<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
X EXCHANGE ACT OF 1934
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For the quarterly period ended May 31, 1996
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Commission file number 0-502
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AMERICAN GREETINGS CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 34-0065325
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One American Road, Cleveland, Ohio 44144
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(Address of principal executive offices) (Zip Code)
(216) 252-7300
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of May 31, 1996, the date of this report, the number of shares outstanding of
each of the issuer's classes of common stock was:
Class A Common 70,206,048
Class B Common 4,552,182
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AMERICAN GREETINGS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
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PART I - FINANCIAL INFORMATION
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<S> <C>
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . 5
PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 7
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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</TABLE>
-i-
<PAGE> 3
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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AMERICAN GREETINGS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
May 31,
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1996 1995
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<S> <C> <C>
Net sales $ 438,212 $ 438,509
Other income 1,915 2,108
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Total revenue 440,127 440,617
Costs and expenses:
Material, labor and other production costs 154,667 143,586
Selling, distribution and marketing 181,791 181,822
Administrative and general 54,317 53,777
Interest 7,590 4,917
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Total costs and expenses 398,365 384,102
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Income before income taxes 41,762 56,515
Income taxes 13,990 19,215
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Net income $ 27,772 $ 37,300
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Net income per share $ 0.37 $ 0.50
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Dividends per share $ 0.16 $ 0.14
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Average number of common shares outstanding 74,735,967 74,378,727
</TABLE>
See notes to consolidated financial statements.
Page 1
<PAGE> 4
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
May 31, 1996 Feb. 29, 1996 May 31, 1995
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<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents $ 42,970 $ 30,130 $ 39,446
Trade accounts receivable, less allowances
of $113,444, $157,626 and $103,144, respec-
tively (principally for sales returns) 352,691 353,671 333,513
Inventories:
Raw material 53,368 57,415 60,234
Work in process 58,308 49,741 51,303
Finished products 312,873 274,713 267,224
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424,549 381,869 378,761
Less LIFO reserve 93,002 92,020 87,043
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331,547 289,849 291,718
Display material and factory supplies 44,924 45,225 41,750
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Total inventories 376,471 335,074 333,468
Deferred income taxes 88,340 102,889 65,985
Prepaid expenses and other 156,599 148,429 143,887
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Total current assets 1,017,071 970,193 916,299
Other assets 611,930 595,369 432,700
Property, plant and equipment 867,846 851,143 865,801
Less accumulated depreciation 421,280 410,873 418,213
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Property, plant and equipment - net 446,566 440,270 447,588
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$2,075,567 $2,005,832 $1,796,587
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 228,994 $ 119,174 $ 153,829
Accounts payable 132,183 144,242 124,247
Payroll and payroll taxes 52,070 57,562 48,583
Retirement plans 5,087 17,151 5,859
Dividends payable 11,981 11,975 10,442
Income taxes 8,403 21,210 27,587
Other current liabilities 58,544 82,533 56,819
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Total current liabilities 497,262 453,847 427,366
Long-term debt 235,224 231,073 72,246
Postretirement benefit obligation 15,480 15,496 17,992
Other liabilities 31,332 25,310 34,150
Deferred income taxes 44,863 45,084 55,964
Shareholders' equity 1,251,406 1,235,022 1,188,869
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$2,075,567 $2,005,832 $1,796,587
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 2
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AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
May 31,
--------------------------------
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $27,772 $37,300
Adjustments to reconcile to net cash
provided (used) by operating activities:
Depreciation 15,857 19,526
Deferred income taxes 14,346 (393)
Change in operating assets and liabilities (128,338) (109,016)
Other - net 1,898 2,717
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Cash Used by Operating Activities (68,465) (49,866)
INVESTING ACTIVITIES:
Property, plant & equipment additions (23,324) (18,637)
Other - net 3,206 2,752
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Cash Used by Investing Activities (20,118) (15,885)
FINANCING ACTIVITIES:
Increase in long-term debt 8,917 -
Reduction of long-term debt (6,924) (3,748)
Increase in short-term debt 110,539 29,977
Sale of stock under benefit plans 1,361 2,806
Purchase of treasury shares (513) (622)
Dividends to shareholders (11,957) (10,367)
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Cash Provided by Financing Activities 101,423 18,046
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INCREASE (DECREASE) IN CASH AND EQUIVALENTS 12,840 (47,705)
Cash and Equivalents at Beginning of Year 30,130 87,151
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Cash and Equivalents at End of Period $42,970 $39,446
============== ==============
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 6
AMERICAN GREETINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars)
Three Months Ended May 31, 1996 and 1995
Note A - Basis of Presentation
The accompanying financial statements have been prepared in accordance with the
instructions to Form 10-Q. Although they are unaudited, the Corporation believes
that all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of the results of operations have been made.
Note B - Seasonal Nature of Business
The Corporation's business is seasonal in nature. Therefore, the results of
operations for interim periods are not necessarily indicative of the results for
the fiscal year taken as a whole.
Note C - 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 twelve months are classified with
Prepaid Expenses and Other. Deferred costs included in the Prepaid Expenses and
Other classification are $125,498, $121,937 and $115,098 at May 31, 1996,
February 29, 1996 and May 31, 1995, respectively. Deferred costs included in the
Other Assets classification at the same dates are $429,425, $410,119 and
$328,891, respectively.
The Other Liabilities and Other Current Liabilities classifications consist of
the future payment commitments relating to these agreements.
Page 4
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Part I., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS
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Results of Operations
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Net sales of $438.2 million for the first quarter ended May 31, 1996 did not
increase from the same period in the prior year and reflected a shift in
shipments out of the first quarter as a result of efforts to work with retailers
to reduce lead times in inventories. This revenue shift primarily impacted sales
of greeting cards and, as a result, unit sales of greeting cards for this
quarter were down approximately 6% from the same period in the prior year.
Strong sales of non-card product, along with price increases, offset the
greeting card unit decline.
Material, labor and other production costs were 35.3% of net sales for the
quarter compared to 32.7% in the prior year. This increase was due to higher
product costs associated with newly acquired subsidiaries, higher manufacturing
costs in the United States and Canada and the stronger sales of higher-cost
non-card product.
Both the selling, distribution and marketing and the administrative expense
categories were unchanged from prior year as a result of overall general cost
containment.
Interest expense for the quarter was up $2.7 million over the prior year, mostly
due to higher debt levels incurred to finance the John Sands acquisition.
The effective tax rate for the quarter was 33.5%, compared to 34.0% in the prior
year due to the increased benefit from the corporate owned life insurance
program and the reduction in foreign losses with no tax benefit.
Page 5
<PAGE> 8
Liquidity and Capital Resources
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The seasonality of the Corporation's business precludes a useful comparison of
the current period and the year-end financial statements; therefore, a Statement
of Financial Position for May 31, 1995 has been included.
Operations for the first three months required $18.6 million more in cash than
the same period last year. This increased use is due primarily to the decrease
in net income, and an increase in net deferred costs related to agreements with
customers offset by decreases in the growth of both accounts receivable and
inventories.
Accounts receivable remained unchanged from February 29, compared to a $8.7
million use of cash in the same period in the prior year. Net accounts
receivable were 17.6% of the prior twelve months' sales at both May 31, 1996 and
1995.
Inventory growth required $10.8 million less cash for the first quarter compared
to the prior year, reflecting the Corporation's continued efforts to manage
growth in this area while expanding product offerings. Inventories as a percent
of the prior twelve months' material, labor and other production costs improved
to 48.7% at May 31, 1996 from 48.9% for the prior year.
Investing activities used $4.2 million more cash for the three months than in
the same period in the prior year, due primarily to property, plant and
equipment additions. Financing activities provided $83.4 million more cash
during the first three months of this year than last year, due to higher
borrowing levels to support operating requirements.
Debt as a percentage of debt plus equity was 27.1% at May 31, 1996, an increase
from 16.0% in the prior year, reflecting the debt incurred to finance the
acquisition of the John Sands Group during the fourth quarter of fiscal 1996. On
a per share basis, shareholders' equity increased from $15.98 at May 31, 1995 to
$16.74 at May 31, 1996.
There were no material changes in the financial condition, liquidity or capital
resources of the Corporation from February 29, 1996, the end of its preceding
fiscal year, to May 31, 1996, the end of its last fiscal quarter and the date of
the most recent balance sheet included in this report, nor from May 31, 1995,
the end of the corresponding fiscal quarter last year, to May 31, 1996, except
the changes discussed above and aside from normal seasonal fluctuations.
Page 6
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PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits (exhibit reference numbers refer to Item 601 of
Regulation S-K)
11 (a) Calculation of Primary Earnings Per Share
11 (b) Calculation of Fully-Diluted Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN GREETINGS CORPORATION
By: /s/ William S. Meyer
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William S. Meyer
Senior Vice President
Chief Financial Officer
July 15, 1996
Page 7
<PAGE> 1
EXHIBIT 11(a)
American Greetings Corporation
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Computation of Earnings Per Share
---------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended May 31,
1996 1995
---- ----
<S> <C> <C>
Average number of
common shares outstanding 74,735,967 74,378,727
==================== ====================
Net income (thousands) $ 27,772 $ 37,300
==================== ====================
Primary earnings per share $ .37 $ .50
==================== ====================
</TABLE>
<PAGE> 1
EXHIBIT 11(b)
Computation of Fully-Diluted Earnings Per Share (a)
-----------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended May 31,
----------------------------------
1996 1995
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<S> <C> <C>
Average number of common shares
outstanding on a fully diluted
basis assuming exercise of stock
options based on the treasury
stock method using the higher
of average market price or ending
market price (b) 75,673,431 75,595,096
==================== ====================
Net income (thousands) $ 27,772 $ 37,300
==================== ====================
Fully-diluted earnings
per share $ .37 $ .49
==================== ====================
<FN>
(a) This calculation is submitted in accordance with the Securities Exchange Act
of 1934, although not required by Accounting Principles Board Opinion No. 15,
since less than a 3% dilution results.
(b) Average market price was used for May 31, 1996. Ending market price was used
for May 31, 1995.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Part 1, Item
1 of the first quarter Form 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 42,970
<SECURITIES> 0
<RECEIVABLES> 352,691
<ALLOWANCES> 15,505
<INVENTORY> 376,471
<CURRENT-ASSETS> 1,017,071
<PP&E> 867,846
<DEPRECIATION> 421,566
<TOTAL-ASSETS> 2,075,567
<CURRENT-LIABILITIES> 497,262
<BONDS> 0
0
0
<COMMON> 74,758
<OTHER-SE> 1,176,648
<TOTAL-LIABILITY-AND-EQUITY> 2,075,567
<SALES> 438,212
<TOTAL-REVENUES> 440,127
<CGS> 154,667
<TOTAL-COSTS> 154,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (95)
<INTEREST-EXPENSE> 7,590
<INCOME-PRETAX> 41,762
<INCOME-TAX> 13,990
<INCOME-CONTINUING> 27,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,772
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
