid in cash). 4 5 5. Notwithstanding the foregoing provisions of this Article V, if the deduction of all or any portion of a payment or distribution otherwise due to be made by the Company under the Agreement would be disallowed solely by reason of Code Section 162(m) but for the operation of this paragraph, then such payment or distribution (or portion thereof) shall be deferred and made at the earliest time that Section 162(m) would not apply to disallow the corresponding deduction by the Company. 6. Distributions under the Agreement shall be subject to all applicable withholding taxes. ARTICLE VI- MISCELLANEOUS 1. GENERAL PROVISIONS. This Agreement shall be governed by the laws of the State of Ohio. This Agreement may be amended only by a written instrument executed by both of the parties hereto. This Agreement constitutes the entire understanding between the parties hereto with respect to the subject matter hereof. If any provision of this Agreement is found to be unenforceable, the balance of this Agreement shall not be affected thereby. 2. AUTOMATIC TERMINATION. Notwithstanding anything to the contrary contained in this Agreement, the Agreement shall automatically terminate (and the Optionee's Account shall be immediately distributed in a single lump sum) in the event it is determined by the Company that, based upon a change in the federal tax laws, a published ruling, regulation or final decision issued by the Internal Revenue Service or the Department of Labor or by a court of competent jurisdiction that (a) the Agreement is considered "funded" for purposes of Title I of ERISA, (b) there is a transfer of property for purposes of Section 83 of the Code resulting in a currently taxable benefit to be realized by the Optionee or a Beneficiary pursuant to the "economic benefit" doctrine, or (c) pursuant to Section 451 of the Code, amounts are includable as compensation in the gross income of the Optionee or Beneficiary in a taxable year that is prior to the year or years in which such amounts are actually distributed or made available thereto. 3. EFFECT OF PRIOR AGREEMENTS. The provisions of any and all Agreements to Defer Stock Option Gains between the Company and the Optionee are hereby superseded in their entirety by the provisions of this Agreement. 4. ADMINISTRATION. (a) The Administrator may adopt such rules of procedure as it deems desirable for the conduct of its affairs, except to the extent that such rules conflict with the provisions of the Agreement. (b) The Administrator shall have the following rights, powers and duties: (i) Subject to the terms of this Agreement (including without limitation the claims procedure in paragraph 5 below), the decision of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon the Company and upon any other person affected by such 5 6 decision. (ii) The Administrator shall have the duty and authority to interpret and construe the provisions of the Agreement, to decide any question which may arise regarding the rights of the Optionee and his Beneficiaries, and the amounts of their respective interests, to adopt such rules and to exercise such powers as the Administrator may deem necessary for the administration of the Agreement, and to exercise any other rights, powers or privileges granted to the Administrator by the Board under the terms of the Agreement. (iii) The Administrator shall maintain full and complete records of its decisions. The Administrator shall within a reasonable time after the end of each calendar year provide the Optionee with a detailed report of the status of the Account. (c) No fee or compensation shall be paid to any person for services as the Administrator. 5. CLAIMS PROCEDURE. If a claim for benefits under the Agreement is wholly or partially denied, notice of the decision shall be furnished to the claimant by the Administrator within a reasonable period of time after receipt of a claim by the Administrator. Any claimant who is denied a claim shall be furnished written notice setting forth the specific reason or reasons for the denial; specific reference to the pertinent provision of the Agreement upon which the denial is based; a description of any additional material or information necessary for the claimant to perfect the claim; and an explanation of the claim review procedure. In order that a claimant may appeal a denial of a claim, the claimant or the claimant's duly authorized representative may: request a review by written application to the Administrator, or its designate, no later than 60 days after receipt by the claimant of written notification of denial of a claim; review pertinent documents; and submit issues and comments in writing. A decision on review of a denied claim shall be made not later than 60 days after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than 120 days after receipt of a request for review. The decision on review shall be in writing and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent provisions of the Agreement on which the decision is based. If a claimant disagrees with the decision on review, he shall have 30 days from receipt of the decision on review to demand binding confidential arbitration before three arbitrators in Cleveland, Ohio under Ohio law and the rules of the Center for Public Resources or American Arbitration Association (as the claimant may choose) for arbitration of employment disputes as his sole remedy. The award of the arbitrator shall be enforceable under 9 USC Sections 1-16 in any Court of competent jurisdiction. 6. NO ASSIGNMENT OF BENEFIT. It is a condition of this Agreement and all rights of the Optionee shall be subject thereto, that no right or interest of the Optionee shall be assignable or subject to execution, garnishment, attachment, pledge, bankruptcy or levy of any kind, but excluding devolution by death or mental incompetency. Further, no interest of the Optionee and no benefit payable hereunder shall be assigned as security for a loan, and any such purported assignment shall be null, void and of no effect, nor shall any such interest of any such benefit be subject in any manner, either voluntarily or involuntarily, to anticipation, sale, transfer, assignment, or encumbrance by or through the Optionee. If any attempt is made to alienate, pledge or charge any 6 7 such interest of any such benefit or any debt, liabilities in tort or contract, or otherwise, of the Optionee contrary to the prohibitions of the preceding sentence, then the Administrator in his discretion may suspend or forfeit the interest of the Optionee and during the period of such suspension, or in the case of forfeiture, the Administrator shall hold such interest for the benefit of or shall make the payments to which the Optionee would otherwise be entitled to, to the Optionee's spouse, children or other relatives to be selected in the sole discretion of the Administrator. 7. SUCCESSORS. The provisions of the Agreement are binding upon and inure to the benefit of the Company, its successors and assigns, and the Optionee, his Beneficiaries, heirs, and legal representatives. 8. NO GUARANTEE OF EMPLOYMENT. Nothing contained in the Agreement shall be construed as a contract of employment or deemed to give the Optionee the right to be retained in the employ of the Company or any equity or other interest in the assets, business or affairs of the Company. 9. NOTIFICATION OF ADDRESSES. The Optionee and each Beneficiary shall file with the Administrator, from time to time, in writing, the post office address of the Optionee, the post office address of each Beneficiary, and each change of post office address. Any communication, statement or notice addressed to the last post office address filed with the Administrator (or if no such address was filed with the Administrator, then to the last post office address of the Optionee or Beneficiary as shown on the Company's records) shall be binding on the Optionee and each Beneficiary for all purposes of the Agreement and neither the Administrator nor the Company shall be obliged to search for or ascertain the whereabouts of the Optionee or any Beneficiary. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto on the date first above written. AMERICAN GREETINGS CORPORATION By: /s/ Harvey Levin ---------------------------------- Title: Sr. V.P. Human Resources ------------------------------- /s/ Morry Weiss ------------------------------------- Morry Weiss 7 EX-21 4 EXHIBIT 21 1 EXHIBIT 21 AMERICAN GREETING CORPORATION SUBSIDIARIES OF THE REGISTRANT State / Jurisdiction Subsidiary of Incorporation - ---------- ---------------- A.G. Industries, Inc. North Carolina Carlton Cards (Canada) Limited Canada Carlton Cards (United Kingdom) Limited United Kingdom Carlton Cards Retail, Inc. Connecticut John Sands (Australia) Ltd. Delaware Magnivision, Inc. Delaware Plus Mark, Inc. Ohio EX-23 5 EXHIBIT 23 1 EXHIBIT 23 American Greetings Corporation Consent of Independent Auditors We consent to the incorporation by reference in (i) Post-Effective Amendment Number 1 dated May 27, 1986 to Registration Statement No. 2-89471 on Form S-3, (ii) Post-Effective Amendment Number 1 dated May 31, 1984 to Registration Statement No. 2-84911 on Form S-8, (iii) Registration Statement No. 33-975 on Form S-8 dated November 7, 1985, (iv) Registration Statement No. 33-16180 on Form S-8 dated July 31, 1987, (v) Post-Effective Amendment Number 1 dated May 17, 1991 to Registration Statement No. 33-39726 on Form S-3, (vi) Registration Statement No. 33-45673 on Form S-8 dated February 4, 1992, (vii) Registration Statement No. 33-58582 on Form S-8 dated February 22, 1993, (viii) Post-Effective Amendment Number 1 dated March 29, 1993 to Registration Statement No. 33-52196 on Form S-3, (ix) Registration Statement No. 33-50255 on Form S-3 dated September 15, 1993, (x) Registration Statement No. 33-57221 on Form S-3 dated January 16, 1995, (xi) Registration Statement No. 33-61037 on Form S-8 dated July 14, 1995, and (xii) Registration Statement No. 33-08123 on Form S-8 dated July 15, 1996 of our report dated March 26, 1998 with respect to the consolidated financial statements and schedule of American Greetings Corporation included in this annual report on Form 10-K for the year ended February 28, 1998. /s/ Ernst & Young LLP Cleveland, Ohio May 8, 1998 EX-27.1.A 6 EXHIBIT 27.1A
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART II, ITEM 8 OF THE FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR FEB-28-1998 MAR-01-1997 FEB-28-1998 47,623 0 373,594 15,661 271,205 1,023,245 938,743 491,111 2,145,892 517,216 0 0 0 71,182 1,274,035 2,145,892 2,198,765 2,212,114 790,688 790,688 0 11,585 22,992 292,437 102,353 190,084 0 0 0 190,084 2.58 2.55
EX-27.2.B 7 EXHIBIT 27.2B
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-28-1998 MAR-01-1997 NOV-30-1997 31,220 0 581,763 17,761 283,113 1,205,258 917,396 482,127 2,306,220 580,473 0 0 0 72,792 1,298,148 2,306,220 1,599,456 1,607,079 591,741 591,741 0 6,824 17,462 206,708 71,314 135,394 0 0 0 135,394 1.82 1.80
EX-27.3.C 8 EXHIBIT 27.3C
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 0 0 73,631 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 .75
EX-27.4.D 9 EXHIBIT 27.4D
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 0 0 75,241 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
EX-27.5.E 10 EXHIBIT 27.5E
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART II, ITEM 8 OF THE FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR FEB-28-1997 MAR-01-1996 FEB-28-1997 35,050 0 375,324 15,264 303,611 1,004,891 920,194 457,407 2,135,120 442,743 0 0 0 74,982 1,286,673 2,135,120 2,161,089 2,172,298 805,124 805,124 0 8,210 30,749 254,330 87,235 167,095 0 0 0 167,095 2.23 2.22
EX-27.6.F 11 EXHIBIT 27.6F
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-28-1997 MAR-01-1996 NOV-30-1996 35,830 0 621,942 20,473 338,300 1,276,459 888,556 447,531 2,318,959 651,935 0 0 0 74,900 1,244,630 2,318,959 1,552,471 1,560,225 593,081 593,081 0 6,002 23,539 173,208 59,410 113,798 0 0 0 113,798 1.52 1.51
EX-27.7.G 12 EXHIBIT 27.7G
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 0 0 74,804 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
EX-27.8.H 13 EXHIBIT 27.8H
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART I, ITEM 1 OF THE FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS FEB-28-1997 MAR-01-1996 MAY-31-1996 42,970 0 352,691 15,505 376,471 1,017,071 867,846 421,566 2,075,567 497,262 0 0 0 74,758 1,176,648 2,075,567 438,212 440,127 154,667 154,667 0 (95) 7,590 41,762 13,990 27,772 0 0 0 27,772 .37 .37
EX-27.9.I 14 EXHIBIT 27.9I
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART II, ITEM 8 OF THE FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR FEB-29-1996 MAR-01-1995 FEB-29-1996 30,130 0 353,671 16,214 335,074 970,193 851,143 410,873 2,005,832 453,847 0 0 0 74,708 1,160,314 2,005,832 2,003,038 2,011,954 762,006 762,006 0 13,905 24,290 175,009 59,874 115,135 0 0 0 115,135 1.54 1.53
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