<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 May 31, 2000
-------------------------------------------------
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 1-13859
------------
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 May 31, 2000, the date of this report, the number of shares outstanding of
each of the issuer's classes of common stock was:
Class A Common 59,766,995
Class B Common 4,650,850
<PAGE> 2
AMERICAN GREETINGS CORPORATION
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.......................................1
Item 2. Management's Discussion and Analysis......................11
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K......................... 16
SIGNATURES..................................................................16
----------
<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)
Three Months Ended
May 31,
------------ ------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 595,741 $ 458,757
Costs and expenses:
Material, labor and other production costs 203,324 159,765
Selling, distribution and marketing 263,557 219,322
Administrative and general 68,755 54,603
Interest 10,775 7,140
Other (income) expense - net (11,214) 979
------------ ------------
Total costs and expenses 535,197 441,809
------------ ------------
Income before income taxes and
cumulative effect of accounting change 60,544 16,948
Income taxes 22,038 6,101
------------ ------------
Income before cumulative effect of
accounting change 38,506 10,847
Cumulative effect of accounting change,
net of tax (21,141) -
------------ ------------
Net income $ 17,365 $ 10,847
============ ============
Earnings per share and earnings per share asssuming dilution:
Before cumulative effect of
accounting change $ 0.60 $ 0.16
Cumulative effect of accounting
change, net of tax (0.33) -
------------ ------------
Earnings per share and earnings per share
asssuming dilution: $ 0.27 $ 0.16
============ ============
Dividends per share* $ - $ -
============ ============
Average number of common shares outstanding 64,503,935 67,678,717
</TABLE>
See notes to condensed consolidated financial statements.
* Dividend per share of $0.20 paid June 9, 2000 was declared in February 2000.
Dividend per share of $0.19 paid June 10, 1999 was declared in February 1999.
1
<PAGE> 4
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited) (Note A) (Unaudited)
May 31, 2000 Feb. 29, 2000 May 31, 1999
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents $ 71,293 $ 61,010 $ 130,107
Trade accounts receivable, less allowances
of $152,444, $136,037 and $91,115,respectively
(principally for sales returns) 428,630 430,825 335,108
Inventories 312,124 249,433 257,755
Deferred and refundable income taxes 223,615 99,709 127,085
Prepaid expenses and other 214,007 259,707 225,121
---------- ---------- ----------
Total current assets 1,249,669 1,100,684 1,075,176
Goodwill 177,439 149,437 138,741
Other assets 891,246 820,447 680,816
Property, plant and equipment - at cost 1,037,554 1,019,121 965,125
Less accumulated depreciation 587,820 571,706 539,014
---------- ---------- ----------
Property, plant and equipment - net 449,734 447,415 426,111
---------- ---------- ----------
$2,768,088 $2,517,983 $2,320,844
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 310,284 $ 109,694 $ 35,902
Accounts payable and accrued liabilities 272,979 213,180 158,555
Accrued compensation and benefits 69,780 84,456 55,013
Dividends payable 12,904 25,808 12,806
Income taxes 23,562 13,090 5,307
Other current liabilities 153,719 136,260 92,191
---------- ---------- ----------
Total current liabilities 843,228 582,488 359,774
Long-term debt 414,120 442,102 455,074
Other liabilities 223,400 195,985 125,490
Deferred income taxes 47,415 44,997 52,349
Shareholders' equity 1,239,925 1,252,411 1,328,157
---------- ---------- ----------
$2,768,088 $2,517,983 $2,320,844
========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
May 31,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 17,365 $ 10,847
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation 16,361 16,044
Deferred income taxes 8,884 5,402
Cumulative effect of accounting change 21,141 -
Change in operating assets and liabilities,
net of effects from acquisition (55,162) 47
Other - net (1,731) 3,990
--------- ---------
Cash Provided by Operating Activities 6,858 36,330
INVESTING ACTIVITIES:
Business acquisitions (137,575) -
Property, plant & equipment additions (11,477) (7,061)
Proceeds from sale of fixed assets 22,024 108
Investment in corporate-owned life insurance 3,697 4,393
Other - net (17,354) (2,842)
--------- ---------
Cash Used by Investing Activities (140,685) (5,402)
FINANCING ACTIVITIES:
Increase in long-term debt 1,016 17,685
Reduction of long-term debt (12,863) (1,690)
Increase (decrease) in short-term debt 170,627 (8,017)
Sale of stock under benefit plans 31 404
Purchase of treasury shares (1,797) (41,028)
Dividends to shareholders (12,904) (12,730)
--------- ---------
Cash Provided (Used) by Financing Activities 144,110 (45,376)
--------- ---------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 10,283 (14,448)
Cash and Equivalents at Beginning of Year 61,010 144,555
--------- ---------
Cash and Equivalents at End of Period $ 71,293 $ 130,107
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
AMERICAN GREETINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Thousands of dollars)
Three Months Ended May 31, 2000 and 1999
Note A - Basis of Presentation
------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in
the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
The balance sheet at February 29, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and notes required by accounting principles generally accepted in the United
States for complete financial statements.
For further information, refer to the consolidated financial statements and
notes thereto included in the Corporation's annual report on Form 10-K for the
year ended February 29, 2000.
Note B - Change in Accounting Principle
---------------------------------------
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which
among other guidance, clarifies the Staff's views on various revenue recognition
and reporting matters. As a result, effective March 1, 2000, the Corporation
adopted a change in its method of accounting for certain shipments of seasonal
product which carry implied acceptance provisions. Under the new accounting
method adopted retroactive to March 1, 2000, the Corporation now recognizes
revenue on these seasonal shipments at the approximate date the merchandise is
received by the customer and not upon shipment from the distribution facility.
The cumulative effect of the change on prior years resulted in a one-time
non-cash reduction to the Corporation's earnings of $21,141 (net of tax of
$12,564) or approximately $0.33 per share, which is included in income for the
three months ended May 31, 2000. On a pro forma basis, assuming the Corporation
had adopted SAB 101 effective March 1, 1999, the reduction in earnings for the
three months ended May 31, 1999 would have approximated the cumulative effect
recorded effective March 1, 2000.
For the three months ended May 31, 2000, the Corporation recognized
approximately $44,400 in net sales that is included in the cumulative effect
adjustment as of March 1, 2000. The effect of those net sales in the first
quarter was to increase income by $21,141 (net of tax of $12,564) during that
period.
4
<PAGE> 7
Note C - 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 D - Acquisition of Gibson Greetings, Inc.
----------------------------------------------
On March 9, 2000, the Corporation completed its acquisition of Gibson
Greetings, Inc. for a cash price of $10.25 per share. Gibson Greetings
distributes more than 24,000 individual relationship communication products,
including greeting cards, gift wrap, party goods and licensed products. E-mail
greetings featuring Gibson Greetings content are available through the
Egreetings Network in which Gibson holds a minority equity interest.
The acquisition has been accounted for by the purchase method of accounting, and
accordingly, the statements of consolidated income include the results of Gibson
Greetings beginning with the first quarter of fiscal 2001. The assets acquired
and liabilities assumed were recorded at estimated fair values as determined by
the Corporation's management based on information currently available and on
current assumptions as to future operations. The allocation of the purchase
price to the assets acquired and liabilities assumed is subject to revision as a
result of the final determination of appraised and other fair values. For
financial statement purposes, the excess of cost over net assets acquired is
amortized by the straight-line method over 40 years. A summary of the assets
acquired and liabilities assumed in the acquisition follows:
Estimated Fair Values
Assets Acquired $296,086
Liabilities Assumed (142,919)
Excess of cost over net assets acquired 24,555
--------
Purchase price 177,722
Less cash acquired 10,147
--------
Net cash paid (including $30,000 paid in prior fiscal year) $167,575
========
The acquisition of Gibson was primarily financed through short-term borrowings;
however, the Corporation will continue to evaluate long-term financing options.
5
<PAGE> 8
Unaudited pro forma results of operations for the three month period ended May
31, 1999, as if the Corporation and Gibson Greetings had been combined as of the
beginning of that period, follow. Consolidated results for the first three
months ended May 31, 2000, as reported, include the results of Gibson Greetings
for the entire period. The pro forma results include preliminary estimates and
assumptions which the Corporation's management believes are reasonable. However,
the pro forma results do not include any cost savings or other effects of the
planned integration of the Corporation and Gibson Greetings, and are not
necessarily indicative of the results which would have occurred if the business
combination had been in effect on the dates indicated, or which may result in
the future.
Pro forma
Three months ended
May 31, 1999
------------------
Net sales $552,973
Net income 3,368
Earnings per share and earnings per share
assuming dilution $ 0.05
6
<PAGE> 9
Note E - Earnings Per Share
---------------------------
The following table sets forth the computation of earnings per share and
earnings per share - assuming dilution:
<TABLE>
<CAPTION>
Three Months Ended
May 31,
---------------------
2000 1999
--------- -------
<S> <C> <C>
Numerator:
Net income for earnings per share
and earnings per share -
assuming dilution $ 17,365 $10,847
========= =======
Denominator (thousands):
Denominator for earnings per share
-weighted average shares outstanding 64,504 67,679
Effect of dilutive securities - stock options - -
--------- -------
Denominator for earnings per share-assuming dilution
-adjusted weighted average shares outstanding 64,504 67,679
========= =======
Earnings per share $ 0.27 $ 0.16
========= =======
Earnings per share - assuming dilution $ 0.27 $ 0.16
========= =======
</TABLE>
Certain stock options have been excluded for the three months ended May 31, 2000
and 1999 because they would have been anitdilutive.
7
<PAGE> 10
Note F - Comprehensive Income (Loss)
------------------------------------
The Corporation's total comprehensive income (loss) was as follows:
Three Months Ended
May 31,
----------------------
2000 1999
-------- --------
Net income $ 17,365 $ 10,847
Other comprehensive (loss) income
Foreign currency translation adjustments (14,933) 4,708
Unrealized (loss) gain on available-for-sale
securities (13,151) 6,212
-------- --------
Other comprehensive (loss) income (28,084) 10,920
-------- --------
Total comprehensive (loss) income $(10,719) $ 21,767
======== ========
8
<PAGE> 11
Note G - Business Segment Information
-------------------------------------
Three Months Ended
May 31,
--------------------------
2000 1999
--------- ---------
Net Sales
Social Expressions Products $ 522,603 $ 387,714
Intersegment items (17,127) (18,035)
--------- ---------
Net 505,476 369,679
AmericanGreetings.com 4,743 3,447
Non-reportable segments 87,294 84,992
Exchange rate adjustment-net (1,772) 639
--------- ---------
Consolidated total $ 595,741 $ 458,757
========= =========
Earnings
Social Expressions Products $ 105,802 $ 58,583
Intersegment items (12,640) (13,113)
--------- ---------
Total 93,162 45,470
AmericanGreetings.com (10,527) 96
Non-reportable segments (249) 2,383
Exchange rate adjustment - net 48 (508)
Unallocated items - net (21,890) (30,493)
--------- ---------
Consolidated total $ 60,544 $ 16,948
========= =========
9
<PAGE> 12
Note H - New Accounting Standards
---------------------------------
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities", was issued. This standard,
along with its subsequent amendments, which establishes new accounting and
reporting standards for derivative financial instruments, must be adopted no
later than the fiscal quarter beginning March 1, 2001. The Corporation is
currently analyzing the effect of this standard and does not expect it to have a
material effect on the Corporation's consolidated financial position, results of
operations or cash flows.
Note I - Inventories
--------------------
<TABLE>
<CAPTION>
May 31, 2000 February 29, 2000 May 31, 1999
------------------- -------------------------------
<S> <C> <C> <C>
Raw materials $ 49,116 $ 38,218 $ 34,772
Work in process 37,735 27,099 28,424
Finished products 274,916 229,887 244,551
-------- -------- --------
361,767 295,204 307,747
Less LIFO reserve 90,843 90,343 91,693
-------- -------- --------
270,924 204,861 216,054
Display materials and factory supplies 41,200 44,572 41,701
-------- -------- --------
Inventories $312,124 $249,433 $257,755
======== ======== ========
</TABLE>
Note J - Deferred Costs
-----------------------
Deferred costs relating to agreements with certain customers 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 classified with prepaid expenses and other.
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.
As of May 31, 2000, February 29, 2000 and May 31, 1999 deferred costs and future
payment commitments are included in the following financial statement captions:
<TABLE>
<CAPTION>
May 31, 2000 February 29, 2000 May 31, 1999
------------------- -------------------------------
<S> <C> <C> <C>
Prepaid expenses and other $157,198 $200,517 $192,618
Other assets 777,395 679,214 566,829
Other current liabilities (138,095) (118,250) (92,191)
Other liabilities (182,084) (163,865) (94,551)
-------- -------- --------
$614,414 $597,616 $572,705
======== ======== ========
</TABLE>
10
<PAGE> 13
Part 1., Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS
-----------------------------------------------------
BUSINESS DEVELOPMENTS
On June 12, 2000, the Corporation announced an agreement to acquire the stock of
CPS Corporation, a leading supplier of gift wrap and decorative packaging, and
headquartered in Franklin, Tennessee. This acquisition expands the Corporation's
seasonal boxed card, gift wrap, and decorative packaging product offering, adds
new customers and channels of distribution, and includes two state-of-the-art
manufacturing and distribution facilities in Tennessee and Kentucky. CPS will
become part of Plus Mark, the promotional giftwrap and Christmas boxed card unit
of American Greetings.
On May 11, 2000, the Corporation withdrew an initial public offering to sell a
minority interest in its internet division, AmericanGreetings.com, due to
unfavorable market conditions.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which
among other guidance, clarifies the Staff's views on various revenue recognition
and reporting matters. As a result, effective March 1, 2000, the Corporation
adopted a change in its method of accounting for certain shipments of seasonal
product which carried implied acceptance provisions. Under the new accounting
method adopted retroactive to March 1, 2000, the Corporation now recognizes
revenue on these seasonal shipments at the approximate date the merchandise is
received by the customer and not upon shipment from the distribution facility.
The cumulative effect of the change on prior years resulted in a one-time
non-cash reduction to the Corporation's earnings of $21,141 (net of tax of
$12,564) or approximately $0.33 per share, which is included in income for three
months ended May 31, 2000.
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 2001 increased 29.9% to $595.7
million over the same period in the prior year. The increase in net sales was
primarily due to the Gibson acquisition and to a change in accounting for
recording seasonal product shipments effective March 1, 2000 (see note B). On a
normalized basis, excluding the impact of the Gibson acquisition and the
seasonal sales shift resulting from the accounting change discussed above of
$69.8 million and $44.4 million respectively, net sales improved 4.9% compared
to the prior year. Key components of this performance were strong sales in the
UK and increased sales of accessory product in the U.S. Unit sales of total
greeting cards increased approximately 30% for the quarter from the same period
in the prior year. Excluding the Gibson acquisition and the seasonal sales
shift, unit sales of total greeting cards decreased approximately 2%.
Material, labor and other production costs as a percentage of net sales for the
quarter decreased to 34.1% from 34.8% in the prior year. Excluding the Gibson
acquisition and the seasonal sales shift, the percentage would have been
relatively flat in comparison to prior year.
11
<PAGE> 14
Selling, distribution and marketing expenses as a percentage of net sales were
44.2% for the three months ended May 31, 2000. Excluding the Gibson acquisition
and the seasonal sales shift, this percentage increased to 48.9% from 47.8% in
the prior year. The increase was primarily due to additional costs relating to
the internet division and to higher order fulfillment costs.
Administrative and general expenses increased $14.2 million to $68.8 million in
comparison to the same period in the prior year. The acquisition of Gibson
contributed $9.8 million to this increase while increased expenses associated
with the internet division accounted for $2.4 million of the increase.
Interest expense increased from the prior year by $3.6 million for the quarter.
This increase was primarily due to higher borrowing levels to fund the
Corporation's recent acquisition of Gibson and to fund the Corporation's common
stock repurchase program.
Other (income) expense was $11.2 million of income for the quarter compared to
$1.0 million of expense in the prior year. The improvement was due primarily to
an $8.4 million gain on the sale of a Canadian building.
The effective tax rate for the three months was 36.4%, up slightly from 36.0% in
the prior year due to higher foreign income, particularly in the United Kingdom.
Earnings per share before cumulative effect of accounting change were $0.60 for
the quarter. This includes a $0.33 profit impact for the change in recording
certain seasonal sales, a $0.10 loss associated with the Corporation's
internet division and an $0.08 gain on the sale of a Canadian building.
Excluding these items, adjusted earnings per share for the quarter were $0.29
per share compared to $0.16 last year.
RESTRUCTURING ACTIVITIES AND SPECIAL CHARGES
Fiscal 2000 - Fourth Quarter
During the fourth quarter of fiscal 2000, the Corporation recorded a $6.1
million ($4.8 million net of tax, or earnings per share of $.08) restructure
charge related to various foreign operations. The primary component of this
charge was for the rationalization of various warehouse, distribution and
manufacturing facilities in the United Kingdom in order to increase operating
efficiency and lower fixed expenses. Additional initiatives include, to a lesser
extent, the integration of Mexican manufacturing in the United States and the
realignment of various business functions in Australia.
The restructure charge included $5.2 million for costs of severing employees,
$.6 million for lease exit costs, $.3 million for the write off of assets no
longer in use and other restructure costs. In total, approximately 336 positions
will be eliminated comprised of 304 hourly and 32 salaried employees. As of May
31, 2000, 35 hourly and 7 salaried employees have been severed. All activities
are expected to be completed by the end of FY2001 and the Corporation
anticipates annual cost savings to be approximately $4.0 million.
12
<PAGE> 15
Fiscal 2000 - Second Quarter
In connection with the Corporation's initiative to streamline its international
operations, the Corporation recorded a $40.4 million ($24.2 million net of tax,
or earnings per share of $0.36) special charge during the second quarter of
Fiscal 2000 relating primarily to the consolidation of the Canadian
manufacturing and distribution in the United States. Included in this special
charge is a $32.7 million restructure charge primarily for exit costs associated
with the closure of certain Canadian facilities and to a lesser extent, costs to
exit certain minor United Kingdom businesses. The remaining $7.7 million of the
special charge was recorded in material, labor, and other production costs for
the write-down of Canadian inventory to net realizable value.
The restructure charge of $32.7 million includes $25.8 million of severance,
pension and personnel related items, $4.6 million of facility shut-down costs,
$1.5 million of lease exit costs and $0.8 million related to other restructure
costs. As of May 31, 2000, 709 Canadian employees have been terminated as a
result of the Corporation's realignment of its manufacturing and distribution
operations. All initiatives associated with the Canadian restructuring are
expected to be completed by the end of August 2000 and the Corporation
anticipates annual aggregate cost savings to be approximately $12 million.
The following table summarizes the provisions, payments and remaining reserves
associated with the restructure charges recorded in 2000.
<TABLE>
<CAPTION>
Facility Kiosk Lease
Termination Shut-Down Exit Exit Other
Benefits Costs Costs Costs Costs Total
-------- -------- -------- -------- -------- --------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance February 29, 2000 $ 25,156 $ 4,081 $ 48 $ 1,016 $ 626 $ 30,927
Cash Expenditures (12,600) (667) (13) (12) (22) (13,314)
Non-Cash Charges (2,334) (2,334)
Change in Estimate 45 (35) (10)
-------- -------- -------- -------- -------- --------
Balance May 31, 2000 $ 12,601 $ 1,080 $ 0 $ 1,004 $ 594 $ 15,279
======== ======== ======== ======== ======== ========
</TABLE>
Included in accounts payable and accrued liabilities at May 31, 2000 is $15.3
million related to severance and other exit costs for those actions not
completed. The Corporation believes the remaining accrued restructure liability
is adequate for its remaining cash and non-cash obligations.
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 May 31, 1999 has been included.
13
<PAGE> 16
Operations provided $6.9 million of cash for the first three months, a decrease
of $29.5 million from the same period last year due primarily to an unfavorable
change in working capital partially offset by an increase in earnings. The
unfavorable working capital movements were due primarily to increased levels of
accounts receivable and inventory partially offset by lower income tax payments.
Accounts receivable, net of the effect of acquisitions, decreased $32.3 million
from February 29, 2000, compared to a decrease of $56.6 million during the same
period in the prior year, due to increased sales levels and timing of receipts
of several customers remittances that were received early in the second quarter.
Net accounts receivable increased to 18.5% (17.4% excluding acquisitions) of the
prior twelve months' sales at May 31, 2000 compared to 15.4% at May 31, 1999.
Inventories, net of the effect of acquisitions, used $21.4 million of cash for
the first three months compared to a use of $4.2 million during the same period
in the prior year. The majority of this increase is attributable to the consumer
products group as increased inventory levels are needed to meet anticipated
higher sales volumes. Inventories as a percent of the prior twelve months'
material, labor, and other production costs increased to 36.6% (32.8% excluding
acquisitions) at May 31, 2000 from 34.0% at May 31, 1999.
Amortization of deferred costs exceeded payments by $15.2 million for the first
three months compared to $19.8 million during the same period in the prior year.
Both years performance reflects lower payments under agreements with certain
retailers.
Accounts payable and other liabilities used $56.9 million of cash for the first
three months compared to $73.3 million over the same period last year due to
lower income tax payments.
Investing activities used $140.7 million in cash for the first three months this
year which includes $134.9 million of cash for the Gibson acquisition. Excluding
the Gibson acquisition, investing activities used $5.8 million of cash for the
quarter compared to $5.4 million in the prior year. The current year usage
reflects the proceeds from the sale of a Canadian building partially offset by
the impact of foreign currency exchange.
Financing activities provided $144.1 million for the three months compared to
using $45.4 million during the same period in the prior year. The current period
activity reflects an increase in short-term borrowings to fund the Gibson
acquisition; however, the Corporation will continue to evaluate long term
financing options. The Corporation continued, but to a much lesser extent, the
repurchase of its Class A common stock as 0.1 million shares of common stock
were purchased for $1.8 million at an average price of $17.07 per share. During
the same period last year, 1.7 million shares of stock had been purchased for
$41.0 million.
As a result of the Gibson acquisition, total debt less cash increased from
$360.9 million at May 31, 1999 to $653.1 million at May 31, 2000. Debt as a
percentage of debt plus equity increased to 36.9% at May 31, 2000 from 27.0% at
May 31, 1999. On a per-share basis, shareholders' equity decreased from $19.71
per share at May 31, 1999 to $19.25 at May 31,2000.
14
<PAGE> 17
There were no material changes in the financial condition, liquidity or capital
resources of the Corporation from February 29, 2000, the end of its preceding
fiscal year, to May 31, 2000, the end of its last fiscal quarter and the date of
the most recent balance sheet included in this report, nor from May 31,1999, the
end of the corresponding fiscal quarter last year, to May 31, 2000, except the
changes discussed above and aside from normal seasonal fluctuations.
PROSPECTIVE INFORMATION
Management is not aware of any current trends, events, demands, commitments or
uncertainties which reasonably can be expected to have a material effect on the
liquidity, capital resources, financial position or results of operations of the
Corporation, except those mentioned above. However, the Corporation's future
results could be negatively impacted by such factors as retail bankruptcies, a
weak retail environment, loss of retail accounts to other suppliers or as a
result of retail consolidation and competitive terms of sale offered to
customers to expand or maintain business. Other risks, which are not
all-inclusive, include the demand for the Corporation's goods and services;
competitive factors in the industries in which the Corporation competes; the
ability to achieve anticipated synergies and other cost savings in connection
with acquisitions; the timing, impact and other uncertainties of future
acquisitions, as well as economic conditions in the various markets served by
the Corporation's operations. Please see the Corporation's Form 10-K for the
year ended February 28, 2000 for other risks and uncertainties that may affect
future results.
15
<PAGE> 18
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)
27 Financial Data Schedule
(b) Reports on Form 8-K
On March 24, 2000, the Corporation filed Form 8-K with the Securities and
Exchange Commission. This filing reported that the Corporation had completed its
acquisition of Gibson Greetings, Inc. On May 23, 2000, the Corporation filed
Form 8-K/A with the Securities and Exchange Commission. This filing amended the
Form 8-K filed March 24, 2000 to include the historical and pro forma
information required for the combined entity.
On May 11, 2000, the Corporation filed Form 8-K with the Securities and Exchange
Commission. This filing reported that the Corporation had adopted a change in
its method of accounting for certain shipments of seasonal product which carry
implied acceptance provisions.
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
July 14, 2000
16
