<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Commission File
Ended February 29, 1996 Number 0-1502
----------------- ------
AMERICAN GREETINGS CORPORATION
--------------------------------------------------
(Exact name of registrant as specified in Charter)
OHIO 34-0065325
- ------------------------ -------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
One American Road , Cleveland, Ohio 44144
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,including area code (216) 252-7300
---------------
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Title of Each Class
-------------------
Class A Common Shares, Par Value $1.00
Class B Common Shares, Par Value $1.00
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE> 2
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of May 3, 1996 - $1,939,321,500.
Number of shares outstanding as of May 3, 1996:
CLASS A COMMON - 70,335,564
CLASS B COMMON - 4,552,528
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement filed with the Securities and Exchange
Commission on May 17, 1996 with respect to the 1996 Annual Meeting of
Shareholders called for June 28, 1996, are incorporated by reference into Part
III.
PART I
Item 1. Business
American Greetings Corporation and its subsidiaries operate
predominantly in a single industry: the design, manufacture and sale of everyday
and seasonal greeting cards and other personal communication products. Greeting
cards, gift wrap, paper party goods, candles and giftware are manufactured and
/or sold in the United States by American Greetings Corporation, Plus Mark,
Inc., Carlton Cards Retail, Inc., and Quality Greeting Card Distributing
Company; in Canada by Carlton Cards Ltd. (Canada); in the United Kingdom by
Carlton Cards Limited (UK) and Carlton Cards Ltd. (Ireland); in France by
Carlton Cards (France) SNC; and in Mexico by Carlton Mexico, S.A. de C.V. During
fiscal 1996, the Corporation acquired substantially all of the assets of the
John Sands Group to form John Sands (Australia) Ltd. in Australia and John Sands
(N.Z.) Ltd. in New Zealand. Also in fiscal 1996, the Corporation acquired a
majority interest in S.A. Greetings Corporation (PTY) Ltd. in South Africa.
Personalized greeting cards are sold through CreataCard machines by CreataCard,
Inc. in the United States, by CreataCard Canada, Inc. in Canada and by
CreataCard (UK) Ltd. in the United Kingdom. Wilhold, Inc. produces and sells
hair accessory items, Acme Frame Products, Inc. produces and sells picture
frames, and Magnivision, Inc. produces and sells non-prescription reading
glasses and eyeware accessories. AGC, Inc. licenses designs, and Those
Characters From Cleveland, Inc. licenses characters. AG Industries, Inc.
manufactures custom display fixtures for the Corporation's products and
products of others. Although other subsidiaries of American Greetings
Corporation exist, they are either inactive, of minor importance or of a
holding company nature.
Many of the Corporation's products are manufactured at common
production facilities and marketed by a common sales force. Marketing and
manufacturing functions in the United States and Canada are combined; dual
priced cards are produced and distributed in both countries. Information
concerning sales by major product classifications is included in Part II, Item
7. Additionally, information by geographic area is included in Note J to the
Consolidated Financial Statements included in Part II, Item 8.
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The Corporation's products are primarily sold in approximately
128,000 retail outlets throughout the world. The greeting card and gift wrap
industry is intensely competitive. Competitive factors include quality, design,
customer service and terms, which may include payments and other concessions to
retail customers under long-term agreements. These agreements are discussed in
greater detail below. There are an estimated 500 companies in this industry. The
Corporation's principal competitors, however, are Hallmark Cards, Incorporated
and Gibson Greetings, Inc. Based upon its general familiarity with the greeting
card and gift wrap industry and limited information as to its competitors, the
Corporation believes that it is the second largest company in the industry and
the largest publicly owned company in the industry.
The greeting card and gift wrap industry is generally mature.
Total unit sales of greeting cards remained unchanged in fiscal 1996 from fiscal
1995, after having grown at an approximate rate of one percent per year
previously.
Production of the Corporation's products is on a level basis
throughout the year. Everyday inventories remain relatively constant throughout
the year, while seasonal inventories peak in advance of each major holiday
season, including Christmas, Valentine's Day, Easter, Mother's Day, Father's Day
and Graduation. Also characteristic of the business, accounts receivable for
seasonal merchandise are carried for relatively long periods, as product is
normally shipped three to five months prior to a holiday. Payments for seasonal
shipments are generally received during the month in which the major holiday
occurs, or shortly thereafter. Extended payment terms may also be offered in
response to competitive situations with individual customers. The Corporation
and many of its competitors sell seasonal greeting cards with the right of
return.
During the fiscal year, the Corporation experienced no
difficulty in obtaining raw materials from suppliers.
At February 29, 1996, the Corporation employed approximately
16,300 full-time employees and approximately 20,500 part-time employees which,
when jointly considered, equate to approximately 21,700 full-time employees.
Approximately 3,700 of the Corporation's hourly plant employees are unionized.
Approximately 3,000 of the unionized employees are at the following locations:
Bardstown, Kentucky, and Corbin, Kentucky, International Brotherhood of
Teamsters; Greeneville, Tennessee, Amalgamated Clothing & Textile Workers Union;
Toronto, Ontario (Carlton Cards Ltd.), Canadian Paperworkers Union; and
Dewsbury, England, Graphical, Paper & Media Union. Other locations with unions
are Cleveland, Ohio; Mexico City, Mexico; Clayton, Victoria, Australia;
Auckland, New Zealand; and Roodepoort, South Africa. Labor relations at each
location have been satisfactory. The Corporation's headquarters and other
manufacturing locations are not unionized.
The Corporation has a number of patents and registered
trademarks which are used in connection with its products. The Corporation's
designs and verses are protected by copyright. Although the licensing of
copyrighted designs and trademarks produces additional revenue, in the opinion
of the Corporation, the Corporation's operations are not dependent upon any
individual patent, trademark, copyright or intellectual property license. The
collective value of the Corporation's copyrights and
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trademarks is substantial and the Corporation follows an aggressive policy of
protecting its patents, copyrights and trademarks.
In fiscal 1996, the Corporation's major channels of
distribution, in order of importance, were: mass merchandisers, drug stores,
supermarkets, card and gift shops, variety stores, combo stores (stores
combining food, general merchandise and drug items), military post exchanges,
and department stores.
Sales to the Corporation's five largest customers, which
include mass merchandisers and major drug stores, accounted for approximately
25.8% of net sales. Sales to retail customers are made through 34 sales offices
in the United States, Canada, United Kingdom, Australia, New Zealand, France,
Mexico and South Africa.
The Corporation has agreements with various customers for the
supply of greeting cards and related products. Contracts are separately
negotiated to meet competitive situations; therefore, while some aspects of the
agreements may be the same or similar, important contractual terms often vary
from contract to contract. No one contract is significant to the Corporation's
financial position. Under the agreements, customers typically receive
allowances, discounts and/or advances in consideration for the Corporation being
allowed to supply customers' stores for a stated term. Some of these competitive
agreements have been negotiated with customers covering a period following that
covered by current agreements and requiring the Corporation to make advances
prior to the start of such future period. The Corporation views the use of such
agreements as advantageous in developing and maintaining business with retail
customers. Although risk is inherent in the granting of advances, payments and
credits, the Corporation subjects such customers to its normal credit review.
Losses attributable to these agreements have historically not been material.
Advances, payments and credits made under these agreements are accounted for as
deferred costs. The current and long-term portions of such deferred costs, which
are material in the aggregate, are disclosed in Note C to the Consolidated
Financial Statements included in Part II, Item 8. Future payment commitments
relating to these agreements are accounted for as liabilities in the
Corporation's Consolidated Financial Statements. Note C also discusses the
amortization policy. The Corporation believes that these agreements represent a
common practice within the industry. Since Hallmark Cards, one of the
Corporation's two principal competitors, is a non-public company, public
disclosure of its practices has been limited. Gibson Greetings, the
Corporation's other principal competitor and a public company, has made
comparable disclosures with respect to such agreements.
Item 2. Properties
As of February 29, 1996, the Corporation owns or leases
approximately 16.0 million square feet of plant, warehouse, store and office
space, of which approximately 6.9 million square feet are leased. Space needs in
the United States have been met primarily through long-term leases of properties
constructed and financed by community development corporations and
municipalities.
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The following table summarizes the principal plants and
materially important physical properties of the Corporation:
<TABLE>
<CAPTION>
Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- -------- ------------- ------ ------ --------
<S> <C> <C> <C> <C>
Bardstown, 413,500 Cutting, folding,
Kentucky finishing, and
packaging of
greeting cards
Cleveland, 1,312,500 International
Ohio headquarters; general
(2 locations) offices of U.S.
Greeting Card Division,
Plus Mark, Inc.,
AG Industries, Inc.,
Wilhold, Carlton Cards
Retail, Inc.,
CreataCard Inc., and
Acme Frame Products, Inc.;
creation and design of
greeting cards and
related products
Corbin, 1,010,000 1997 Printing of greeting
Kentucky cards, gift wrapping
and paper party goods
and manufacture of
other related
products
Danville, 1,374,000 2001 Distribution of
Kentucky everyday greeting
cards and related
products
Forest City, 498,000 327,600 1999 Manufacture of the
North Carolina Corporation's display
fixtures and other
custom display
fixtures for
AG Industries, Inc.
Greeneville, 1,410,000 Printing and
Tennessee packaging of seasonal
(2 locations) wrapping items for
Plus Mark, Inc.
</TABLE>
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<TABLE>
<CAPTION>
Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- -------- ------------- ------ ------ --------
<S> <C> <C> <C> <C>
Harrisburg, 417,000 2007 Manufacture and distribution
Arkansas facility of metal picture
frames for Acme Frame
Products Inc.
Huntington Valley, 18,800 1997 Manufacture, order
Pennsylvania filling, and distribution
of eyeglass
accessories for
Magnivision, Inc.
Lafayette, 194,000 Manufacture of
Tennessee envelopes for greeting
cards and packaging
of cards
McCrory, 771,000 2005 Order filling and
Arkansas shipping of everyday
and seasonal products
Osceola, 2,800,800 Cutting, folding,
Arkansas finishing and
packaging of seasonal
greeting cards and
warehousing;
distribution of
seasonal products
Pembroke Pines, 68,000 1998 Manufacture, order
Florida filling and shipping of
non-prescription
reading glasses for
Magnivision, Inc.
Philadelphia, 120,000 2017 Hand finishing of
Mississippi greeting cards
Ripley, 165,000 Seasonal card printing
Tennessee and forms
</TABLE>
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<TABLE>
<CAPTION>
Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- -------- ------------- ------ ------ --------
<S> <C> <C> <C> <C>
Shelbyville, 250,000 1997 Warehousing for
Kentucky Carlton Cards Retail, Inc.
Sunbury, 145,000 46,000 1997 Manufacture, order filling
Pennsylvania and shipping of hair
(2 locations) accessory products for
Wilhold
Auckland, 80,000 General offices of
New Zealand John Sands (New
Zealand) Ltd.; manufacture
of greeting cards and
related products
Clayton, 208,000 General offices of
Australia John Sands (Australia) Ltd;
manufacture of greeting
cards and related products
Corby, 85,000 Distribution of
England greeting cards and
related products for
Carlton Cards
Limited (UK)
Dewsbury, 361,000 87,000 2002, General offices of
England 2008, Carlton Cards Limited
(5 locations) and (UK) and manufacture
2015 of greeting cards and
related products
Mexico City, 166,000 General offices of
Mexico Carlton Mexico, S.A. de
C.V. and manufacture
of greeting cards and
related products
Paris, France 70,000 1997 Distribution of
greeting cards and
related products for
Carlton Cards
(France) SNC
</TABLE>
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<TABLE>
<CAPTION>
Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- -------- ------------- ------ ------ --------
<S> <C> <C> <C> <C>
Roodepoort, 105,000 1999 General offices of S.A.
South Africa Greetings Corporation;
manufacture and
distribution of greeting
cards and related
products
Toronto, 1,084,500 General offices of
Ontario, Carlton Cards Ltd.
Canada (Canada); manufacture
(2 locations) of greeting cards and
related products
</TABLE>
Item 3. Legal Proceedings
J.E. and Z.B. Butler Foundation, Inc. v. American Greetings Corp., Morry Weiss,
Edward Fruchtenbaum, John M. Klipfell, Irving I. Stone and Dale A. Cable, Case
No. 1:95CV 2411, United States District Court, Northern District of Ohio.
On November 14, 1995, the above lawsuit was filed against the Corporation and
certain of its officers, alleging violations of (i) Section 10 (b) of the
Securities Exchange Act of 1934 (the "Act") and Rule 10b-5 promulgated
thereunder and (ii) Section 20 (a) of the Act. The Complaint is based on the
alleged failure to disclose, as well as alleged misleading disclosure of,
material information regarding the Corporation's CreataCard unit prior to the
Corporation's November 10, 1995, announcement that it had elected to write down
certain of CreataCard's assets pursuant to Statement of Financial Accounting
Standards No. 121. The Complaint also alleges that certain of the Corporation's
officers improperly benefitted from this activity.
The Complaint in this action seeks unspecified compensatory and punitive damages
(as well as attorney's fees) on behalf of all purchasers of the Corporation's
publicly traded shares who were allegedly injured during the period of the
alleged wrongdoing, March 30-November 10, 1995.
The Corporation and the individual defendants have filed an Answer denying
liability and asserting numerous defenses.
As of May 1, 1996, the Corporation is a party to five legal proceedings relating
to state and federal environmental laws. One or more governmental authorities is
a party to each proceeding. The proceedings allege, among other things, that
hazardous waste material generated by the Corporation was improperly disposed of
by others. In three of these cases the Corporation has entered into consent
decrees under which the Corporation has agreed to pay a PRO RATA share of
clean-up costs. Costs of remediation in each of the proceedings cannot be
estimated at this time; however, in the opinion of management, based on the
amounts involved in each proceeding and in the aggregate, such liabilities will
not have a material effect on the Corporation's consolidated financial position.
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Item 4. Submission of Matters to Vote of Security Holders
None
Executive Officers of the Registrant
- ------------------------------------
The following is a list of the Corporation's executive officers,
their ages as of May 1, 1996, their positions and offices, and number of years
in executive office:
<TABLE>
<CAPTION>
Years as
Name Age Executive Officer Current Position and Office
- ---- --- ----------------- ---------------------------
<S> <C> <C> <C>
Irving I. Stone 87 46 Founder-Chairman and Chairman
of the Executive Committee
Morry Weiss 56 24 Chairman and Chief Executive
Officer
Edward Fruchtenbaum 48 10 President and Chief Operating
Officer
Jon Groetzinger, Jr. 47 8 Senior Vice President, General
Counsel and Secretary
John M. Klipfell 46 13 Senior Vice President
Harvey Levin 63 15 Senior Vice President
Henry Lowenthal 64 24 Senior Vice President
William R. Mason 51 14 Senior Vice President
William S. Meyer 49 8 Senior Vice President,
Chief Financial Officer
Patricia A. Papesh 48 1 Senior Vice President
James R. Van Arsdale 57 13 Senior Vice President
Erwin Weiss 47 6 Senior Vice President
Dale A. Cable 49 4 Treasurer
</TABLE>
Irving I. Stone is the father-in-law of Morry Weiss. Morry
Weiss and Erwin Weiss are brothers. The Board of Directors annually elects all
executive officers; however, executive officers are subject to removal, with or
without cause, at any time.
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<PAGE> 10
All of the executive officers listed above, with the exception
of Dale A. Cable, have served in the capacity shown or similar capacities with
the Corporation (or major subsidiary) over the past five years. Mr. Cable was
Treasurer-Assistant Secretary of Standard Products Company from 1989 to 1992,
and Corporate Treasurer of Sheller-Globe Corporation from 1987 to 1989.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
(a) MARKET INFORMATION
- ----------------------
The high and low stock prices for the Corporation's Class A
Common Shares, as reported in the NASDAQ National Market Listing, for the years
ended February 29, 1996 and February 28, 1995:
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter . . . . . . . . . . $ 31-1/8 $ 26-3/4 $ 30-1/2 $ 25-7/8
2nd Quarter . . . . . . . . . . 32-1/2 27-7/8 31-3/8 27
3rd Quarter . . . . . . . . . . 32-5/8 25-1/2 30-1/8 26-1/8
4th Quarter . . . . . . . . . . 28-3/8 25-3/4 29-1/2 25-3/4
</TABLE>
The Corporation's Class A Common Shares, $1.00 par value per
share, are traded on the NASDAQ National Market under the trading symbol:
AGREA. KeyCorp Shareholder Services, Inc., Cleveland, Ohio, is the
Corporation's registrar and transfer agent. There is no public market for the
Class B Common Shares of the Corporation. Pursuant to the Corporation's Amended
Articles of Incorporation, a holder of Class B Common Shares may not transfer
such Class B Common Shares (except to permitted transferees, a group that
generally includes members of the holder's extended family, family trusts and
charities) unless such holder first offers such shares to the Corporation for
purchase at the most recent closing price for the Corporation's Class A Common
Shares. If the Corporation does not purchase such Class B Common Shares, the
holder must convert such shares, on a share for share basis, into Class A
Common Shares prior to any transfer.
(b) SHAREHOLDERS
- ----------------
At May 1, 1996, there were approximately 20,750 holders of Class
A Common Shares and 260 holders of Class B Common Shares of record and
individual participants in security position listings.
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(c) CASH DIVIDENDS
- ------------------
<TABLE>
<CAPTION>
Dividends Per Share 1996 1995
- ------------------- -------- --------
<S> <C> <C> <C>
1st Quarter (paid June 9, 1995 and June 10, 1994) $ .14 $ .125
2nd Quarter (paid September 8, 1995 and
September 9, 1994) .16 .14
3rd Quarter (paid December 8, 1995 and
December 9, 1994) .16 .14
4th Quarter (paid March 8, 1996 and March 10, 1995) .16 .14
-------- --------
$ .62 $ .545
======== ========
</TABLE>
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Item 6. Selected Financial Data
Year ended February 28 or 29
Thousands of dollars except per share amounts*
Summary of Operations
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $2,003,038 $1,868,927 $1,769,964 $1,671,692 $1,553,961
Gross profit 1,241,032 1,192,842 1,097,944 1,010,509 908,010
Asset impairment loss 52,061 - - - -
Interest expense 24,290 16,871 16,897 26,924 30,423
Income before cumulative effect of accounting changes 115,135 148,792 130,884 112,288 97,462
Cumulative effect of accounting changes, net of tax - - 17,182 - -
Net income 115,135 148,792 113,702 112,288 97,462
Income per share:
Before cumulative effect of accounting changes 1.54 2.00 1.77 1.55 1.40
Cumulative effect of accounting changes, net of tax - - .23 - -
Net income 1.54 2.00 1.54 1.55 1.40
Cash dividends per share .62 .55 .48 .42 .38
Fiscal year end market price per share 27.38 29.38 27.88 24.00 21.25
Average number of shares outstanding 74,528,809 74,305,346 73,809,132 72,440,114 69,514,436
Financial Position
Accounts receivable $ 353,671 $ 324,329 $ 322,675 $ 276,932 $ 264,125
Inventories 335,074 279,270 243,357 228,123 275,955
Working capital 516,346 531,199 474,280 581,651 628,997
Total assets 2,005,832 1,761,751 1,565,234 1,548,400 1,437,760
Property, plant and equipment additions 91,590 97,290 102,859 77,099 67,328
Long-term debt 231,073 74,480 54,207 169,381 255,711
Shareholders' equity 1,235,022 1,159,541 1,053,442 952,535 865,046
Shareholders' equity per share 16.53 15.61 14.21 13.07 12.05
Net return on average shareholders' equity
before cumulative effect of accounting changes 9.6% 13.4% 13.0% 12.4% 12.8%
Return on net sales before income taxes and
cumulative effect of accounting changes 8.7% 12.2% 11.8% 10.8% 9.8%
<FN>
* Share and per share amounts for 1993 and prior have been restated to
reflect the 1994 stock split.
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
- ---------------------
Revenues
In 1996, the Corporation reported its 90th consecutive year of net revenue
growth. Despite the continuing competitiveness of the industry, net sales
increased 7.2% in 1996 from 1995. Net sales of everyday greeting cards increased
6.2% due primarily to price increases while net sales of seasonal greeting cards
reflected the weak retailing environment in the fourth quarter which resulted in
an increase of less than 1%. Both everyday and seasonal greeting card sales were
negatively impacted by the under performance of the CreataCard personalized
greeting card business. Total unit sales of greeting cards remained unchanged
from 1995. Sales of non-card products, such as gift wrap, party goods, frames
and non-prescription reading glasses, were strong compared to 1995. Net sales of
these products increased 13.0% in 1996 after increasing 2.0% in 1995. The
strengthening of the Canadian dollar and European currencies offset the
additional weakening of the Mexican peso in 1996 and the impact of foreign
exchange rates on net sales was not material.
From 1994 to 1995, net sales increased 5.6% due to strong sales of both everyday
and seasonal cards. Foreign currency exchange rates were unfavorable in 1995 as
the weakening of the Canadian dollar and the Mexican peso reduced net sales
growth from 6.2% to 5.6%. In 1995, greeting cards unit sales increased 1% while
net sales in dollars increased 7.8%.
The contribution of each major product category as a percent of net sales for
the past three years is:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Everyday Greeting Cards............................... 44% 44% 41%
Seasonal Greeting Cards............................... 21% 22% 24%
Gift Wrapping and Party Goods......................... 19% 18% 18%
Consumer Products..................................... 13% 12% 13%
Stationery and Miscellaneous.......................... 3% 4% 4%
</TABLE>
Expenses and Profit Margins
The Corporation's operating expenses in 1996 reflected the strength of non-card
product sales which, compared to the traditional greeting card business, have
higher production
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<PAGE> 14
costs, but lower indirect costs. Material, labor and other production costs
increased 12.7% in 1996 and were 38.0% of net sales. In addition to the impact
of higher cost products, the cost of greeting card cabinets and point of
purchase displays in the United States increased by $12.4 million in 1996 to
support both new customers and the expanded product offerings. The Corporation's
practice is to charge the cost of these cabinets and displays to expense when
they are shipped to customers. Material, labor and other production costs also
reflected slower than expected integration of the Corporation's North American
Plan. This plan, which was initiated in 1995, included the conversion of the
Canadian production facility to the just in time manufacturing processes used in
the United States. The progress on this conversion did not occur as quickly as
originally anticipated, resulting in unfavorable product cost variances. Without
these variances, material, labor and other production costs would have been
37.5% of net sales in 1996. In 1995, these costs were 36.2% of net sales, down
from 38.0% in 1994. The improvement in 1995 reflected higher selling prices and
a product mix which included more lower cost card products than in 1994.
Selling, distribution and marketing expenses increased 5.9% from 1995 to 1996
after increasing 10.9% from 1994 to 1995. In 1996, the increase in amortization
of deferred costs and other competitive expenses was tempered by the control of
other selling, distribution and marketing costs. These deferred costs result
from the payment of competitive advances under the Corporation's agreements with
certain retail customers. See Note C to the Consolidated Financial Statements
for further discussion of deferred costs related to customer agreements.
Selling, distribution and marketing expenses other than amortization of deferred
costs and other competitive expenses increased just 2.1% in 1996 compared to a
6.7% increase in 1995. In addition to the impact of general cost control
measures, selling expenses reflected the sale of the Corporation's retail
operations in the United Kingdom in September, 1995. As a result of this
transaction, $8.3 million of selling expenses were not incurred in 1996. The
Corporation's advertising costs, which are expensed as incurred, were $61.1
million in 1996, $58.3 million in 1995 and $48.2 million in 1994. The increase
in 1996 was primarily due to an expansion of the cooperative advertising
program. The increase in 1995 was due primarily to an expanded national
advertising program related to the CreataCard business. As a percent of net
sales, selling, distribution and marketing expenses were 38.4%, 38.9% and 37.1%
in 1996, 1995, and 1994, respectively. The slight decrease in 1996 resulted from
the increased sales of non-card products which, as a percent of sales, required
less selling and marketing expenses. The increase in 1995 was due primarily to
the increase in amortization of deferred costs.
Administrative and general expenses decreased $2.7 million or 1.2% in 1996.
Expense for the United States profit sharing plan decreased $3.4 million as a
result of the lower pre-tax income in 1996. In 1995, this expense was $21.1
million, comparable to the 1994 expense. The reduction in profit sharing expense
in 1996 was partially offset by the increase in the pre-tax costs of corporate
owned life insurance. These cost increases of $2.3 million in 1996 and $4.5
million in 1995 were less than the increase in the related tax benefits which
are reflected in the Corporation's effective tax rate. Administrative and
general expenses in 1996 also included a $2.4 million loss related to an
investment accounted for under the equity method. This loss resulted from a
restructuring charge incurred in December, 1995 by the company in which the
Corporation holds the investment.
In the third quarter of 1996, the Corporation adopted Statement of Financial
Accounting
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<PAGE> 15
Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of". This Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
November, 1995, the Corporation determined that the trends in the CreataCard
business indicated that the undiscounted future cash flows from that business
would be less than the carrying value of the long-lived assets related to that
business. As a result, the Corporation recognized a pre-tax, non-cash loss of
$52.1 million for the asset impairment. After the effect of income taxes, the
loss was $35.1 million or $.47 cents per share. See Note B to the Consolidated
Financial Statements for further discussion of the impairment loss.
In 1996, interest expense increased $7.4 million after remaining level between
1994 and 1995. This increase was due to the growth in inventories required to
support the increased sales of non-card products and higher payments made under
agreements with certain retailers. In 1995, interest expense reflected a more
efficient mix of debt between the United States and the United Kingdom which
offset rising interest rates.
The effective tax rate in 1996 was 34.2%, lower than both the 1995 and 1994
rates which were 34.5% and 37.5%, respectively. The rate in 1996 was negatively
impacted by the asset impairment loss, which included the write down of
nondeductible goodwill. Excluding the impairment loss, the effective rate was
33.5%. The decrease in each year was due to higher tax benefits of the corporate
owned life insurance which resulted from non-taxable death benefits and
increases in cash surrender value of the policies which exceeded the related
premium and interest expenses.
In 1996, net income including the impact of the asset impairment loss recognized
upon the adoption of SFAS No. 121 was $115.1 million or $1.54 per share.
However, without this non-recurring charge, net income would have been $150.2
million or $2.01 per share compared to 1995 net income of $148.8 million or
$2.00 per share. In 1994, net income was $113.7 million which included a
one-time charge of $22.5 million or $.31 per share associated with the adoption
of Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" and a one-time benefit of $5.3
million or $.08 per share resulting from the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
Liquidity and Capital Resources
- -------------------------------
The financial condition of the Corporation remained strong in 1996. Operating
cash flows and credit facilities were employed to fund both the growth of new
products and markets and to sustain existing market share. One such use was the
acquisition of substantially all of the assets of the John Sands Group, the
largest greeting card business in Australia and New Zealand effective January 1,
1996. The impact of this transaction is described in more detail in the
discussion of cash flows related to investing and financing activities.
Cash flow from operations was $32.8 million in 1996 compared to $107.0 million
in 1995 and $75.6 million in 1994. The lower operating cash flow in 1996 was due
to higher levels of accounts receivable, inventories and cash payments related
to deferred costs. In 1995, increases in inventories were offset by a slower
growth in accounts receivable and deferred costs.
- 15 -
<PAGE> 16
Trade accounts receivable increased $29.3 million from the end of 1995 and
reflected the strong fourth quarter sales which increased 9.1% over the fourth
quarter of 1995. As a percent of net sales, accounts receivable were 17.7%,
comparable to the 17.4% in 1995. In 1994, accounts receivable were 18.2% of net
sales. The improvement in this percent in both 1996 and 1995 reflected the
effective management of extended payment terms which had increased in 1994.
Inventories at the end of 1996 represented 44.0% of material, labor and other
production costs for the year. Excluding the impact of the inventories acquired
as part of the John Sands purchase and the partial year of costs related to this
business, inventory would have been 42.1% of material, labor and other
production costs in 1996. This percent was 41.3% in 1995 and 36.2% in 1994. The
increase in 1996 was due primarily to the growth in non-card product inventory,
which has a higher cost than greeting cards, to support expanding sales. The
higher inventory balances at the end of 1995 were due to increases in finished
goods in the United States and advance purchases of paper for gift wrap
production.
In 1996, funding of agreements with certain retailers increased. Cash advances
under these agreements (net of related amortization) increased $25.3 million in
1996 after decreasing $22.9 million from 1994 to 1995. Cash advances in 1996
were made in connection with both new and existing agreements. The timing of the
payments under these agreements is subject to a number of factors and
year-to-year fluctuations are not a reliable indication of the cash which can be
required in any particular year. Although the actual cash payments may vary, the
resultant deferred costs are amortized over the effective period of the
agreement. The total commitments under the agreements are capitalized as
deferred costs when the agreements are consummated. Future payment commitments
are recorded as liabilities at that time. Commitments under existing agreements
at the end of 1996 were $107.6 million with $82.5 million due within the next
year. See Note C to the Consolidated Financial Statements for further discussion
of deferred costs related to certain customer agreements.
Effective January 1, 1996, the Corporation acquired substantially all of the
assets from the John Sands Group for $85.1 million in cash. This acquisition was
accounted for under the purchase method of accounting and the purchase price was
allocated to the acquired assets and liabilities based upon their fair market
values at the date of acquisition. Results of operations were included
prospectively from the acquisition date. The acquisition was not significant to
the financial position or results of operations of the Corporation.
Capital expenditures were $91.6 million in 1996, down from $97.3 million in 1995
and $102.9 million in 1994. The decreases in both 1996 and 1995 were due to the
impact of the CreataCard business. The mass introduction of these machines
occurred in 1994 and early 1995. The 1996 expenditures were primarily for the
automation of distribution systems and the replacement and upgrade of
manufacturing equipment. Capital expenditures for 1997 are expected to
approximate $88 million.
The Corporation's investment in corporate owned life insurance did not have a
significant impact on cash flow from investing activities in 1996 or 1995 as
policy loans offset increases in cash surrender value in both years. In 1994,
additional policy loans, net of the
- 16 -
<PAGE> 17
increase in cash surrender value, provided $18.9 million of cash. Other
investing activities used $19.1 million more cash in 1996 than in 1995 and has
increased $23.4 million from 1994. This increase was due primarily to
investments related to expanded product offerings.
Financing activities, which provided $108.0 million of cash in 1996, included an
increase in long-term debt to fund the purchase of assets from the John Sands
Group. The increase in long-term debt also reflected a shift in Canadian
borrowings from short-term to long-term. In 1995, financing activities used
$102.2 million less cash due to the repayment in 1994 of the Corporation's $100
million 8.375% notes with funds on hand. Debt as a percent of total
capitalization increased to 22.1% in 1996 from 14.6% in 1995 and 15.0% in 1994.
See Note D to the Consolidated Financial Statements for further discussion of
the Corporation's credit facilities.
The Corporation's operations are funded through operating cash flow and credit
facilities for both domestic and foreign businesses which are expected to meet
currently anticipated funding requirements. The seasonal nature of the business
results in peak working capital requirements which are financed primarily
through short term borrowings.
Factors That May Affect Future Results
- --------------------------------------
The Corporation believes it has the products, service and financial strength to
maintain our long-term record of strong sales and profitability. However, future
revenue and margin trends are difficult to predict.
The Corporation sells its products primarily to customers in the retail trade
and is well represented in a wide variety of channels of distribution, such as
mass merchandisers, drug stores and supermarkets. However, this business
environment is highly competitive and may be subject to fluctuations in the
strength of the retailers. Although the greeting card business has,
historically, not been significantly impacted by economic downturns, changes in
consumer buying patterns may impact results. Consolidation among retailers,
including acquisitions and bankruptcies, may also impact future results.
The competitiveness in the industry has also resulted in a substantial
investment in deferred costs related to agreements with certain retailers. These
agreements are entered into to expand and maintain the Corporation's business
with retail customers when a long-term business relationship is advantageous and
have contributed to the Corporation's growth. The financial condition of retail
customers involved in these agreements is evaluated and monitored to reduce
risk.
- 17 -
<PAGE> 18
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENT OF INCOME
Years ended February 29, 1996, and February 28, 1995 and 1994
Thousands of dollars except per share amounts
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 2,003,038 $ 1,868,927 $ 1,769,964
Other income 8,916 9,513 10,851
----------- ----------- -----------
Total revenue 2,011,954 1,878,440 1,780,815
Costs and expenses:
Material, labor and other production costs 762,006 676,085 672,020
Selling, distribution and marketing 770,044 727,087 655,823
Administrative and general 228,544 231,234 226,661
Asset impairment loss 52,061 - -
Interest 24,290 16,871 16,897
----------- ----------- -----------
1,836,945 1,651,277 1,571,401
----------- ----------- -----------
Income before income taxes and
cumulative effect of accounting changes 175,009 227,163 209,414
Income taxes 59,874 78,371 78,530
----------- ----------- -----------
Income before cumulative
effect of accounting changes 115,135 148,792 130,884
Cumulative effect of accounting changes,
net of tax - - 17,182
----------- ----------- -----------
Net income $ 115,135 $ 148,792 $ 113,702
=========== =========== ===========
Income per share:
Before cumulative effect of
accounting changes $ 1.54 $ 2.00 $ 1.77
Cumulative effect of
accounting changes, net of tax - - .23
----------- ----------- -----------
Net income per share $ 1.54 $ 2.00 $ 1.54
=========== =========== ===========
Average number of shares outstanding 74,528,809 74,305,346 73,809,132
</TABLE>
See notes to consolidated financial statements.
- 18 -
<PAGE> 19
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
February 29, 1996 and February 28, 1995
Thousands of dollars
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 30,130 $ 87,151
Trade accounts receivable, less allowances for
sales returns of $141,412 ($102,004 in 1995) and
for doubtful accounts of $16,214 ($14,968 in 1995) 353,671 324,329
Inventories:
Raw material 57,415 54,196
Work in process 49,741 40,608
Finished products 274,713 225,959
---------- ----------
381,869 320,763
Less LIFO reserve 92,020 86,169
---------- ----------
289,849 234,594
Display material and factory supplies 45,225 44,676
---------- ----------
Total inventories 335,074 279,270
Deferred income taxes 102,889 66,409
Prepaid expenses and other 148,429 136,290
---------- ----------
Total current assets 970,193 893,449
OTHER ASSETS 595,369 419,477
PROPERTY, PLANT AND EQUIPMENT
Land 10,018 5,533
Buildings 269,191 266,375
Equipment and fixtures 571,934 590,071
---------- ----------
851,143 861,979
Less accumulated depreciation 410,873 413,154
---------- ----------
Property, plant and equipment - net 440,270 448,825
---------- ----------
$2,005,832 $1,761,751
========== ==========
</TABLE>
- 19 -
<PAGE> 20
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - CONTINUED
February 29, 1996 and February 28, 1995
Thousands of dollars
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Debt due within one year $ 119,174 $ 123,407
Accounts payable 144,242 140,660
Payroll and payroll taxes 57,562 53,136
Retirement plans 17,151 20,633
Dividends payable 11,975 10,426
Income taxes 21,210 13,988
Other current liabilities 82,533 -
---------- ----------
Total current liabilities 453,847 362,250
LONG-TERM DEBT 231,073 74,480
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 15,496 17,815
OTHER LIABILITIES 25,310 90,969
DEFERRED INCOME TAXES 45,084 56,696
SHAREHOLDERS' EQUITY
Common shares - par value $1:
Class A - 70,285,336 shares issued
less 137,331 Treasury shares in 1996
and 69,825,377 shares issued less
151,619 Treasury shares in 1995 70,148 69,674
Class B - 6,066,096 shares issued
less 1,506,286 Treasury shares in 1996
and 6,066,096 shares issued less
1,438,083 Treasury shares in 1995 4,560 4,628
Capital in excess of par value 265,387 255,022
Treasury stock (32,835) (30,585)
Cumulative translation adjustment (24,202) (22,226)
Retained earnings 951,964 883,028
---------- ----------
Total shareholders' equity 1,235,022 1,159,541
---------- ----------
$2,005,832 $1,761,751
========== ==========
</TABLE>
See notes to consolidated financial statements.
- 20 -
<PAGE> 21
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended February 29, 1996, and February 28, 1995 and 1994
Thousands of dollars
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 115,135 $ 148,792 $ 113,702
Adjustments to reconcile to net cash
provided (used) by operating activities:
Asset impairment loss 52,061 - -
Postretirement benefit obligation - - 22,530
Depreciation 75,319 68,438 59,575
Deferred income taxes (48,184) (9,736) (15,809)
Changes in operating assets and liabilities,
net of effects from acquisitions:
Increase in trade accounts receivable (33,967) (4,973) (37,940)
Increase in inventories (43,804) (37,944) (13,196)
Increase in other current assets (3,434) (2,009) (2,667)
Increase in deferred cost - net (83,939) (58,597) (81,476)
(Decrease) increase in accounts
payable and other liabilities (6,907) (4,879) 23,008
Other - net 10,542 7,906 7,886
--------- --------- ---------
Cash Provided by Operating Activities 32,822 106,998 75,613
INVESTING ACTIVITIES:
Business acquisitions (85,056) - -
Property, plant and equipment additions (91,590) (97,290) (102,859)
Proceeds from sale of fixed assets 2,065 3,447 1,009
Investment in corporate-owned life insurance (1,117) 1,813 18,930
Other (22,103) (2,966) 1,344
--------- --------- --------
Cash Used by Investing Activities (197,801) (94,996) (81,576)
FINANCING ACTIVITIES:
Increase in long-term debt 154,406 30,914 19,519
Reduction of long-term debt (1,012) (29,862) (216,892)
(Decrease) increase in short-term debt (6,558) 9,919 89,456
Sale of stock under benefit plans 9,572 7,130 21,792
Purchase of treasury shares (2,251) (3,462) (6,399)
Dividends to shareholders (46,199) (40,556) (35,633)
--------- --------- ---------
Cash Provided (Used) by Financing Activities 107,958 (25,917) (128,157)
--------- --------- ---------
DECREASE IN CASH AND EQUIVALENTS (57,021) (13,915) (134,120)
Cash and Equivalents at Beginning of Year 87,151 101,066 235,186
--------- --------- ---------
Cash and Equivalents at End of Year $ 30,130 $ 87,151 $ 101,066
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
- 21 -
<PAGE> 22
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended February 29, 1996, and February 28, 1995 and 1994
Thousands of dollars except per share amounts
<TABLE>
<CAPTION>
Common Shares Capital in Cumulative
----------------- Excess of Treasury Translation Retained
Class A Class B Par Value Stock Adjustment Earnings Total
-------- ------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE MARCH 1, 1993 $34,324 $2,127 $259,093 ($28,152) ($11,580) $696,723 $952,535
Net income 113,702 113,702
Cash dividends - $.48 per share (35,633) (35,633)
Exchange of shares 16 (16)
Sale of shares under benefit
plans, including tax benefits 251 24 7,279 430 7,984
Purchase of treasury shares (2) (210) (6,857) (7,069)
Sale of treasury shares 418 8,551 5,509 14,478
Translation adjustment (4,841) (4,841)
Issuance of shares in acquisition 252 12,034 12,286
Issuance of 34,704,750 class A shares
and 2,229,618 class B shares to effect
two-for-one stock split 34,705 2,230 (37,765) 830
-------- ------- --------- --------- --------- --------- -----------
BALANCE FEBRUARY 28, 1994 69,546 4,573 249,192 (28,240) (16,421) 774,792 1,053,442
Net income 148,792 148,792
Cash dividends - $.55 per share (40,556) (40,556)
Exchange of shares 19 (19)
Sale of shares under benefit
plans, including tax benefits 239 5 4,854 123 5,221
Purchase of treasury shares (130) (5) (3,469) (3,604)
Sale of treasury shares 74 976 1,001 2,051
Translation adjustment (5,805) (5,805)
-------- ------- --------- --------- --------- --------- -----------
BALANCE FEBRUARY 28, 1995 69,674 4,628 255,022 (30,585) (22,226) 883,028 1,159,541
Net income 115,135 115,135
Cash dividends - $.62 per share (46,199) (46,199)
Exchange of shares 15 (15)
Sale of shares under benefit
plans, including tax benefits 424 36 9,116 486 10,062
Purchase of treasury shares (1) (97) (2,849) (2,947)
Sale of treasury shares 8 128 113 249
Translation adjustment (1,976) (1,976)
Issuance of shares 36 1,121 1,157
-------- ------- --------- --------- --------- --------- -----------
BALANCE FEBRUARY 29, 1996 $70,148 $4,560 $265,387 ($32,835) ($24,202) $951,964 $1,235,022
======== ======= ========= ========= ========= ========= ===========
</TABLE>
See notes to consolidated financial statements.
- 22 -
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended February 29, 1996, and February 28, 1995 and 1994
Thousands of dollars except per share amounts
NOTE A - ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All intercompany accounts and transactions are
eliminated.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications: Certain amounts in the 1995 and 1994 financial statements
have been reclassified to conform with the 1996 presentation.
Cash Equivalents: The Corporation considers all highly liquid instruments
purchased with a maturity of less than three months to be cash equivalents.
Financial Instruments: The carrying value of the Corporation's financial
instruments approximate their fair market values.
Concentration of Credit Risks: The Corporation sells primarily to customers in
the retail trade, including those in the mass merchandiser, drug store,
supermarket and other channels of distribution. These customers are located
throughout the United States, Canada, the United Kingdom, Australia, New
Zealand, France, Mexico and South Africa. The Corporation conducts business
based on periodic evaluations of its customers' financial condition and
generally does not require collateral. While the competitiveness of the retail
industry presents an inherent uncertainty, the Corporation does not believe a
significant risk of loss from a concentration of credit exists.
Inventories: Finished products, work in process and raw material inventories are
carried at cost, principally last-in, first-out (LIFO), not in excess of market.
Display material and factory supplies are carried at average cost.
Investment in Life Insurance: The Corporation's investment in corporate-owned
life insurance policies is recorded net of policy loans in other assets. The net
life insurance expense, including interest expense, is included in
administrative and general expenses in the Consolidated Statement of Income. The
related interest expense, which approximates amounts paid, was $70,485, $59,344
and $43,543 in 1996, 1995 and 1994, respectively.
Property and Depreciation: Property, plant and equipment is carried at cost,
except for certain assets as described in Note B. Depreciation and amortization
of buildings,
- 23 -
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - ACCOUNTING POLICIES (CONTINUED)
equipment and fixtures is computed principally by the straight-line method over
the useful lives of the various assets. The cost of buildings is depreciated
over 25 to 40 years and equipment and fixtures over 3 to 20 years.
Revenue Recognition: Sales and related costs are recorded by the Corporation
upon shipment of products to non-related retailers and upon the sale of products
at Corporation-owned retail locations. Seasonal cards are sold with the right of
return on unsold merchandise. The Corporation provides for estimated returns of
seasonal cards when those products are shipped to non-related retailers.
Advertising Expense: Advertising costs are expensed as incurred. Advertising
expense was $61,124, $58,342 and $48,228 in 1996, 1995 and 1994, respectively.
Income Taxes: Deferred income taxes are provided for temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Earnings Per Share: Income per share information is based on the average number
of shares outstanding during each year. For the years presented, stock options
do not have a material dilutive effect.
NOTE B - ASSET IMPAIRMENT LOSS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," the Corporation recorded an impairment loss on the
long-lived assets of its CreataCard business. The trends in the CreataCard
business indicated that the undiscounted future cash flows from this business
would be less than the carrying value of the long-lived assets related to that
business. Accordingly, on November 1, 1995, the Corporation recognized an asset
impairment loss of $52,061 ($35,094 net of tax, or $.47 per share). This loss
is the difference between the carrying value of the CreataCard machines and
related goodwill and other intangibles, and the fair value of these assets
based on discounted estimated future cash flows.
NOTE C - DEFERRED COSTS
The major components of prepaid expenses and other and other assets are
deferred costs relating to agreements with certain customers. Total commitments
under the agreements are capitalized as deferred costs and future payment
commitments, if any, are recorded as liabilities when the agreements are
consummated. Deferred costs are charged to operations on a straight-line basis
over the effective period of each agreement, generally three to six years.
Deferred costs estimated to be charged to operations during the next year are
- 24 -
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - DEFERRED COSTS - (CONTINUED)
classified with prepaid expenses and other. Deferred costs included in the
prepaid expenses and other classification are $121,937 and $110,890 at February
29, 1996 and February 28, 1995, respectively. Deferred costs included in the
other assets classification at the same dates are $410,119 and $311,503,
respectively.
The other liabilities and other current liabilities classifications consist of
the future payment commitments relating to these agreements.
NOTE D - LONG AND SHORT-TERM DEBT
The Corporation has a $400,000 domestic revolving credit agreement which
supports its commercial paper borrowing arrangement. The agreement provides an
option to convert up to $200,000 to a term loan. The agreement extends through
June 2000 and can be extended annually for one year to the June 30 next
following the expiration date. A commitment fee is due on the unused portion of
the credit facility and can range from 1/10 of 1% to 1/4 of 1%. As of February
29, 1996, the commitment fee is 1/8 of 1%. No borrowings are outstanding under
this domestic revolving credit agreement as of February 29, 1996. However, the
amount available under this agreement is reduced by $112,647 of commercial paper
issued at February 29, 1996.
The Corporation's subsidiaries in Canada, the United Kingdom, Australia, France
and South Africa have credit agreements permitting borrowing of up to $295,607.
At February 29, 1996, $234,912 is outstanding under these foreign revolving
credit facilities, of which $57,508 is long-term; $172,527 is also classified as
long-term due to the Corporation's ability and intent to refinance these
borrowings on a long-term basis.
All of the Corporation's revolving credit agreements provide for various
borrowing alternatives in their respective currencies with interest rates
ranging from 5.3% to 7.1% for amounts borrowed as of February 29, 1996.
At February 29, 1996 and February 28, 1995, debt due within one year consists of
the following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Current maturities of long term debt $ 354 $ 868
Notes payable 6,173 20,758
Commercial paper 112,647 101,781
-------------- --------------
Total $ 119,174 $ 123,407
============== ==============
</TABLE>
At February 29, 1996 and February 28, 1995, long-term debt consists of the
following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Revolving credit agreements $ 230,345 $ 74,321
Other 1,082 1,027
-------------- --------------
231,427 75,348
Less current maturities 354 868
-------------- --------------
$ 231,073 $ 74,480
============== ==============
</TABLE>
- 25 -
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - LONG AND SHORT-TERM DEBT- (CONTINUED)
Aggregate maturities of long-term debt are as follow:
1997 $ 354
1998 492
1999 83
2000 22
2001 3
Thereafter 230,473
-------------
$ 231,427
=============
At February 29, 1996 the Corporation had credit arrangements to support the
issuance of letters of credit in the amount of $50,000 with $34,516 of open
credits outstanding.
Interest paid on short-term and long-term debt was $23,395 in 1996, $16,081 in
1995 and $17,495 in 1994.
The weighted average interest rate on short-term borrowings outstanding was 5.6%
and 6.5% as of February 29, 1996 and February 28, 1995, respectively.
The Corporation has an interest rate swap agreement notionally covering $100,000
of its variable debt. 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. At February 29, 1996,
the cost to the Corporation upon cancellation of the swap would be $1,792.
However, the Corporation intends to hold the swap agreement until maturity.
NOTE E - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Corporation sponsors a defined benefit health care plan that provides
postretirement medical benefits to full-time employees who are age 65 or over at
retirement with 15 or more years of service and who were hired on or before
December 31, 1991. In addition, for retirements on or after January 2, 1992 the
retiree must have been continuously enrolled for health care for a minimum of
five years or since January 2, 1992. The plan is contributory, with retiree
contributions adjusted periodically, and contains other cost-sharing features
such as deductibles and coinsurance. The Corporation maintains a trust for the
payment of retiree health care benefits. This trust is funded at the discretion
of management.
On March 1, 1993 the Corporation adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The statement requires the Corporation to recognize the cost of
providing certain retiree benefits on an accrual basis.
- 26 -
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - (CONTINUED)
The Corporation elected to immediately recognize the cumulative effect of this
accounting change at March 1, 1993 and reduced income by $36,048 ($22,530 net of
tax) in 1994.
The following table presents the plan's funded status at February 29, 1996 and
February 28, 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 21,620 $ 19,318
Fully eligible active plan participants 5,474 5,686
Other active plan participants 21,533 16,701
----------- -----------
Accumulated postretirement benefit obligation 48,627 41,705
Plan assets, primarily listed stocks and bonds (27,473) (21,970)
------------ -----------
Accumulated postretirement benefit obligation
in excess of plan assets 21,154 19,735
Unrecognized net loss (5,658) (1,920)
------------ -----------
Accrued postretirement benefit obligation $ 15,496 $ 17,815
=========== ===========
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ----------- ---------
<S> <C> <C> <C>
Service cost $ 1,280 $ 1,313 $ 1,381
Interest cost 3,239 2,965 3,118
Actual return on plan assets (2,864) (1,209) (897)
Asset gain deferred 1,193 - -
---------- ----------- ----------
$ 2,848 $ 3,069 $ 3,602
========== =========== ==========
</TABLE>
Assumptions used in the computations:
<TABLE>
<S> <C> <C> <C>
Assumed discount rate 7.25% 8.0% 7.5%
Expected long-term rate of return on plan assets 8.0% 8.0% 7.0%
</TABLE>
A 9% annual rate of increase in per capita cost of covered benefits was assumed
for 1996. This rate decreases to 7.5% in 1997 and to 6% in 2002 and remains at
that level thereafter. This health care trend rate has a significant impact on
the amount reported. For example, a 1% increase in the trend rate in each year
would increase the accumulated postretirement benefit obligation at February 29,
1996 by $7,955 and increase aggregate service and interest cost for the year by
$858.
- 27 -
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - LONG-TERM LEASES
The Corporation is committed under noncancelable operating leases for commercial
properties (certain of which have been subleased) and equipment, terms of which
are generally less than 25 years. Rental expense under operating leases for the
years ended February 29, 1996, and February 28, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Gross rentals. . . . . . . . . . . . . . . . . . . . $ 61,198 $ 63,247 $ 63,377
Less sublease rentals. . . . . . . . . . . . . . . . 7,876 8,378 7,733
------------- ------------ ------------
Net rental expense . . . . . . . . . . . . . . . . . $ 53,322 $ 54,869 $ 55,644
============= ============ ============
</TABLE>
At February 29, 1996, future minimum rental payments for noncancelable operating
leases, net of aggregate future minimum noncancelable sublease rentals, follow:
<TABLE>
Gross rentals:
<S> <C>
1997. . . . . . . . . . . . . . . $ 42,226
1998. . . . . . . . . . . . . . . 37,503
1999. . . . . . . . . . . . . . . 34,452
2000. . . . . . . . . . . . . . . 31,273
2001. . . . . . . . . . . . . . . 28,348
Later years . . . . . . . . . . . 80,607
-----------
254,409
Sublease rentals . . . . . . . . . . . . (27,549)
-----------
Net rentals . . . . . . . . . . . . . . . $ 226,860
===========
</TABLE>
- 28 -
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INCOME TAXES
Income (loss) before income taxes and cumulative effect of accounting changes:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
United States $191,649 $235,515 $222,957
Foreign (16,640) (8,352) (13,543)
--------------- --------------- ---------------
$175,009 $227,163 $209,414
=============== =============== ===============
Income taxes have been provided as follows:
1996 1995 1994
--------------- --------------- ---------------
Current:
Federal $94,094 $72,242 $78,274
Foreign (1,045) 1,416 1,936
State and local 14,917 14,393 10,376
--------------- --------------- ---------------
107,966 88,051 90,586
Deferred (principally federal) (48,092) (9,680) (12,056)
----------------- -------------- ---------------
$59,874 $78,371 $78,530
=============== =============== ===============
</TABLE>
Significant components of the Corporation's deferred tax assets and liabilities
at February 29, 1996 and February 28, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Sales returns $43,064 $31,980
Other 100,688 69,701
--------------- ---------------
143,752 101,681
Valuation allowance (12,189) (9,748)
--------------- ---------------
Total deferred tax assets 131,563 91,933
Deferred tax liabilities:
Depreciation 44,908 58,249
Other 28,850 23,971
--------------- ---------------
Total deferred tax liabilities 73,758 82,220
--------------- ---------------
Net deferred tax assets $57,805 $9,713
=============== ===============
</TABLE>
The increase in the valuation allowance was due to increases in net operating
loss carryforwards in the United Kingdom, Canada and Mexico.
- 29 -
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INCOME TAXES (CONTINUED)
The statutory federal income tax rate and the effective income tax rate are
reconciled as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Statutory rate 35.0 % 35.0 % 35.0 %
State and local income taxes,
net of federal tax benefit 4.0 3.8 3.4
Asset impairment loss 1.8
- -
Subsidiaries' losses without tax
benefit 1.8 1.3 3.1
Corporate-owned life insurance
investments (10.6) (6.7) (5.4)
Other 2.2 1.1 1.4
-------- -------- -------
Effective tax rate 34.2 % 34.5 % 37.5 %
======== ======== =======
</TABLE>
Income taxes paid were $94,267 in 1996, $101,982 in 1995 and $83,290 in 1994.
Deferred taxes have not been provided on approximately $32,000 of undistributed
earnings of foreign subsidiaries since substantially all of these earnings are
necessary to meet their business requirements. It is not practicable to
calculate the deferred taxes associated with these earnings, however, foreign
tax credits would be available to reduce federal income taxes in the event of
distribution. At February 29, 1996, the Corporation had approximately $36,220 of
foreign operating loss carryforwards, of which $29,472 have no expiration dates
and $6,748 have expiration dates ranging from 1999 through 2006.
The Corporation adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" effective March 1, 1993. This statement required
the Corporation to change its method of accounting for income taxes from the
deferred method to the liability method. The cumulative effect of adopting the
statement as of March 1, 1993 was to increase net income by $5,348.
- 30 -
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - COMMON SHARES AND STOCK OPTIONS
At February 29, 1996 and February 28, 1995, common shares authorized consisted
of 93,800,000 Class A and 7,916,484 Class B shares. Class A shares have one vote
per share and Class B shares have ten votes per share. There is no public market
for the Class B common shares of the Corporation. Pursuant to the Corporation's
Amended Articles of Incorporation, a holder of Class B common shares may not
transfer such Class B common shares (except to permitted transferees, a group
that generally includes members of the holder's extended family, family trusts
and charities) unless such holder first offers such shares to the Corporation
for purchase at the most recent closing price for the Corporation's Class A
common shares. If the Corporation does not purchase such Class B common shares,
the holder must convert such shares, on a share for share basis, into Class A
common shares prior to any transfer. During 1994, the Corporation purchased
165,762 Class B shares from a Director of the Corporation at the then-current
market price of the shares.
Under the Corporation's Stock Option Plans, options to purchase Class A and
Class B shares are granted to officers and other key employees at the
then-current market price. In general, subject to continuing employment, options
become exercisable commencing one year after date of grant in four equal annual
installments and expire over a period of not more than ten years from the date
of grant. The options for certain Class B shares become exercisable commencing
one year after date of grant in ten equal annual installments.
- 31 -
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - COMMON SHARES AND STOCK OPTIONS - (CONTINUED)
Stock option transactions and prices are summarized as follows:
<TABLE>
<CAPTION>
Options Price Range
Number of Options Per Share
--------------------- -----------------------------
Class A Class B Class A Class B
--------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
March 1, 1993 2,304,072 808,250 $ 6.75 - $ 24.25 $ 7.16 - $19.81
Granted 219,475 1,590 24.94 - 31.25 26.75
Exercised (373,207) (34,750) 6.75 - 27.31 7.16 - 19.81
Cancelled (106,800) --
--------- -------
Options outstanding
February 28, 1994 2,043,540 775,090 6.75 - 31.25 7.16 - 26.75
Granted 76,791 -- 26.13 - 30.00 -
Exercised (235,366) (5,000) 6.75 - 29.31 19.25
Cancelled (58,000) --
--------- -------
Options outstanding
February 28, 1995 1,826,965 770,090 6.75 - 31.25 7.16 - 26.75
Granted 105,291 6,000 25.75 - 31.63 28.13
Exercised (417,959) (36,000) 7.16 - 30.88 19.25
Cancelled (47,300) --
--------- -------
Options outstanding
February 29, 1996 1,466,997 740,090 $ 6.75 - $31.63 $7.16 - $28.13
========= =======
Options exercisable at February 29, 1996 and February 28, 1995:
1996 1,191,347 562,590
1995 1,202,865 439,590
</TABLE>
The Corporation has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options and intends to continue to do so.
Because the exercise price of the Corporation's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
- 32 -
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - RETIREMENT PLANS
The Corporation has a non-contributory profit-sharing plan with a contributory
401(k) provision covering most of its United States employees. Contributions to
the profit-sharing plan were $16,846, $20,414 and $20,445 for 1996, 1995 and
1994, respectively. The Corporation matches a portion of 401(k) employee
contributions contingent upon meeting specified annual operating results goals.
The Corporation's matching contributions were $2,760, $2,557 and $2,577 for
1996, 1995 and 1994, respectively.
The Corporation also has several defined benefit and defined contribution
pension plans covering certain employees in foreign countries. The cost of these
plans was not material in any of the years presented. In the aggregate, the
actuarially computed plan benefit obligation was fully funded.
NOTE J - BUSINESS SEGMENT INFORMATION
The Corporation operates predominantly in a single industry: the design,
manufacture and sale of greeting cards and other social expression products.
While the Corporation offers a wide range of items for sale, many of them are
manufactured at common production facilities and marketed by a common sales
force. The Corporation's products are sold primarily to drug stores, mass
merchandisers, supermarkets and card and gift stores.
In addition to its North American operations, which include the United States
and Canada, the Corporation has subsidiaries in Europe, Australia, New Zealand,
Mexico and South Africa.
Revenue transfers between geographic areas and other intergeographic
eliminations are not material. The Corporation does not derive more than 10% of
its total revenue from any individual customer, government agency or export
sales. Operating profit (loss) by geographic segment is revenue less operating
costs, excluding interest, income taxes and cumulative effect of accounting
changes.
- 33 -
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - BUSINESS SEGMENT INFORMATION - (CONTINUED)
Segment information by geographic area for the years ended February 29, 1996,
and February 28, 1995 and 1994 follows:
<TABLE>
<CAPTION>
North Other
America Foreign Consolidated
------- ------- ------------
<S> <C> <C> <C>
1996
- ----
Total revenue $1,907,942 $ 104,012 $2,011,954
Operating profit (loss)
before asset impairment loss 257,667 (6,307) 251,360
Asset impairment loss 49,432 2,629 52,061
---------- --------- ----------
Operating profit (loss) 208,235 (8,936) 199,299
Total assets excluding
cash and equivalents 1,744,465 231,237 1,975,702
1995
- ----
Total revenue $1,775,957 $ 102,483 $1,878,440
Operating profit (loss) 251,990 (7,956) 244,034
Total assets excluding
cash and equivalents 1,565,973 108,627 1,674,600
1994
- ----
Total revenue $1,679,753 $ 101,062 $1,780,815
Operating profit (loss) 239,721 (13,410) 226,311
Total assets excluding
cash and equivalents 1,363,638 100,530 1,464,168
</TABLE>
- 34 -
<PAGE> 35
QUARTERLY RESULTS OF OPERATIONS
- -------------------------------
(Unaudited)
Thousands of dollars except per share amounts
The following is a summary of the unaudited quarterly results of operations for
the years ended February 29, 1996 and February 28, 1995.
<TABLE>
<CAPTION>
Quarter Ended
-------------
May 31 August 31 November 30 February 29 or 28
--------- ---------- ----------- -----------------
<S> <C> <C> <C> <C>
Fiscal 1996
- -----------
Net sales $ 438,509 $ 431,171 $ 587,602 $ 545,756
Total revenue 440,617 433,168 588,689 549,480
Gross profit 294,923 259,112 340,432 346,565
Asset impairment loss - - 52,061 -
Net income 37,300 15,029 17,484 45,322
Per share .50 .20 .24 .60
Fiscal 1995
- -----------
Net sales $ 416,403 $ 401,136 $ 551,036 $ 500,352
Total revenue 418,792 403,089 552,740 503,819
Gross profit 278,662 247,473 339,671 327,036
Net income 33,162 13,416 58,890 43,324
Per share .45 .18 .79 .58
</TABLE>
- 35 -
<PAGE> 36
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
American Greetings Corporation
We have audited the accompanying consolidated statements of financial position
of American Greetings Corporation as of February 29, 1996 and February 28, 1995,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended February 29, 1996.
Our audits also included the financial statement schedule listed in the Index at
Item 14. These financial statements and schedule are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Greetings
Corporation as of February 29, 1996 and February 28, 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended February 29, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Notes E and G to the consolidated financial statements, in 1994
the Corporation changed its methods of accounting for postretirement benefits
other than pensions and income taxes. Further, as discussed in Note B to the
consolidated financial statements, in 1996 the Corporation adopted the
provisions of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of."
Ernst & Young LLP
Cleveland, Ohio
March 28, 1996
- 36 -
<PAGE> 37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with the Corporation's independent
accountants on accounting and financial disclosure matters within the three year
period ended February 29, 1996, or in any period subsequent to such date.
PART III
The Corporation hereby incorporates by reference the information
called for by Part III of Form 10-K from the Corporation's Notice of Annual
Meeting of Shareholders to be held June 28, 1996, and related Proxy Statement
filed with the Securities and Exchange Commission on May 17, 1996.
(Next Item is Part IV)
- 37 -
<PAGE> 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
1. Financial Statements Page No.
-------------------- --------
<S> <C>
Included in Part II of this report:
Consolidated Statement of Income - Years ended 18
February 29, 1996, and February 28, 1995 and 1994
Consolidated Statement of Financial Position - 19 - 20
February 29, 1996 and February 28, 1995
Consolidated Statement of Cash Flows - Years ended
February 29, 1996, and February 28, 1995 and 1994 21
Consolidated Statement of Shareholders' Equity -
Years ended February 29, 1996 and February 28, 1995 and 1994 22
Notes to Consolidated Financial Statements - Years ended
February 29, 1996, and February 28, 1995 and 1994 23 - 34
Quarterly Results of Operations (Unaudited) 35
Report of Ernst & Young LLP, Independent Auditors 36
2. Exhibits required by Item 601 of Regulation S-K:
------------------------------------------------
</TABLE>
(3) Articles of Incorporation and By-laws
(i) Amended Articles of Incorporation of the Registrant
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form S-3
Registration Statement (Registration No.
33-50255) filed on September 15, 1993, and is
incorporated herein by reference.
(ii) Amended Regulations of the Registrant
This Exhibit has been previously filed as an Exhibit
to Amendment No. 1 to the Registrant's Form S-3
Registration Statement (Registration No. 33-39726)
filed on May 17, 1991, and is incorporated herein by
reference.
- 38 -
<PAGE> 39
<TABLE>
<CAPTION>
PART IV - Continued Page No.
--------
<S> <C> <C>
(10) Material Contracts
(i) (A) (i) Shareholders Agreement dated November 19, 1984
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1985, and is incorporated herein by reference.
(ii) Officers' contracts
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1985, and is incorporated herein by reference.
(iii) Employment Agreement with Edward Fruchtenbaum,
dated May 18, 1992 (as amended).
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1994, and is incorporated herein by reference.
(ii) (A) (i) Executive Bonus Plan
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1981, and is incorporated herein by reference.
(ii) Executive Incentive Compensation Plan (as
Amended and Restated as at March 6, 1989)
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1989, and is incorporated herein by reference.
(iii) Executive Deferred Compensation Plan
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1993, and is incorporated herein by reference.
</TABLE>
- 39 -
<PAGE> 40
<TABLE>
<CAPTION>
PART IV - Continued Page No.
--------
<S> <C>
(iv) 1982 Incentive Stock Option Plan
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1983, and is incorporated herein by reference.
(v) 1985 Incentive Stock Option Plan
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1985, and is incorporated herein by reference.
(vi) Supplemental Executive Retirement Plan
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1993, and is incorporated herein by reference.
(vii) 1987 Class B Stock Option Plan
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1987, and is incorporated herein by reference.
(viii) Stock Option Agreement with Morry Weiss dated January 25, 1988
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 29,
1988, and is incorporated herein by reference.
(ix) Loan Agreement with Edward Fruchtenbaum dated March 1, 1990
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1991, and is incorporated herein by reference.
</TABLE>
- 40 -
<PAGE> 41
<TABLE>
<CAPTION>
PART IV - Continued Page No.
--------
<S> <C> <C>
(x) 1992 Stock Option Plan
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1993, and is incorporated herein by reference.
(xi) CEO/COO Compensation Plans
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 28,
1995, and is incorporated herein by reference.
(xii) 1995 Director Stock Plan E - 1
(11) Statement Re Computation of Per Share Earnings E - 5
(21) Subsidiaries of the Registrant E - 6
(23) Consent of Independent Auditors E - 7
(27) Financial Data Schedule
</TABLE>
Executive Compensation Plans and Arrangements
The Corporation's executive compensation plans and
arrangements are listed under Exhibit 10 hereof.
(b) Reports on Form 8-K
None
(c) Exhibits listed in Item 14(a) 3. are included herein
or incorporated herein by reference
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted on
Page 42.
- 41 -
<PAGE> 42
<TABLE>
<CAPTION>
PART IV - Continued Page No.
--------
<S> <C> <C>
3. Financial Statement Schedules
-----------------------------
Included in Part IV of the report:
Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
- 42 -
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
------------------------------
(Registrant)
Date: May 29, 1996 By: /s/ Jon Groetzinger, Jr.
--------------- -----------------------------
Jon Groetzinger, Jr.
Secretary
- 43 -
<PAGE> 44
Pursuant to the requirements of the Securities Exchange Act of 1934,this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
/s/ Irving I. Stone Founder-Chairman; )
- ------------------------------- Chairman of the )
Irving I. Stone Executive Committee; )
Director )
)
/s/ Morry Weiss Chairman of the Board; )
- ------------------------------- Chief Executive Officer; )
Morry Weiss Director )
)
/s/ Edward Fruchtenbaum President; )
- ------------------------------- Chief Operating Officer; )
Edward Fruchtenbaum Director )
)
/s/ Scott S. Cowen Director ) May 29, 1996
- ------------------------------- )
Scott S. Cowen )
)
/s/ Herbert H. Jacobs Director )
- ------------------------------- )
Herbert H. Jacobs )
)
/s/ Albert B. Ratner Director )
- ------------------------------- )
Albert B. Ratner )
)
/s/ Harry H. Stone Director )
- ------------------------------- )
Harry H. Stone )
)
/s/ Jeanette S. Wagner Director )
- ------------------------------- )
Jeanette S. Wagner )
)
)
/s/ Milton A. Wolf Director )
- ------------------------------- )
Milton A. Wolf )
)
)
/s/ Abraham Zaleznik Director )
- ------------------------------- )
Abraham Zaleznik )
)
</TABLE>
- 44 -
<PAGE> 45
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
)
/s/ William S. Meyer Senior Vice President; ) May 29, 1996
- ------------------------------------ Chief Financial Officer )
William S. Meyer (principal financial officer; )
principal accounting officer) )
</TABLE>
- 45 -
<PAGE> 46
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AMERICAN GREETINGS CORPORATION AND SUBSIDIARIES
(000)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------------
BALANCE AT BEGINNING (1) (2)
DESCRIPTION OF PERIOD CHARGED TO COSTS CHARGED TO OTHER DEDUCTION- BALANCE AT END
AND EXPENSES ACCOUNTS-DESCRIBE DESCRIBE OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended February 29, 1996:
Deduction from asset account:
Allowance for doubtful accounts $ 14,968 $ 13,905 $ 367 (A) $ 13,026 (B) $ 16,214
=============== ============= ========== ========== ===========
Allowance for sales returns $ 102,004 $ 321,693 $ 238 (A) $ 282,523 (C) $ 141,412
=============== ============= ========== ========== ===========
Allowance for Other Assets $ 5,000 $ 11,400 $ 0 $ 0 $ 16,400
=============== ============= ========== ========== ===========
Year ended February 28, 1995:
Deduction from asset account:
Allowance for doubtful accounts $ 13,084 $ 8,674 $ (36) (A) $ 6,754 (B) $ 14,968
=============== ============= ========== ========== ===========
Allowance for sales returns $ 97,903 $ 297,899 $ 41 (A) $ 293,839 (C) $ 102,004
=============== ============= ========== ========== ===========
Allowance for Other Assets $ 0 $ 5,000 $ 0 $ 0 $ 5,000
=============== ============= ========== ========== ===========
Year ended February 28, 1994:
Deduction from asset account:
Allowance for doubtful accounts $ 13,816 $ 8,827 $ (57) (A) $ 9,502 (B) $ 13,084
=============== ============= ========== ========== ===========
Allowance for sales returns $ 72,054 $ 225,283 $ (581) (A) $ 198,853 (C) $ 97,903
=============== ============= =========== ========== ===========
<FN>
Note A: Includes translation adjustment on foreign subsidiary balances and other minor reclasses and adjustments.
Note B: Accounts charged off, less recoveries.
Note C: Sales returns charged to the allowance account for actual returns for the year.
</TABLE>
S-1
<PAGE> 1
EXHIBIT(10)(ii)(A)(xii)
AMERICAN GREETINGS CORPORATION
1995 Director Stock Plan
NAME AND GENERAL PURPOSE OF PLAN. The name of the plan is the American Greetings
Corporation 1995 Director Stock Plan ("Plan"). The purpose of the Plan is to
afford non-employee members of the Board of Directors of American Greetings
Corporation (the "Company") the opportunity to share in future appreciation in
the share value of the Company's stock, further aligning the interest of these
individuals with those of the other shareholders of the Company to maximize
return on shareholder investment. The possibility for sharing in Company stock
appreciation is designed to attract and retain superior Board members. The Plan
consists of two components: (1) stock options, and (2) payment of some or all of
a Director's fees in Company stock, in lieu of cash compensation, at a
Director's election.
1. OPTIONS ISSUABLE UNDER PLAN. The total number of underlying shares reserved
for issuance in connection with options granted pursuant to the Plan shall not
exceed 54,000 Class A Common Shares, par value $1 per share, and 54,000 Class B
Common Shares, par value $1 per share, except to the extent of adjustments
authorized in paragraph 4 of this Plan. Such Class A Common Shares may be
treasury shares or authorized but unissued shares or a combination of the
foregoing. Such Class B Common Shares may be treasury shares or authorized but
unissued shares or a combination of the foregoing, subject to certain
restrictions outlined below. To the extent that a stock option expires or is
otherwise terminated, cancelled or surrendered without being exercised
(including, without limitation, in connection with the grant of a replacement
option), the shares of stock underlying such stock option shall again be
available for issuance in connection with future grants under the Plan.
2. OPTION GRANTS. Each non-employee member of the Board of Directors
("Director") is hereby granted, effective January 27, 1995, options under the
Plan ("Options") to buy from the Company 6,000 Class A and/or Class B Common
Shares. These Options shall become exercisable at the rate of 1,000 Options per
year, as long as such Director remains a member of the Board of Directors and
the Plan remains in effect. The first 1,000 options are exercisable as of
January 27, 1995, and successive blocks of 1,000 Options are exercisable on
subsequent anniversaries of such date.
E - 1
<PAGE> 2
EXHIBIT(10)(ii)(A)(xii)
AMERICAN GREETINGS CORPORATION
1995 Director Stock Plan - (Continued)
3. OPTION PRICE. The option price shall be $26.125, which was the price of the
Class A Common Shares quoted by the National Association of Securities Dealers
at the close of business on January 27, 1995, the date that the Options were
granted. The option price shall be payable in whole or in part, in cash, Class A
and/or Class B Common Shares of the Company valued at the price for Class A
Common Shares at the close of business on the date of exercise, to the extent
permitted by all applicable laws and regulations so long as the Executive
Committee of the Company's Board of Directors ("Executive Committee") does not
determine that the application of any Financial Accounting Standard Board rule
affecting the tender of shares would be detrimental to the best interests of the
Company.
4. ADJUSTMENTS. The Executive Committee shall provide for such adjustments in
the option price and in the number or kind of shares or other securities covered
by outstanding options as is equitably required to prevent dilution or
enlargement of the rights of eligible Directors that would otherwise result from
(a) any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of the Company, (b) any merger,
consolidation, separation, reorganization or partial or complete liquidation, or
in the event of any such transaction or event having an effect similar to any of
the foregoing.
5. EXERCISE. No Option granted under the Plan shall run for more than ten (10)
years from the date granted. No Options shall be transferable by the Director
otherwise than by will and the laws of descent and distribution. Directors may
exercise their Options upon receipt by the Company of such forms as the Company
may require in advance of exercise and the required payment. A stock certificate
may be issued as soon as practical after exercise and payment. An Option is
exercisable during a Director's lifetime only by the Director, except than in
case of incompetence or disability of a Director, an Option may be exercised on
behalf of the Director by his or her guardian or legal representative. If,
following an Option exercise, the Director sells the shares underlying the
Option, the Director will receive the amount by which the sale price exceeds the
exercise price for such shares, after deducting applicable taxes and brokerage
fees, but not interest that might otherwise be paid on an advance of monies to
the Director between the exercise and settlement dates.
E - 2
<PAGE> 3
EXHIBIT(10)(ii)(A)(xii)
AMERICAN GREETINGS CORPORATION
1995 Director Stock Plan - (Continued)
6. STOCK OPTION AGREEMENT; CANCELLATION. The granting of Options under the Plan
shall be evidenced by a stock option agreement ("Stock Option Agreement"). Such
Stock Option Agreement may, with the concurrence of the affected Director, be
amended by the Executive Committee, provided the terms of each such amendment
are not inconsistent with the Plan. The Executive Committee may, with the
concurrence of the affected Director, cancel any Option granted under the Plan.
In the event of any such cancellation, the Executive Committee may authorize the
granting of new Options under the Plan in such manner, at such price and subject
to similar terms and conditions as would have been applicable had the cancelled
Options not been granted. The Plan provides for the automatic grant to the
Director of additional Options ("Reload Options") upon the exercise of Options
through the delivery of any class of Common Shares as set forth in the Stock
Option Agreement; provided, however, that the provisions of the Stock Option
Agreement relating to Reload Options may not be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code of 1986,
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
securities laws and the rules thereunder.
7. STOCK IN LIEU OF DIRECTORS' FEES. The Plan allows each Director, at such
Director's election (communicated in writing by the Director to the Company's
Secretary prior to the start of each fiscal year), to receive Class A and/or
Class B Common Shares of the Company in an amount equal to (and in lieu of) all
or part of the fees paid by the Company to such Director as compensation for
serving on the Company's Board of Directors. For purposes of the foregoing
described calculation, the Company's Shares are valued at the closing price
quoted by the National Association of Securities Dealers, Inc. on the last
trading day of the calendar quarter prior to payment of such fees. Any
fractional shares shall be paid as cash.
8. RESTRICTIONS ON ISSUANCE. The Company's ability to issue Class B Common
Shares is restricted by certain provisions of its Articles of Incorporation and
Section 1(c) (21) of Schedule D of the by-laws of the National Association of
Securities Dealers, Inc.
E - 3
<PAGE> 4
EXHIBIT(10)(ii)(A)(xii)
AMERICAN GREETINGS CORPORATION
1995 Director Stock Plan - (Continued)
9. ADMINISTRATION. This Plan shall be administered by not less than three
persons who are disinterested in the Plan, two of which shall initially be
members of the Company's Executive Committee ("Administrators"). The Board is
authorized to determine who shall be an Administrator, and in the event of an
Administrator vacancy, the Board may appoint one or more disinterested persons
as alternate Administrators.
10. PLAN AMENDMENT; TERMINATION. This Plan is subject to initial ratification
and approval by the Company's shareholders, but may be terminated or amended
thereafter from time to time by the Administrators. However, no such amendment
by the Administrators shall (a) increase the number of Class A Common Shares or
Class B Common Shares that may be issued under this Plan, except adjustments
authorized under paragraph 4, (b) change the designation in paragraph 2 of the
individuals eligible to receive Options, or (c) cause Rule 16b-3 of the
Securities and Exchange Commission (or any successor rule to the same effect) to
cease to be applicable to this Plan without further approval by the shareholders
of the Company. In addition, no outstanding Options may be cancelled without the
prior consent of the affected Director.
11. GOVERNING RULES. This Plan is intended to comply with and be subject to Rule
16b-3 as in effect prior to May 1, 1991. The Administrators may at any time
elect that this Plan shall be subject to Rule 16b-3 as in effect on or after May
1, 1991.
E - 4
<PAGE> 1
EXHIBIT 11
AMERICAN GREETINGS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
Computation of Earnings Per Share
---------------------------------
Years Ended February 29, 1996, and February 28, 1995 and 1994
-------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Average number of common
shares outstanding 74,528,809 74,305,346 73,809,132
=========== =========== ============
Net income (thousands) $ 115,135 $ 148,792 $ 113,702
=========== =========== ============
Earnings per share $ 1.54 $ 2.00 $ 1.54
=========== =========== ============
</TABLE>
Computation of Fully-Diluted Earnings Per Share (a)
---------------------------------------------------
Years Ended February 29, 1996, and February 28, 1995 and 1994
-------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <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 higher of the
year-end price or
the average market price (b) 75,551,118 75,739,055 73,155,155
=========== =========== ===========
Net income (thousands) $ 115,135 $ 148,792 $ 113,702
=========== =========== ===========
Earnings per share $ 1.52 $ 1.96 $ 1.51
=========== =========== ===========
</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.
(b) Average market price was used for years ended February 29, 1996 and
February 28, 1994. The year-end market price was used for the year ended
February 28, 1995.
E - 5
<PAGE> 1
EXHIBIT 21
AMERICAN GREETINGS CORPORATION
SUBSIDIARIES OF THE REGISTRANT
State/Jurisdiction
Subsidiary of Incorporation
---------- ----------------
Acme Frame Products, Inc. Delaware
AGC Inc. Delaware
A.G. Industries, Inc. North Carolina
Carlton Cards (France) SNC France
Carlton Cards Limited Canada
Carlton Cards, Ltd. United Kingdom
Carlton Cards Retail, Inc. Connecticut
CreataCard Inc. Delaware
CreataCard International Leasing , Inc. Delaware
John Sands (Australia) Ltd. Delaware
Magnivision, Inc. Delaware
Plus Mark, Inc. Ohio
E - 6
<PAGE> 1
EXHIBIT 23
AMERICAN GREETINGS CORPORATION
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) Post-Effective Amendment
Number 1 dated May 27, 1986 to Registration Statement No. 2-89471 on Form S-3,
(ii) Post-Effective Amendment Number 1 dated May 31, 1984 to Registration
Statement No. 2-84911 on Form S-8, (iii) Registration Statement No. 33-975 on
Form S-8 dated November 7, 1985, (iv) Registration Statement No. 33-16180 on
Form S-8 dated July 31, 1987, (v) Post-Effective Amendment Number 1 dated May
17, 1991 to Registration Statement No. 33-39726 on Form S-3, (vi) Registration
Statement No. 33-45673 on Form S-8 dated February 4, 1992, (vii) Registration
Statement No. 33-58582 on Form S-8 dated February 22, 1993, (viii)
Post-Effective Amendment Number 1 dated March 29, 1993 to Registration Statement
No. 33-52196 on Form S-3, (ix) Registration Statement No. 33-50255 on Form S-3
dated September 15, 1993, (x) Registration Statement No. 33-57221 on Form S-3
dated January 16, 1995, and (xi) Registration Statement No. 33-61037 on Form S-8
dated July 14, 1995 of our report dated March 28, 1996 with respect to the
consolidated financial statements and schedule of American Greetings Corporation
included in this annual report on Form 10-K for the year ended February 29,
1996.
Ernst & Young LLP
Cleveland, Ohio
May 22, 1996
E - 7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Part II,
Item 8 of the Form 10-K and is qualified in its entiretly by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 30,130
<SECURITIES> 0
<RECEIVABLES> 353,671
<ALLOWANCES> 16,214
<INVENTORY> 335,074
<CURRENT-ASSETS> 970,193
<PP&E> 851,143
<DEPRECIATION> 410,873
<TOTAL-ASSETS> 2,005,832
<CURRENT-LIABILITIES> 453,847
<BONDS> 0
<COMMON> 74,708
0
0
<OTHER-SE> 1,160,314
<TOTAL-LIABILITY-AND-EQUITY> 2,005,832
<SALES> 2,003,038
<TOTAL-REVENUES> 2,011,954
<CGS> 762,006
<TOTAL-COSTS> 762,006
<OTHER-EXPENSES> 52,061
<LOSS-PROVISION> 13,905
<INTEREST-EXPENSE> 24,290
<INCOME-PRETAX> 175,009
<INCOME-TAX> 59,874
<INCOME-CONTINUING> 115,135
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,135
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.52
</TABLE>
