<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 November 30, 1994
-------------------------
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 0-502
--------
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.
Yes X No
--- ---
As of November 30, 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 69,750,739
Class B Common 4,634,589
<PAGE> 2
<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 . . . . . . . . . . . . . . . . . . . . . . 6
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
- ----------
-i-
</TABLE>
<PAGE> 3
<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)
Nine Months Ended
November 30,
--------------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
Net Sales $ 1,368,575 $ 1,296,652
Other income 6,046 9,674
--------------- ---------------
Total revenue 1,374,621 1,306,326
Costs and expenses:
Material, labor and other production costs 502,769 512,681
Selling, distribution and marketing 529,678 474,861
Administrative and general 167,150 159,602
Interest 12,766 12,923
--------------- ---------------
Total costs and expenses 1,212,363 1,160,067
--------------- ---------------
Income before income taxes and cumulative
effect of accounting changes 162,258 146,259
Income taxes 56,790 54,847
--------------- ---------------
Income before cumulative effect of accounting
changes 105,468 91,412
Cumulative effect of accounting changes,
net of tax -- 17,182
--------------- ---------------
Net income $ 105,468 $ 74,230
=============== ===============
Income per share:
Before cumulative effect of accounting changes $ 1.42 $ 1.24
Cumulative effect of accounting changes,
net of tax -- 0.23
--------------- ---------------
Net income per share $ 1.42 $ 1.01
=============== ===============
Dividends per share $ 0.405 $ 0.3575
=============== ===============
Average number of common shares oustanding 74,294,081 73,670,209
</TABLE>
Page 1
<PAGE> 4
<TABLE>
AMERICAN GREETINGS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars except per share amounts)
<CAPTION>
(Unaudited)
Three Months Ended
November 30,
----------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Net sales $551,036 $518,987
Other income 1,704 3,517
------------ ------------
Total revenue 552,740 522,504
Costs and expenses:
Material, labor and other production costs 211,365 210,215
Selling, distribution and marketing 187,559 170,288
Administrative and general 58,367 55,057
Interest 4,960 4,599
------------ ------------
Total costs and expenses 462,251 440,159
------------ ------------
Income before income taxes 90,489 82,345
Income taxes 31,599 30,879
------------ ------------
Net income $ 58,890 $ 51,466
============ ============
Net income per share $ 0.79 $ 0.70
============ ============
Dividends per share $ 0.14 $ 0.125
============ ============
Average number of common shares outstanding 74,373,753 74,097,140
</TABLE>
Page 2
<PAGE> 5
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited) (Audited) (Unaudited)
Nov. 30, 1994 Feb. 28, 1994 Nov. 30, 1993
------------- ------------- -------------
ASSETS
<S> <C> <C> <C>
Current assets
Cash and equivalents $36,472 $101,066 $64,752
Trade accounts receivable, less allowances
of $112,186, $110,987 and $91,152, respec-
tively (principally for sales returns) 557,686 322,675 568,931
Inventories:
Raw material 44,378 48,845 38,155
Work in process 40,445 38,956 29,609
Finished products 230,567 202,620 223,156
------------- ------------- -------------
315,390 290,421 290,920
Less LIFO reserve 86,995 84,970 87,976
------------- ------------- -------------
228,395 205,451 202,944
Display material and factory supplies 38,920 37,906 33,957
------------- ------------- -------------
Total inventories 267,315 243,357 236,901
Deferred income taxes 56,103 62,075 49,583
Prepaid expenses and other 124,295 121,022 108,334
------------- ------------- -------------
Total current assets 1,041,871 850,195 1,028,501
Other assets 268,168 286,117 247,431
Property, plant and equipment 833,233 793,965 757,095
Less accumulated depreciation 405,731 365,043 351,485
------------- ------------- -------------
Property, plant and equipment - net 427,502 428,922 405,610
------------- ------------- -------------
$1,737,541 $1,565,234 $1,681,542
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Debt due within one year $217,179 $132,036 $256,420
Accounts payable 101,521 127,792 124,281
Payroll and payroll taxes 46,125 53,164 54,504
Retirement plans 15,732 20,766 14,527
Dividends payable 10,453 9,300 9,293
Income taxes 49,666 32,857 29,256
------------- ------------- -------------
Total current liabilities 440,676 375,915 488,281
Long-term debt 80,172 54,207 87,129
Postretirement benefit obligation 21,716 19,427 20,832
Deferred income taxes 59,529 62,243 62,023
Shareholders' equity 1,135,448 1,053,442 1,023,277
------------- ------------- -------------
$1,737,541 $1,565,234 $1,681,542
============= ============= =============
</TABLE>
Page 3
<PAGE> 6
<TABLE>
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
<CAPTION>
(Unaudited)
Nine Months Ended
November 30,
----------------------------------
1994 1993
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $105,468 $74,230
Adjustments to reconcile to net cash
provided (used) by operating activities:
Postretirement benefit obligation - 22,530
Depreciation 51,945 43,222
Deferred income taxes 3,347 (3,626)
Change in operating assets and liabilities (272,404) (322,283)
Other - net 11,170 7,471
------------- -------------
Cash Used by Operating Activities (100,474) (178,456)
INVESTING ACTIVITIES:
Property, plant & equipment additions (58,666) (61,695)
Other - net 8,006 32,336
------------- -------------
Cash Used by Investing Activities (50,660) (29,359)
FINANCING ACTIVITIES:
Increase in long-term debt 32,524 17,864
Reduction of long-term debt (25,363) (204,606)
Increase in short-term debt 103,368 236,368
Sale of stock under benefit plans 6,305 20,311
Purchase of treasury shares (165) (6,145)
Dividends to shareholders (30,129) (26,411)
------------- -------------
Cash Provided by Financing Activities 86,540 37,381
------------- -------------
DECREASE IN CASH AND EQUIVALENTS (64,594) (170,434)
Cash and Equivalents at Beginning of Year 101,066 235,186
------------- -------------
Cash and Equivalents at End of Period $36,472 $64,752
============= =============
</TABLE>
Page 4
<PAGE> 7
AMERICAN GREETINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended November 30, 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
<PAGE> 8
Part I., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS
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Results of Operations
- ---------------------
Net sales of $551.0 million for the third quarter and $1,368.6 million for the
nine months ended November 30, 1994 were up 6.2% and 5.5%, respectively, over
the same periods in the prior year. The increase for the third quarter was due
to strong sales of everyday cards and shipments of seasonal accessories delayed
from the second quarter. The increase for the nine months was due to strong
sales of both everyday and seasonal cards. The weakening of foreign currencies
against the US dollar lessened during the third quarter, and the unfavorable
impact on net sales growth for the nine-month period moderated to .4 percentage
point. Unit sales of greeting cards increased approximately 1% for both the
quarter and nine-month period.
Other income decreased $1.8 million for the quarter and $3.6 million for the
nine months from the same periods last year due primarily to lower character
licensing royalties.
Material, labor and other production costs were 38.4% of net sales for the
quarter compared to 40.5% for the third quarter last year and 36.7% for the
nine months, down from 39.5% for the same period last year. These reductions
were due to the overall improved gross margins as a result of continued savings
from production efficiencies and higher sales prices.
Selling, distribution and marketing expenses were 34.0% of net sales for the
quarter, up from 32.8% for the same period last year due to higher amortization
expense related to deferred costs. For the nine months, selling, distribution
and marketing expenses were 38.7% of net sales, compared to 36.6% last year.
The increase for the nine months was due to the higher amortization expense and
CreataCard's national advertising program.
Administrative and general expenses for the quarter were 10.6% of net sales,
flat to prior year. For the nine months, administrative and general expenses
were 12.2% of net sales, down slightly from 12.3% for the same period last
year.
Interest expense increased $.4 million over the prior year for the quarter due
primarily to higher interest rates on borrowings. For the nine months,
interest expense decreased slightly from the prior year due primarily to a
shift in debt from the United Kingdom to lower rate borrowings in the United
States.
The effective tax rate for the nine months was 35.0%, lower than the 37.5% in
the prior year due to the increased benefit from the corporate- owned life
insurance program and the reduction in foreign losses with no tax benefit.
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 November 30, 1993 has been included.
Page 6
<PAGE> 9
Operations for the first nine months required $78.0 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 30.3% of the prior twelve months' net sales compared to
32.7% last year, reflect a decrease in extended payment terms. 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
inventory in the UK to support the launch of a new card line there, and lower
trade accounts payable which was due to the timing of payments. Inventories as
a percent of the prior twelve months' material, labor and other production
costs increased to 40.4% at November 30, 1994 from 34.9% last year.
Investing activities used $21.3 million more cash for the first nine months
than in the prior year. The prior year included a cash distribution of $24.5
million from the corporate-owned life insurance program. This was partially
offset by lower overall capital expenditures this year compared to last year,
particularly for CreataCard machines.
Financing activities provided $49.2 million more cash during the first nine
months of this year than last year. During the first nine 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.
Debt as a percentage of debt plus equity was 20.8% at November 30, 1994, a
decrease from 25.1% the prior year, reflecting both the lower debt level and an
increase in shareholders' equity. On a per share basis, shareholders' equity
increased from $13.80 at November 30, 1993 to $15.26 at November 30, 1994.
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 November 30, 1994, the end of its last fiscal quarter and the
date of the most recent balance sheet included in this report, nor from
November 30, 1993, the end of the corresponding fiscal quarter last year, to
November 30, 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.
Page 7
<PAGE> 10
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
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/ William S. Meyer
--------------------------------
William S. Meyer
Controller
Chief Accounting Officer
January 12, 1995
Page 8
<PAGE> 1
<TABLE>
EXHIBIT 11
American Greetings Corporation
------------------------------
Computation of Earnings Per Share
---------------------------------
<CAPTION>
(Unaudited)
Nine Months Ended November 30,
------------------------------
1994 1993
-------- ---------
<S> <C> <C>
Average number of
common shares outstanding 74,294,081 73,670,209
========== ==========
Net income (thousands) $ 105,468 $ 74,230
========== ==========
Primary earnings per share $ 1.42 $ 1.01
========== ==========
</TABLE>
Computation of Fully-Diluted Earnings Per Share (a)
----------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended November 30,
------------------------------
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 75,362,206 74,988,675
========== ==========
Net income (thousands) $ 105,468 $ 74,230
========== ===========
Fully-diluted earnings
per share $ 1.40 $ .99
=========== ===========
</TABLE>
(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> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Part I, Item
1 of the third-quarter Form 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> NOV-30-1994
<CASH> 36,472
<SECURITIES> 0
<RECEIVABLES> 557,686
<ALLOWANCES> 18,623
<INVENTORY> 267,315
<CURRENT-ASSETS> 1,041,871
<PP&E> 833,233
<DEPRECIATION> 405,731
<TOTAL-ASSETS> 1,737,541
<CURRENT-LIABILITIES> 440,676
<BONDS> 0
<COMMON> 74,385
0
0
<OTHER-SE> 1,061,063
<TOTAL-LIABILITY-AND-EQUITY> 1,737,541
<SALES> 1,368,575
<TOTAL-REVENUES> 1,374,621
<CGS> 502,769
<TOTAL-COSTS> 502,769
<OTHER-EXPENSES> 696,828
<LOSS-PROVISION> 6,197
<INTEREST-EXPENSE> 12,766
<INCOME-PRETAX> 162,258
<INCOME-TAX> 56,790
<INCOME-CONTINUING> 105,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,468
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.40
</TABLE>
