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Related Party Information
12 Months Ended
Feb. 29, 2016
Related Party Transactions [Abstract]  
Related Party Information

NOTE 18 – RELATED PARTY INFORMATION

World headquarters relocation

In May 2011, the Corporation announced that it will be relocating its world headquarters to a new location in the City of Westlake, Ohio, in a mixed-use development known as Crocker Park (the “Crocker Park Development”), which offers a vibrant urban setting, with retail stores and restaurants, offices and apartments. After putting the project on hold pending the outcome of the going private transaction, the Corporation announced plans in October 2013 to resume the project and, on March 26, 2014, the Corporation purchased from Crocker Park, LLC, the owner of the Crocker Park Development, 14.48 acres of land at the south end of the Crocker Park Development (the “Crocker Park Site”) on which the new world headquarters will be built. The purchase price for the land was $7,390 (based on a per acre price of $510). Morry Weiss, the Chairman of the Board of the Corporation, Zev Weiss and Jeffrey Weiss, directors and the Co-Chief Executive Officers of the Corporation, and Gary and Elie Weiss, directors and non-executive officers of the Corporation, together with members of their family (collectively, the “Weiss Family”), indirectly own a minority stake in Crocker Park, LLC through their indirect ownership of approximately 37% of the membership interests in Crocker Park, LLC. In addition, Morry Weiss and other members of the Weiss Family have guaranteed certain of Crocker Park, LLC’s obligations, including obligations incurred in connection with the Crocker Park Development. The authority to conduct, manage and control the business of Crocker Park, LLC, including operating the Crocker Park Development and the decision whether to sell the Crocker Park Site to the Corporation, was reserved to the manager of Crocker Park, LLC. The manager of Crocker Park, LLC is not an affiliate of the Weiss Family, but is an affiliate of Stark Enterprises, Inc.

The Corporation is leasing a portion of the Crocker Park Site to H L & L, which is constructing the new world headquarters building on the Crocker Park Site and, when complete, will sublease the new world headquarters building back to the Corporation. In addition, to accommodate additional office needs, H L & L is constructing an additional approximately 60,000 square foot building (“Tech West”) adjacent to the world headquarters building and a surface parking lot (“Surface Lot”) on land that it is leasing from the Corporation. The Corporation has also entered into operating leases to lease these buildings from H L & L, which are anticipated to be available for occupancy in calendar year 2016. The initial lease terms are fifteen years and will begin upon occupancy. The annual rent is expected to be approximately $10,600. See Note 8 for further information.

In connection with Tech West and the Surface Lot, the Corporation entered into two agreements in the current year with H L & L as described below. For a more complete description of the transactions associated with the world headquarters relocation, refer to Item 13. Certain Relationships and Related Party Transactions, and Director Independence included in Part III of this Form 10-K.

Under the terms of a Master Lease Agreement (Tech West), American Greetings is ground leasing to H L & L, property consisting of Tech West and the Surface Lot (the “Master Tech Lease Premises”). The Master Lease Agreement (Tech West) term is coterminous with the Master Lease Agreement. The Master Lease Agreement (Tech West) is a “net” lease. In accordance with the Master Lease Agreement (Tech West), H L & L is constructing and will own the Master Tech Lease Premises. H L & L is responsible for the cost of constructing and maintaining the Master Tech Lease Premises and is responsible for the payment of all insurance, special assessments, taxes or other fees or costs related to the Master Tech Lease Premises (which costs will generally be passed through to the tenants of the Master Tech Lease Premises, including American Greetings pursuant to the terms of the Tech West/Surface Lot Lease Agreement referred to below). In conjunction with the Master Lease Agreement (Tech West), to effectuate certain sales tax savings in connection with the construction of the improvements at the Master Tech Lease Premises, H L & L has entered into intermediate leases with a qualified state-chartered port authority (which is subleasing the Master Tech Lease Premises back to H L & L). These leases are net in cost to American Greetings and H L & L, other than any sales tax savings benefitting American Greetings or H L & L. The leasehold estate has been pledged as collateral (mortgaged) in connection with H L & L’s construction financing for the Master Tech Lease Premises.

Pursuant to the terms of the Tech West/Surface Lot Lease Agreement, H L & L is leasing to American Greetings 100% of the Master Tech Lease Premises to be used in connection with American Greetings’ new world headquarters. The Tech West/Surface Lot Lease Agreement has a term of 15 years, commencing after the Tech West and the Surface Lot are substantially complete and ready for occupancy, with a base rent of $1,137 per year. During the term of the Tech West/Surface Lot Lease Agreement, other than costs for structural repair and replacements of the Master Tech Lease Premises, American Greetings will be generally responsible for furniture, fixtures and equipment and all costs associated with the maintenance and repair of Tech West and the Surface Lot, including its pro rata share of all operating costs, including the O&M Fee required under the Private Development Agreement.

Although the majority of the costs to construct the new world headquarters is expected to be financed through H L & L, due to the inherent difficulty in estimating costs associated with projects of this scale and nature, the costs associated with this project may be higher than expected and the Corporation may have to dedicate additional funds to the project, including providing additional funds to H L & L. As a result, effective as of December 1, 2014, the Corporation entered into a loan agreement with H L & L under which the Corporation may from time to time make revolving loans to H L & L. Loans made to H L & L under this agreement may only be used to fund construction costs associated with the world headquarters project and the maximum principal and market-rate interest that may be outstanding as of any given time under this loan agreement may not exceed $9,000. As of February 29, 2016 and February 28, 2015, there were no amounts outstanding under this loan agreement.

 

Transactions with Parent Companies and Other Affiliated Companies

From time to time employees of the Corporation may provide services to its parent companies as well as companies that are owned or controlled by members of the Weiss Family, in each case provided that such services do not interfere with the Corporation’s employees’ ability to perform services on its behalf. When providing such services, the affiliated companies reimburse the Corporation for such services, based on the costs of employing the individual (including salary and benefits) and the amount of time spent by such employee in providing services to the affiliated company.

The Corporation, Parent and certain of their subsidiaries and affiliates, file a consolidated U.S. federal income tax return. The Corporation pays all taxes on behalf of the group included in this consolidated federal income tax return. Pursuant to this tax sharing arrangement, there was $259 due from affiliates at February 29, 2016 and $1,846 due to affiliates at February 28, 2015.

On February 10, 2014, Century Intermediate Holding Company 2 (“CIHC2”), an indirect parent of American Greetings, issued $285,000 aggregate principal amount of 9.750%/10.500% Senior PIK Toggle Notes due 2019 (the “PIK Notes”) in an offering exempt from the registration requirements of the Securities Act of 1933 (the “Securities Act”). CIHC2 was formed for the sole purpose of issuing the PIK Notes. The net proceeds from the offering, together with a portion of a $50,000 dividend the Corporation paid to Parent, were used to redeem the preferred equity interest in Parent. The PIK Notes pay interest semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2014. Interest on the PIK Notes accrues from February 10, 2014 at a rate of 9.750% per annum with respect to cash interest and 10.500% per annum with respect to PIK Interest (as defined below), which is the cash interest rate plus 75 basis points. The first interest payment on the PIK Notes was payable entirely in cash. Interest for the final interest period ending at stated maturity will be payable entirely in cash. For each other interest period, CIHC2 will be required to pay interest on the PIK Notes entirely in cash (“Cash Interest”), unless certain conditions are satisfied, in which case CIHC2 will be entitled to pay interest on the PIK Notes by increasing the principal amount of the PIK Notes or by issuing new PIK Notes, such increase or issuance being referred to herein as “PIK Interest.” Prior to the payment of Cash Interest, the Corporation expects that, through dividends the Corporation will provide CIHC2 with the cash flow for it to pay interest on the PIK Notes. Assuming CIHC2 pays interest on the PIK Notes in cash, rather than as PIK Interest, the annual cash required to pay the Cash Interest is expected to be approximately $27,800.

The Corporation paid cash dividends to Parent, its sole shareholder, in the aggregate amount of $34,619, $38,073 and $75,420 during 2016, 2015 and 2014, respectively. Of the dividends paid in 2016, $27,788 was used by Parent to pay interest on the PIK Notes. In addition, H L & L paid $9,865 to the Corporation in 2015 to acquire certain assets previously purchased by the Corporation related to the new world headquarters project, which is included in “Proceeds from sale of fixed assets” on the Consolidated Statement of Cash Flows. Refer to Item 13. Certain Relationships and Related Party Transactions, and Director Independence included in Part III of this Form 10-K for a description of the transactions associated with the world headquarters relocation.