<PAGE> 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, 1994
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OR
--
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from to
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Commission file number 0-502
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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)
(216) 252-7300
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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, 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 69,727,017
Class B Common 4,636,494
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<TABLE>
AMERICAN GREETINGS CORPORATION
INDEX
<CAPTION>
Page
Number
PART I - FINANCIAL INFORMATION ------
- ------------------------------
<S> <C>
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Item 2. Management's Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . 6
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders.. . . . . . . . . . . . . .8
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . .8
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
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</TABLE>
-i-
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<TABLE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
AMERICAN GREETINGS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars except per-share amounts)
<CAPTION>
(Unaudited)
Six Months Ended
August 31,
-------------------------
1994 1993
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<S> <C> <C>
Net sales $ 817,539 $ 777,665
Other income 4,342 6,157
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Total revenue 821,881 783,822
Costs and expenses:
Material, labor and other production costs 291,404 302,466
Selling, distribution and marketing 342,119 304,573
Administrative and general 108,783 104,545
Interest 7,806 8,324
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Total costs and expenses 750,112 719,908
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Income before income taxes and cumulative
effect of accounting changes 71,769 63,914
Income taxes 25,191 23,968
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Income before cumulative effect of accounting
changes 46,578 39,946
Cumulative effect of accounting changes,
net of tax -- 17,182
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Net income $ 46,578 $ 22,764
========= =========
Income per share:
Before cumulative effect of accounting changes $ 0.63 $ 0.54
Cumulative effect of accounting changes,
net of tax -- 0.23
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Net income per share $ 0.63 $ 0.31
========= =========
Dividends per share $ 0.265 $ 0.2325
========= =========
Average number of common shares outstanding 74,254,245 73,456,742
</TABLE>
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<TABLE>
AMERICAN GREETINGS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars except per share amounts)
<CAPTION>
(Unaudited)
Three Months Ended
August 31,
--------------------------
1994 1993
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<S> <C> <C>
Net sales $ 401,136 $ 385,706
Other income 1,953 2,675
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Total revenue 403,089 388,381
Costs and expenses:
Material, labor and other production costs 153,663 158,840
Selling, distribution and marketing 169,771 152,313
Administrative and general 54,839 54,697
Interest 4,143 5,061
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Total costs and expenses 382,416 370,911
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Income before income taxes 20,673 17,470
Income taxes 7,257 6,551
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Net income $ 13,416 $ 10,919
========== ==========
Net income per share $ 0.18 $ 0.15
========== ==========
Dividends per share $ 0.14 $ 0.125
========== ==========
Average number of common shares outstanding 74,297,953 73,748,908
</TABLE>
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<TABLE>
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<CAPTION>
(Thousands of dollars)
(Unaudited) (Audited) (Unaudited)
ASSETS Aug. 31, 1994 Feb. 28, 1994 Aug. 31, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Current assets
Cash and equivalents $ 36,494 $ 101,066 $ 37,542
Trade accounts receivable, less allowances
of $55,635, $110,987 and $50,236, respec-
tively (principally for sales returns) 355,377 322,675 336,669
Inventories:
Raw material 47,684 48,845 47,148
Work in process 46,773 38,956 38,013
Finished products 261,141 202,620 242,290
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355,598 290,421 327,451
Less LIFO reserve 86,997 84,970 86,926
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268,601 205,451 240,525
Display material and factory supplies 38,316 37,906 31,894
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Total inventories 306,917 243,357 272,419
Deferred and refundable income taxes 42,514 62,075 35,283
Prepaid expenses and other 126,822 121,022 102,074
------------- ------------- -------------
Total current assets 868,124 850,195 783,987
Other assets 265,217 286,117 269,996
Property, plant and equipment 812,064 793,965 734,842
Less accumulated depreciation 387,641 365,043 341,638
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Property, plant and equipment - net 424,423 428,922 393,204
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$1,557,764 $1,565,234 $1,447,187
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 163,857 $ 132,036 $ 113,146
Accounts payable 91,141 127,792 116,337
Payroll and payroll taxes 45,661 53,164 49,769
Retirement plans 5,711 20,766 7,445
Dividends payable 10,443 9,300 9,255
Income taxes 6,330 32,857 5,042
------------- ------------- -------------
Total current liabilities 323,143 375,915 300,994
Long-term debt 67,443 54,207 85,748
Postretirement benefit obligation 20,877 19,427 20,533
Deferred income taxes 59,966 62,243 61,893
Shareholders' equity 1,086,335 1,053,442 978,019
------------- ------------- -------------
$1,557,764 $1,565,234 $1,447,187
============= ============= =============
</TABLE>
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<TABLE>
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
<CAPTION>
(Unaudited)
Six Months Ended
August 31,
-----------------------
1994 1993
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $46,578 $22,764
Adjustments to reconcile to net cash
provided (used) by operating activities:
Postretirement benefit obligation - 22,530
Depreciation 34,256 28,197
Deferred and refundable income taxes 17,350 10,500
Change in operating assets and liabilities (170,173) (157,974)
Other - net 9,450 6,185
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Cash Used by Operating Activities (62,539) (67,798)
INVESTING ACTIVITIES:
Property, plant & equipment additions (38,834) (33,394)
Other - net 6,419 7,704
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Cash Used by Investing Activities (32,415) (25,690)
FINANCING ACTIVITIES:
Increase in long-term debt 19,884 14,872
Reduction of long-term debt (25,308) (204,020)
Increase in short-term debt 49,839 92,491
Sale of stock under benefit plans 5,811 9,795
Purchase of treasury shares (158) (161)
Dividends to shareholders (19,686) (17,133)
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Cash Provided (Used) by Financing Activities 30,382 (104,156)
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DECREASE IN CASH AND EQUIVALENTS (64,572) (197,644)
Cash and Equivalents at Beginning of Year 101,066 235,186
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Cash and Equivalents at End of Period $36,494 $37,542
======= =======
</TABLE>
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AMERICAN GREETINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
Six Months Ended August 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.
Page 5
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Part I., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS
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Results of Operations
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Net sales of $401.1 million for the second quarter and $817.5 million for the
six months ended August 31, 1994 were up 4.0% and 5.1%, respectively, over the
same periods in the prior year. These increases were due to strong seasonal
card sales in both periods, offset somewhat by delays in the shipment of
seasonal accessories from the second quarter to the third quarter. In
addition, weakening of foreign currencies, particularly the Canadian dollar,
against the U.S. dollar continued with an unfavorable impact on net sales
growth of .5 percentage points for the quarter and .7 percentage points for the
six months. Unit sales of greeting cards increased approximately 2% for both
the quarter and six-month period.
Other income decreased $.7 million and $1.8 million for the three months and
six months, respectively, from the same periods last year due primarily to
lower royalties from character licensing.
Material, labor and other production costs were 38.3% of net sales for the
quarter compared to 41.2% for the second quarter last year and 35.6% for the
six months, down from 38.9% for the same period last year. The improvements in
these numbers were due to the strong sales of high margin cards and continued
cost savings from manufacturing efficiencies.
For the quarter, selling, distribution and marketing expenses were 42.3% of net
sales compared to 39.5% last year. Through six months these expenses were
41.8% of net sales, up from 39.2% last year. These increases resulted from
higher amortization expense related to deferred costs and CreataCard's national
advertising program.
Administrative and general expenses increased $4.2 million for the six months
over the same period last year, due primarily to the higher pre-tax costs of
corporate owned life insurance. For the second quarter, administrative and
general expenses were at the same level as the second quarter last year.
Interest expense decreased slightly from the prior year for both the second
quarter and the six months due primarily to a shift in debt from the United
Kingdom to lower rate borrowings in the United States.
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Liquidity and Capital Resources
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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, 1993 has been included.
Operations for the first six months required $5.3 million less cash than the
same period last year due to a slower growth in accounts receivable and a
decrease in deferred costs related to agreements with customers. Net accounts
receivable, which were 19.6% of the prior twelve months net sales compared to
19.7% last year, reflect the increase in the allowance for sales returns
resulting from this year's strong seasonal card sales. The decrease in
deferred costs resulted from amortization of costs related to existing
agreements which exceeded deferred costs related to new or additional
agreements.
Offsetting these two items were a greater increase in inventories this year,
due to advance purchases of favorably priced raw materials and the build up of
seasonal inventory which is ahead of schedule, and the timing of the payment of
trade accounts payable. Inventories as a percent of the prior twelve months'
material, labor and other production costs increased to 46.4% at August 31,
1994 from 40.6% at August 31, 1993.
Cash flow used by investing activities in the first six months was $6.7 million
higher than in the prior year, primarily due to capital expenditures for
information systems.
Financing activities provided $30.4 million of cash during the first six months
of fiscal 1995 after using $104.2 million in the comparable period last year.
During the first six months last year, the Corporation retired $200 million of
long-term debt, $100 million of which was repaid with funds on hand and $100
million of which was replaced with short-term borrowings. The ratio of total
debt to total capitalization, which was 17.6% at August 31, 1994 compared to
16.9% last year, increased slightly as the higher borrowings were tempered by
the increase in shareholders' equity.
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 August 31, 1994, the end of its last fiscal quarter and the
date of the most recent balance sheet included in this report, nor from August
31, 1993, the end of the corresponding fiscal quarter last year, to August 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
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Item 4. Submission of Matters to a Vote of Security Holders
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(a) The Annual Meeting of Shareholders of the Corporation was
held on June 24, 1994.
(c) - 1 The following individuals were elected to Class II of the
Corporation's Board of Directors: Albert B. Ratner, Harry
H. Stone and Abraham Zaleznik. The vote was as follows for
the above-listed nominees:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Albert B. Ratner 101,711,909 716,568
Harry H. Stone 101,747,564 726,641
Abraham Zaleznik 101,802,588 721,417
</TABLE>
(c) - 2 A proposal to approve the compensation plans for the
Corporation's Chairman and Chief Executive Officer, and
President and Chief Operating Officer, was approved by the
shareholders. The vote was as follows:
Affirmative 95,939,586
Negative 4,640,596
Abstain 1,672,391
Broker Non-Votes 227,505
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
Page 8
<PAGE> 11
SIGNATURES
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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
October 7, 1994
Page 9
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<TABLE>
EXHIBIT 11
American Greetings Corporation
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Computation of Earnings Per Share
---------------------------------
<CAPTION>
(Unaudited)
Six Months Ended August 31,
----------------------------------
1994 1993
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<S> <C> <C>
Average number of
common shares outstanding 74,254,245 73,456,742
========== ==========
Net income (thousands) $ 46,578 $ 22,764
========== ==========
Primary earnings per share $ .63 $ .31
========== ==========
</TABLE>
Computation of Fully-Diluted Earnings Per Share (a)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended August 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 ending market price
which was higher than the
average market price 75,578,443 74,760,272
========== ==========
Net income (thousands) $ 46,578 $ 22,764
========== ==========
Fully-diluted earnings
per share $ .62 $ .30
========== ==========
<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>
