-----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, PA9Nzg8XQm6LDaqV2eCfuC8NoiRg0oqnHTprpuN09OiNEhPQExOUxVAkdNAyGTWn 92JrZTEgKfdnQdHawdKumQ== 0000950152-98-008178.txt : 19981016 0000950152-98-008178.hdr.sgml : 19981016 ACCESSION NUMBER: 0000950152-98-008178 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981015 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GREETINGS CORP CENTRAL INDEX KEY: 0000005133 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 340065325 STATE OF INCORPORATION: OH FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13859 FILM NUMBER: 98725905 BUSINESS ADDRESS: STREET 1: 10500 AMERICAN RD CITY: CLEVELAND STATE: OH ZIP: 44144 BUSINESS PHONE: 2162527300 MAIL ADDRESS: STREET 1: 10500 AMERICAN ROAD CITY: CLEVELAND STATE: OH ZIP: 44144 10-Q 1 AMERICAN GREETINGS CORPORATION 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES X EXCHANGE ACT OF 1934 - ------- For the quarterly period ended August 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 August 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 66,188,938 Class B Common 4,655,720 2 AMERICAN GREETINGS CORPORATION INDEX Page Number ------ PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements..........................................1 Item 2. Management's Discussion and Analysis..........................9 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings............................................14 Item 4. Submission of Matters to a Vote of Security Holders..........15 Item 6. Exhibits and Reports on Form 8-K............................ 16 SIGNATURES.................................................................16 - ---------- 3
PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements -------------------- AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF INCOME (Thousands of dollars except per share amounts) (Unaudited) Six Months Ended August 31, ------------------------------- 1998 1997 --------------- -------------- Net sales $ 967,641 $ 959,801 Costs and expenses: Material, labor and other production costs 330,206 349,410 Selling, distribution and marketing 440,916 421,091 Administrative and general 109,506 111,876 Non-recurring gain - (22,125) Interest 13,918 11,130 Other expense (income) (1,524) 2,379 --------------- -------------- Total costs and expenses 893,022 873,761 --------------- -------------- Income before income taxes 74,619 86,040 Income taxes 26,863 29,684 --------------- -------------- Net income $ 47,756 $ 56,356 =============== ============== Earnings per share $ 0.67 $ 0.75 =============== ============== Earnings per share - assuming dilution $ 0.67 $ 0.75 =============== ============== Dividends per share $ 0.37 $ 0.35 =============== ============== Average number of common shares outstanding 70,862,530 74,775,937
See notes to consolidated financial statements. Page 1 4
AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF INCOME (Thousands of dollars except per share amounts) (Unaudited) Three Months Ended August 31, ------------------------------------ 1998 1997 ------------- -------------- Net sales $ 479,733 $ 484,742 Costs and expenses: Material, labor and other production costs 170,487 187,936 Selling, distribution and marketing 226,032 216,101 Administrative and general 51,342 55,666 Non-recurring gain -- (22,125) Interest 7,345 5,322 Other expense (income) 3,185 1,998 ------------ ------------ Total costs and expenses 458,391 444,898 ------------ ------------ Income before income taxes 21,342 39,844 Income taxes 7,417 13,747 ------------ ------------ Net income $ 13,925 $ 26,097 ============ ============ Earnings per share $ 0.20 $ 0.35 ============ ============ Earnings per share - assuming dilution $ 0.20 $ 0.35 ============ ============ Dividends per share $ 0.19 $ 0.18 ============ ============ Average number of common shares outstanding 70,524,337 74,424,152
See notes to consolidated financial statements. Page 2 5
AMERICAN GREETINGS CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Thousands of dollars) (Unaudited) (Unaudited) August 31, 1998 Feb. 28, 1998 August 31, 1997 --------------- ------------- --------------- ASSETS Current assets Cash and equivalents $ 76,483 $ 47,623 $ 38,606 Trade accounts receivable, less allowances of $87,303, $151,245 and $73,112, respectively (principally for sales returns) 392,884 373,594 367,185 Total inventories 336,664 271,205 339,563 Deferred and refundable income taxes 98,844 120,507 86,692 Prepaid expenses and other 221,524 210,316 183,469 ---------- ---------- ---------- Total current assets 1,126,399 1,023,245 1,015,515 Goodwill 132,176 84,741 93,261 Other assets 568,171 605,846 523,089 Property, plant and equipment - at cost 943,453 938,743 915,025 Less accumulated depreciation 512,755 491,111 473,135 ---------- ---------- ---------- Property, plant and equipment - net 430,698 447,632 441,890 ---------- ---------- ---------- $2,257,444 $2,161,464 $2,073,755 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Debt due within one year $ 27,312 $ 199,640 $ 159,372 Accounts payable and accrued liabilities 178,654 145,554 159,927 Accrued compensation and benefits 64,582 84,997 55,500 Income taxes 12,820 22,536 13,746 Other current liabilities 59,444 64,489 22,144 ---------- ---------- ---------- Total current liabilities 342,812 517,216 410,689 Long-term debt 457,506 148,800 211,005 Other liabilities 93,817 107,509 72,382 Deferred income taxes 37,498 42,722 40,938 Shareholders' equity 1,325,811 1,345,217 1,338,741 ---------- ---------- ---------- $2,257,444 $2,161,464 $2,073,755 ========== ========== ==========
See notes to consolidated financial statements. Page 3 6
AMERICAN GREETINGS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of dollars) (Unaudited) Six Months Ended August 31, ----------------------------------- 1998 1997 ------------- ------------ OPERATING ACTIVITIES: Net income $ 47,756 $ 56,356 Adjustments to reconcile to net cash provided (used) by operating activities: Non-recurring gain -- (22,125) Depreciation 33,741 33,688 Deferred income taxes 13,777 11,764 Change in operating assets and liabilities, net of effects from acquisitions and divestitures (90,301) (84,609) Other - net 3,027 2,054 --------- --------- Cash Provided (Used) by Operating Activities 8,000 (2,872) INVESTING ACTIVITIES: Business acquisitions and divestitures (52,957) 82,000 Property, plant & equipment additions (21,381) (23,578) Investment in corporate-owned life insurance 6,007 4,406 Other - net 12,021 (372) --------- --------- Cash (Used) Provided by Investing Activities (56,310) 62,456 FINANCING ACTIVITIES: Increase in long-term debt 319,233 21,347 Reduction of long-term debt (25,785) (3,478) (Decrease) increase in short-term debt (149,016) 6,613 Sale of stock under benefit plans 9,676 7,021 Purchase of treasury shares (50,616) (61,326) Dividends to shareholders (26,322) (26,205) --------- --------- Cash Provided (Used) by Financing Activities 77,170 (56,028) --------- --------- INCREASE IN CASH AND EQUIVALENTS 28,860 3,556 Cash and Equivalents at Beginning of Year 47,623 35,050 --------- --------- Cash and Equivalents at End of Period $ 76,483 $ 38,606 ========= =========
See notes to consolidated financial statements. Page 4 7 AMERICAN GREETINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Thousands of dollars) Six Months Ended August 31, 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. Note D - Non-recurring Gain - --------------------------- On August 12, 1997, the Corporation divested the net assets of two subsidiaries, Acme Frame Products, Inc., a manufacturer and distributor of picture frames, and Wilhold, Inc., a manufacturer and distributor of hair accessories. As a result of the transaction, the Corporation recorded a one-time pre-tax gain of $22,125 ($13,192 net of tax, or earnings per share of $0.18). Page 5 8 Note E - Earnings Per Share - --------------------------- The following table sets forth the computation of earnings per share and earnings per share - assuming dilution:
Six Months Ended August 31, ------------------------------ 1998 1997 ---------- --------- Numerator: Net income, earnings per share and earnings per share - assuming dilution $47,756 $56,356 ======= ======= Denominator (thousands): Weighted average shares outstanding 70,863 74,776 Effect of dilutive securities - stock options 943 728 ------- ------- Adjusted weighted average shares outstanding 71,806 75,504 ======= ======= Earnings per share $ 0.67 $ 0.75 ======= ======= Earnings per share - assuming dilution $ 0.67 $ 0.75 ======= =======
Page 6 9 Note F - 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) Six Months Ended August 31, --------------------------------- 1998 1997 ---------- ---------- Net income $ 47,756 $ 56,356 Other comprehensive (loss) income Foreign currency translation adjustments (5,331) (1,087) Unrealized gain on available-for-sale securities 5,431 -- -------- -------- Other comprehensive income 100 (1,087) -------- -------- Total comprehensive income $ 47,856 $ 55,269 ======== ========
Note G - 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 financial position. Page 7 10
Note H - Inventories - -------------------- August 31, 1998 February 28, 1998 August 31, 1997 ------------------------------------------------------------- Raw materials $ 39,040 $ 42,641 $ 38,230 Work in process 38,321 37,204 39,773 Finished products 308,736 240,845 311,144 -------- -------- -------- 386,097 320,690 389,147 Less LIFO reserve 91,370 90,130 90,217 -------- -------- -------- 294,727 230,560 298,930 Display materials and factory supplies 41,937 40,645 40,633 -------- -------- -------- Inventories $336,664 $271,205 $339,563 ======== ======== ========
Note I - Deferred Costs - ----------------------- Deferred costs relating to agreements with certain customers are charged to operations on a straight-line basis over the effective period of each agreement, generally three to six years. Deferred costs estimated to be charged to operations during the next year are classified with prepaid expenses and other. Total commitments under the agreements are capitalized as deferred costs and future payment commitments, if any, are recorded as liabilities when the agreements are consummated. As of August 31, 1998, February 28, 1998 and August 31, 1997 deferred costs and future payment commitments are included in the following financial statement captions:
August 31, 1998 February 28, 1998 August 31, 1997 ------------------------------------------------------------- Prepaid expenses and other $ 186,850 $ 179,818 $ 154,313 Other assets 451,240 481,236 409,106 Other current liabilities (59,444) (51,676) (22,145) Other liabilities (67,093) (81,080) (45,454) --------- --------- --------- $ 511,553 $ 528,298 $ 495,820 ========= ========= =========
Page 8 11 Part 1., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS - ----------------------------------------------------- Results of Operations - --------------------- Net sales were $479.7 million and $967.6 million for the quarter and six months ended August 31, 1998, down 1.0% and up .8% over the same periods in the prior year, respectively. Excluding the impact of foreign exchange rates and the divestiture of two subsidiary businesses during the second quarter last year, net sales would have increased nearly 3% in the second quarter and more than 5% for the first six months. These increases were due primarily to sales of everyday cards and accessories and the impact of the acquisitions in the United Kingdom during the first quarter. Unit sales of total greeting cards increased approximately 3% for both the three months and the six months from the same periods in the prior year, favorably impacted by the acquisitions in the United Kingdom. Material, labor and other production costs were 35.5% and 34.1% of net sales for the quarter and six months, a significant decrease from 38.8% and 36.4% from the same periods in the prior year. This improvement was due to a more favorable product mix, including the divestiture of the business units which had lower margins. Selling, distribution and marketing expenses were 47.1% and 45.6% of net sales for the quarter and six months, up from 44.6% and 43.9% in the same periods last year. The increases reflect the cost of a national consumer advertising campaign and selling expenses resulting from store remodelings due to retailer consolidations. Administrative and general expenses were $4.3 million lower in the quarter and $2.4 million lower for the six months compared to the prior year due primarily to overall cost control programs. Interest expense increased from the prior year by $2.0 million for the quarter and $2.8 million for the six months. The increase was due primarily to higher borrowing to fund the Corporation's common stock repurchase program and the acquisitions in the United Kingdom. Other expense (income) was $3.2 million of expense for the quarter compared to $2.0 million of expense in the prior year due primarily to higher costs related to the conversion of information systems to be Year 2000 compliant. Other expense (income) was $1.5 million of income for the six months compared to $2.4 million of expense for the same period in the prior year. The improvement was due primarily to the gain on the sale of the Artistic Greetings' stock partially offset by higher Year 2000 costs. The effective tax rate for the six months was 36.0%, up from 34.5% in the prior year due to the decreased tax benefit from the corporate-owned life insurance program. Page 9 12 Year 2000 - --------- The Year 2000 issue is the result of information technology ("IT") system programs being written using two digits rather than four digits to define the application year. Any of the Corporation's IT systems 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 IT systems 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 currently in the process of working toward Year 2000 compliance so that all of its material business processes and components will properly handle dates prior to, during and after the Year 2000. The Corporation has prioritized its IT systems into three categories: critical, necessary or other. Failure of a "critical" system would result in a serious disruption of revenue and would critically impact competitive advantages. Failure of a "necessary" system would result in serious processing delays and a significant reduction in productivity. The Corporation believes its critical systems will be Year 2000 compliant by the end of the first quarter of calendar 1999. The Corporation also believes its necessary systems will be Year 2000 compliant by the end of the second quarter of calendar 1999. The remainder of the Corporation's systems should be remediated by the end of the third quarter of calendar 1999. However, material slippage in the schedule and number of systems that are Year 2000 compliant could occur. The Corporation's non-IT systems include embedded technology such as microcontrollers included in production equipment, environmental control equipment and timeclocks. These non-IT systems are currently being assessed in order to have a plan of remediation by the end of calendar 1998 with remediation beginning during calendar 1999. The Corporation is also in the process of ensuring the continuity and stability of its normal business functions by identifying and assessing potential Year 2000 compliance risks associated with its external business relationships, including those with vendors, customers, financial institutions and employee benefit providers. This process is currently in the assessment phase with potential risks being identified and implementation plans being developed. The Corporation's current estimate of total cost to achieve Year 2000 compliance in both its IT and non-IT systems is approximately $35 million for both modifications to existing software and software replacement. Through August 31, 1998, $12 million has been cumulatively expended on Year 2000 compliance, with approximately $24 million anticipated to be expended cumulatively through the end of fiscal 1999, and the balance anticipated for fiscal 2000. Page 10 13 The Corporation is also currently assessing what contingency plans will be needed in the event any of the Corporation's critical or necessary systems or any of its business partners' critical or necessary systems are not Year 2000 compliant when required. Although the Corporation does not currently anticipate such a situation, contingency plans will be in process by the end of calendar 1998 and the Corporation expects that they will be completed during the second quarter of calendar 1999. In addition, the Corporation is also currently developing a program to provide independent validation of its Year 2000 compliance efforts and plans to have that program in place by the end of the first quarter of calendar 1999. This program will likely include engaging independent consultants for audits of its completed coding corrections and for providing guidance and suggestions for the remediation efforts. The Corporation believes, but cannot warrant, that with timely modifications to its existing software and conversion to new software, by both the Corporation and its significant business partners, the Year 2000 compliance issue should 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 system coding 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 expenditures are being funded through operations. Liquidity and Capital Resources - ------------------------------- The seasonality of the Corporation's business precludes a useful comparison of the current period and the year-end financial statements; therefore, a Statement of Financial Position for August 31, 1997 has been included. Operating activities provided $8.0 million of cash for the six months, an improvement of $10.9 million from the same period last year. Contributing to this improvement was an increase in net income over the prior year, after adjusting for the non-recurring gain last year. Accounts receivable, net of the effect of acquisitions and divestitures, used cash at a rate similar to that of the prior year. Net accounts receivable were 17.5% of the prior twelve months' sales at August 31, 1998, compared to 17.1% at August 31, 1997, net of the effect of acquisitions and divestitures, reflecting an increase in extended payment terms to customers. Inventories, net of the effect of acquisitions and divestitures, increased by $70.8 million from February 28, 1998, compared to an increase of $59.2 million during the same period in the prior year due to timing of production. However, inventories as a percent of the prior twelve months' material, labor, and other production costs were 43.4% and 44.3% at August 31, 1998, and August 31, 1997, respectively, net of the effect of acquisitions and divestitures, as the focus on controlling inventory levels continued. Page 11 14 Investing activities used $56.3 million in cash for the six months this year including $53.0 million for acquisition of two greeting card companies in the United Kingdom, compared to providing $62.5 million for the same period last year, including $82.0 million in proceeds from the divestiture of two subsidiaries. Excluding the acquisitions and divestitures, investing activities used $3.3 million for the six months, an improvement of $16.2 million from the prior year, reflecting the proceeds from the sale of the Artistic Greetings stock and a lower level of capital expenditures. On May 20, 1998, the Corporation filed a Form S-3 Registration Statement with the Securities and Exchange Commission for a shelf registration to issue up to $600 million of debt securities. Under the registration, the Corporation on July 27, 1998 completed the sale of $300 million of 30-year senior notes with a 6.10% coupon rate. The majority of the proceeds were used to retire commercial paper and other short-term debt, with the remainder used for other general corporate purposes and short-term investments. On August 7, 1998, the Corporation entered into a new multi-currency credit facility to provide liquidity and working capital financing for the Corporation and its subsidiaries in the United States, Canada, the United Kingdom, Australia, New Zealand and France. The aggregate availability under this facility is approximately $713 million. A portion of the facility matures on August 7, 2003. The balance of the facility matures on August 6, 1999. This portion of the facility is annually renewable for an additional 364-day period and is convertible to a term loan with a maturity of August 7, 2003. Financing activities provided $77.2 million for the six months compared to using $56.0 million during the same period in the prior year. The Corporation utilized a portion of the proceeds from the sale of the $300 million of debt securities to effectively shift much of its previously short-term debt to long-term. The remaining portion of the proceeds were used to fund various other activities during the six months, including the purchase of 1.0 million shares of the Corporation's Class A common stock for $47.7 million at an average price of $47.73 per share. During the same period last year, 1.7 million shares of stock had been purchased for $59.7 million. Total debt less cash increased from $331.8 million at August 31, 1997 to $408.3 million at August 31, 1998. Debt as a percentage of debt plus equity also increased to 26.8% at August 31, 1998 from 21.7% at August 31, 1997. On a per-share basis, shareholders' equity increased from $18.18 per share at August 31, 1997 to $18.71 at August 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 August 31, 1998, the end of its last fiscal quarter and the date of the most recent balance sheet included in this report, nor from August 31, 1997, the end of the corresponding fiscal quarter last year, to August 31, 1998, except the changes discussed above and aside from normal seasonal fluctuations. Page 12 15 Prospective Information - ----------------------- On September 17, 1998, the Corporation announced plans to enhance profitability by targeting removal of $20 to $30 million from the cost structure of the Corporation. A corporate-wide reassessment of management resources is underway that is expected to result in a pre-tax charge of $10 to $20 million during the third quarter of fiscal 1999, generating pre-tax savings in the same range beginning in fiscal 2000. Additionally, during the next 12 months, the Corporation will conduct an evaluation of its worldwide manufacturing and distribution capabilities, expecting to identify additional cost savings and potential charges as part of this initiative. 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, except those mentioned above. However, the Corporation's future results could be negatively impacted by such factors as retail bankruptcies, a weak retail environment, loss of retail accounts to other suppliers or as a result of retail consolidation 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, unforeseen circumstances which may affect the Corporation's plans to reduce its cost structure, as well as economic conditions in the various markets served by the Corporation's operations. 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 13 16 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS ----------------- (a) Custom Expressions Royalty Inc., et al v. American Greetings Corporation, Case No. 3:97CV356-H, US District Court, Northern District of North Carolina On August 8, 1998, the court referred certain parts of the case to arbitration and stayed further litigation until resolution of the arbitration proceedings. The dispute over royalties under the Patent License Agreement and the accounting issues involved in the determination of Adjusted Net Earnings for the Put/Call Year 1996 were each referred to arbitration. The parties are scheduling the arbitrations and further discovery related to the arbitrations now, and have moved the court to continue the January 11, 1999 trial date in order to allow the arbitrations to be completed. (b) Thorntons Plc v. Carlton Cards Limited, in the High Court of Justice, Queen's Bench Division, Birmingham District Registry, 1997 No. ML40017A. This matter was previously reported in the Form 10-K for the fiscal year ended February 28, 1998. The parties agreed to mediation pending a hearing on the appeal in this case. At mediation, the parties agreed to a settlement on terms not material to the Corporation. (c) Zucker, Ham and Mandell v. American Greetings Corporation (Nicholas J. Bua, Arbitrator) This matter was previously reported in the Form 10-Q for the quarterly period ended May 31, 1998. After reviewing its legal options, the Corporation decided not to appeal the arbitration decision and paid the award, an amount not material to the Corporation. Page 14 17 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- (a) The Annual Meeting of Shareholders of the Corporation was held on June 26, 1998. (b) The following individuals were elected to Class III of the Corporation's Board of Directors with term expiring in 2001: Scott S. Cowen, Irving I. Stone and Harriet Mouchly-Weiss. The following individuals are continuing directors with term expiring in 1999 (Class I): Herbert H. Jacobs, James C. Spira and Morry Weiss. The following individuals are continuing directors with term expiring in 2000 (Class II): Albert B. Ratner, Harry H. Stone and Edward Fruchtenbaum. (c)-1 The vote total was as follows for the election of directors (Class III): Nominee Votes For Votes Withheld ------- --------- -------------- Scott S. Cowen 98,762,070 1,629,096 Irving I. Stone 98,598,918 1,792,248 Harriet Mouchly-Weiss 98,732,831 1,658,335 (c)-2 A proposal to increase the quorum requirements at shareholder meetings with respect to new or additional securities of the company proposed to be listed on the New York Stock Exchange from 25% to 50% was approved by the shareholders. The vote was as follows: Affirmative 95,258,704 Negative 902,160 Abstain 360,369 Broker non-votes 3,869,933 (c)-3 A proposal to approve an increase in the authorized number of Class A Common Shares and Class B Common Shares was approved by the shareholders. The vote was as follows: Affirmative 90,278,038 Negative 9,718,988 Abstain 394,140 Page 15 18 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 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN GREETINGS CORPORATION By: /s/ Patricia L. Ripple ----------------------------- Patricia L. Ripple Controller Chief Accounting Officer October 15, 1998 Page 16 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART I, ITEM 1 OF THE SECOND QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS FEB-28-1999 MAR-01-1998 AUG-31-1998 76,483 0 392,884 19,343 336,664 1,126,399 943,453 512,755 2,257,444 342,812 0 0 0 70,845 1,254,966 2,257,444 967,641 967,641 330,206 330,206 0 4,030 13,918 74,619 26,863 47,756 0 0 0 47,756 .67 .67
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