<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1993
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-1502
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AMERICAN GREETINGS CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 34-0065325
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One American Road, Cleveland, Ohio 44144
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area (216) 252-7300
-----------------------
Indicate whether the registrant (1) has filed all reports required to be filed
by Sections 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 November 30, 1993, the date of this report, the number of shares
outstanding of each of the issuer's classes of common stock was:
Class A Common 69,562,368
Class B Common 4,579,465
<PAGE>
Part I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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AMERICAN GREETINGS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
November 30,
---------------------------
1993 1992
------------- ------------
(Thousands of dollars,
except per-share amounts)
<S> <C> <C>
Net sales $1,296,652 $1,228,346
Other income 9,674 11,315
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Total revenue 1,306,326 1,239,661
Costs and expenses:
Material, labor and other production costs 512,681 495,749
Selling, distribution and marketing 474,861 451,899
Administrative and general 159,602 145,158
Interest 12,923 20,948
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Total costs and expenses 1,160,067 1,113,754
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Income before income taxes and cumulative effect
of accounting changes 146,259 125,907
Income taxes 54,847 47,593
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Income before cumulative effect of accounting
changes 91,412 78,314
Cumulative effect of accounting changes, net of
tax 17,182 -
----------- -----------
Net income $74,230 $78,314
=========== ===========
Income per share:
Before cumulative effect of accounting changes $1.24 $1.08
Cumulative effect of accounting changes, net of
tax 0.23 -
----- -----
Net income per share $1.01 $1.08
===== =====
Dividends per share $0.3575 $0.3125
======= =======
Average number of common shares outstanding 73,670,209 72,293,148
</TABLE>
Page 1
<PAGE>
AMERICAN GREETINGS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
November 30,
------------------------
1993 1992
----------- -----------
<S> <C> <C>
Net sales $518,987 $489,491
Other income 3,517 3,484
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Total revenue 522,504 492,975
Costs and expenses:
Material, labor and
other production costs 210,215 203,605
Selling, distribution
and marketing 170,288 160,741
Administrative and
general 55,057 51,088
Interest 4,599 6,515
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Total costs and
expenses 440,159 421,949
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Income before income
taxes 82,345 71,026
Income taxes 30,879 27,122
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Net income $51,466 $43,904
=========== ===========
Net income per share $0.70 $0.60
===== =====
Dividends per share 0.1250 $0.1075
====== =======
Average number of common
shares outstanding 74,097,140 72,718,754
</TABLE>
Page 2
<PAGE>
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
Nov 30, 1993 Feb 28, 1993 Nov 30, 1992
------------ ------------ ------------
ASSETS (Thousands of dollars)
<S> <C> <C> <C>
Current assets
Cash and equivalents $ 64,752 $ 235,186 $ 52,760
Trade accounts
receivable, less
allowances of $91,152,
$85,870 and $77,028,
respectively (principally
for sales returns) 568,931 276,932 446,787
Inventories:
Raw material 38,155 44,469 38,850
Work in process 29,609 30,171 23,933
Finished products 223,156 204,010 242,727
---------- ---------- ----------
290,920 278,650 305,510
Less LIFO reserve 87,976 84,887 92,382
---------- ---------- ----------
202,944 193,763 213,128
Display material and
factory supplies 33,957 34,360 27,751
---------- ---------- ----------
Total inventories 236,901 228,123 240,879
Deferred and refundable
income taxes 49,583 66,339 59,626
Prepaid expenses 108,334 105,277 95,464
---------- ---------- ----------
Total current assets 1,028,501 911,857 895,516
Other assets 247,431 248,991 233,816
Property, plant and equipment 757,095 708,241 681,105
Less accumulated
depreciation and
amortization 351,485 320,689 313,439
---------- ---------- ----------
Property, plant and
equipment -- net 405,610 387,552 367,666
---------- ---------- ----------
$1,681,542 $1,548,400 $1,496,998
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 256,420 $ 113,986 $ 148,087
Accounts payable 124,281 113,684 73,681
Payroll and payroll taxes 54,504 54,099 42,138
Retirement plans 14,527 17,409 12,648
Dividends payable 9,293 7,837 7,829
Income taxes 29,256 23,191 28,166
---------- ---------- ----------
Total current liabilities 488,281 330,206 312,549
Long-term debt 87,129 169,381 162,859
Postretirement benefit obligation 20,832 -- --
Deferred income taxes 62,023 96,278 95,856
Shareholders' equity 1,023,277 952,535 925,734
---------- ---------- ----------
$1,681,542 $1,548,400 $1,496,998
========== ========== ==========
</TABLE>
Page 3
<PAGE>
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
November 30,
----------------------
1993 1992
-------- --------
(Thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $74,230 $78,314
Adjustments to reconcile to net cash
used by operating activities:
Postretirement benefit obligation 22,530 --
Depreciation and amortization 43,222 36,644
Deferred and refundable income taxes (3,626) (2,665)
Change in operating assets and liabilities (322,283) (202,419)
Other -- net 7,471 3,685
-------- --------
Cash Used by Operating Activities (178,456) (86,441)
INVESTING ACTIVITIES:
Property, plant & equipment additions (61,695) (43,557)
Other -- net 32,336 (4,215)
-------- --------
Cash Used by Investing Activities (29,359) (47,772)
FINANCING ACTIVITIES
Increase in long-term debt 17,864 19,090
Reduction of long-term debt (204,606) (3,032)
Increase in notes payable 236,368 10,221
Sale of stock under benefit plans 20,311 14,012
Purchase of treasury shares (6,145) (8,023)
Dividends to shareholders (26,411) (22,657)
-------- --------
Cash Provided by Financing Activities 37,381 9,611
-------- --------
DECREASE IN CASH AND EQUIVALENTS (170,434) (124,602)
Cash and Equivalents at Beginning of Year 235,186 177,362
-------- --------
Cash and Equivalents at End of Period $64,752 $52,760
======== ========
</TABLE>
Page 4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended November 30, 1993 and 1992
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 1992 financial statements have been reclassified to
conform with the 1993 presentation.
Note D -- Cumulative Effect of Accounting Changes
Effective March 1, 1993, the Corporation adopted Statement of Financial
Accounting Standard Number 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," the cumulative effect of which was to reduce
net income by $22,530. Operating income has not been materially impacted by
this accounting change. Also effective March 1, 1993, the Corporation adopted
Statement of Financial Accounting Standard Number 109, "Accounting for Income
Taxes," the cumulative effect of which was to increase net income by $5,348.
Note E -- Stock Split
On June 25, 1993, the Corporation declared a two-for-one stock split of the
Corporation's common stock, effected in the form of a 100% share dividend.
Such distribution was made on September 10, 1993 to stockholders of record at
the close of business on August 27, 1993. All share and per share amounts have
been restated to retroactively reflect the stock split.
Note F -- Basis for Determining Net Income Per Share Information
Net income per share information is based on the average number of shares
outstanding. For the periods presented, stock options have an immaterial
dilutive effect.
Page 5
<PAGE>
Note G -- Prepaid Expenses
The prepaid expense classification consists of deferred costs relating to
agreements with certain customers, cash and short-term investments held in
trust for the payment of medical benefits, rent and insurance. The largest
component of prepaid expenses is deferred costs estimated to be charged to
operations during the next twelve months.
Note H -- Other Assets
The other asset classification consists of various long-term assets such as
deferred costs relating to agreements with certain customers, corporate-owned
life insurance, goodwill and equity investments. The largest component of
other assets is deferred costs, which are charged to operations on a
straight-line basis, generally three to six years. Deferred costs estimated to
be charged to operations during the next twelve months are classified as a
prepaid expense.
Page 6
<PAGE>
Part I., Item 2., MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------
Results of Operations
- ---------------------
Third quarter net sales of $519 million represent a 6% increase over the same
period last year and, for the nine months ended November 30, 1993, net sales
increased 5.6% to $1.3 billion. Both periods reflect strong sales of Everyday
cards and Seasonal cards and accessories through traditional channels. These
increases were offset somewhat by the continuing decreases in foreign currency
exchange rates. Unit sales of greeting cards were up 1% for both the quarter
and the nine months.
Compared to the prior year, other income at $3.5 million for the third quarter
and $9.7 million through nine months was flat for the quarter and decreased
$1.6 million for the nine months. This decrease resulted from lower
investment income, primarily due to lower interest rates, and lower character
and design licensing royalties.
Material, labor and other production costs as a percent of net sales continued
to decrease compared to the prior year, both for the quarter and the nine
months. As a percent of net sales, these costs were 40.5% for the quarter and
39.5% for the nine months down from 41.6% and 40.4%, respectively, for the
same periods last year as strong sales of the higher margin greeting cards
continued to improve this cost relationship.
Expenses in the categories of selling, distribution and marketing and general
and administrative continue to reflect the impact of the CreataCard and
Magnivision units. These operating units, when compared to the traditional
business, have lower selling expenses and higher administrative expenses in
relation to net sales. As a result, the impact of increases in selling,
distribution and marketing expenses due to higher amortization of deferred
costs has been offset by the lower costs in these units. For the nine months
selling, distribution and marketing expenses decreased slightly to 36.6% of
net sales from 36.8% last year. Administrative and general expenses, however,
increased to 12.3% of net sales for the nine months from 11.8% last year.
Interest expense continued to be impacted by lower interest rates and the
savings associated with the repayment of the 8.375% notes on March 1, 1993.
Compared to the same periods last year, interest expense decreased $1.9
million for the quarter and $8 million for the nine months.
Liquidity and Capital Resources
- -------------------------------
The seasonality of the Corporation's business precludes a useful comparison of
the current period and the year end financial position; therefore, a Statement
of Financial Position for November 30, 1992 has been included.
Page 7
<PAGE>
Working capital of $540.2 million at November 30, 1993 represents a $42.7
million decrease from last year and reflects a shift from long term debt to
short term borrowings. On July 15, 1993, the Corporation called the $100
million 8.125% notes and repaid them with short term debt. The interest rate
swap related to these notes was exercised by the option holder on July 15,
1993. Under the terms of the swap, the Corporation pays 8.125% fixed and
receives the US Dealer Commercial Paper Composite Rate floating until July 15,
1996, the maturity date of the swap agreement.
Cash used by operating activities for the nine months ended November 30, 1993
was $92 million higher than in the prior year. Higher accounts receivable
resulting from increased sales and extended terms caused this greater use of
cash. The receivables related to the extended terms are expected to decrease
by the end of the fiscal year. As a percent of the prior twelve months' net
sales, accounts receivable increased to 32.7% from 27.8% last year.
Investing activities used $18.4 million less cash during the nine months
compared to last year, primarily due to cash withdrawals from the
corporate-owned life insurance programs. Financing activities included higher
seasonal short term borrowings and provided $27.8 million more cash this year.
Debt as a percentage of debt and equity remained at the 25.1% reported last
year as the additional seasonal borrowings offset the increase in
shareholders' equity. Shareholders' equity increased to $13.80 per share at
November 30, 1993, up from $12.71 per share last year.
There were no material changes in the financial condition, liquidity or
capital resources of the Corporation from February 28, 1993, the end of its
preceding fiscal year, to November 30, 1993, the end of its last fiscal
quarter and the date of the most recent balance sheet included in this report,
nor from November 30, 1992, the end of the corresponding fiscal quarter last
year, to November 30, 1993, except the changes discussed above and aside from
normal seasonal fluctuations.
Prospective Information
- -----------------------
Management is not aware of any current trends, events, demands, commitments or
uncertainties, aside from general industry competitive conditions, which
reasonably can be expected to have a material effect on the liquidity, capital
resources, financial condition or results of operations of the Corporation.
Page 8
<PAGE>
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits (exhibit reference numbers refer to Item
601 of Regulation S-K)
11 (a) Calculation of Primary Earnings Per Share
11 (b) Calculation of Fully-Diluted Earnings Per
Share
(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
Date: January 12, 1994 By:
---------------- ---------------------------
William S. Meyer
Controller
Chief Accounting Officer
Page 9
<PAGE>
AMERICAN GREETINGS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. Financial Information
- -------------------------------
Item 1. Financial Statements.................................1
Item 2. Management's Discussion and Analysis.................7
PART II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K......................9
Signatures.....................................................9
</TABLE>
-i-
<PAGE>
EXHIBIT 11
American Greetings Corporation
------------------------------
Computation of Common Earnings Per Share
----------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended November 30,
------------------------------
1993 1992
---------- ----------
<S> <C> <C>
Average number of common
shares outstanding 73,670,209 72,293,148
========== ==========
Net income (thousands) $74,230 $78,314
========== ==========
Primary earnings per share $1.01 $1.08
========== ==========
</TABLE>
Computation of Primary and Fully-Diluted Earnings Per Share (a)
- -----------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended November 30,
------------------------------
1993 1992
---------- ----------
<S> <C> <C>
Weighted average common
shares outstanding on a
fully diluted basis assuming
exercise of stock options
based on the treasury stock
method using the ending
price which was higher than
the average market price 74,988,675 73,365,176
========== ==========
Net income (thousands) $74,230 $78,314
========== ==========
Fully-diluted earnings per
share $.99 $1.07
========== ==========
</TABLE>
(a) This calculation is submitted in accordance with Securities Exchange
Act of 1934, although not required by Accounting Principles Board Opinion
No. 15, since less than a 3% dilution results.
