<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
X EXCHANGE ACT OF 1934
- -----------
For the quarterly period ended November 30, 1996
-------------------------------------------------
OR
--
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
- -----------
For the transition period from to
------------------------ -----------------------
Commission file number 0-502
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AMERICAN GREETINGS CORPORATION
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0065325
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One American Road, Cleveland, Ohio 44144
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 252-7300
--------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
As of November 30, 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 70,466,101
Class B Common 4,433,782
<PAGE> 2
AMERICAN GREETINGS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
PART I - FINANCIAL INFORMATION
- ------------------------------
<S> <C>
Item 1. Financial Statements ........................................1
Item 2. Management's Discussion and Analysis ........................6
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K ............................8
SIGNATURES ....................................................................8
- ----------
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
AMERICAN GREETINGS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
November 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 1,552,471 $ 1,457,282
Other income 7,754 5,192
----------- -----------
Total revenue 1,560,225 1,462,474
Costs and expenses:
Material, labor and other production costs 593,081 562,815
Selling, distribution and marketing 595,005 560,254
Administrative and general 175,392 163,888
Asset impairment loss -- 52,061
Interest 23,539 17,358
----------- -----------
Total costs and expenses 1,387,017 1,356,376
----------- -----------
Income before income taxes 173,208 106,098
Income taxes 59,410 36,285
----------- -----------
Net income $ 113,798 $ 69,813
=========== ===========
Net income per share $ 1.52 $ 0.94
=========== ===========
Dividends per share $ 0.50 $ 0.46
=========== ===========
Average number of common shares outstanding 74,780,755 74,488,463
</TABLE>
See notes to consolidated financial statements.
Page 1
<PAGE> 4
AMERICAN GREETINGS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
November 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 647,723 $ 587,602
Other income 3,351 1,087
----------- -----------
Total revenue 651,074 588,689
Costs and expenses:
Material, labor and other production costs 250,155 247,170
Selling, distribution and marketing 217,256 199,436
Administrative and general 61,128 56,094
Asset impairment loss -- 52,061
Interest 8,275 7,116
----------- -----------
Total costs and expenses 536,814 561,877
----------- -----------
Income before income taxes 114,260 26,812
Income taxes 39,663 9,328
----------- -----------
Net income $ 74,597 $ 17,484
=========== ===========
Net income per share $ 1.00 $ 0.24
=========== ===========
Dividends per share $ 0.17 $ 0.16
=========== ===========
Average number of common shares outstanding 74,836,808 74,616,823
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 2
<PAGE> 5
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nov. 30, 1996 Feb. 29, 1996 Nov. 30, 1995
------------- ------------- -------------
ASSETS
<S> <C> <C> <C>
Current assets
Cash and equivalents $ 35,830 $ 30,130 $ 52,183
Trade accounts receivable, less allowances
of $137,355, $157,626 and $130,168, respec-
tively (principally for sales returns) 621,942 353,671 582,129
Inventories:
Raw material 49,730 57,415 52,540
Work in process 43,422 49,741 39,781
Finished products 292,950 274,713 280,134
---------- ---------- ----------
386,102 381,869 372,455
Less LIFO reserve 93,844 92,020 89,481
---------- ---------- ----------
292,258 289,849 282,974
Display material and factory supplies 46,042 45,225 39,464
---------- ---------- ----------
Total inventories 338,300 335,074 322,438
Deferred and refundable income taxes 104,103 102,889 73,478
Prepaid expenses and other 176,284 148,429 153,000
---------- ---------- ----------
Total current assets 1,276,459 970,193 1,183,228
Other assets 601,475 595,369 454,532
Property, plant and equipment 888,556 851,143 794,004
Less accumulated depreciation 447,531 410,873 399,640
---------- ---------- ----------
Property, plant and equipment - net 441,025 440,270 394,364
---------- ---------- ----------
$2,318,959 $2,005,832 $2,032,124
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 340,677 $ 119,174 $ 360,057
Accounts payable 129,615 144,242 114,724
Payroll and payroll taxes 58,895 57,562 54,479
Retirement plans 17,107 17,151 11,165
Dividends payable 12,756 11,975 11,969
Income taxes 32,790 21,210 17,928
Other current liabilities 60,095 82,533 79,515
---------- ---------- ----------
Total current liabilities 651,935 453,847 649,837
Long-term debt 255,250 231,073 89,886
Postretirement benefit obligation 15,254 15,496 18,305
Other liabilities 33,006 25,310 34,150
Deferred income taxes 43,984 45,084 39,808
Shareholders' equity 1,319,530 1,235,022 1,200,138
---------- ---------- ----------
$2,318,959 $2,005,832 $2,032,124
========== ========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 3
<PAGE> 6
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
November 30,
-----------------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 113,798 $ 69,813
Adjustments to reconcile to net cash
provided (used) by operating activities:
Asset impairment loss -- 52,061
Depreciation 47,936 58,876
Deferred and refundable income taxes (2,346) (24,127)
Change in operating assets and liabilities (306,358) (361,261)
Other - net 6,499 8,897
--------- ---------
Cash Used by Operating Activities (140,471) (195,741)
INVESTING ACTIVITIES:
Property, plant & equipment additions (50,291) (48,851)
Other - net (3,911) (13,355)
--------- ---------
Cash Used by Investing Activities (54,202) (62,206)
FINANCING ACTIVITIES:
Increase in long-term debt 12,778 14,917
Reduction of long-term debt (2,987) (134)
Increase in short-term debt 224,252 235,780
Sale of stock under benefit plans 4,360 9,541
Purchase of treasury shares (625) (2,885)
Dividends to shareholders (37,405) (34,240)
--------- ---------
Cash Provided by Financing Activities 200,373 222,979
--------- ---------
INCREASE(DECREASE) IN CASH AND EQUIVALENTS 5,700 (34,968)
Cash and Equivalents at Beginning of Year 30,130 87,151
--------- ---------
Cash and Equivalents at End of Period $ 35,830 $ 52,183
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 7
AMERICAN GREETINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars)
Nine Months Ended November 30, 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 $145,791, $121,937, and $128,013 at November 30, 1996,
February 29, 1996 and November 30, 1995, respectively. Deferred costs included
in the Other Assets classification at the same dates are $410,175, $410,110 and
$347,079, respectively.
The Other Liabilities and Other Current Liabilities classifications consist of
the future payment commitments relating to these agreements.
Note D - Stock Options
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.
The Corporation intends to adopt the disclosure requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" when required for the fiscal year ending February 28, 1997.
Page 5
<PAGE> 8
Note E - 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.
Part 1., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS
- -----------------------------------------------------
Results of Operations
- ---------------------
Net sales of $647.7 million for the third quarter and $1,552.5 million for the
nine months were up 10.2% and 6.5%, respectively, over the same periods in the
prior year. The increase for the quarter reflects a shift in the timing of
seasonal shipments out of the first six months of the fiscal year as a result of
efforts to work with retailers to reduce lead times in inventories. The increase
for the nine months was due primarily to increased sales of everyday and
seasonal cards and accessories. Unit sales of greeting cards increased 5% over
the same period in the prior year for the quarter and 1% for the nine months.
Material, labor and other production costs were 38.6% of net sales for the
quarter, down from 42.1% in the same period last year. For the nine months,
material, labor and other production costs were 38.2% of net sales, down
slightly from 38.6% in the prior year. These improvements were due to a shift in
the sales mix toward greeting cards, particularly during the third quarter,
which have higher margins than non-card product.
Selling, distribution and marketing expenses were 33.5% of net sales for the
quarter, down from 33.9% in the same period in the prior year. For the nine
month period, selling, distribution and marketing costs were 38.3% of net sales
compared to 38.4% in the prior year. These decreases reflect reductions in the
CreataCard national advertising program from the prior year.
Administrative and general expenses were $61.1 million for the quarter, up from
$56.1 million for the same period in the prior year. For the nine months,
administrative and general expenses were $175.4 million, up from $163.9 million
in the prior year. The increase for the quarter was due to higher profit sharing
plan expense, while the increase for the nine months was due to the addition of
the subsidiaries acquired since last year.
Interest expense increased over the prior year by $1.2 million for the quarter
and $6.2 million for the nine month period due primarily to higher debt levels
incurred to finance the John Sands acquisition.
Page 6
<PAGE> 9
Liquidity and Capital Resources
- -------------------------------
The seasonality of the Corporation's business precludes a useful comparison of
the current period and the year-end financial statements; therefore, a Statement
of Financial Position for November 30, 1995 has been included.
Operations for the first nine months required $55.3 million less in cash than
the same period last year. This improvement was due to the increase in net
income and a reduction in inventories.
Accounts receivable increased $267.2 million from February 29, 1996, compared to
a $259.1 million increase in the same period in the prior year, reflecting the
growth in sales. Net accounts receivable were 29.6% of the prior twelve months'
sales at November 30, 1996, compared to 29.7% at November 30, 1995.
Inventories decreased by $1.1 million from February 29, 1996, compared to an
increase of $41.8 million during the same period in the prior year. This
improvement reflects the Corporation's continued efforts to manage inventories.
Investing activities used $8.0 million less cash for the nine months than in the
same period in the prior year. Last year included investments in expanded
product offerings. Financing activities provided $22.6 million less cash during
the nine months than in the same period in the prior year, due to lower
borrowing requirements during the period compared to prior year.
Debt as a percentage of debt plus equity was 31.1% at November 30, 1996, an
increase from 27.3% 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 $16.08 at
November 30, 1995 to $17.62 at November 30, 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 November 30, 1996, the end of its last fiscal quarter and the
date of the most recent balance sheet included in this report, nor from November
30, 1995, the end of the corresponding fiscal quarter last year, to November 30,
1996, except the changes discussed above and aside from normal seasonal
fluctuations.
Prospective Information
- -----------------------
Although management is not aware of any current trends, events, demands,
commitments or uncertainties which reasonably can be expected to have a
material effect on the liquidity, capital resources, financial position or
results of operations of the Corporation, the Corporation's future results
could be negatively impacted by such factors as retail bankruptcies, a weak
retail environment and competitive terms of sale offered to customers to expand
and maintain business. Please see the Corporation's Form 10-K for the year
ended February 29, 1996 for other risks and uncertainties that may affect
future results.
Page 7
<PAGE> 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits (exhibit reference numbers refer to Item 601 of Regulation
S-K)
11 (a) Calculation of Primary Earnings Per Share
11 (b) Calculation of Fully-Diluted Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN GREETINGS CORPORATION
By: /s/ Patricia L. Ripple
-----------------------------
Patricia L. Ripple
Controller
Chief Accounting Officer
January 14, 1997
Page 8
<PAGE> 1
Exhibit 11
American Greetings Corporation
------------------------------
Computation of Earnings Per Share
---------------------------------
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine Months Ended November 30, Three Months Ended November 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average number of
common shares outstanding 74,780,755 74,488,463 74,836,808 74,616,823
========== ========== ========== ===========
Net income (thousands) $ 113,798 $ 69,813 $ 74,597 $ 17,484
========== ========== ========== ===========
Primary earnings per share $ 1.52 $ 0.94 $ 1.00 $ 0.24
========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Computation of Fully-diluted Earnings Per Share (a)
---------------------------------------------------
(Unaudited) (Unaudited)
Nine Months Ended November 30, Three Months Ended November 30,
------------------------------ -------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <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
average market price or
ending market price 75,731,104 75,584,381 75,817,527 75,745,828
=========== =========== =========== ===========
Net income (thousands) $ 113,798 $ 69,813 $ 74,597 $ 17,484
=========== =========== =========== ===========
Fully-diluted earnings per share $ 1.50 $ 0.92 $ 0.98 $ 0.23
=========== =========== =========== ===========
<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) Ending market price was used for nine months ended November 30, 1996.
Average market price was used for the other periods presented.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PART I, ITEM
1 OF THE THIRD QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 35,830
<SECURITIES> 0
<RECEIVABLES> 621,942
<ALLOWANCES> 20,473
<INVENTORY> 338,300
<CURRENT-ASSETS> 1,276,459
<PP&E> 888,556
<DEPRECIATION> 447,531
<TOTAL-ASSETS> 2,318,959
<CURRENT-LIABILITIES> 651,935
<BONDS> 0
<COMMON> 74,900
0
0
<OTHER-SE> 1,244,630
<TOTAL-LIABILITY-AND-EQUITY> 2,318,959
<SALES> 1,552,471
<TOTAL-REVENUES> 1,560,225
<CGS> 593,081
<TOTAL-COSTS> 593,081
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,002
<INTEREST-EXPENSE> 23,539
<INCOME-PRETAX> 173,208
<INCOME-TAX> 59,410
<INCOME-CONTINUING> 113,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,798
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.50
</TABLE>
