-----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, QIDX0z+48+R2fl69ByNeOxVVeysCFszM+9g4TSI41omA08QY4PXWdDDBWZFNZkxG 0oEYMGbTIeJNSxbTShxquA== 0000950152-98-005813.txt : 19980703 0000950152-98-005813.hdr.sgml : 19980703 ACCESSION NUMBER: 0000950152-98-005813 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980702 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GREETINGS CORP CENTRAL INDEX KEY: 0000005133 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 340065325 STATE OF INCORPORATION: OH FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13859 FILM NUMBER: 98660286 BUSINESS ADDRESS: STREET 1: 10500 AMERICAN RD CITY: CLEVELAND STATE: OH ZIP: 44144 BUSINESS PHONE: 2162527300 MAIL ADDRESS: STREET 1: 10500 AMERICAN ROAD CITY: CLEVELAND STATE: OH ZIP: 44144 10-Q 1 AMERICAN GREETINGS CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES X EXCHANGE ACT OF 1934 - ---------- For the quarterly period ended May 31, 1998 --------------------------------------------- OR -- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 - ---------- For the transition period from to ------------------------ ----------------------- Commission file number 1-13859 ------------ AMERICAN GREETINGS CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Ohio 34-0065325 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One American Road, Cleveland, Ohio 44144 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (216) 252-7300 -------------------------------------------------- Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----------- ----------- As of May 31, 1998, the date of this report, the number of shares outstanding of each of the issuer's classes of common stock was: Class A Common 66,463,331 Class B Common 4,153,065 2 AMERICAN GREETINGS CORPORATION INDEX
Page Number ------ PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements...................................................1 Item 2. Management's Discussion and Analysis...................................8 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings.....................................................10 Item 6. Exhibits and Reports on Form 8-K......................................10 SIGNATURES..........................................................................11 - ----------
3 PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements -------------------- AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF INCOME (Thousands of dollars except per share amounts)
(Unaudited) Three Months Ended May 31, ----------------------------- 1998 1997 ------------ ------------ Net sales $ 487,908 $ 475,059 Costs and expenses: Material, labor and other production costs 159,719 161,474 Selling, distribution and marketing 214,884 204,990 Administrative and general 58,164 56,210 Interest expense 6,573 5,808 Other expense (income) (4,709) 381 ------------ ------------ Total costs and expenses 434,631 428,863 ------------ ------------ Income before income taxes 53,277 46,196 Income taxes 19,446 15,937 ------------ ------------ Net income $ 33,831 $ 30,259 ============ ============ Earnings per share $ 0.47 $ 0.40 ============ ============ Earnings per share - assuming dilution $ 0.47 $ 0.40 ============ ============ Dividends per share $ 0.18 $ 0.17 ============ ============ Average number of common shares outstanding 71,310,434 75,127,722
See notes to consolidated financial statements. Page 1 4 AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Thousands of dollars)
(Unaudited) (Unaudited) May 31, 1998 Feb. 28, 1998 May 31, 1997 ----------- ----------- ----------- ASSETS Current assets Cash and equivalents $ 43,497 $ 47,623 $ 53,263 Trade accounts receivable, less allowances of $98,399, $151,245 and $93,762, respectively (principally for sales returns) 357,659 373,594 351,112 Total inventories 296,008 271,205 340,747 Deferred and refundable income taxes 96,571 120,507 87,322 Prepaid expenses and other 214,498 210,316 191,419 ----------- ----------- ----------- Total current assets 1,008,233 1,023,245 1,023,863 Goodwill 134,125 84,741 101,452 Other assets 595,888 605,846 558,335 Property, plant and equipment - at cost 945,907 938,743 925,285 Less accumulated depreciation 504,883 491,111 468,082 ----------- ----------- ----------- Property, plant and equipment - net 441,024 447,632 457,203 ----------- ----------- ----------- $ 2,179,270 $ 2,161,464 $ 2,140,853 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Debt due within one year $ 276,469 $ 199,640 $ 170,538 Accounts payable and accrued liabilities 130,470 145,554 145,166 Accrued compensation and benefits 57,519 84,997 50,644 Income taxes 11,124 22,536 4,395 Other current liabilities 78,836 64,489 50,494 ----------- ----------- ----------- Total current liabilities 554,418 517,216 421,237 Long-term debt 148,712 148,800 215,838 Other liabilities 92,695 107,509 75,973 Deferred income taxes 37,749 42,722 43,190 Shareholders' equity Accumulated other comprehensive income (20,269) (23,437) (20,640) Other shareholders' equity 1,365,965 1,368,654 1,405,255 ----------- ----------- ----------- Total shareholders' equity 1,345,696 1,345,217 1,384,615 ----------- ----------- ----------- $ 2,179,270 $ 2,161,464 $ 2,140,853 =========== =========== ===========
See notes to consolidated financial statements. Page 2 5 AMERICAN GREETINGS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of dollars)
(Unaudited) Three Months Ended May 31, ----------------------------- 1998 1997 ------------ ------------ OPERATING ACTIVITIES: Net income $ 33,831 $ 30,259 Adjustments to reconcile to net cash provided (used) by operating activities: Depreciation 16,752 16,684 Deferred income taxes 18,896 13,371 Change in operating assets and liabilities, net of effects from acquisitions (64,152) (59,558) Other - net 1,404 1,960 ------------ ------------ Cash Provided by Operating Activities 6,731 2,716 INVESTING ACTIVITIES: Business acquisitions (52,957) - Property, plant & equipment additions (10,009) (13,376) Investment in corporate-owned life insurance 7,308 3,979 Other - net 7,261 (1,620) ------------ ------------ Cash Used by Investing Activities (48,397) (11,017) FINANCING ACTIVITIES: Increase in long-term debt 5,410 11,412 Reduction of long-term debt (403) (1,188) Increase in short-term debt 68,569 24,922 Sale of stock under benefit plans 5,100 4,460 Purchase of treasury shares (28,229) (305) Dividends to shareholders (12,907) (12,787) ------------ ------------ Cash Provided by Financing Activities 37,540 26,514 ------------ ------------ (DECREASE) INCREASE IN CASH AND EQUIVALENTS (4,126) 18,213 Cash and Equivalents at Beginning of Year 47,623 35,050 ------------ ------------ Cash and Equivalents at End of Period $ 43,497 $ 53,263 ============ ============
See notes to consolidated financial statements. Page 3 6 AMERICAN GREETINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Thousands of dollars) Three Months Ended May 31, 1998 and 1997 Note A - Basis of Presentation - ------------------------------ The accompanying financial statements have been prepared in accordance with the instructions to Form 10-Q. Although they are unaudited, the Corporation believes that all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations have been made. Note B - Seasonal Nature of Business - ------------------------------------ The Corporation's business is seasonal in nature. Therefore, the results of operations for interim periods are not necessarily indicative of the results for the fiscal year taken as a whole. Note C - Reclassifications - -------------------------- Certain amounts in the prior fiscal year financial statements have been reclassified to conform with the 1998 presentation. Page 4 7 Note D - Earnings Per Share - --------------------------- The following table sets forth the computation of earnings per share and earnings per share - assuming dilution:
Three Months Ended May 31, ------- 1998 1997 ---- ---- Numerator: Net income, earnings per share and earnings per share - assuming dilution $ 33,831 $ 30,259 ============ ============ Denominator (thousands): Weighted average shares outstanding 71,310 75,128 Effect of dilutive securities - stock options 1,028 632 ------------ ------------ Adjusted weighted average shares outstanding 72,338 75,760 ============ ============ Earnings per share $ 0.47 $ 0.40 ============ ============ Earnings per share - assuming dilution $ 0.47 $ 0.40 ============ ============
Page 5 8 Note E - Comprehensive Income - ----------------------------- The Corporation has adopted SFAS No. 130, Reporting Comprehensive Income, as required, which established standards for reporting and displaying comprehensive income and its components in an annual financial statement that is displayed with the same prominence as other financial statements. This Standard also requires that an entity report a total of comprehensive income in financial statements of interim periods. Comprehensive income represents all changes in shareholders' equity during the period except those resulting from investments by owners and distributions to owners. The Corporation's total comprehensive income was as follows:
(Unaudited) Three Months Ended May 31, ----------------------- 1998 1997 ---------- ---------- Net income $ 33,831 $ 30,259 Other comprehensive (loss) income Foreign currency translation adjustments (3,063) (994) Unrealized gain on available-for-sale securities 6,231 - ---------- ---------- Other comprehensive income 3,168 (994) ---------- ---------- Total comprehensive income $ 36,999 $ 29,265 ========== ==========
Note F - New Accounting Standards - --------------------------------- The Corporation will adopt the disclosure requirements of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, for the fiscal year ending February 28, 1999, as required. The Corporation is currently evaluating the effect of this Standard on its segment reporting. The Corporation will adopt SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, for the fiscal quarter beginning March 1, 2000, as required. Because of the Corporation's current minimal use of derivatives, the Corporation does not anticipate that the adoption of SFAS No. 133 will have a significant effect on its earnings or its financial position. Page 6 9 Note G - Inventories - --------------------
May 31, February May 31, 1998 28, 1998 1997 ----------- ----------- ----------- Raw materials $ 41,654 $ 42,641 $ 43,298 Work in process 41,792 37,204 52,572 Finished products 265,161 240,845 292,830 ----------- ----------- ----------- 348,607 320,690 388,700 Less LIFO reserve 91,170 90,130 90,703 ----------- ----------- ----------- 257,437 230,560 297,997 Display materials and factory supplies 38,571 40,645 42,750 ----------- ----------- ----------- Inventories $296,008 $271,205 $340,747 =========== =========== ===========
Note H - Deferred Costs - ----------------------- Deferred costs relating to agreements with certain customers are charged to operations on a straight-line basis over the effective period of each agreement, generally three to six years. Deferred costs estimated to be charged to operations during the next year are classified with prepaid expenses and other. Total commitments under the agreements are capitalized as deferred costs and future payment commitments, if any, are recorded as liabilities when the agreements are consummated. As of May 31, 1998, February 28, 1998 and May 31, 1997 deferred costs and future payment commitments are included in the following financial statement captions:
May 31, February May 31, 1998 28, 1998 1997 ---------- ---------- ---------- Prepaid expenses and other $177,366 $179,818 $158,844 Other assets 476,490 481,236 445,761 Other current liabilities (65,948) (51,676) (37,703) Other liabilities (64,399) (81,080) (48,951) ---------- ---------- ---------- $523,509 $528,298 $517,951 ========== ========== ==========
Page 7 10 Part 1., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS - ----------------------------------------------------- Results of Operations - --------------------- Net sales of $487.9 million for the quarter ended May 31, 1998 were up 2.7% over the same period in the prior year. The increase was moderated by the divestiture of the net assets of Acme Frame Products, Inc. and Wilhold, Inc. during the second quarter last year. On a normalized basis, net sales would have increased nearly 6%, due primarily to strong sales of everyday cards and accessories. Unit sales of greeting cards increased 2% from the same period in the prior year. Material, labor and other production costs were 32.7% of net sales for the quarter, down from 34.0% in the prior year. The improvement was primarily due to the divestiture of the two business units which had higher product costs. Selling, distribution and marketing expenses were 44.0% of net sales for the quarter, up from 43.2% in the prior year. The increase was due to the cost of a national consumer advertising campaign which was launched during the quarter. Administrative and general expenses were $58.2 million for the quarter, up slightly from $56.2 million in the prior year due primarily to the timing of expenses related to the Corporation's corporate owned life insurance program. Interest expense increased from the prior year by $0.8 million for the quarter. The increase was due primarily to higher borrowing levels to fund the acquisitions of two greeting card companies in the United Kingdom; Camden Graphics Group was acquired on March 11, 1998, and Hanson White, Ltd. was acquired on May 11, 1998. Other expense(income) was $4.7 million of income for the quarter compared to $0.4 million of expense in the prior year. The improvement was due primarily to the gain on the sale of the Corporation's equity investment in Artistic Greetings, Inc., partially offset by higher costs related to the conversion of information systems to be year 2000 compliant. The effective tax rate for the quarter was 36.5%, up from 34.5% in the prior year due to the reduced tax benefit from the corporate owned life insurance program. Liquidity and Capital Resources - ------------------------------- The seasonality of the Corporation's business precludes a useful comparison of the current period and the year-end financial statements; therefore, a Statement of Financial Position for May 31, 1997 has been included. Operations provided $6.7 million for the first three months, an improvement of $4.0 million from the same period last year. This improvement was due primarily to the increase in net income and reduced growth of inventories offset somewhat by the timing of income tax payments. Page 8 11 Accounts receivable, which provided $25.1 million for the three months compared to providing $23.1 million during the same period in the prior year, were 16.2% of the prior twelve months' sales at May 31, 1998, compared to 16.0% at May 31, 1997. Inventories, which continue to benefit from aggressive management focus, used $22.7 million for the three months, lower than the use of $36.4 million during the same period in the prior year. Inventories as a percent of the prior twelve months' material, labor, and other production costs were 37.5% and 42.0% at May 31, 1998, and May 31, 1997, respectively. Investing activities used $48.4 million in cash for the quarter, including $53.0 million for the acquisitions in the United Kingdom. Excluding the acquisitions, investing activities provided $4.6 million for the quarter, an improvement of $15.6 million from the prior year, reflecting the sale of the Artistic Greetings stock and a lower level of capital spending. On May 21, 1998, the Corporation filed a shelf registration for up to $600 million in debt with the Securities and Exchange Commission, and expects to borrow $300 million, to reduce commercial paper outstanding, in the near future. Also during the quarter, 545,000 shares of the Corporation's common stock were repurchased, of the 4.0 million shares authorized, at an average price of $47.65 per share or $26.0 million. Debt as a percentage of debt plus equity was 24.0% at May 31, 1998 compared to 21.8% at May 31, 1997. On a per share basis, shareholders' equity increased from $18.40 per share at May 31, 1997 to $18.92 at May 31, 1998. There were no material changes in the financial condition, liquidity or capital resources of the Corporation from February 28, 1998, the end of its preceding fiscal year, to May 31, 1998, the end of its last fiscal quarter and the date of the most recent balance sheet included in this report, nor from May 31, 1997, the end of the corresponding fiscal quarter last year, to May 31, 1998, except the changes discussed above and aside from normal seasonal fluctuations. Prospective Information - ----------------------- The Corporation has included in the Form 10-Q certain information other than historical facts that may constitute "forward-looking" information. Although management is not aware of any current trends, events, demands, commitments or uncertainties which reasonably can be expected to have a material effect on the liquidity, capital resources, financial position or results of operations of the Corporation, the Corporation's actual results may differ materially from those projected in the "forward-looking" statements, including but not limited to such factors as retail bankruptcies, a weak retail environment, loss of retail accounts and competitive terms of sale offered to customers to expand or maintain business. Please see the Corporation's Form 10-K for the year ended February 28, 1998 for other risks and uncertainties that may affect future results. Page 9 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- (a) Zucker, Ham & Mandell v. American Greetings Corporation (Nicholas J. Bua, Arbitrator) The Zucker Group claimed that it presented the Corporation with the idea for using the National Football League logo on greeting cards and the Corporation misappropriated the idea. The Zucker Group brought suit in 1994, which was subsequently transferred to arbitration by agreement of the parties. The Zucker Group sought more than $400 million in compensatory and punitive damages. On June 8, 1998, Arbitrator Bua announced an award in favor of The Zucker Group in the amount of $750,000. The Corporation believes the decision is incorrect and is considering all of its legal options. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits (exhibit reference numbers refer to Item 601 of Regulation S-K) 27 Financial Data Schedule (b) Reports on Form 8-K None Page 10 13 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN GREETINGS CORPORATION By: /s/ Patricia L. Ripple ------------------------------------- Patricia L. Ripple Controller Chief Accounting Officer July 2, 1998 Page 11 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART I, ITEM 1 OF THE FIRST QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS FEB-28-1999 MAR-01-1998 MAY-31-1998 43,497 0 357,659 18,385 296,008 1,008,233 945,907 504,883 2,179,270 554,418 0 0 0 71,126 1,274,570 2,179,270 487,908 487,908 159,719 159,719 0 2,135 6,573 53,277 19,446 33,831 0 0 0 33,831 .47 .47
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