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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
_________ EXCHANGE ACT OF 1934
May 31, 1994
For the quarterly period ended________________________________________________
OR
__
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
__________ EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
0-502
Commission file number ________
AMERICAN GREETINGS CORPORATION
________________________________________________________
(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)
(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.
X
Yes_____ No______
As of May 31, 1994, the date of this report, the number of shares outstanding
of each of the issuer's classes of common stock was:
Class A Common 69,610,694
Class B Common 4,637,017
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<TABLE>
AMERICAN GREETINGS CORPORATION
INDEX
<CAPTION>
Page
Number
------
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis. . . . . . . . . . . . . 5
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 7
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
- ----------
</TABLE>
-i-
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<TABLE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
AMERICAN GREETINGS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
(Unaudited)
Three Months Ended
May 31,
-------------------------------
1994 1993
----------- -----------
(Thousands of dollars
except per-share amounts)
<S> <C> <C>
Net sales $ 416,403 $ 391,959
Other income 2,389 3,482
----------- -----------
Total revenue 418,792 395,441
Costs and expenses:
Material, labor and other production costs 137,741 143,626
Selling, distribution and marketing 172,348 152,260
Administrative and general 53,944 49,848
Interest 3,663 3,263
----------- -----------
Total costs and expenses 367,696 348,997
----------- -----------
Income before income taxes and cumulative
effect of accounting changes 51,096 46,444
Income taxes 17,934 17,417
----------- -----------
Income before cumulative effect of accounting
changes 33,162 29,027
Cumulative effect of accounting changes,
net of tax -- 17,182
----------- -----------
Net income $ 33,162 $ 11,845
=========== ===========
Income per share:
Before cumulative effect of accounting changes $ 0.45 $ 0.39
Cumulative effect of accounting changes,
net of tax -- 0.23
----------- -----------
Net income per share $ 0.45 $ 0.16
=========== ===========
Dividends per share $ 0.125 $ 0.1075
=========== ===========
Average number of common shares outstanding 74,210,536 73,164,578
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<TABLE>
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<CAPTION>
(Unaudited) Audited (Unaudited)
May 31, 1994 Feb. 28, 1994 May 31, 1993
------------ ------------- ------------
(Thousands of dollars)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents $ 70,187 $ 101,066 $ 83,509
Trade accounts receivable, less allowances
of $86,023, $110,987 and $80,156, respec-
tively (principally for sales returns) 348,894 322,675 301,365
Inventories:
Raw material 48,214 48,845 44,623
Work in process 54,376 38,956 35,422
Finished products 222,021 202,620 223,024
---------- ---------- ---------
324,611 290,421 303,069
Less LIFO reserve 86,755 84,970 85,876
---------- ---------- ---------
237,856 205,451 217,193
Display material and factory supplies 38,018 37,906 31,844
---------- ---------- ---------
Total inventories 275,874 243,357 249,037
Deferred and refundable income taxes 51,160 62,075 42,614
Prepaid expenses 125,333 121,022 93,839
---------- ---------- ---------
Total current assets 871,448 850,195 770,364
Other assets 274,149 286,117 267,611
Property, plant and equipment 812,894 793,965 720,146
Less accumulated depreciation and amortization 384,357 365,043 333,292
---------- ---------- ---------
Property, plant and equipment - net 428,537 428,922 386,854
---------- ---------- ---------
$1,574,134 $1,565,234 $1,424,829
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Debt due within one year $148,153 $132,036 $124,432
Accounts payable 120,869 127,792 96,427
Payroll and payroll taxes 40,573 53,164 45,165
Retirement plans 3,254 20,766 4,955
Dividends payable 9,451 9,300 7,866
Income taxes 26,925 32,857 25,991
---------- ---------- ---------
Total current liabilities 349,225 375,915 304,836
Long-term debt 64,910 54,207 71,882
Postretirement benefit obligation 20,048 19,427 21,672
Deferred income taxes 60,379 62,243 61,053
Shareholders' equity 1,079,572 1,053,442 965,386
---------- ---------- ---------
$1,574,134 $1,565,234 $1,424,829
========== ========== =========
</TABLE>
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<TABLE>
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
(Unaudited)
Three Months Ended
May 31,
---------------------------
1994 1993
------- -------
<S> <C> <C>
(Thousands of dollars)
OPERATING ACTIVITIES:
Net income $33,162 $11,845
Adjustments to reconcile to net cash
provided (used) by operating activities:
Postretirement benefit obligation - 22,530
Depreciation 17,676 13,427
Deferred and refundable income taxes 9,182 2,115
Change in operating assets and liabilities (101,484) (105,446)
Other - net 2,630 2,695
------- --------
Cash Used by Operating Activities (38,834) (52,834)
INVESTING ACTIVITIES:
Property, plant & equipment additions (21,308) (11,472)
Other - net 8,228 3,309
------- --------
Cash Used by Investing Activities (13,080) (8,163)
FINANCING ACTIVITIES:
Increase in long-term debt 17,973 -
Reduction of long-term debt (25,273) (100,217)
Increase in short-term debt 34,422 9,313
Sale of stock under benefit plans 3,195 8,140
Purchase of treasury shares - (50)
Dividends to shareholders (9,282) (7,866)
------- --------
Cash Provided (Used) by Financing Activities 21,035 (90,680)
------- --------
DECREASE IN CASH AND EQUIVALENTS (30,879) (151,677)
Cash and Equivalents at Beginning of Year 101,066 235,186
------- --------
Cash and Equivalents at End of Period $70,187 $83,509
======= =======
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AMERICAN GREETINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
Three Months Ended May 31, 1994 and 1993
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 - 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.
Note D - Prepaid Expenses and Other
The prepaid expenses and other 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, and prepaid rent and insurance. The largest component of
prepaid expenses and other is deferred costs estimated to be charged to
operations during the next twelve months.
Note E - 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.
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Part I., Item 2., MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------
Results of Operations
- ---------------------
For the three months ended May 31, 1994, net sales increased 6.2% over the
prior year to $416.4 million on the strength of both everyday and seasonal
cards and accessories sales. This increase was lessened by approximately one
percentage point because of the continued weakening of foreign currencies,
particularly the Canadian dollar, against the U. S. dollar. Unit sales of
greeting cards were up 1% for the quarter.
Other income for the three months was $2.4 million, a decrease of $1.1 million
from the previous year which was due to lower character and design licensing
royalties.
Material, labor and other production costs as a percentage of net sales
continued to decline, from 36.6% in the prior year to 33.1% for the current
period, due to a shift in sales to higher-margin product and continued
improvements in manufacturing efficiencies.
Selling, distribution and marketing expenses were 41.4% of net sales for the
quarter compared to 38.8% last year. Higher amortization expense related to
deferred costs and the national advertising program for CreataCard caused this
increase.
For the three months, administrative and general expenses were 13.0% of net
sales, up from 12.7% last year, primarily due to the impact of Magnivision,
which incurred higher administrative expenses in relation to net sales than the
traditional business.
Interest expense for the period was $0.4 million higher than the prior year due
to higher domestic short-term borrowings.
The effective tax rate for the quarter was 35.1%, lower than the 37.5% in the
prior year due to the increased 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 position; therefore, a Statement
of Financial Position for May 31, 1993 has been included.
For the first quarter, operating activities used $14.0 million less cash
compared to the first quarter last year, primarily due to a decrease in the
deferred costs related to agreements with customers. During the first quarter,
amortization of deferred costs related to existing agreements exceeded the
deferred costs related to new or additional agreements. The impact of this
decrease was tempered by an increase in inventories which reflect production of
new card lines for both the United Kingdom and Canada and advance purchases of
favorably-priced raw materials in the United States. As a result, inventories
as a percentage of the prior twelve
Page 5
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months' material, labor and other production costs increased to 41.4% at May
31, 1994 from 37.3% at May 31, 1993. Accounts receivable also increased from
the prior year due to the higher sales level combined with extended terms. As
a percentage of the prior twelve months' net sales, accounts receivable were
19.4% at May 31, 1994, compared to 17.8% last year.
Investing activities used $4.9 million more cash than during the same period
in the prior year due to higher capital purchases, primarily for CreataCard,
partially offset by cash withdrawals from the corporate-owned life insurance
program.
Cash flow from financing activities for the three months was $111.7 million
favorable compared to the first quarter last year, reflecting the retirement of
$100 million of long-term debt with current funds on hand in the prior year.
Debt as a percentage of debt plus equity was 16.5% at May 31, 1994, a decrease
from 16.9% a year ago, reflecting the increase in equity. On a per share basis,
shareholders' equity increased from $13.17 at May 31, 1993 to $14.54 at May 31,
1994.
On June 10, 1994, the Corporation replaced its $250 million revolving credit
agreement with a $400 million revolving credit agreement to support its
commercial paper borrowing arrangement and provide a six-year term out option
for up to $200 million. The agreement extends through June 1999 and is
renewable thereafter on an annual basis. A commitment fee of 1/8 of 1% is due
on the unused portion; however, the fee is subject to change based on the
credit position of the Corporation. The Corporation also continues to have a
$100 million domestic uncommitted line of credit available for short-term
financing.
There were no material changes in the financial condition, liquidity or capital
resources of the Corporation from February 28, 1994, the end of its preceding
fiscal year, to May 31, 1994, the end of its last fiscal quarter and the date
of the most recent balance sheet included in this report, nor from May 31,
1993, the end of the corresponding fiscal quarter last year, to May 31, 1994,
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, which reasonably can be expected to have a material effect on
the liquidity, capital resources, financial position or results of operations
of the Corporation.
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PART II - OTHER INFORMATION
- ---------------------------
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
By: /s/ William S. Meyer
-----------------------------
William S. Meyer
Controller
Chief Accounting Officer
July 14, 1994
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<TABLE>
EXHIBIT 11
American Greetings Corporation
------------------------------
Computation of Earnings Per Share
---------------------------------
<CAPTION>
(Unaudited)
Three Months Ended May 31,
---------------------------------
1994 1993
---------- ----------
<S> <C> <C>
Average number of
common shares outstanding 74,210,536 73,164,578
========== ==========
Net income (thousands) $ 33,162 $ 11,845
========== ==========
Primary earnings per share $ .45 $ .16
========== ==========
</TABLE>
Computation of Fully-Diluted Earnings Per Share (a)
___________________________________________________
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended May 31,
---------------------------------
1994 1993
---------- ----------
<S> <C> <C>
Average number of common
shares outstanding
on a fully diluted
basis assuming exercise of
stock options based on
the treasury stock method
using the average market price
which was higher than the
ending market price 75,510,238 74,413,328
========== ==========
Net income (thousands) $ 33,162 $ 11,845
========== ==========
Fully-diluted earnings
per share $ .44 $ .16
========== ==========
<FN>
(a) This calculation is submitted in accordance with the Securities Exchange Act of 1934, although not required by
Accounting Principles Board Opinion No. 15, since less than a 3% dilution results.
</TABLE>
