PAGE
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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 0-11902
GIBSON GREETINGS, INC.
Incorporated under the laws IRS Employer
of the State of Delaware Identification No. 52-1242761
2100 Section Road, Cincinnati, Ohio 45237
Telephone Number: Area Code 513-841-6600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value; Preferred Stock Purchase Rights
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. [X]
The aggregate market value of the Common Stock, $.01 par value, of the
registrant held by non-affiliates of the registrant as of March 15, 1996 was
approximately $242,790,000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 16,090,529 shares
of Common Stock, $.01 par value, at March 15, 1996.
Documents incorporated by reference:
Portions of Gibson Greetings, Inc.'s Proxy Statement for the 1996
Annual Meeting of Stockholders are incorporated by reference in
Part II
PAGE
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PART I
Item 1. Business
Gibson Greetings, Inc. and its wholly-owned and majority-owned
subsidiaries (the "Company") operate in a single industry segment -- the
design, manufacture and sale of everyday and seasonal greeting cards, paper
partywares, gift wrap and accessories and related specialty products.
In mid-November 1995, the Company sold Cleo, Inc. ("Cleo"), its
wholly-owned gift wrap subsidiary, to CSS Industries, Inc. ("CSS"). In
addition to gift wrap and related products, Cleo manufactured and sold boxed
Christmas cards and Valentines. Net sales by Cleo (in thousands of dollars)
included in the consolidated financial statements for each of the three years
ended December 31, 1995 were $151,931, $189,292 and $197,765, respectively.
In order to strengthen the Company's position in the rapidly-growing
party area of the industry, the Company acquired The Paper Factory of
Wisconsin, Inc. ("The Paper Factory") in 1993. The Paper Factory operates
retail stores located primarily in manufacturers' outlet shopping centers.
Since the date of acquisition, The Paper Factory has increased its number of
stores from 104 to approximately 180. During 1992, the Company formed Gibson
de Mexico, S.A. de C.V., a Mexican corporation, which purchased the net assets
of a Mexican manufacturer and marketer of greeting cards, to market the
Company's products primarily in Mexico. In view of the continuing poor
economic conditions and devaluation of the peso in Mexico, the Company
recorded a full reserve against this subsidiary during the fourth quarter of
1995. During 1991, the Company formed Gibson Greetings International Limited
("Gibson International"), a Delaware corporation. Gibson International
markets the Company's products through both independent and large retail
customers in the United Kingdom and other European countries.
Products
The Company's major products are extensive lines of greeting cards (both
everyday and seasonal). Everyday cards are categorized as conventional
greeting cards and alternative market cards. Seasonal cards are devoted to
holiday seasons, which include, in declining order of net sales, Christmas,
Valentine's Day, Mother's Day, Easter, Father's Day, Graduation and
Thanksgiving. In 1995, approximately 62% of net sales of cards were derived
from everyday cards and approximately 38% from seasonal cards. Cleo produced
gift wrap and gift wrap accessories (including tissue and kraft paper, gift
bags, tags, ribbons, bows and gift trims) predominately for the Christmas
season. A line of gift wrap and related accessories continues to be produced
by the Company. The Company's products also include paper partywares,
candles, calendars, gift items and holiday decorations. The following table
sets forth, in thousands of dollars for the years indicated, the Company's net
sales attributable to each of the principal classes of the Company's products:
PAGE
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Years Ended December 31,
----------------------------------
1995 1994 1993
-------- -------- --------
Greeting cards $246,895 $243,313 $268,952
Gift wrap 172,893 202,439 192,862
Other products 120,357 102,290 84,351
-------- -------- --------
Total net sales $540,145 $548,042 $546,165
======== ======== ========
Many of the Company's products incorporate well-known proprietary
characters. Net sales associated with licensed properties accounted for
approximately 15% of overall 1995 net sales. Excluding Cleo, net sales
associated with licensed properties accounted for approximately 15% of overall
1995 net sales. The Company believes it benefits from the publication of
cartoon strips, television programming, advertising and other promotional
activities by the creators of such licensed characters. The Company has also
developed proprietary properties of its own. See "Trademarks, Copyrights and
Licenses."
Approximately 4% of the Company's revenues in 1995 were attributable to
export sales and royalty income from foreign sources. Excluding Cleo,
approximately 5% of the Company's revenues in 1995 were attributable to export
sales and royalty income from foreign sources.
Sales and Marketing
The Company's products are sold in more than 25,000 retail outlets
worldwide. Because of the value consumers place on convenience, the Company
continues to concentrate its distribution through one-stop-shopping outlets.
To market effectively through these outlets, the Company has developed
specific product programs and new product lines and introduced new in-store
displays. The Company's current products are primarily sold under the Gibson
brand name and are primarily distributed to supermarkets, deep discounters,
mass merchandisers, card and specialty shops and variety stores. During 1995,
the Company's five largest customers accounted for approximately 24% of the
Company's net sales and one customer, Wal-Mart Stores, Inc. accounted for more
than 10% of the Company's net sales. Excluding Cleo, the Company's five
largest customers accounted for approximately 32% of the Company's 1995 net
sales and only one customer, Winn-Dixie Stores, accounted for more than 10% of
the Company's net sales.
The Company's products are usually stocked in a department where only
these products are displayed. Product displays are expressly designed for the
presentation of greeting cards, gift wrap, paper partywares, candles and other
products. The Company also supplies corrugated displays for seasonal
specialties. The Company's method of selling greeting cards requires frequent
and attentive merchandising service and fast delivery of reorders. The
Company employs a direct field sales force that regularly visits most of the
Company's customers, supported by a larger, nationwide merchandising service
force.
PAGE
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In order to properly display and service these products, a sizable
initial investment is made in store display fixtures, sometimes totaling 300
linear feet, and in the hiring and training of service associates. To
minimize costs and disruption, in the short-term, caused by the loss of a
customer, the Company has entered into longer term contracts with certain
retailers, consistent with general industry practice. These contracts
generally have terms ranging from three to six years, and sometimes specify a
minimum sales volume commitment. Some of the advantages to the Company
include: less disruption to its distribution channels; the ability to plan
product offerings into the future; and establishment of a reliable service
network to ensure the best product display and salability. In certain of
these contracts, negotiated cash payments or credits constitute advance
discounts against future sales. These payments are capitalized and amortized
over the initial term of the contract. In the event of contract default by a
retailer, such as bankruptcy or liquidation, a contract may be deemed impaired
and unamortized amounts may be charged against operations immediately
following the default. Use of these contracts has expanded in recent years
within the industry and the Company currently has contracts with a number of
customers including three of its top five customers.
It is characteristic of the Company's business and of the industry that
accounts receivable for seasonal merchandise are carried for relatively long
periods, typically as long as six months. Consistent with general industry
practice, the Company allows customers to return for credit certain seasonal
greeting cards.
Design and Production
Most of the Company's products are designed, printed and finished at its
Cincinnati, Ohio facility and then sent to its facilities in Berea or
Covington, Kentucky for shipment directly to retail stores. The Company also
purchases for resale certain finished and semi-finished products, such as gift
items, from both domestic and foreign sources.
The Company maintains a full-time staff of artists, writers, art
directors and creative planners who design a majority of the Company's
products. Design of everyday products begins approximately 12 months in
advance of shipment. The Company's seasonal greeting cards and other items
are designed and printed over longer periods than the everyday cards.
Designing seasonal products begins approximately 18 months before the holiday
date. Seasonal designs go into production about 12 months before the holiday
date.
Production of the Company's products increases throughout the year until
late September. Because a substantial portion of the Company's shipments are
typically concentrated in the latter half of the year, the Company normally is
required to carry large inventories.
The Company believes that adequate quantities of raw materials used in
its business are and will continue to be available from many suppliers. Paper
and other raw materials are the most significant component of the Company's
product cost structure.
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Competition
The greeting card industry is highly competitive. Based upon its general
knowledge of the industry and the limited public information available about
its competitors, the Company believes it is the third largest producer of
greeting cards in the United States. The Company's principal competitors are
Hallmark Cards, Inc. and American Greetings Corporation, which are predominant
in the industry. Certain of the Company's competitors have greater financial
and other resources than the Company.
The Company believes that the principal areas of competition with respect
to its products are quality, design, service to the retail outlet, price and
terms, which may include payments and other concessions to retail customers
under long-term agreements, and that it is competitive in all of these areas.
See "Sales and Marketing."
Trademarks, Copyrights and Licenses
The Company currently has approximately 40 registrations of trademarks in
the United States and an equal number in foreign countries. Although the
Company does not generally register its creative artwork and editorial text
with the U.S. Copyright Office, it does obtain certain copyright protection
by printing notice of a claim of copyright on its products. The Company has
rights under various license agreements to incorporate well-known proprietary
characters into its products. These licenses, most of which are exclusive,
are generally for terms of one to four years and are subject to certain
renewal options. There can be no assurance that the Company will be able to
renew license agreements as to any particular proprietary character. The
Company believes that its business is not dependent upon any individual
trademark, copyright or license.
Employees
As of December 31, 1995, the Company employed approximately 4,300 persons
on a full-time basis. In addition, as of December 31, 1995, the Company
employed approximately 5,300 persons on a part-time basis. Because of the
seasonality of the Company's sales, the number of the Company's production and
warehousing employees varies during the year, normally reaching a peak level
in September. Approximately 200 hourly employees currently on the payroll at
the Company's Berea, Kentucky facility are represented by a local union
affiliated with the International Brotherhood of Firemen and Oilers Union.
Unfair labor practice charges were filed against the Company as an outgrowth
of a strike at the Berea facility in 1989. See "Legal Proceedings."
PAGE
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Environmental Issues
The Company, over the past decade, has taken a proactive approach to
environmental concerns. In early 1990, the Gibson Card Division (the "Card
Division") converted its card and related products production to water-based
inks. Previously, the Card Division had its Cincinnati-produced waste
solvents incinerated. All but one underground storage tank on Company owned
and leased premises were removed in or before 1988. In 1990, the last
underground storage tank, which had contained isopropyl alcohol, was also
removed in accordance with governmental closure regulations. The Company's
policy is to consult with professional firms for environmental audits before
entering into potential long-term real estate transactions. Historically,
expenditures associated with managing and limiting pollution or hazardous
substances, as well as expenditures to remediate previously contaminated
sites, have not been material to the Company's financial statements. The
Company is aware of one contingent environmental liability as discussed below:
Kirk Heathcott Site - Dyer County, Tennessee
In December 1993, the Company was advised by the Tennessee Department of
Environment and Conservation that Cleo had been identified by the State of
Tennessee as a potentially liable party for reimbursement of Superfund
expenditures made by the State for site identification, investigation,
containment and clean-up, including monitoring and maintenance activities.
The Company has ascertained that the State's claim is based on the alleged
disposal of certain waste solvents by a third party at the site during the
period 1972-1977. The State issued an Order to Cleo and three other parties
dated February 6, 1996 requiring the respondents to investigate the extent of
contamination and to remediate the property. The State has indicated that it
may revise the Order to substitute the Company for Cleo. Such substitution
will not affect the Company's exposure in this matter because Gibson agreed to
indemnify Cleo against this liability under the terms of the agreement
pursuant to which Cleo was sold to CSS.
Based on an informal estimate provided by State authorities and on
currently available information concerning the size and condition of the
property, management does not believe that the outcome of this matter will
result in a material adverse effect on the Company's total net worth, cash
flows or operating results. The Company has identified two insurance
companies that issued policies to a predecessor company during the applicable
time period. These companies have been notified of the occurrence. The
Company believes that this insurance may provide coverage for Cleo's potential
liability at this site. The insurance companies have neither confirmed nor
denied the coverage at this time.
PAGE
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Item 2. Properties
The following is a summary of the Company's principal manufacturing,
distribution and administrative facilities:
Approximate
Floor Space
Location Principal Use (Sq Ft)
- -------------------- ------------------------------------- -----------
Cincinnati, Ohio Corporate headquarters, manufacturing
and administration 593,700
Berea, Kentucky Manufacturing and distribution 597,100
Mexico City, Mexico Manufacturing and distribution 25,900
Telford, England Manufacturing, distribution and
administration 58,800
Covington, Kentucky Manufacturing and distribution 293,000
Florence, Kentucky Manufacturing and distribution 110,700
Neenah, Wisconsin Distribution 50,000
---------
Total 1,729,200
=========
The first two facilities listed above are currently leased under an
amended agreement for a term expiring in 2013. The Company has the right to
renew the lease for one additional period of ten years. The Company also has
an option to purchase these facilities in 2005 (and again in 2010) at the fair
market value of the properties at the date of exercise. For accounting
purposes, this lease has been treated as a capital lease. See Notes 6 and 11
of Notes to Consolidated Financial Statements set forth in Item 8 below.
The Telford, England and Covington, Kentucky manufacturing and
distribution facilities are owned by the Company. The Covington, Kentucky
facility has been financed principally through tax-exempt debt and is pledged
to secure the repayment of such debt. See Note 6 of Notes to Consolidated
Financial Statements set forth in Item 8 below.
The Florence, Kentucky facility, the Mexico City, Mexico facility and the
distribution facility at Neenah, Wisconsin are leased. The Company also
leases sales offices, other manufacturing, distribution and administrative
facilities and, on a temporary basis, uses public warehouse space in various
locations throughout the United States. The Paper Factory leases
approximately 180 stores averaging approximately 3,000 to 4,000 square feet
per store. Certain of these leases contain contingent payments based upon
individual store sales. Leases for all such facilities expire at various
dates through 2005.
The Company believes that its facilities are adequate for its present
needs and that its properties, including machinery and equipment, are
generally in good condition, well maintained and suitable for their intended
uses.
PAGE
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Item 3. Legal Proceedings
In July 1994, immediately following the Company's announcement of an
inventory misstatement at Cleo, which resulted in an overstatement of the
Company's previously reported 1993 consolidated net income, five purported
class actions were commenced by certain stockholders. These suits were
consolidated and a Consolidated Amended Class Action Complaint against the
Company, its then Chairman, President and Chief Executive Officer, its Chief
Financial Officer and the former President and Chief Executive Officer of Cleo
was filed in October 1994 in the United States District Court for the Southern
District of Ohio (In Re Gibson Securities Litigation). In December 1994 the
Court ruled that neither of the two named plaintiffs qualified as a class
representative. Plaintiffs have filed an Amended Complaint naming a proposed
substitute class representative, and a motion to certify a class, which the
Company opposes, is pending. Like its predecessors in this litigation, the
most recent complaint alleges violations of the federal securities laws and
seeks unspecified damages for an asserted public disclosure of false
information regarding the Company's earnings. The Company intends to defend
the suit vigorously and has filed an Answer denying any wrongdoing and a Third
Party Complaint against its former auditor for contribution against any
judgment adverse to the Company.
On April 10, 1995, two purported class action lawsuits were commenced
against the Company, its then Chairman, President and Chief Executive Officer
and its Chief Financial Officer in the United States District Court for the
Southern District of Ohio. The Complaints alleged violations of the federal
securities law for an asserted failure to disclose allegedly material
information regarding the Company's financial performance. On August 1, 1995,
the two lawsuits were consolidated and captioned In Re Gibson Greetings
Securities Litigation II. On August 9, 1995, the plaintiffs filed a
Consolidated Amended Class Action Complaint which restated the basic claims
which had been presented in the original complaints. The Court has denied, at
this stage, the Company's motion to dismiss the Consolidated Amended Complaint
and also has conditionally denied the plaintiffs' motion to certify a class
for purposes of class action treatment of the litigation. The Court will
reconsider the class action certification motion at the conclusion of
discovery. The Company intends to defend the action vigorously.
The litigation described in the two preceding paragraphs is in early
stages of proceedings. Accordingly, the Company presently is unable to
predict the effect of the ultimate resolutions of these matters upon the
Company's results of operations and cash flows; as of this date, however,
Management does not expect that such resolutions would result in a material
adverse effect upon the Company's total net worth, although a substantially
unfavorable outcome could be material to such net worth.
PAGE
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On March 6, 1996, two purported class actions were filed against the
Company's directors (as well as certain former directors) and the Company in
the New Castle County, Delaware Court of Chancery (Crandon Capital Partners v.
Cooney, et al. and Weiss v. Lindberg, et al.). The Complaints allege that the
individual defendants breached their fiduciary duties to the plaintiffs by
refusing to negotiate in response to an acquisition proposal for the Company
by American Greetings Corporation. The Complaints seek to require the
directors to do a number of things, including pursuing merger or acquisition
discussions with American Greetings and others. The Complaints also seek
unspecified damages against those directors. On March 20, 1996, a third
action, Krim, et al. v. Pezzillo, et al., was filed in the same court. While
it generally follows the allegations and demands of the other two Complaints,
it specifically seeks injunctive relief against the exercise of the shareholder
rights plan that has been a part of the Company's corporate governance for
nearly ten years. While the Company is a named defendant in all three
actions, none of the Complaints appears to seek any other specific relief
against the Company. The defendants intend to defend the suits vigorously.
In 1989, unfair labor practice charges were filed against the Company as
an outgrowth of a strike at its Berea, Kentucky facility. Remedies sought
included back pay from August 8, 1989 and reinstatement of employment for
approximately 200 employees (In the Matter of Gibson Greetings, Inc. and
International Brotherhood of Firemen and Oilers, AFL-CIO Cases 9-CA-26706,
27660, 26875). On May 19, 1995, a unanimous panel of the United States Court
of Appeals for the District of Columbia Circuit found that the strike was not
an unfair labor practice strike and that a significant number of strikers had
been permanently replaced and thus were not entitled to reinstatement or back
pay. The Court remanded the case to the National Labor Relations Board for a
factual determination on the issue of permanency with respect to approximately
52 replacements hired after June 29, 1989. Management does not believe that
the outcome of this matter will result in a material adverse effect on the
Company's net worth, total cash flows or operating results.
In addition, the Company is a defendant in certain other routine
litigation which is not expected to result in a material adverse effect on the
Company's net worth, total cash flows or operating results.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
See Item 10. Directors and Executive Officers of the Registrant.
PAGE
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Company's debt agreements contain certain covenants including
limitations on dividends based on a formula related to net income (loss),
stock sales and certain restricted investments. At December 31, 1995,
primarily as a result of the loss on the sale of Cleo (see Note 13 of Notes to
Consolidated Financial Statements set forth in Item 8, below), there were no
unrestricted retained earnings available for dividends. There were
approximately 11,000 beneficial owners of the Company's common stock on
February 29, 1996.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1995
- -------------------
Dividends per share $ - $ - $ - $ - $ -
Market price of
common stock (1):
Low 8 1/16 9 3/8 12 1/2 13 1/4 8 1/16
High 15 3/32 14 1/8 15 1/2 16 16
1994
- -------------------
Dividends per share
Market price of $0.10 $0.10 $0.10 $0.10 $0.40
common stock (1):
Low 20 7/8 15 5/8 13 3/8 12 3/4 12 3/4
High 23 5/8 21 5/8 17 16 1/8 23 5/8
</TABLE>
[FN]
(1) Per share prices are based on the closing price as quoted
in the Nasdaq National Market.
PAGE
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Item 6. Selected Financial Data
The following summaries set forth selected financial data for the Company
for each of the five years in the period ended December 31, 1995. Selected
financial data should be read in conjunction with the Consolidated Financial
Statements set forth in Item 8 below.
<TABLE>
<CAPTION>
Statement of Operations Data
(Dollars and shares in thousands except per share amounts)
Years Ended December 31,
--------------------------------------------------------
1995 1994 1993(1) 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales $540,145 $548,042 $546,165 $484,118 $522,166
Royalty income 676 753 761 1,705 2,148
-------- -------- -------- -------- --------
Total revenues 540,821 548,795 546,926 485,823 524,314
-------- -------- -------- -------- --------
Cost of products
sold 268,702 310,039 277,109 247,340 252,217
Selling,
distribution and
administrative
expenses 239,922 276,147 227,863 218,642 194,872
Loss on sale of
Cleo, Inc. 83,012 - - - -
-------- -------- -------- -------- --------
Operating income
(loss) (50,815) (37,391) 41,954 19,841 77,225
Interest expense 13,178 10,599 7,737 7,803 9,380
Interest income (915) (765) (949) (1,023) (342)
(Gain) loss on
derivative
transactions/
settlement, net - (1,641) 5,689 - -
-------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect
of accounting
changes (63,078) (45,584) 29,477 13,061 68,187
Income taxes (16,589) (16,981) 14,209 5,076 26,303
-------- -------- -------- -------- --------
Income (loss) before
cumulative effect
of accounting
changes (46,489) (28,603) 15,268 7,985 41,884
Cumulative effect
of accounting
changes - - - (1,449) -
-------- -------- -------- -------- --------
Net income (loss) $(46,489) $(28,603) $ 15,268 $ 6,536 $ 41,884
======== ======== ======== ======== ========
Income (loss)
per share
before cumulative
effect of
accounting
changes $ (2.86) $ (1.77) $ 0.95 $ 0.50 $ 2.61
======== ======== ======== ======== ========
Net income (loss)
per share $ (2.86) $ (1.77) $ 0.95 $ 0.41 $ 2.61
======== ======== ======== ======== ========
Dividends
per share $ - $ 0.40 $ 0.40 $ 0.39 $ 0.36
======== ======== ======== ======== ========
Average common
shares and
equivalents 16,243 16,130 16,103 16,104 16,039
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Other Financial Data
(Dollars in thousands except per share amounts)
December 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Working capital $106,284 $151,128 $209,209 $224,261 $215,011
Plant and
equipment, net 90,813 119,491 116,900 112,712 110,769
Total assets 425,827 612,195 572,459 501,104 544,261
Debt due within
one year (2) 28,894 117,114 66,187 31,911 71,208
Long-term debt 46,533 63,233 74,365 70,175 71,079
Stockholders'
equity 230,242 277,500 313,097 303,341 300,743
Book value per share 14.31 17.24 19.50 18.92 18.86
Capital
expenditures 19,872 35,396 31,049 30,970 31,736
</TABLE>
[FN]
(1) The full year results for 1993 have been restated to correct the Cleo
inventory overstatement and to record unrealized net losses on derivative
transactions (Refer to Note 1 of Notes to Consolidated Financial Statements in
Item 8 below). The Cleo inventory restatement reduced income before income
taxes for 1993 by $8,806. The derivatives' net impact on income before income
taxes was a reduction of $5,689 for 1993. The aggregate effect of these
changes was to reduce net income by $10,584, and to reduce net income per
share by $.66.
(2) Includes the current portion of long-term debt which consisted of
$9,894 in 1995, $11,164 in 1994, $3,917 in 1993, $1,811 in 1992, and $708 in
1991.
PAGE
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
In mid-November 1995, the Company sold Cleo, its wholly-owned gift wrap
subsidiary. In addition to gift wrap and related products, Cleo manufactured
and sold Christmas cards and Valentines. Net sales by Cleo included in the
consolidated financial statements for each of the three years ended December
31, 1995 were $151.9 million, $189.3 million and $197.8 million, respectively.
The results of operations for 1995 included Cleo's results of operations
through the date of sale and reflect the loss on the sale of Cleo of $54.5
million, net of tax benefit of $28.5 million. For comparative purposes, the
discussion below presents results of operations for the year ended December
31, 1995 on a pro forma basis, excluding Cleo, as well as on an historical
basis. See Note 14 of Notes to Consolidated Financial Statements set forth in
Item 8, below, for certain comparative pro forma and historical data for 1995
and 1994.
As announced on July 1, 1994, the Company determined that the inventory
of Cleo had been overstated, resulting in an overstatement of the Company's
previously reported 1993 consolidated net income. As a result of this
overstatement, as well as the accrual of an unrealized market value net loss
on certain derivative transactions which did not qualify as hedges, it was
necessary for the Company to amend and restate its consolidated financial
statements for the third quarter ended September 30, 1993, the fourth quarter
ended December 31, 1993, the twelve months ended December 31, 1993 and for the
first quarter ended March 31, 1994. The adjustments made are described in
Note 1 of Notes to Consolidated Financial Statements set forth in Item 8,
below, and should be reviewed in conjunction with the discussions of "Results
of Operations" and "Liquidity and Capital Resources" presented below.
Pro Forma Results of Operations - Year Ended December 31, 1995 Compared
With Year Ended December 31, 1994
Pro forma revenues increased 8.2% to $388.9 million compared to pro forma
revenues of $359.4 million in 1994. The increase in pro forma revenues was
largely attributable to increased revenues at the Card Division, reflecting
increased average prices partially offset by a modest decline in units sold.
Additionally, revenues at The Paper Factory and Gibson International increased
in 1995. Consistent with general industry practice, the Company allows
customers to return for credit certain seasonal and everyday greeting cards.
Also, consistent with general industry practice, and where deemed prudent to
secure substantial long-term volume commitments, the Company enters into
long-term sales contracts with certain retailers, some of which include
advance payments. Pro forma returns and allowances were 18.2% in 1995
compared to 22.7% in 1994. The decrease in 1995 reflects a decrease in
customer allowances, seasonal and everyday returns and long-term sales
contract amortization. In 1994, $6.3 million of unamortized long-term sales
contracts were charged to returns and allowances as a result of the bankruptcy
of F&M Distributors ("F&M"). There were no similar charges incurred in 1995.
Pro forma royalty income of $.7 million was comparable to 1994.
PAGE
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Total pro forma operating expenses were $350.4 million or 90.1% of total
pro forma revenues in 1995 compared to $371.2 or 103.3% in 1994. Pro forma
cost of products sold was 38.2% of total pro forma revenues in 1995 compared
to 41.6% in 1994. The decrease in 1995 compared to 1994 reflects lower
average unit cost. Paper price increases have been offset to date by a
combination of supply commitments, increased product selling prices and
improved productivity. Pro forma selling, distribution and administrative
expenses were 51.9% of total revenues in 1995 compared to 61.7% in 1994. The
decrease in 1995 pro forma expenses, as a percentage of total pro forma
revenues, reflected the positive results from the implementation of cost
cutting measures and other initiatives at the end of 1994. Decreases are
reflected in lower selling and marketing costs ($15.2 million), transportation
costs ($1.7 million), and shipping costs ($.9 million) as well as a decrease
in bad debts expense of $6.0 million. Additionally, the pro forma expenses in
1994 include the write-off of trade receivables and fixtures due to the F&M
bankruptcy as well as workforce reduction costs at the Card Division totaling
$11.6 million. There were no similar charges in 1995. In view of the
continuing poor economic conditions and devaluation of the peso in Mexico, the
Company recorded a full reserve against its Mexican subsidiary totaling $2.0
million during the fourth quarter of 1995.
Pro forma financing and derivative transaction expenses were $8.6 million
in 1995 compared to $4.8 million in 1994. Included in 1994 pro forma expenses
was a derivative gain of $1.6 million.
Pro forma income before income taxes was $29.9 million in 1995 compared
to a pro forma loss of $16.6 million in 1994 while the pro forma effective
income tax rate for 1995 was 45.5% compared to 41.7% in 1994. See Notes 1 and
7 of Notes to Consolidated Financial Statements set forth in Item 8, below.
Pro forma net income was $16.3 million in 1995 compared to a pro forma
net loss of $9.7 million in 1994.
The Company attempts to minimize the impact of inflation by controlling
its cost of raw materials, labor and other expenses, and pricing its products
in light of general economic conditions.
PAGE
<PAGE>
Results of Operations - Year Ended December 31, 1995 Compared With Year
Ended December 31, 1994
Revenues decreased 1.5% to $540.8 million compared to $548.8 million in
1994. The decrease was principally attributable to Cleo's results of
operations through November 14, 1995 partially offset by increases in revenues
at the Card Division, The Paper Factory and Gibson International. Returns and
allowances were 14.4% in 1995 compared to 17.3% in 1994. The decline reflects
a decrease in customer allowances, seasonal and everyday returns and long-term
sales contract amortization. In 1994 $6.3 million of unamortized long-term
sales contracts were charged to returns and allowances as a result of the
bankruptcy of F&M. There were no similar charges incurred in 1995.
Total operating expenses were $591.6 million or 109.4% of total revenues
in 1995 compared to $586.2 million or 106.8% in 1994. Total operating
expenses for 1995 include the pretax loss on the sale of Cleo of $83.0 million
($54.5 million net of tax benefit). Cost of products sold was 49.7% of total
revenues in 1995 compared to 56.5% in 1994. The decrease in 1995 compared to
1994 was primarily due to a one-time charge in 1994 of approximately $8.0
million as a result of extensive review of inventory at Cleo. Additionally,
the decrease reflects lower average unit cost of product at the Card Division.
Selling, distribution and administrative expenses were 44.4% of total revenues
in 1995 compared to 50.3% in 1994. The decline in the 1995 expenses, as a
percentage of total revenues, reflected the positive results from the
implementation of cost cutting measures and other initiatives at the end of
1994. Decreases are reflected in lower selling and marketing costs ($19.6
million), transportation costs ($7.1 million), shipping costs ($5.9 million)
and pension expense ($1.3 million). These were slightly offset by an increase
in administrative expenses ($3.3 million). Bad debt expense in 1995 decreased
$7.3 million. Bad debt expense in 1994 included a write-off of trade
receivables of $7.3 million due to the F&M bankruptcy. Additionally, the
write-off of fixtures of $2.6 million due to the F&M bankruptcy, and workforce
reduction costs of $1.7 million at the Card Division are reflected as one-time
charges in selling, distribution and administrative expenses in 1994. In view
of the continuing poor economic conditions and devaluation of the peso in
Mexico, the Company recorded a full reserve against its Mexican subsidiary
totaling $2.0 million during the fourth quarter of 1995.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121 - "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of " for the year ended December 31, 1995.
The effect of the adoption of this standard on the consolidated financial
statements was not material.
Financing and derivative transaction expenses were $12.3 million in 1995
compared to $8.2 million in 1994. Included in 1994 expenses was a derivative
gain of $1.6 million.
Loss before income taxes was $63.1 million in 1995 compared to a loss of
$45.6 million in 1994 while the effective income tax rate for 1995 was 26.3%
compared to 37.2% in 1994. See Notes 1 and 7 of Notes to Consolidated
Financial Statements set forth in Item 8, below.
PAGE
<PAGE>
Net loss was $46.5 million in 1995 compared to a net loss of $28.6
million in 1994. The 1995 net loss includes an after-tax charge of $54.5
million related to the sale of Cleo.
Results of Operations - Year Ended December 31, 1994 Compared With Year
Ended December 31, 1993
The Company's 1994 results of operations were adversely affected by
charges for inventory adjustments and sales returns and allowances, highly
competitive pricing conditions and high product and distribution costs at Cleo
combined with the bankruptcy filing of F&M, and competitive pricing pressures
at the Card Division.
Revenues increased 0.3% to $548.8 million compared to 1993. The slight
increase in revenues was attributable to the Company's retail subsidiary,
reflecting a full year of operations by The Paper Factory (acquired in June
1993). This revenue gain was substantially offset by declines in revenues at
both the Card Division and Cleo. These declines resulted from increased
competitive pressure as well as increased allowances related to current and
prior year sales. Returns and allowances were 17.3% in 1994 compared to 13.3%
in 1993. The increase in 1994 reflects a charge of $6.3 million of
unamortized long-term sales contracts as a result of the F&M bankruptcy to
returns and allowances. The 1994 increase also reflects a change in product
mix between seasonal and everyday sales combined with increased customer
allowances due to competitive pressure and costs associated with new
customers. Royalty income of $.8 million was comparable to 1993.
Total operating expenses were $586.2 million or 106.8% of total revenues
in 1994 compared to 92.3% in 1993. Cost of products sold was 56.5% of total
revenues in 1994 compared to 50.7% in 1993. The increase in 1994 compared to
1993 reflected continued pricing pressures and increased customer allowances,
primarily at the Card Division and Cleo. In addition, the increase in 1994
over 1993 reflected a one-time charge of approximately $8.0 million as a
result of extensive review of inventory at Cleo. Selling, distribution and
administrative expenses were 50.3% of total revenues in 1994 compared to 41.7%
in 1993. The increase in the 1994 expenses, as a percentage of total
revenues, reflected the write-off of trade receivables and fixtures due to the
F&M bankruptcy of $7.3 million and $2.6 million, respectively, and workforce
reduction costs of $1.7 million at the Card Division. In addition, higher
shipping costs ($6.9 million), other bad debt expenses ($3.2 million), the
full year impact of The Paper Factory ($12.1 million), and increased selling
and marketing costs, primarily associated with new customers ($10.9 million),
contributed to this increase.
Financing and derivative transaction expenses were $8.2 million in 1994
compared to $12.5 million in 1993. During 1994, the Company settled its
lawsuit against Bankers Trust and recorded a gain for the year of $1.6 million
representing the impact of settling the lawsuit net of previously recorded
gains on these derivative transactions. Higher interest rates combined with
higher average borrowings, largely resulting from the acquisition of The Paper
Factory, as well as higher working capital levels, resulted in an increase in
interest expense, net.
PAGE
<PAGE>
Loss before income taxes was $45.6 million in 1994 compared to income of
$29.4 million in 1993. The effective income tax rate for 1994 was 37.2%
compared to 48.2% in 1993. See Notes 1 and 7 of Notes to Consolidated
Financial Statements set forth in Item 8, below.
During 1994, the Company adopted SFAS No. 112 - "Employers' Accounting
for Postemployment Benefits" retroactive to January 1, 1994. The charges
associated with the adoption were not material to the Company's consolidated
results and have been included in the 1994 results.
Net loss was $28.6 million in 1994 compared to net income of $15.3
million in 1993.
Liquidity and Capital Resources
Cash flows from operating activities for 1995 increased $51.6 million
from 1994 to $45.2 million, compared to a decrease of $38.0 million in 1994
from 1993 and a decrease of $43.3 million in 1993 from 1992. The increase in
1995 was primarily the result of improved cash flow from on-going operations
and a substantial reduction in trade receivables. These cash flow increases
were partially offset by cash used in connection with a decrease in
accruals for customer allowances and sales agreement payments due within one
year and the increase in tax benefits associated with the loss on the sale of
Cleo. The decrease in trade receivables from prior year reflects the
disposition of Cleo. Cleo historically comprised the largest percentage of
trade receivables at year end for the Company. The smaller increase in other
assets reflects a lower increase in sales contracts in 1995 compared to 1994
while the decline in other current liabilities reflects payments to customers
under contracts, principally negotiated in 1994 and 1995.
Cash used in investing activities for plant and equipment purchases
totaled $19.9 million in 1995 compared to $35.4 million and $31.0 million in
1994 and 1993, respectively. Plant and equipment purchases do not include
assets acquired under capital lease obligations. During 1995, the Company
renegotiated its long-term agreement for certain of its principal facilities
resulting in the recording of a capital lease. See Note 11 of Notes to
Consolidated Financial Statements set forth in Item 8, below.
Cash used in financing activities in 1995 was $109.1 million compared to
cash provided by financing activities of $34.1 million and $23.7 million in
1994 and 1993, respectively. The 1995 decrease in short-term borrowings
resulted from the repayment of short-term debt with the proceeds from the sale
of Cleo as well as improved cash flow from operations resulting in a decrease
in the need for short-term financing. The 1994 increase in short-term
borrowings reflected higher working capital requirements combined with
payments under customer agreement contracts. Long-term debt decreased in 1995
primarily reflecting the partial redemption of senior notes with the proceeds
from the sale of Cleo. Long-term debt decreased in 1994 reflecting current
year debt payments and increased in 1993 due to the issuance of unsecured
notes to the former shareholders of The Paper Factory, payable over four
years.
PAGE
<PAGE>
The Company is currently negotiating a new revolving credit facility to
replace the existing facility due to expire in late April 1996. Management
believes that it will be able to consummate this facility to provide funds for
general corporate purposes. If consummated, the Company expects that the
facility will have a duration of 364 days and will provide for borrowings
in an amount adequate for the Company's needs over the term of the facility.
The Company is required to maintain a specified level of consolidated net
worth (as defined) pursuant to the terms of its revolving credit facility. As
a result of the sale of Cleo, the Company was unable to maintain the specified
level and therefore obtained an amendment to the revolving credit agreement
which adjusted the required consolidated net worth. In addition, the Company
sought and received waivers under the revolving credit agreement and its
senior notes that permitted the Company to sell Cleo and to accept a
short-term promissory note for a portion of the purchase price. The proceeds
of the note were received on January 29, 1996.
With the sale of Cleo, the Company anticipates significantly lower
short-term borrowing requirements in 1996 compared with the Company's
historical levels. Capital expenditures for 1996 are expected to be
consistent with historical trends for the remaining operating units. The note
receivable from CSS at December 31, 1995 was collected on January 29, 1996 and
short-term debt at December 31, 1995 was repaid by mid January utilizing cash
flow from operations and proceeds from the sale of Cleo. At February 29,
1996, the Company held short-term investments in excess of normal operating
cash needs of approximately $45.3 million. Management believes that its cash
flows from operations and credit sources will provide adequate funds, both on
a short-term and on a long-term basis, for currently foreseeable debt
payments, lease commitments and payments under existing customer agreements,
all of which total approximately $10.3 million to $32.5 million per year for
the next five years, as well as for financing existing operations, currently
projected capital expenditures, anticipated long-term sales agreements
consistent with industry trends and other contingencies.
The Company continues to face strong competitive pressures with regard to
pricing and other terms of sales. During 1994, Wal-Mart Stores, Inc.
(Wal-Mart) completed a review which recognized that the Company represented a
small percentage of their store greeting card departments and began reducing
the number of such departments carrying the Company's cards during 1995.
Wal-Mart indicated that it intends to progressively phase out the remaining
card departments represented by the Company beyond 1995. Approximately 60% of
the Company's business with Wal-Mart had been through Cleo. In 1995 and 1994,
Wal-Mart accounted for approximately 6% and 7%, respectively, of the Company's
revenues, excluding Cleo. In 1996, revenues attributed to Wal-Mart are
anticipated to be less than 2% of the Company's revenues.
Management does not believe that there are any trends, events,
commitments or uncertainties, except for previously disclosed items (see also
Item 3. Legal Proceedings), and aside from normal seasonal fluctuations and
general industry competitive conditions, that should be expected to have a
material effect on the results of operations, financial condition, liquidity,
or capital resources of the Company.
PAGE
<PAGE>
Except for the historical information contained herein, the matters
discussed in this annual report are forward-looking statements which involve
risks and uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices.
For additional financial information see Consolidated Financial
Statements and Notes to Consolidated Financial Statements set forth in Item 8,
below.
PAGE
<PAGE>
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Gibson Greetings, Inc.
Consolidated Statements of Operations
Years Ended December 31, 1995, 1994 and 1993
(Dollars in thousands except per share amounts)
Restated
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Net sales $ 540,145 $ 548,042 $ 546,165
Royalty income 676 753 761
--------- --------- ---------
Total revenues 540,821 548,795 546,926
--------- --------- ---------
Costs and expenses:
Operating expenses:
Cost of products sold 268,702 310,039 277,109
Selling, distribution and
administrative expenses 239,922 276,147 227,863
Loss on sale of Cleo, Inc. 83,012 - -
--------- --------- ---------
Total operating expenses 591,636 586,186 504,972
--------- --------- ---------
Operating income (loss) (50,815) (37,391) 41,954
--------- --------- ---------
Financing and derivative
transaction expenses:
Interest expense 13,178 10,599 7,737
Interest income ( 915) (765) (949)
(Gain) loss on derivative
transactions/settlement, net - (1,641) 5,689
--------- --------- ---------
Total financing and derivative
transaction expenses, net 12,263 8,193 12,477
--------- --------- ---------
Income (loss) before income taxes (63,078) (45,584) 29,477
Income taxes (16,589) (16,981) 14,209
--------- --------- ---------
Net income (loss) $ (46,489) $ (28,603) $ 15,268
========= ========= =========
Net income (loss) per share $ (2.86) $ (1.77) $ 0.95
========= ========= =========
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
<TABLE>
<CAPTION>
Gibson Greetings, Inc.
Consolidated Balance Sheets
December 31, 1995 and 1994
(Dollars in thousands except per share amounts)
1995 1994
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 15,555 $ 2,000
Note receivable 24,574 -
Trade receivables, net 46,620 197,799
Inventories 68,303 127,460
Income taxes receivable 10,698 -
Prepaid expenses 4,054 5,719
Deferred income taxes 45,011 48,775
--------- ---------
Total current assets 214,815 381,753
Plant and equipment, net 90,813 119,491
Deferred income taxes 14,745 8,080
Other assets, net 105,454 102,871
--------- ---------
$ 425,827 $ 612,195
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Debt due within one year $ 28,894 $ 117,114
Accounts payable 7,995 21,779
Income taxes payable - 4,742
Other current liabilities 71,642 86,990
--------- ---------
Total current liabilities 108,531 230,625
Long-term debt 46,533 63,233
Sales agreement payments due
after one year 18,564 21,107
Other liabilities 21,957 19,730
--------- ---------
Total liabilities 195,585 334,695
--------- ---------
Stockholders' Equity:
Preferred stock, par value $1.00;
5,000,000 shares authorized,
none issued - -
Preferred stock, Series A, par
value $1.00; 300,000 shares
authorized, none issued - -
Common stock, par value $.01;
50,000,000 shares authorized,
16,585,130 and 16,579,530
shares issued, respectively 166 166
Paid-in capital 46,041 45,992
Retained earnings 191,793 238,282
Foreign currency adjustment (1,807) (1,000)
--------- ---------
236,193 283,440
--------- ---------
Less treasury stock, at cost,
494,601 and 483,701 shares,
respectively 5,951 5,940
--------- ---------
Total stockholders' equity 230,242 277,500
--------- ---------
Commitments and contingencies
(Notes 11 and 12)
$ 425,827 $ 612,195
========= =========
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
<TABLE>
<CAPTION>
Gibson Greetings, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
Restated
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (46,489) $ (28,603) $ 15,268
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and write-down of
display fixtures 26,896 26,150 22,688
Loss on disposal of plant
and equipment 5,492 5,957 5,817
Loss on sale of Cleo, Inc. 83,012 - -
(Gain) loss on derivative
transactions, net - (1,641) 5,689
Deferred income taxes (2,901) (19,205) (8,909)
Amortization of deferred costs
and intangibles and write-
down of deferred costs 23,590 31,155 19,547
Change in assets and liabilities:
(Increase) decrease in trade
receivables, net 17,820 (5,636) (22,529)
(Increase) decrease in inventories 2,821 (2,322) 1,843
Increase in income taxes receivable (10,698) - -
(Increase) decrease in
prepaid expenses 221 (1,512) 286
Increase in other assets,
net of amortization (27,260) (47,102) (25,999)
Increase (decrease) in
accounts payable (2,617) 2,944 2,579
Increase (decrease) in
income taxes payable (4,742) (8,329) 3,014
Increase (decrease) in other
current liabilities (19,267) 26,511 6,603
Increase (decrease )
in other liabilities (316) 16,053 5,696
All other, net (379) (850) (22)
--------- --------- ---------
Total adjustments 91,672 22,173 16,303
--------- --------- ---------
Net cash provided by (used in)
operating activities 45,183 (6,430) 31,571
--------- --------- ---------
Cash flows from investing activities:
Purchase of plant and equipment (19,872) (35,396) (31,049)
Proceeds from sale of
plant and equipment 926 289 550
Proceeds from sale of Cleo, Inc.,
net of escrow amount 96,437 - -
Acquisition of The Paper Factory
of Wisconsin, Inc.,
net of cash acquired - - (24,782)
--------- --------- ---------
Net cash provided by (used in)
investing activities 77,491 (35,107) (55,281)
--------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in
short-term borrowings (86,950) 43,680 23,062
Issuance of long-term debt - - 8,075
Payments on long-term debt (22,207) (3,917) (1,811)
Issuance of common stock 49 784 773
Acquisition of common stock
for treasury (11) (52) -
Dividends paid - (6,435) (6,417)
--------- --------- ---------
Net cash provided by (used in)
financing activities (109,119) 34,060 23,682
--------- --------- ---------
Net increase (decrease) in
cash and equivalents 13,555 (7,477) (28)
Cash and equivalents at beginning of year 2,000 9,477 9,505
--------- --------- ---------
Cash and equivalents at end of year $ 15,555 $ 2,000 $ 9,477
========= ========= =========
Supplemental disclosure of
cash flow information:
Cash paid during the year for:
Interest $ 10,489 $ 9,325 $ 7,544
Income taxes 1,751 10,240 20,243
Noncash investing and
financing activities:
Purchase of plant and equipment
through capital lease obligation 19,160 - -
Note received in connection with
the sale of Cleo, Inc. 24,574 - -
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
<TABLE>
<CAPTION>
Gibson Greetings, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1995, 1994 and 1993
(Dollars in thousands except per share amounts)
Restated
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Common stock, par value $.01:
Balance at beginning of year $ 166 $ 165 $ 165
Exercise of stock options - 1 -
--------- --------- ---------
166 166 165
--------- --------- ---------
Paid-in capital:
Balance at beginning of year 45,992 45,209 44,436
Restricted stock 49 783 773
--------- --------- ---------
46,041 45,992 45,209
--------- --------- ---------
Retained earnings:
Balance at beginning of year 238,282 273,320 264,469
Net income (loss) (46,489) (28,603) 15,268
Cash dividends paid ($.40 and
$.40 per share in 1994 and
1993, respectively) - (6,435) (6,417)
--------- --------- ---------
191,793 238,282 273,320
--------- --------- ---------
Foreign currency translation adjustment:
Balance at beginning of year (1,000) 291 159
Aggregate adjustments resulting
from translation of financial
statements into U.S. dollars (807) (1,291) 132
--------- --------- ---------
(1,807) (1,000) 291
--------- --------- ---------
Less treasury stock, at cost:
Balance at beginning of year 5,940 5,888 5,888
Common stock acquired 11 52 -
--------- --------- ---------
5,951 5,940 5,888
--------- --------- ---------
Total stockholders' equity $ 230,242 $ 277,500 $ 313,097
========= ========= =========
</TABLE>
PAGE
<PAGE>
Gibson Greetings, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share amounts)
Note 1--Nature of Business and Statement of Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of Gibson
Greetings, Inc. and its wholly-owned and majority-owned subsidiaries (the
Company). All material intercompany transactions have been eliminated.
Nature of business
The Company operates in a single industry segment: the design,
manufacture and sale of greeting cards, gift wrap and related products. The
Company sells to customers in several channels of the retail trade principally
located in the United States. The Company recognizes sales at the time of
shipment from its facilities. Provisions for sales returns are recorded at
the time of the sale, based upon current conditions and the Company's historic
experience. To minimize disruptions, in the short-term, caused by the loss of
a customer, the Company has entered into longer term contracts with certain
retailers, consistent with general industry practice. These contracts
generally have terms ranging from three to six years, and sometimes specify a
minimum sales volume commitment. In certain of these contracts, negotiated
cash payments or credits constitute advance discounts against future sales.
These payments are capitalized and amortized over the initial term of the
contract. In the event of contract default by a retailer, such as bankruptcy
or liquidation, a contract may be deemed impaired and unamortized amounts may
be charged against operations immediately following the default. The Company
conducts business based upon periodic credit evaluations of its customers'
financial condition and generally does not require collateral. The Company
does not believe a concentration of business risk exists due to the diversity
of channels of distribution and geographic location of its retail customers;
however, the Company does believe it has certain risks related to up-front
payments on long-term customer sales agreements. As further discussed in Note
13, the Company sold Cleo, Inc. (Cleo), its wholly-owned gift wrap
subsidiary, to CSS Industries, Inc. in mid-November 1995. In addition to gift
wrap and related products, Cleo manufactured and sold boxed Christmas cards
and Valentines. Prior to the sale of Cleo, one customer in 1995 accounted for
more than 10% of total revenues; however, on a pro forma basis, without Cleo,
the Company's largest customer accounted for approximately 13% of total
revenues. During each of the years ended December 31, 1994 and 1993, the
Company's largest customer accounted for approximately 12% of total revenues.
PAGE
<PAGE>
Retail Operations
On June 1, 1993, the Company acquired The Paper Factory of Wisconsin,
Inc. (The Paper Factory) for $25,100 in a business combination accounted for
as a purchase. The Paper Factory operates retail stores located primarily in
manufacturers' outlet shopping centers. The results of The Paper Factory are
included in the consolidated financial statements since the date of
acquisition. The total cost of the acquisition exceeded the fair value of the
net assets of The Paper Factory by $26,200. In connection with the
acquisition, the Company assumed liabilities of approximately $11,600.
International Operations
Gibson de Mexico, S.A. de C.V. (Gibson de Mexico) is primarily engaged
in the manufacturing and marketing of greeting cards. Minority stockholders
of Gibson de Mexico are principal officers of Gibson de Mexico. The total
cost of the acquisition exceeded the fair value of the net assets by $583. In
view of the continuing poor economic conditions and devaluation of the peso in
Mexico, the Company fully reserved its investment in Gibson de Mexico totaling
approximately $2,000 during the fourth quarter of 1995.
Gibson Greetings International Limited (Gibson International) markets the
Company's products primarily in the United Kingdom and other European
countries. The minority stockholders of Gibson International are principal
officers of Gibson International.
The activities of these subsidiaries were not material to consolidated
operations in 1995, 1994 and 1993.
Cash and equivalents
Cash and equivalents are stated at cost. Cash equivalents include time
deposits, money market instruments and short-term debt obligations with
original maturities of three months or less. The carrying amount approximates
fair value because of the short maturity of these instruments.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Plant and equipment
Plant and equipment are stated at cost. Plant and equipment, except for
leasehold improvements, are depreciated over their related estimated useful
lives, using the straight-line method. Generally, buildings are depreciated
over 15 years; machinery and equipment are depreciated over 3 to 11 years; and
display fixtures are depreciated over 5 years. Leasehold improvements are
amortized over the terms of the respective leases (see Note 11), using the
straight-line method. Expenditures for maintenance and repairs are charged to
operations currently; renewals and betterments are capitalized.
PAGE
<PAGE>
Other assets
Other assets include deferred and prepaid costs, goodwill and other
intangibles. Deferred and prepaid costs principally represent costs incurred
relating to long-term customer sales agreements. Deferred and prepaid costs
are amortized ratably over the terms of the agreements, generally three to six
years. Goodwill and other intangibles are amortized over periods ranging from
three to twenty years, using the straight-line method. Accumulated goodwill
amortization at December 31, 1995 and 1994 were $4,367 and $3,926,
respectively. The realizability of goodwill and other intangibles is
evaluated periodically as events or circumstances indicate a possible
inability to recover their carrying amount.
Accounting for Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" for the year ended December 31, 1995.
The statement requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. SFAS No. 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The effect of the
adoption of this standard on the consolidated financial statements was not
material.
Income taxes
Deferred taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax bases of assets and
liabilities given the provisions of currently enacted tax laws. Investment
tax credits are amortized to income over the lives of the related assets.
Interest rate swap agreements
The difference between the amount of interest to be paid and the amount
of interest to be received under interest rate swap agreements (used for
hedging purposes) due to changing interest rates is charged or credited to
interest expense over the life of the agreements. Interest rate swap and
derivative transactions that did not qualify as hedges were recorded at their
fair value. The fair value of interest rate swaps and derivative transactions
is the estimated amount that the Company would receive or pay to terminate the
swap agreements at the reporting date as determined by a financial
institution's valuation model based on the projected value of the transactions
at maturity.
PAGE
<PAGE>
Postemployment Benefits
Effective January 1, 1994, the Company adopted SFAS No. 112 - "Employers'
Accounting for Postemployment Benefits." The statement requires accrual
accounting for benefits provided to former or inactive employees after
employment but before retirement. The Company previously accounted for a
certain portion of these postemployment benefits on a pay-as-you-go-basis.
Adoption of SFAS No. 112 did not have a material effect on the consolidated
financial statements of the Company.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" is effective for
years beginning after December 15, 1995. This statement establishes financial
accounting and disclosure standards for stock-based employee compensation
plans. SFAS No. 123 requires that an employer's financial statements include
certain disclosures about stock-based employee compensation arrangements
regardless of the method used to account for them. The Company is evaluating
whether it will change to the recognition provisions of SFAS No. 123; however,
it has not yet fully determined the potential effect of the statement on the
consolidated financial statements.
Computation of net income (loss) per share
The computation of net income (loss) per share is based upon the weighted
average number of shares of common stock and equivalents outstanding during
the year: 16,243,483 shares for 1995, 16,130,140 shares for 1994, and
16,102,709 shares for 1993.
Restatements and Reclassifications
On July 1, 1994, the Company announced that it had determined that the
inventory of Cleo had been overstated at December 31, 1993, resulting in an
overstatement of the Company's 1993 consolidated net income. The
overstatement of inventory and income before income taxes was $8,806 and the
effect on net income was $5,346 at December 31, 1993 and for the year then
ended. The accompanying 1993 Consolidated Statement of Operations was amended
and restated to reflect the correction of such overstatement. In addition, in
an institution and settlement of administrative proceedings dated December 22,
1994 against Bankers Trust (the Bankers Trust Order), the Securities and
Exchange Commission alleged that Bankers Trust misled the Company about the
value of the Company's derivative positions. The Company has restated the
accompanying 1993 year-end consolidated financial statements to reflect
derivative values based on Bankers Trust's computer model as set forth in the
Bankers Trust Order. Such restatement resulted in a $4,571 reduction in
previously reported 1993 consolidated net income and a corresponding decrease
in 1994 consolidated net loss. This restatement, coupled with the November
23, 1994 settlement between the Company and Bankers Trust, as discussed in
Note 6, resulted in a net gain (loss) on derivative transactions and
settlement in 1994 and 1993 of $1,641 and ($5,689), respectively, as shown in
the accompanying consolidated statements of operations.
PAGE
<PAGE>
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform to the 1995 presentation.
Note 2--Trade Receivables
Trade receivables at December 31, 1995 and 1994, consist of the
following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Trade receivables $ 105,898 $ 265,194
Less reserve for returns,
allowances, cash discounts
and doubtful accounts 59,278 67,395
--------- ---------
$ 46,620 $ 197,799
========= =========
</TABLE>
Note 3--Inventories
Inventories at December 31, 1995 and 1994, consist of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Finished goods $ 47,967 $ 73,881
Work-in-process 12,409 15,623
Raw materials and supplies 7,927 37,956
--------- ---------
$ 68,303 $ 127,460
========= =========
</TABLE>
PAGE
<PAGE>
Note 4--Plant and Equipment
Plant and equipment at December 31, 1995 and 1994, consist of the
following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Land and buildings $ 32,800 $ 36,126
Machinery and equipment 44,437 66,747
Display fixtures 83,784 90,493
Leasehold improvements 10,484 13,003
Construction in progress 1,598 3,578
--------- ---------
173,103 209,947
Less accumulated depreciation 82,290 90,456
--------- ---------
$ 90,813 $ 119,491
========= =========
</TABLE>
At December 31, 1995, buildings included assets acquired under capital
lease obligations of $19,135 with the accumulated depreciation on such assets
of $132.
Note 5--Other Assets
Other assets at December 31, 1995 and 1994, consist of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred and prepaid costs $ 176,041 $ 148,150
Goodwill and other intangibles 27,148 30,042
--------- ---------
203,189 178,192
Less accumulated amortization 97,735 75,321
--------- ---------
$ 105,454 $ 102,871
========= =========
</TABLE>
PAGE
<PAGE>
Note 6--Debt
Debt at December 31, 1995 and 1994, consists of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Debt due within one year:
Loans payable to banks
under a revolving credit
agreement bearing interest
at a weighted average rate
of 6.57% and 6.88%,
respectively $ 19,000 $ 50,000
Loans payable to banks under
uncommitted borrowing
facilities bearing interest
at weighted average rates of
6.58% in 1994 - 55,950
--------- ---------
19,000 105,950
Current portion of long-term debt 9,894 11,164
--------- ---------
$ 28,894 $ 117,114
========= =========
Long-term debt:
Senior notes bearing interest
at 9.33%, with annual serial
maturities from 1995 through
2000 $ 30,857 $ 50,000
Notes payable to former
shareholders of The Paper
Factory of Wisconsin, Inc.
bearing interest at 5.01%,
payable in annual installments
of $2,019 4,037 6,056
Industrial revenue bonds bearing
interest at 9.25%, payable in
semi-annual installments of $300,
secured by plant and equipment
with a carrying value of $5,712
and $6,171 at December 31, 1995
and 1994, respectively 1,800 2,400
Economic development revenue and
urban develpment action grant
paid off or assumed by the
purchaser in connection with
the sale of Cleo - 15,243
Other notes bearing interest at a
weighted average rate of 5.20%,
payable in quarterly
installments, secured by the same
assets securing the industrial
revenue bonds 573 698
--------- ---------
37,267 74,397
Capital lease obligations payable
in monthly installments through
2013 (see Note 11) 19,160 -
--------- ---------
56,427 74,397
Less portion due within one year 9,894 11,164
--------- ---------
$ 46,533 $ 63,233
========= =========
</TABLE>
In 1993, the Company entered into a three-year revolving credit
agreement, replacing a similar existing facility, which expires April 26,
1996. The remaining amount available under this agreement is $81,000. The
Company is currently negotiating a new revolving credit facility to replace
the existing facility. Management believes that it will be able to consummate
this facility to provide funds for general corporate purposes. If
consummated, the Company expects that the facility will have a duration of 364
days and will provide for borrowings in an amount adequate for the Company's
needs over the term of the facility.
The fair value of the Company's long-term debt (excluding capital lease
obligations) is estimated based on the quoted market prices for the same or
similar issues or on the current rates offered to the Company for debt of the
same remaining maturities. The estimated fair value of the Company's gross
long-term debt at December 31, 1995 was $39,134.
The annual principal payments due on long-term debt for each of the years
in the five-year period ended December 31, 2000, are $9,894, $9,901, $7,890,
$7,298 and $2,285, respectively.
No interest was capitalized for the years ended December 31, 1995, 1994
and 1993.
Certain of the Company's debt agreements contain covenants including
limitations on dividends based on a formula related to net income (loss),
stock sales and certain restricted investments. At December 31, 1995, there
were no unrestricted retained earnings available for dividends. The Company
also is required to maintain a specified level of consolidated net worth (as
defined) pursuant to the terms of its revolving credit facility. As a result
of the sale of Cleo, the Company was unable to maintain the specified level
and therefore obtained an amendment to the revolving credit agreement which
adjusted the required consolidated net worth. In addition, the Company sought
and received waivers under the revolving credit facility and its senior notes
that permitted the Company to sell Cleo and to accept a short-term promissory
note for a portion of the purchase price. The proceeds of the note were
received on January 29, 1996.
PAGE
<PAGE>
The Company periodically has entered into interest rate swap or
derivative transactions with the intent to manage the interest rate
sensitivity of portions of its debt. On March 4, 1994, the Company felt
compelled to enter into two interest rate derivative transactions to cap its
exposure on two prior uncapped interest rate derivative transactions that had
a negative market value in excess of $17,000. These two new transactions
imposed caps on the Company's total exposure and replaced the previous
uncapped positions that were entered into subsequent to December 31, 1993 in
an attempt to limit the Company's exposure against rising short-term interest
rates.
In September 1994, the Company filed suit against Bankers Trust Company
and its affiliate BT Securities (Bankers Trust) alleging that in connection
with the sale of these and earlier derivatives to the Company, Bankers Trust
had breached fiduciary duties, made fraudulent representations, and failed to
make adequate disclosures, in violation of common law and statutory
obligations to the Company. The suit was settled on November 23, 1994. The
Company agreed to pay Bankers Trust $6,180 which included $3,344 of cash
payments made to the Company which had been recorded as gains with respect to
a number of earlier transactions. In return, the remaining transactions were
terminated with no further liability to the Company.
At December 31, 1995 and 1994, the Company had two outstanding interest
rate swap positions with a total notional amount of $3,600. These two
agreements, with terms similar to the related bonds, are constituted as hedges
and effectively reduce the Company's interest on industrial revenue bonds from
9.25% to 6.67% through February 1998. The estimated fair value of these two
agreements at December 31, 1995 was $64.
PAGE
<PAGE>
Note 7--Income Taxes
The provision for income taxes for the years ended December 31, 1995,
1994, and 1993 consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current $ (19,093) $ 1,574 $ 17,903
Deferred (2,252) (14,530) (8,450)
Change in valuation allowance - (924) 1,600
Alternative minimum tax
credit carryforward - (200) -
Deferred investment
tax credits, net (79) (100) (122)
--------- --------- ---------
(21,424) (14,180) 10,931
--------- --------- ---------
State and local:
Current 5,405 649 4,532
Deferred (570) (3,239) (1,708)
Change in valuation allowance - (211) 365
--------- --------- ---------
4,835 (2,801) 3,189
--------- --------- ---------
Foreign:
Current - - -
Deferred - - 89
--------- --------- ---------
- - 89
--------- --------- ---------
$ (16,589) $ (16,981) $ 14,209
========= ========= =========
</TABLE>
In 1993, tax laws raised the statutory tax rate for corporations from 34%
to 35%. The adverse impact of this 1% increase in effective tax rates was
partially offset by a favorable adjustment of $700 recorded in 1993 due to the
revaluation of certain deferred tax assets.
PAGE
<PAGE>
The effective income tax rate for the years ended December 31, 1995, 1994
and 1993, varied from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal
income tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax
benefit 3.2 4.0 7.0
Nondeductible losses (8.5) (2.6) 2.6
Other (3.4) 0.8 3.6
--------- --------- ---------
26.3% 37.2% 48.2%
========= ========= =========
</TABLE>
The above schedule includes the effect of state and foreign net operating
losses for which no benefits have been provided.
Deferred taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax bases of assets and
liabilities given the provisions of currently enacted tax laws.
The net deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current deferred taxes:
Gross assets $ 45,275 $ 49,708
Alternative minimum
tax carryforward 200 200
Gross liabilities (464) (1,133)
--------- ---------
45,011 48,775
--------- ---------
Noncurrent deferred taxes:
Gross assets 21,573 19,338
Valuation allowance (830) (830)
Gross liabilities (5,806) (10,126)
Deferred investment
tax credits (192) (302)
--------- ---------
14,745 8,080
--------- ---------
$ 59,756 $ 56,855
========= =========
</TABLE>
PAGE
<PAGE>
The Company has recorded a valuation allowance with respect to the
deferred tax assets reflected in the table below as a result of recent capital
losses and uncertainties with respect to the amount of taxable capital gain
income which will be generated in future years.
The tax balances of significant temporary differences representing
deferred tax assets and liabilities for the years ended December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Reserve for returns, allowances,
cash discounts and doubtful
accounts $ 25,390 $ 29,203
Reserve for inventories
and related items 6,222 8,940
Postretirement benefits 2,251 1,991
Depreciation of plant
and equipment (5,713) (9,999)
Reserve for display fixtures 1,628 1,605
Accrued compensation and benefits 17,223 14,068
Sales agreement payments due 4,067 5,638
Other accruals and reserves, net 9,510 6,341
Alternative minimum tax
carryforward 200 200
Deferred investment tax credits (192) (302)
--------- ---------
60,586 57,685
Valuation allowance (830) (830)
--------- ---------
$ 59,756 $ 56,855
========= =========
</TABLE>
PAGE
<PAGE>
Note 8--Other Current Liabilities
Other current liabilities at December 31, 1995 and 1994, consist of the
following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Compensation, payroll taxes
and related withholdings $ 16,584 $ 13,842
Customer allowances 12,963 20,495
Accrued insurance 10,029 9,766
Sales agreement payments due
within one year 7,628 17,048
Accrued interest 6,221 3,935
Property and other taxes 4,397 5,322
Other 13,820 16,582
--------- ---------
$ 71,642 $ 86,990
========= =========
</TABLE>
Note 9--Employment and Postretirement Benefits
The Company sponsors a defined benefit pension plan (the Retirement Plan)
covering substantially all employees who meet certain eligibility
requirements. Benefits are based upon years of service and average
compensation levels. The Company's general funding policy is to contribute
amounts deductible for federal income tax purposes. Contributions are
intended to provide not only for benefits earned to date, but also for
benefits expected to be earned in the future.
PAGE
<PAGE>
The following table sets forth the Retirement Plan's funded status on the
measurement dates, December 31, 1995 and 1994, and a reconciliation of the
funded status to the amounts recognized in the Company's consolidated balance
sheets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 61,449 $ 44,558
========= =========
Accumulated benefit
obligation $ 65,247 $ 48,221
========= =========
Projected benefit
obligation for services
rendered to date $ 74,779 $ 60,354
Plan assets at fair market value 68,068 58,465
--------- ---------
Plan assets less than projected
benefit obligation 6,711 1,889
Unrecognized net asset at
January 1, 1986, being
recognized over 9.9 years - 413
Unrecognized prior service cost (1,174) (1,511)
Unrecognized net gain resulting
from experience different from
assumed and effects of changes
in assumptions 6,454 9,425
--------- ---------
Accrued pension expense included
in other liabilities $ 11,991 $ 10,216
========= =========
</TABLE>
The changes in asset values relative to the measurement dates are
primarily due to fluctuations in the market value of the Retirement Plan's
equity investments.
In 1990, the Company established a nonqualified defined benefit plan for
employees whose benefits under the Retirement Plan are limited by provisions
of the Internal Revenue Code. Additionally in 1990, the Company established a
nonqualified defined benefit plan to provide supplemental retirement benefits
for selected executives in addition to benefits provided under other Company
plans. A nonqualified plan was also established to provide retirement
benefits for members of the Company's Board of Directors who are not covered
under any of the Company's other plans. All plans established in 1990 were
unfunded at December 31, 1995 and 1994, although assets for those plans are
held in certain grantor tax trusts known as "Rabbi" trusts. These assets are
subject to claims of the Company's creditors but otherwise must be used only
for purposes of providing benefits under the plans.
PAGE
<PAGE>
The following table sets forth the nonqualified defined benefit plans'
benefit obligations on the measurement dates, December 31, 1995 and December
31, 1994, and a reconciliation of those obligations to the amounts recognized
in the Company's consolidated balance sheets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 4,039 $ 2,829
========= =========
Accumulated benefit
obligation $ 4,763 $ 3,867
========= =========
Projected benefit
obligation for services
rendered to date $ 5,452 $ 4,692
Plan assets at fair market value - -
--------- ---------
Unfunded projected
benefit obligation 5,452 4,692
Unrecognized prior service cost (1,657) (1,899)
Unrecognized net gain (loss)
resulting from experience
different from assumed and
effects of changes in
assumptions (306) 223
--------- ---------
Accrued pension expense included
in other liabilities $ 3,489 $ 3,016
========= =========
</TABLE>
The assumed weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation for the plans was 7.25% and 4.5% in 1995 and 8.5%
and 5.0% in 1994, respectively. The assumed long-term rate of return on plan
assets used for valuation purposes was 9.0% for 1995 and 1994.
PAGE
<PAGE>
A summary of the components of net pension expense for all of the
Company's defined benefit plans for the years ended December 31, 1995, 1994
and 1993, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 2,652 $ 3,285 $ 2,917
Interest cost on projected
benefit obligation 5,833 5,339 5,092
Net amortization and deferral 7,409 (6,103) 128
Actual return on plan assets (13,178) 902 (4,941)
Curtailments - 284 -
--------- -------- ---------
$ 2,716 $ 3,707 $ 3,196
========= ======== =========
</TABLE>
The Company has a defined contribution pension plan for employees who are
members of a collective bargaining unit. Benefits under this plan are
determined based upon years of service and an hourly contribution rate.
Pension expense for this plan for the years ended December 31, 1995, 1994 and
1993, was $218, $409 and $451, respectively.
During 1994, Cleo offered a voluntary early retirement program to
eligible employees resulting in curtailments of certain employee benefit
plans. Consequently, the Company recognized curtailment losses of $284 and
$68 in a defined benefit plan and medical and life insurance plan,
respectively, for the year ended December 31, 1994.
The Company has two defined contribution plans pursuant to Section 401(k)
of the Internal Revenue Code. The plans provide that employees meeting
certain eligibility requirements may defer a portion of their salary subject
to certain limitations. The Company pays certain administrative costs of the
plans and contributes to the plans based upon a percentage of the employee's
salary deferral and an annual additional contribution at the discretion of the
Board of Directors. The total expense for these plans for the years ended
December 31, 1995, 1994 and 1993, was $452, $550 and $501, respectively.
In addition to providing pension benefits, the Company provides medical
and life insurance benefits for certain eligible employees upon retirement
from the Company. Substantially all employees may become eligible for such
benefits upon retiring from active employment of the Company. Medical and
life insurance benefits for employees and retirees are paid by a combination
of company and employee or retiree contributions. Retiree insurance benefits
are provided by insurance companies whose premiums are based on claims paid
during the year.
PAGE
<PAGE>
A reconciliation of the accumulated postretirement benefit obligation
(APBO) measured as of December 31, 1995 and December 31, 1994 to the amounts
recognized in the Company's consolidated balance sheets at December 31, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Retirees $ 1,475 $ 2,602
Fully eligible active employees 997 1,146
Other active employees 1,117 885
--------- ---------
Accumulated benefit obligation 3,589 4,633
Unrecognized prior service cost 100 (713)
Unrecognized net gain 1,475 1,114
--------- ---------
Accrued APBO included in
other liabilities $ 5,164 $ 5,034
========= =========
</TABLE>
The accumulated benefit obligation for 1995 and 1994 was determined using
the following assumptions:
1995 1994
------------------ ----------------
Discount rate 7.25% 8.5%
Health care cost 9% for 1996 10% for 1995
trend rate graded down per graded down per
year to 6% in the year to 6% in the
year 2002, 5.5% year 2002, 5.5%
thereafter thereafter
Net periodic cost of these benefits for the years ended December 31,
1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 161 $ 171 $ 148
Interest cost on
accumulated benefits 349 363 470
Net amortization (70) 42 61
Curtailments - 68 -
--------- --------- ---------
$ 440 $ 644 $ 679
========= ========= =========
</TABLE>
PAGE
<PAGE>
The health care cost trend rate assumption does not have a significant
effect on the amounts reported. For example, a 1% increase in the health care
cost trend rate would increase the accumulated postretirement benefit
obligation as of December 31, 1995, and the net periodic cost for the year
then ended, by approximately 4% each.
Note 10--Stockholders' Equity
Employee stock plans
Under various stock option and incentive plans, the Company may grant
incentive and nonqualified stock options to purchase its common stock. All
incentive options are granted at the fair market value on the date of grant.
Incentive stock options generally become exercisable one year after the date
granted and expire ten years after the date granted, if not earlier expired
due to termination of employment. Nonqualified stock options become
exercisable according to a vesting schedule determined at the date granted and
expire on the date set forth in the option agreement, if not earlier expired
due to termination of employment.
A summary of stock option activity during the years ended December 31,
1995, 1994 and 1993, is as follows:
<TABLE>
<CAPTION>
1992 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
Number of options to purchase
common stock:
Outstanding at
beginning of year 1,321,619 1,063,042 1,073,470
Granted 65,900 597,500 47,500
Exercised (5,600) (46,263) (26,348)
Expired (348,753) (292,660) (31,580)
--------- -------- ---------
Outstanding at end of year 1,033,166 1,321,619 1,063,042
========= ========= =========
Exercisable at end of year 388,999 641,408 666,594
========= ========= =========
</TABLE>
The exercise prices of options granted in 1995 ranged from $9.75 to
$14.63. The exercise prices of options granted in 1994 ranged from $13.88 to
$21.13 and the exercise price of options granted in 1993 ranged from $18.88 to
$21.25. Options exercised were at prices of $11.38 to $20.25, in 1995, 1994
and 1993. During 1995, 476,600 options outstanding at the beginning of the
year were repriced at $9.75. Options outstanding at December 31, 1995, are at
prices ranging from $9.75 to $28.63.
PAGE
<PAGE>
Under certain stock incentive plans, the Company may grant the right to
purchase restricted shares of its common stock. Such shares are subject to
restriction on transfer and to repurchase by the Company at the original
purchase price. The purchase price of restricted shares is determined by the
Company and may be nominal. No restricted shares were granted in 1995, 1994
or 1993.
At December 31, 1995, 558,672 shares were available under the stock
option and incentive plans, of which 484,272 shares could be issued as
restricted shares.
Stock rights
On December 4, 1987, the Company's Board of Directors declared a dividend
distribution of one right for each outstanding share of the Company's common
stock to stockholders of record on December 21, 1987. Each right entitles the
holder to purchase, for the exercise price of $40 per share, 1/100th of a
share of Series A Preferred Stock. Until exercisable, the rights are attached
to all shares of the Company's common stock outstanding.
The rights are exercisable only in the event that a person or group of
persons (i) acquires 20% or more of the Company's common stock and there is a
public announcement to that effect, (ii) announces an intention to commence or
commences a tender or exchange offer which would result in that person or
group owning 30% or more of the Company's common stock, or (iii) beneficially
owns a substantial amount (at least 15%) of the Company's common stock and is
declared to be an Adverse Person (as defined in the Rights Agreement) by the
Company's Board of Directors. Upon a merger or other business combination
transaction, each right may entitle the holder to purchase common stock of the
acquiring company worth two times the exercise price of the right. Under
certain other circumstances (defined in the Rights Agreement) each right may
entitle the holder (with certain exceptions) to purchase common stock, or in
certain circumstances, cash, property or other securities of the Company,
having a value worth two times the exercise price of the right.
The rights are redeemable at one cent per right at anytime prior to 20
days after the public announcement that a person or group has acquired 20% of
the Company's common stock. Unless exercised or redeemed earlier by the
Company, the rights expire on December 28, 1997.
PAGE
<PAGE>
Note 11--Commitments
Lease commitments
In connection with the sale of Cleo, the Company renegotiated its
long-term agreement for certain of its principal facilities. The initial
lease term of this amended agreement runs through November 30, 2013, with one
10 year renewal option available. The basic rent under the lease contains
scheduled rent increases every five years, including the renewal period. The
lease contains a purchase option in 2005 (and again in 2010) at the fair
market value of the properties at the date of exercise. As a condition of the
lease, all property taxes, insurance costs and operating expenses are to be
paid by the Company. For accounting purposes, this lease has been treated as
a capital lease.
The Company also leases additional manufacturing, distribution and
administrative facilities, sales offices and personal property under
noncancelable operating leases which expire on various dates through 2005.
Certain of these leases contain renewal and escalating rental payment
provisions as well as contingent payments based upon individual store sales.
Rental expense for the years ended December 31, 1995, 1994 and 1993, on
all real and personal property, was $23,663, $24,493 and $20,297,
respectively.
Minimum rental commitments under noncancelable leases as of December 31,
1995 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31: Lease Lease
------------------------------- --------- ---------
<S> <C> <C>
1996 $ 3,100 $ 11,870
1997 3,100 10,388
1998 3,100 5,848
1999 3,100 3,399
2000 3,152 1,890
Thereafter 56,680 1,019
--------- ---------
Net minimum commitments 72,232 $ 34,414
=========
Less amount representing
interest 53,072
---------
Present value of net minimum
lease commitments $ 19,160
=========
</TABLE>
PAGE
<PAGE>
Contract commitments
The Company has several long-term customer sales agreements which require
payments and credits for each of the years in the five-year period ended
December 31, 2000, of $7,628, $5,950, $5,715, $3,913 and $2,986, respectively,
and no payments and credits thereafter. These amounts are included as other
current liabilities or other liabilities in the accompanying consolidated
balance sheet as of December 31, 1995.
Employment agreements
The Company has employment agreements with certain executives which
provide for, among other things, minimum annual salaries adjusted for
cost-of-living changes, continued payment of salaries in certain circumstances
and incentive bonuses. Certain agreements further provide for employment
termination payments, including payments contingent upon any person becoming
the beneficial owner of 50% or greater of the Company's outstanding stock.
Note 12--Legal Proceedings
In July 1994, immediately following the Company's announcement of an
inventory misstatement at Cleo, which resulted in an overstatement of the
Company's previously reported 1993 consolidated net income, five purported
class actions were commenced by certain stockholders. These suits were
consolidated and a Consolidated Amended Class Action Complaint against the
Company, its then Chairman, President and Chief Executive Officer, its Chief
Financial Officer and the former President and Chief Executive Officer of Cleo
was filed in October 1994 in the United States District Court for the Southern
District of Ohio (In Re Gibson Securities Litigation). In December 1994 the
Court ruled that neither of the two named plaintiffs qualified as a class
representative. Plaintiffs have filed an Amended Complaint naming a proposed
substitute class representative, and a motion to certify a class, which the
Company opposes, is pending. Like its predecessors in this litigation, the
most recent complaint alleges violations of the federal securities laws and
seeks unspecified damages for an asserted public disclosure of false
information regarding the Company's earnings. The Company intends to defend
the suit vigorously and has filed an Answer denying any wrongdoing and a Third
Party Complaint against its former auditor for contribution against any
judgment adverse to the Company.
On April 10, 1995, two purported class action lawsuits were commenced
against the Company, its Chairman, President and Chief Executive Officer and
its Chief Financial Officer in the United States District Court for the
Southern District of Ohio. The Complaints alleged violations of the federal
securities law for an asserted failure to disclose allegedly material
information regarding the Company's financial performance. On August 1, 1995,
the two lawsuits were consolidated and captioned In Re Gibson Greetings
Securities Litigation II. On August 9, 1995, the plaintiffs filed a
Consolidated Amended Class Action Complaint which restated the basic claims
which had been presented in the original complaints. The Court has denied, at
this stage, the Company's motion to dismiss the Consolidated Amended Complaint
and also has conditionally denied the plaintiffs' motion to certify a class
for purposes of class action treatment of the litigation. The Court will
reconsider the class action certification motion at the conclusion of
discovery. The Company intends to defend the action vigorously.
PAGE
<PAGE>
The litigation described in the two preceding paragraphs is in early
stages of proceedings. Accordingly, the Company presently is unable to
predict the effect of the ultimate resolutions of these matters upon the
Company's results of operations and cash flows; as of this date, however,
Management does not expect that such resolutions would result in a material
adverse effect upon the Company's total net worth, although a substantially
unfavorable outcome could be material to such net worth.
On March 6, 1996, two purported class actions were filed against the
Company's directors (as well as certain former directors) and the Company in
the New Castle County, Delaware Court of Chancery (Crandon Capital Partners v.
Cooney, et al. and Weiss v. Lindberg, et al.). The Complaints allege that the
individual defendants breached their fiduciary duties to the plaintiffs by
refusing to negotiate in response to an acquisition proposal for the Company
by American Greetings Corporation. The Complaints seek to require the
directors to do a number of things, including pursuing merger or acquisition
discussions with American Greetings and others. The Complaints also seek
unspecified damages against those directors. On March 20, 1996, a third
action, Krim, et al. v. Pezzillo et al., was filed in the same court. While
it generally follows the allegations and demands of the other two Complaints,
it specifically seeks injunctive relief against the exercise of the shareholder
rights plan that has been a part of the Company's corporate governance for
nearly ten years. While the Company is a named defendant in all three
actions, none of the Complaints appears to seek any other specific relief
against the Company. The defendants intend to defend the suits vigorously.
In 1989, unfair labor practice charges were filed against the Company as
an outgrowth of a strike at its Berea, Kentucky facility. Remedies sought
included back pay from August 8, 1989 and reinstatement of employment for
approximately 200 employees (In the Matter of Gibson Greetings, Inc. and
International Brotherhood of Firemen and Oilers, AFL-CIO Cases 9-CA-26706,
27660, 26875). On May 19, 1995, a unanimous panel of the United States Court
of Appeals for the District of Columbia Circuit found that the strike was not
an unfair labor practice strike and that a significant number of strikers had
been permanently replaced and thus were not entitled to reinstatement or back
pay. The Court remanded the case to the National Labor Relations Board for a
factual determination on the issue of permanency with respect to approximately
52 replacements hired after June 29, 1989. Management does not believe that
the outcome of this matter will result in a material adverse effect on the
Company's net worth, total cash flows or operating results.
In addition, the Company is a defendant in certain other routine
litigation which is not expected to result in a material adverse effect on the
Company's net worth, total cash flows or operating results.
PAGE
<PAGE>
Note 13--Sale of Cleo, Inc.
Effective November 15, 1995, the Company consummated its agreement to
sell Cleo to CSS Industries, Inc. Total consideration to the Company amounted
to approximately $133,074, consisting of $96,500 in cash, a note due and paid
on January 29, 1996 for $24,574 and $12,000 which will be held in escrow for
certain post-closing adjustments and indemnification obligations. In
addition, the Company has been released from approximately $14,956 of
third-party debt which will be retained by Cleo under its new owner. This
transaction resulted in a loss of $54,471, net of taxes of $28,541, which has
been included in operations for the year ended December 31, 1995.
The following is a summary of Cleo's net assets as of November 14, 1995
and results of operations of Cleo for the period ended November 14, 1995 and
for the year ended December 31, 1994:
<TABLE>
<CAPTION>
As of
November 14, 1995
-----------------
<S> <C> <C>
Current assets $ 191,203
Property and equipment, net 33,999
Other assets, net 1,087
---------
Total assets 226,289
Current liabilities 22,803
Long-term debt, including
current portion 14,956
---------
Net assets $ 188,530
=========
Period Ended Year Ended
November 14, 1995 December 31, 1994
----------------- -----------------
Revenues $ 151,937 $ 189,387
========= =========
Loss before income taxes $ (17,110) $ (36,922)
========= =========
Net loss $ (12,446) $ (22,646)
========= =========
</TABLE>
PAGE
<PAGE>
Note 14--Quarterly Financial Data - Actual and Pro Forma (Unaudited)
<TABLE>
<CAPTION>
(Dollars in
thousands except First Second Third Fourth
per share amounts) Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1995 (1)
- -------------------
Net sales $100,164 $ 97,323 $144,121 $198,537 $540,145
Total revenues 100,287 97,470 144,323 198,741 540,821
Cost of products
sold 39,168 37,520 82,520 109,494 268,702
Other
operating expenses 56,774 55,264 140,437 70,459 322,934
Interest expense, net 3,045 2,873 3,254 3,091 12,263
Net income (loss) 271 641 (55,208) 7,807 (46,489)
Net income
(loss) per share 0.02 0.04 (3.41) 0.49 (2.86)
1994 (2)
- -------------------
Net sales $ 93,187 $ 90,506 $152,881 $211,468 $548,042
Total revenues 93,429 90,648 153,026 211,692 548,795
Cost of products
sold 36,028 43,538 86,480 143,993 310,039
Other
operating expenses 66,826 67,787 64,422 75,471 274,506
Interest expense, net 1,653 1,867 2,514 3,800 9,834
Net income (loss) (10,843) (16,933) 359 (1,186) (28,603)
Net income
(loss) per share (0.67) (1.05) 0.02 (0.07) (1.77)
1995 Pro Forma (1) (3)
- -------------------
Net sales $ 92,554 $ 87,369 $ 89,343 $118,947 $388,213
Total revenues 92,671 87,516 89,546 119,151 388,884
Cost of products
sold 32,943 29,059 38,383 48,149 148,534
Other
operating expenses 49,306 47,467 45,463 59,678 201,914
Interest expense, net 2,253 2,185 2,216 1,918 8,572
Net income 4,582 4,940 1,937 4,817 16,276
Net income per share 0.28 0.31 0.12 0.29 1.00
1994 Pro Forma (3)
- -------------------
Net sales $ 86,167 $ 84,310 $ 94,733 $ 93,449 $358,659
Total revenues 86,405 84,452 94,878 93,673 359,408
Cost of products
sold 31,621 28,815 41,900 47,283 149,619
Other
operating expenses 49,827 53,154 53,375 65,250 221,606
Interest expense, net 10,237 8,024 (699) (12,762) 4,800
Net income (loss) (7,374) (6,308) 701 3,301 (9,680)
Net income
(loss) per share (0.46) (0.39) 0.05 0.20 (0.60)
</TABLE>
(1) The 1995 fourth quarter included lower expenses resulting from an
adjustment to customer returns and allowances increasing net income (loss) by
$2,545 or $.16 per share and higher expenses attributed to the full reserve of
the Company's investment in Gibson de Mexico decreasing net income (loss) by
$1,157 or $.07 per share.
(2) The first three quarters of 1994 have been restated for the effects
of derivative transactions discussed in Note 12. The derivatives' impact on
net income (loss) and net income (loss) per share for the first three quarters
of 1994 was as follows: reduced net loss $7,477 or $.46 per share in the
first quarter; increased net loss $3,255 or $.20 per share in the second
quarter; no impact in the third quarter.
(3) The unaudited Quarterly Financial Data - Pro Forma is based upon the
Statements of Operations of the Company for each of the four quarters and year
ended December 31, 1995 and 1994 and gives effect to the sale of Cleo as if it
had occurred as of January 1, 1994 after giving effect to the pro forma
adjustments. Pro forma adjustments represent management fee allocations
including legal, tax and administrative expenses that are not expected to be
eliminated, reduction in interest expense as a result of prepayment of
short-term debt with sale proceeds and additional commitment fees on the
unused portion of the revolving credit facility and an increase in income tax
resulting from the income tax on reversal of loss on sale of Cleo net of pro
forma expenses. Senior notes were assumed not to be prepaid. The pro forma
quarterly financial data referred to above does not purport to represent what
the Company's financial position or results of operations actually would have
been if the Sale, in fact, occurred on the dates referred to above or to
project the Company's results of operations for any period. This pro forma
quarterly financial data should be read in conjunction with the consolidated
financial statements and notes thereto.
PAGE
<PAGE>
Independent Auditors' Report
To the Board of Directors and
Stockholders of Gibson Greetings, Inc.
Cincinnati, Ohio
We have audited the accompanying consolidated balance sheets of Gibson
Greetings, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial statement
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Companies at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
February 14, 1996
PAGE
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PAGE
<PAGE>
PART III
Except as set forth below, the information required by this Part is
included in the Company's definitive Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 1996
Annual Meeting of Stockholders, and is incorporated by reference herein.
Item 10. Directors and Executive Officers of the Registrant
The Executive Officers of the Company (at March 1, 1996) are as
follows:
Name Age Title
------------------- --- ----------------------------
Albert R. Pezzillo 67 Chairman of the Board,
President and
Chief Executive Officer
William L. Flaherty 47 Vice President, Finance and
Chief Financial Officer
Stephen M. Sweeney 59 Vice President, Human
Resources
Gregory Ionna 44 Executive Vice President,
Sales and Marketing -
Gibson Card Division
ALBERT R. PEZZILLO. Mr. Pezzillo has been Chairman of the Board and
Chief Executive Officer of the Company since February 1996. He was a business
consultant from 1990 until 1996 after his retirement in 1990 from his position
as Senior Vice President of American Home Products Corporation, a manufacturer
and marketer of ethical pharmaceuticals, medical supplies and hospital,
consumer health care, food and household products. Prior to joining American
Home Products in 1981, he held a variety of executive positions with Warner
Lambert Company and Colgate Palmolive Company. Mr. Pezzillo became a director
of the Company in April 1990.
WILLIAM L. FLAHERTY. Mr. Flaherty has been Senior Vice President,
Finance and Chief Financial Officer of the Company since November 1993. Prior
to that time, he served as Vice President and Corporate Treasurer of FMR
Corp., the parent company of Fidelity Investments Group, a mutual fund
management and discount stock brokerage firm (1989 - 1992) and as Vice
President and Treasurer of James River Corporation, an integrated manufacturer
of pulp, paper and converted paper and plastic products (1987 - 1989).
PAGE
<PAGE>
STEPHEN M. SWEENEY. Mr. Sweeney joined the Company as Vice President,
Human Resources in 1987. He held similar positions with Coca Cola
Enterprises, Inc. from 1985 until 1987, the Tribune Company from 1983 until
1985 and Contel, Inc. from 1976 to 1983.
GREGORY IONNA. Mr. Ionna has been Executive Vice President, Sales and
Marketing - Gibson Card Division since September 1993. Prior to that he
served in various capacities within the Sales and Marketing functions of the
Company .
Officers serve with the approval of the Board of Directors.
PAGE
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a) The following documents are filed as part of this report:
1. Financial Statements:
Page
Herein Financial Statement
------ ---------------------------------------------------------
13 Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993
14 Consolidated Balance Sheets as of December 31, 1995 and 1994
15 Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
16 Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993
17 Notes to Consolidated Financial Statements
32 Independent Auditors' Report
2. Financial Statement Schedules required to be filed by Item 8 of this
Form 10-K:
Schedules Filed:
Page
Herein Schedule
------ ---------------------------------------------------------
36 Valuation and Qualifying Accounts
PAGE
<PAGE>
3. Exhibits: See Index of Exhibits (page 37) for a listing of all
exhibits filed with this annual report on Form 10-K
b) Reports on Form 8-K: The Company filed the following reports on Form
8-K with the Securities and Exchange
Commission during the quarter ended
December 31, 1995:
(i) Form 8-K filed October 6, 1995 (date of
report: October 3, 1995) announcing a
definitive agreement to sell Cleo, Inc.
(Items 5 and 7)
(ii) Form 8-K filed November 30, 1995 (date
of report: November 15, 1995), and related
Form 8-K/A (Amendment No. 1) filed
December 4, 1995, in connection with the
sale of Cleo, Inc. (Items 2 and 7); the
following financial statements were filed
with these reports:
- Pro Forma Condensed Consolidated
Financial Statements - Summary
- Pro Forma Condensed Consolidated Balance
Sheet as of September 30, 1995
- Pro Forma Condensed Consolidated
Statement of Operations for the Nine
Months Ended September 30, 1995
- Pro Forma Condensed Consolidated
Statement of Operations for the Year
Ended December 31, 1994
- Notes to Pro Forma Financial Information
PAGE
<PAGE>
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 as of the 28th day
of March 1996.
Gibson Greetings, Inc.
By /s/ Albert R. Pezzillo
-----------------------
Albert R. Pezzillo
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities indicated as of the 28th day of March 1996.
Signature Title
---------- -----
Chairman of the Board,
/s/ Albert R. Pezzillo Chief Executive Officer
-------------------------
Albert R. Pezzillo (principal executive officer)
Senior Vice President, Finance
/s/ William L. Flaherty Chief Financial Officer
-------------------------
William L. Flaherty (principal financial and
accounting officer)
/s/ Charles D. Lindberg
-------------------------
Charles D. Lindberg Director
-------------------------
Benjamin J. Sottile Director
/s/ Frank Stanton
-------------------------
Frank Stanton Director
/s/ Charlotte St. Martin
-------------------------
Charlotte St. Martin Director
/s/ C. Anthony Wainwright
-------------------------
C. Anthony Wainwright Director
PAGE
<PAGE>
<TABLE>
<CAPTION>
GIBSON GREETINGS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of dollars)
Column A Column B Column C Column D Column E
- -------------------- ---------- ------------------------- ---------- ----------
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginnng Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- -------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Deducted from
trade receivables
Allowance for
doubtful accounts:
Twelve months
ended 12/31/95 $ 12,653 $ 6,606 $ - $ 6,954 (A) $ 12,305
Twelve months
ended 12/31/94 10,601 13,886 - 11,834 (A) 12,653
Twelve months
ended 12/31/93 7,515 4,188 - 1,102 (A) 10,601
Allowance for sales
returns, allowances
and cash discounts:
Twelve months
ended 12/31/95 54,742 97,445 - 105,214 (B) 46,973
Twelve months
ended 12/31/94 42,918 121,450 - 109,626 (B) 54,742
Twelve months
ended 12/31/93 45,902 89,987 - 92,971 (B) 42,918
</TABLE>
[FN]
- --------------------
(A) Accounts judged to be uncollectible and charged to reserve, net
of recoveries.
(B) Includes actual cash discounts taken by customers and sales returns
and allowances granted to customers, all of which were charged to
the reserve.
PAGE
<PAGE>
Index of Exhibits
Exhibit
Number Description
------- -----------------------------------------------------------------
3(a) Restated Certificate of Incorporation as amended (*1)
3(b) Bylaws (*2)
4(a) Article 4.01 of Restated Certificate of Incorporation (included in
Exhibit 3(a))
4(b) Rights Agreement dated as of December 4, 1987, between
Gibson Greetings, Inc. and The First National Bank of Boston,
Rights Agent, including Certificate of Designation, Preferences
and Rights of Series A Preferred Stock (*3)
10(a) Lease Agreement dated January 25, 1982 between Corporate
Property Associates 2 and Corporate Property Associates 3 and
Gibson Greeting Cards, Inc. (*4)
10(b) Amendment dated June 25, 1985, to Lease Agreement, dated
January 25, 1982, by and between Corporate Property Associates 2
and Corporate Property Associates 3 and Gibson Greeting Cards,
Inc. (*5)
10(c) Credit Agreement, dated as of April 26, 1993, by and among
Gibson Greetings, Inc.; Bankers Trust Company; The Bank of New
York; Mellon Bank, N.A.; The Fifth Third Bank; Harris Trust and
Savings Bank; NBD Bank, N.A.; Royal Bank of Canada; The Sanwa
Bank, Ltd.; Society National Bank; Union Bank of Switzerland;
Wachovia Bank of Georgia, N.A.; and Bankers Trust Company, as
agent (*6)
10(d) Form of Note Agreement between Gibson Greetings, Inc. and
Connecticut Mutual Life, The Minnesota Mutual Life Insurance
Company, The Reliable Life Insurance Company, Federated Life
Insurance Company, The Variable Annuity Life Insurance Company
and Nationwide Life Insurance Company, dated May 15, 1991 (*7)
10(e) Executive Compensation Plans and Arrangements
(i) 1982 Stock Option Plan (*2)
(ii) 1983 Stock Option Plan (*2)
(iii) 1985 Stock Option Plan (*2)
(iv) 1987 Stock Option Plan (*2)
(v) 1989 Stock Option Plan (*2)
(vi) 1989 Stock Option Plan for Nonemployee Directors (*2)
(vii) 1991 Stock Option Plan (*2)
(viii) Employment Agreement with Thomas M. Cooney (*8)
PAGE
<PAGE>
(ix) Form of Second Amendment to Employment Agreement with Thomas
M. Cooney (*1)
(x) Employment Agreement between Gibson Greetings, Inc. and
Benjamin J. Sottile, dated April 1, 1993 (*6)
(xi) ERISA Makeup Plan (*9)
(xii) Supplemental Executive Retirement Plan (*9)
(xiii) Agreements dated January 2, 1991 and December 10, 1993
between Gibson Greetings, Inc. and Stephen M. Sweeney (*2)
(xiv) Agreement dated November 18, 1993 between Gibson Greetings,
Inc. and William L. Flaherty (*2)
(xv) Agreement dated November 21, 1994 between Gibson Greetings,
Inc. and Nelson J. Rohrbach (*10)
(xvi) Agreement dated June 16, 1995 between Cleo, Inc. and Nelson
J. Rohrbach (*11)
(xvii) Agreement dated November 17, 1995 between Gibson
Greetings, Inc. and Stephen M. Sweeney
PAGE
<PAGE>
Exhibit
Number Description
------- -----------------------------------------------------------------
(xviii) Agreement dated November 21, 1995 between Gibson
Greetings, Inc. and William L. Flaherty
(xix) Agreements dated January 2, 1991 and December 6, 1994
between Gibson Greetings, Inc. and Gregory Ionna
10(f) Stock Purchase Agreement (*12)
10(g) Amendment dated November 15, 1995, to Lease Agreement,
dated January 25, 1982, by and between Corporate Property
Associates 2 and Corporate Associates 3 and Gibson Greetings,
Inc.
11 Computation of Income (Loss) per Share
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule (contained in EDGAR filing only)
- ----------------------
* Filed as an Exhibit to the document indicated and
incorporated herein by reference:
(1) The Company's Report on Form 10-K for the year ended December
31, 1988.
(2) The Company's Report on Form 10-K/A (Amendment No. 1) for the
year ended December 31, 1993.
(3) The Company's Report on Form 8-K dated December 28, 1987,
filed January 4, 1988.
(4) The Company's Registration Statement on Form S-1 (No.
2-82990).
(5) The Company's Report on Form 10-K for the year ended December
31, 1985.
(6) The Company's Report on Form 10-Q for the quarter ended June
30, 1993.
(7) The Company's Report on Form 10-Q for the quarter ended June
30, 1991.
(8) The Company's Report on Form 10-K for the year ended December
31, 1986.
PAGE
<PAGE>
(9) The Company's Report on Form 10-K for the year ended December
31, 1992.
(10) The Company's Report on Form 10-K/A (Amendment No.1) for the
year ended December 31, 1994.
(11) The Company's Report on Form 10-Q for the quarter ended June
30, 1995.
(12) The Company's Report on Form 8-K dated November 15, 1995,
filed November 30, 1995.
- ----------------------
The Company will furnish to the Commission upon request its
long-term debt instruments not listed above.
PAGE
<PAGE>
Exhibit 11
GIBSON GREETINGS, INC.
COMPUTATION OF INCOME (LOSS) PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
----------------------------------------
Restated
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) $ (46,489) $ (28,603) $ 15,268
========== ========== ==========
Weighted average number
of shares of common
stock and equivalents
outstanding:
Common stock 16,084 16,087 16,042
Options 159 43 61
---------- ---------- ----------
16,243 16,130 16,103
========== ========== ==========
Net income (loss) per
share $ (2.86) $ (1.77) $ 0.95
========== ========== ==========
</TABLE>
PAGE
<PAGE>
Exhibit 21
GIBSON GREETINGS, INC.
Subsidiaries of the Registrant
As of December 31, 1995
NAME STATE OF INCORPORATION
-------------------------------------- ----------------------
Gibson Greetings International Limited Delaware
Gibson de Mexico S.A. de C.V. Mexico
The Paper Factory of Wisconsin, Inc. Wisconsin
PAGE
<PAGE>
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in Registration Statements
No. 2-88721, 33-2481, 33-18221, 33-32596, 33-32597, 33-44633, 33-67782 and
33-67784 of Gibson Greetings, Inc. on Form S-8 of our report dated February
14, 1996, appearing in this Annual Report on Form 10-K of Gibson Greetings,
Inc. for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
February 14, 1996
PAGE
<PAGE>
EXHIBIT 10(e)(xvii)
November 17, 1995
Mr. Stephen M. Sweeney
Vice President - Human Resources
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, OH 45237
Re: Employment Agreement
Dear Steve:
This will serve as an amendment to the Employment Agreement between the
parties dated January 2, 1991 as amended December 10, 1993 ("Agreement") and
shall become effective only upon the occurrence of a change in controlling
ownership of the Company, or a sale of all or substantially all of the assets
of the Company ("Qualifying Transaction").
Upon the closing date of any Qualifying Transaction occurring during the term
of the Agreement, the Agreement shall be amended as follows:
1. Upon the occurrence of a Qualifying Transaction, the term of the Agreement
is hereby extended for a period of two (2) years from the closing date of
such Qualifying Transaction. Unless you receive at least six (6) months'
prior written notice from the Company that the Agreement will terminate upon
the expiration of said two (2) year period, the Agreement will automatically
be extended and will continue in effect until terminated by the Company for
any reason and at any time upon giving you six (6) months' written notice or
by you upon thirty (30) days' written notice to the Company. This agreement
shall remain at all times subject to earlier termination for cause.
All other terms and conditions of the Agreement not amended hereby remain in
full force and effect.
Sincerely,
GIBSON GREETINGS, INC.
By: /s/ Albert R. Pezzillo
ACCEPTED AND AGREED TO:
/s/ Stephen M. Sweeney
Stephen M. Sweeney
Date: 11/28/95
PAGE
<PAGE>
EXHIBIT 10(e)(xviii)
November 21, 1995
Mr. William L. Flaherty
Vice President, Finance and
Chief Financial Officer
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, OH 45237
Dear Bill:
As we have discussed, Gibson Greetings, Inc. and you desire to amend your
Employment Agreement dated November 18, 1993 ("Agreement"). This amendment
is as follows:
1. Paragraph 10 of the Agreement is deleted.
2. New Paragraph 10 is hereby adopted to read as follows:
In the event of:
(a) voluntary termination of your employment by you no sooner than
thirty (30) but not later than sixty (60) days after a Change in Control (as
hereinafter defined); or
(b) termination of your employment by the Company within one (1) year
after a Change in Control (as hereinafter defined), but excepting termination
by the Company pursuant to Paragraph 11 (illness, incapacity, or death) and
termination by the Company for cause pursuant to Paragraph 12,
then in the case of either (a) or (b) above, the Company shall pay to you the
sum of three (3) times your annual base salary which at the time is in effect
in lieu of all other severance, termination, and continuing pay benefits to
which you would be entitled under the Agreement or otherwise (and including
without limitation payments under Paragraphs 1 and 14). Payment will be made
to you within three (3) business days following your termination.
A Change in Control as used herein shall be deemed to have occurred if the
conditions set forth in any one of the following subparagraphs shall have
been satisfied:
(i) any person is or becomes the Beneficial Owner, as defined in Rule
13(d)(3) of the Securities Exchange Act of 1934, as amended from time to time
("Beneficial Owner"), directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates) representing
50% or more of the combined voting power of the Company's then outstanding
securities; or
PAGE
<PAGE>
(ii) if any action relating to termination is taken by the Company
pursuant to the request or direction of any Person who by agreement, whether
actual, implied, or otherwise will become a Beneficial Owner with ownership
as described in (i) above, or pursuant to the request or direction of any
Person who requests or directs such action as a condition to becoming a
Beneficial Owner with ownership as described in (i) above, then a Change in
Control shall be deemed to have occurred with respect to such action and to
have preceded such action; or
(iii) during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board and any new director (other
than a director designated by a Person who has entered into an agreement with
the Company to effect a transaction described in clause (i), (iv), or (v) of
this definition) whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two -thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority
thereof; or
(iv) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (a) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof), in combination with the ownership of
any trustee or other fiduciary holding securities under an employee benefit
plan of the Company, at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or (b) a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no Person acquires more than 50% of the
combined voting power of the Company's then outstanding securities; or
(v) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
As used in this Paragraph, "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof; however, a Person shall not include (i) the Corporation or any of
its subsidiaries, (ii) a trustee or other fiduciary holding securities under
an employee benefit plan of the Corporation or any of its subsidiaries, (iii)
an underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation.
3. The last sentence of Paragraph 12 is amended to insert "10," between the
word "Paragraphs" and the number "13."
PAGE
<PAGE>
To indicate your acceptance of and willingness to be bound by this amendment
to your Agreement, please sign and return one duplicate original of this
letter.
Sincerely,
GIBSON GREETINGS, INC.
By: /s/ Albert R. Pezzillo
ACCEPTED AND AGREED TO:
/s/ William L. Flaherty
William L. Flaherty
Date: November 30, 1995
PAGE
<PAGE>
EXHIBIT 10(e)(xix)
January 2, 1991
Mr. Gregory Ionna
Vice President - Marketing
Gibson Division
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, Ohio 45237
Re: Employment Agreement
Dear Greg:
In accordance with our prior discussions, it is my pleasure to confirm to you
the following terms and conditions under which you have agreed to continue
serving as Vice President - Marketing of the Gibson Division of Gibson
Greetings, Inc. ("Company").
1. You have agreed to serve the Company on a full-time basis as a senior
executive employee, and the Company agrees to employ you as such, for a
period of three years commencing December 1, 1990 and ending on November
30, 1993. Your annual salary, effective December 1, 1990, shall be $90,000
which amount may be increased from time to time by the Company throughout
the term of the Agreement in accordance with the Company's salary
administration program. In addition, you will qualify for the Key
Executives' Bonus Program.
2. In addition to the above salary and bonus, you will also be included in
Gibson's Supplemental Executive Retirement Plan and in Gibson's other
programs for executives which include: executive physical examinations,
supplemental life insurance, and tax preparation and estate planning
assistance.
3. In the event you are unable to perform your duties hereunder due to illness
or other incapacity, which incapacity continues for more than six
consecutive or nonconsecutive months in any twelve month period, the
Company shall have the right, on not less than 30 days written notice to
you, to terminate this Agreement. In the event of your death during your
employment hereunder, your salary shall cease as of the last day of the
sixth full calendar month following the month in which your death occurs.
Except for such salary continuation rights, this Agreement shall terminate
as of the date of death.
PAGE
<PAGE>
4. In the event any person becomes the beneficial owner of fifty percent (50%)
or more of the Company's securities, and you are not retained by that
person in substantially the same capacity and salary as contemplated herein
for at least six (6) months from the date of said change in beneficial
ownership, then upon your termination hereunder, you will be paid one
year's salary reduced by 1/12 for each full month of employment completed
after said change in beneficial ownership. Any amount to be paid hereunder
would be further reduced by the value of any severance package received by
you from the new ownership in connection with your termination.
5. In the event you voluntarily terminate your employment during the term of
this Agreement, or if your employment is terminated for cause, your right
to all compensation hereunder shall cease as of the date of termination.
"Cause" shall mean dishonesty, insubordination, gross negligence or willful
misconduct in the performance of your duties, failure to perform duties in
a diligent and competent manner, or any willful or material breach of this
Agreement. Termination of employment under this Paragraph shall terminate
this Agreement with the exception of the provisions of Paragraphs 6, 7, and
9.
6. Also in the event you voluntarily terminate your employment hereunder, or
in the event the Company terminates this Agreement and your employment for
cause, you agree that for a period of two years after such termination, you
will not compete, directly or indirectly, with the Company or with any
division, subsidiary or affiliate of Gibson Greetings, Inc. or participate
as a director, officer, employee, consultant, advisor, partner or joint
venturer in any business engaged in the manufacture or sale of greeting
cards, gift wrap or other products produced by the Company, or by any
division, subsidiary or affiliate of Gibson Greetings, Inc., without the
Company's prior consent. If this Agreement is not earlier terminated as
provided in this Paragraph, your said obligation not to compete shall
continue in effect for a period of one year following the expiration of
this Agreement or of any renewal or extension hereof.
7. In connection with this Agreement, you agree to continue to receive
confidential information of the Company in confidence, and not to disclose
to others, assist others in the application of, or use for your own gain,
such information, or any part thereof, unless and until it has become
public knowledge or has come into the possession of others by legal and
equitable means. You further agree that, upon termination of employment
with the Company, all documents, records, notebooks, and similar writings,
including copies thereof, then in your possession, whether prepared by you
or by others, will be left with the Company. For purposes of this
Paragraph, "confidential information" means information concerning
Company's finances, plans, sales, products, processes and services, or
those of Company's subsidiaries, divisions or affiliates, which is
disclosed to you or known by you as a consequence of or through your
employment with the Company, and which is not generally known in the
industry in which the Company or its subsidiaries, divisions or affiliates
are or may become engaged.
8. Nothing herein is intended to be granted to you in lieu of any rights or
privileges to which you may be entitled as an executive employee of the
Company under any retirement, insurance, hospitalization, or other plan
which may now or hereafter be in effect.
PAGE
<PAGE>
9. This Agreement shall inure to the benefit of and be binding upon you and
your legal representatives as well as the Company, its successors and
assigns including, without limitation, any person, partnership, corporation
or other entity which may acquire all, or substantially all, of the
Company's assets and business.
To indicate your acceptance of and willingness to be bound by this Agreement,
please sign and return one duplicate original of this letter.
Sincerely,
GIBSON GREETINGS, INC.
/s/Benjamin J. Sottile
Benjamin J. Sottile
President and C.E.O.
BJS/HLC/ss:=14
ACCEPTED AND AGREED TO:
/s/ Gregory Ionna
Gregory Ionna
Date:
PAGE
<PAGE>
December 6, 1994
Mr. Gregory Ionna
Executive Vice President -
Sales and Marketing
Gibson Card Division
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, OH 45237
Dear Greg:
As you are aware, the original term of your employment agreement
with Gibson Greetings, Inc. expired on November 30, 1993.
We believe that you, as a highly valued member of the Company,
have earned and continue to deserve the career and financial
security afforded by an employment agreement. Therefore, we are
hereby offering to extend your January 2, 1991 agreement
indefinitely until it is terminated by the Company upon one (1)
year's advance written notice to you. The agreement shall remain
subject to earlier termination for cause.
In addition, as requested by you, the two-year non-compete
provision set forth in Paragraph 6 of the agreement shall be
changed to one year. All other terms and conditions of the
agreement shall remain the same.
Please be aware that, even if the Company decides to terminate
your employment agreement, that would not necessarily be a
termination of your employment relationship with the Company.
To indicate your acceptance of this amendment, please sign where
indicated below and, as promptly as possible, return the executed
original in the enclosed self-addressed envelope. Please be sure
to retain an executed copy for your records.
Sincerely,
GIBSON GREETINGS, INC.
/s/Stephen M. Sweeney
Stephen M. Sweeney
Vice President, Human Resources
SMS/dk
ACCEPTED AND AGREED TO:
/s/ Gregory Ionna
Gregory Ionna
Date:12/14/94
PAGE
<PAGE>
EXHIBIT 10(g)
LEASE AMENDMENT AGREEMENT
-------------------------
THIS LEASE AMENDMENT AGREEMENT (this "Agreement") is made this
15th day of November 1995 by and among CORPORATE PROPERTY ASSOCIATES 2 AND
CORPORATE PROPERTY ASSOCIATES 3 (collectively "Landlord"), both California
limited partnerships with an address c/o W.P.Carey & Co., Inc., 50
Rockefeller Plaza, New York, New York 10020 and GIBSON GREETINGS, INC.,
formerly known as Gibson Greeting Cards, Inc. ("Gibson"), a Delaware
corporation, with an address at 2100 Section Road, Cincinnati, Ohio 45237.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Landlord and Gibson entered into a Lease Agreement dated
January 25, 1982, as amended by Amendment dated June 25, 1985 and as further
amended by an undated Letter Agreement executed by Landlord and Gibson on
or about April 25, 1986 (collectively, as so amended, the "Lease").
Pursuant to the Lease, Landlord is currently leasing to Gibson three
parcels of Land, together with the Improvements and Equipment erected
thereon and pertaining thereto (individually, the "Ohio Premises", the
"Tennessee Premises" and the "Kentucky Premises" and collectively, the
"Leased Premises"). The Leased Premises are more particularly described in
the Lease.
WHEREAS, by Sublease of Tennessee Premises dated as of the first
day of January, 1989, Gibson subleased to CLEO, Inc., a Tennessee
corporation, a subsidiary of Gibson, ("CLEO") the Tennessee Premises (the
"Sublease"). Landlord consented to the Sublease by letter to Gibson dated
December 30, 1988.
WHEREAS, a Memorandum of Lease was filed in Hamilton County, Ohio
as to the Ohio Premises, Madison County, Kentucky, as to the Kentucky
Premises, and Shelby County, Tennessee as to the Tennessee Premises, with
respect to the Lease.
WHEREAS, Gibson, with the consent of Landlord, is,
contemporaneously with the execution of this Agreement, selling all of the
stock of CLEO to CSS Industries, Inc., a Delaware corporation ("CSS") and
terminating the Sublease.
WHEREAS, CLEO and Landlord, contemporaneously with the execution
of this Agreement, will execute a separate Lease Agreement with respect to
the Tennessee Premises.
WHEREAS, Landlord and Gibson wish to clarify their mutual rights,
duties and obligations under the Lease and make various amendments to the
Lease all as more particularly set forth herein.
PAGE
<PAGE>
NOW, THEREFORE, the parties hereto in consideration of the mutual
promises contained herein and intending to be legally bound hereby,
covenant and agree as follows:
1. The recitals set forth above, all exhibits attached hereto, if
any, and the Lease referred to therein, are incorporated herein by
reference and all definitions and document identifications, shall, except
as expressly provided to the contrary herein, have the same meanings in
this Agreement as are respectively ascribed to them in the Lease as if set
forth in full in the body of this Agreement.
2. The Lease is hereby terminated with respect to the Tennessee
Premises only. Accordingly, all references in the Lease to the Tennessee
Premises are hereby deleted and the term "Leased Premises" shall hereafter
mean collectively only the Ohio Premises and the Kentucky Premises.
3. From and after the date hereof Gibson shall be obligated to
perform all of the terms, covenants and conditions and shall hold all of
the rights, duties, obligations and benefits of the tenant under the Lease
(including, without limitation, liability for any Environmental Violation)
as the same applies to the Ohio Premises and the Kentucky Premises only, as
the same may be amended by this Agreement.
4. Gibson shall remain liable to Landlord for the performance of
all of tenant's liabilities, duties, obligations, covenants and agreements
under the Lease (including, without limitation, liability for any
Environmental Violation) as they pertain to the Tennessee Premises (a)
which arose on or prior to the date hereof or (b) which arise on or after
the date hereof due to acts or omissions of Gibson and/or conditions
existing at the Tennessee Premises prior to the date hereof. The foregoing
agreement shall remain in full force and effect in favor of Landlord,
notwithstanding any agreement between Gibson and CLEO and/or CSS with
respect to assumption of liabilities under the Lease.
5. Landlord hereby agrees to enter into a direct Lease Agreement
with CLEO contemporaneously with the execution of this Agreement. Landlord
hereby acknowledges that (a) Basic Rent under the Lease has been paid
through October 31, 1995; (b) to the knowledge of Landlord without
independent investigation, no Event of Default exists under the Lease with
respect to the Tennessee Premises; and (c) to the knowledge of Landlord
without independent investigation, no condition exists which with the
giving of notice or the passage of time or both would constitute an Event
of Default under the Lease with respect to the Tennessee Premises except
that the roof is in disrepair and needs to be repaired or replaced;
provided, however, that Landlord shall take no action against Gibson with
reference to the condition of the roof until after May 15, 1996.
6. (a) Gibson shall pay to Landlord, within two (2) business days
following the execution and delivery of this Agreement, the sum of Twelve
Million Two Hundred Thousand Dollars ($12,200,000) (the "Consideration").
The Consideration is a one-time lump sum payment as consideration for
Landlord terminating the Lease as to the Tennessee Premises. Such payment
shall not reduce or be credited toward the Basic Rent, Additional Rent or
any other amount owed to Landlord by Gibson under the Lease or otherwise.
PAGE
<PAGE>
(b) As directed by Landlord, Gibson shall wire the Consideration
directly to Principal Mutual Life Insurance Company ("Lender") to be
applied toward the payoff of the loan secured by a mortgage encumbering the
Leased Premises (the "Loan"). Landlord covenants that Landlord will
initiate a wire for the balance of funds necessary to fully pay off the
Loan, including any prepayment penalty, contemporaneously with confirmation
of receipt of the wire of the Consideration from Gibson to Lender.
7. Paragraph 5(a) of the Lease shall be amended to extend the
Term of the Lease through November 30, 2013.
The options to extend the Lease granted to Gibson in Paragraph
5(b) of the Lease are hereby terminated. Paragraph 5(b) of the Lease is
deleted in its entirety and replaced by the following:
"(b) Landlord hereby grants to Tenant the right at Tenant's
option to extend the Term of this Lease for one additional period of ten
(10) years after the expiration of the initial Term hereof (the "Renewal
Term"). The Renewal Term shall be subject to all of the terms and
conditions of this Lease as if the Term originally included such Renewal
Term and upon the exercise of such option, the Term shall include such
Renewal Term therein. Tenant may exercise its option to extend the Term
only by giving written notice of such extension to Landlord no later than
twelve (12) months, and no earlier than 18 months, prior to the expiration
of the initial Term."
All other provisions of Paragraph 5 of the Lease remain unchanged
and in full force and effect.
8. In consideration of the extension of the Term of the Lease as
provided in Paragraph 7 above, Exhibit F of the Lease is deleted in its
entirety and Paragraph 6 of the Lease is amended to change Basic Rent as
follows: Beginning November 15, 1995, the Basic Rent shall be Three
Million One Hundred Thousand ($3,100,000) Dollars per annum, payable
monthly, in arrears, as more particularly set forth in Paragraph 6 of the
Lease. Every five (5) years, annual Basic Rent shall increase twenty
percent (20%) over the then current Basic Rent as follows: For the period
December, 2000 through November, 2005, inclusive, Basic Rent shall be Three
Million Seven Hundred Twenty Thousand ($3,720,000) Dollars per annum; for
the period December, 2005 through November, 2010, inclusive, Basic Rent
shall be Four Million Four Hundred Sixty-Four Thousand ($4,464,000) Dollars
per annum; for the period December, 2010 through November, 2013, inclusive,
Basic Rent shall be Five Million Three Hundred Fifty-Six Thousand Eight
Hundred ($5,356,800) Dollars per annum.
Basic Rent for the Ohio Premises, the Kentucky Premises and the
Tennessee Premises for the fourteen (14) days from November 1 through
November 14, 1995, computed using the annual Basic Rent under the Lease in
effect just prior to this Agreement, shall be paid by Gibson on December 1,
1995. Basic Rent, computed using the annual Basic Rent set forth above in
this Paragraph 8, for the Ohio Premises and the Kentucky Premises for the
sixteen (16) days from November 15 through November 30, 1995 shall be paid
by Gibson on December 1, 1995.
PAGE
<PAGE>
If Gibson exercises its option to extend the Lease pursuant to
Paragraph 5(b) of the Lease as amended herein, the annual Basic Rent for
the Renewal Term shall be the lower of: (a) Six Million Four Hundred
Twenty Eight Thousand One Hundred Sixty ($6,428,160) Dollars; and (b) the
fair market rental value of the Leased Premises. The fair market rental
value of the Leased Premises shall be determined as follows: Landlord and
Tenant shall endeavor to agree on fair market rental value at least nine
(9) months prior to the expiration of the then current lease Term. If
Landlord and Tenant are unable to reach agreement on the fair market rental
value of the Leased Premises within said time period, the procedure set
forth in Paragraph 27 of the Lease for determining the fair market value of
the Leased Premises shall be followed except that the appraisers shall be
instructed to determine fair market rental value, and not fair market
value. In determining fair market rental value, the appraisers shall
determine the amount that a willing tenant would pay, and a willing
landlord of a comparable property located in a radius of 10 miles of the
Leased Premises would accept, at arm's length, to rent a property of
comparable size and quality as the Leased Premises taking into account:
(a) the age, quality, and condition of the Improvements; (b) that the
Leased Premises will be leased as a whole or substantially as a whole to a
single user; (c) a lease term of ten (10) years; (d) an absolute triple net
lease; and (e) such other items that professional real estate appraisers
customarily consider. The fair market rental value shall be determined
separately for each property comprising the Leased Premises. If, by virtue
of any delay, fair market rental value is not determined by the expiration
or termination of the then current Term, then until fair market rental
value is determined, Tenant shall continue to pay Basic Rent during the
Renewal Term in the same amount which it was obligated under this Lease to
pay prior to the commencement of the Renewal Term. When fair market rental
value is determined, the appropriate Basic Rent shall be calculated
retroactive to the commencement of the Renewal Term and Tenant shall either
receive a refund from Landlord (in the case of an overpayment) or shall pay
any deficiency to Landlord (in the case of an underpayment).
All other provisions of Paragraph 6 remain unchanged and in full
force and effect.
9. In consideration of the extension of the Term of the Lease as
provided in Paragraph 7 above, Paragraph 27 of the Lease shall be amended
as follows:
The options to purchase the Leased Premises granted to Gibson on
the last day of the tenth (10th) year of the Term and on the last day of
the twentieth (20th) year of the Term are hereby terminated.
PAGE
<PAGE>
Landlord hereby grants Gibson the option to purchase the Ohio
Premises, the Kentucky Premises or both on the last day of November, 2005
and, if Gibson does not exercise this option, Landlord hereby grants Gibson
a second option to purchase the Ohio Premises, the Kentucky Premises or
both on the last day of November, 2010, and if Gibson does not exercise
this option and has extended the Lease pursuant to Paragraph 5(b) as
amended herein, Landlord grants Gibson a third option to purchase the Ohio
Premises, the Kentucky Premises or both on the last day of November, 2023.
Accordingly, all references in Paragraph 27 of the Lease to "the last day
of the tenth (10th) year of the Term" shall be deleted and replaced by "the
last day of November, 2005," all references in Paragraph 27 of the Lease to
"the last day of the twentieth (20th) year of the Term" shall be deleted
and replaced by "the last day of November, 2010" and a reference to the
third option granted herein on the last day of November, 2023 shall be
added.
The options to purchase granted to Gibson hereunder may only be
exercised if no Event of Default has occurred which has not been cured both
at the time of the exercise of the option and at the time of title closing
on such purchase.
If Tenant exercises its option to purchase the Ohio Premises, the
Kentucky Premises or both, the purchase price shall be the fair market
value of such premises at the time of the exercise of the option determined
in accordance with the provisions of Paragraph 27 of the Lease (the fair
market value of both premises comprising the Leased Premises shall be
determined, even if Tenant desires to buy only one such premises, if on the
purchase date the Basic Rent will not be determined by reference to the
fair market rental value of the Leased Premises). If Gibson exercises its
option to purchase either the Ohio Premises or the Kentucky Premises but
not both, the Lease will continue with respect to the premises not being
purchased, if the Term of the Lease has not terminated by the date of title
closing on the purchase, and the Basic Rent for such remaining premises
shall be either (a) the fair market rental value of such remaining
premises, if Basic Rent is then being determined by reference to the fair
market rental value of each premises comprising the Leased Premises
determined in accordance with the provisions of Paragraph 6 of the Lease as
amended in Paragraph 8 hereof, or (b) if the Basic Rent is not then being
determined by reference to fair market rental value, the new Basic Rent
shall be the product obtained by multiplying Basic Rent then in effect by a
fraction, the numerator of which is the fair market value of the premises
not being purchased and the denominator of which is the fair market value
of both properties comprising the Leased Premises.
All other provisions of Paragraph 27 remain unchanged and in full
force and effect.
10. The following definitions shall be added to Paragraph 2 of
the Lease:
PAGE
<PAGE>
(a) "Environmental Law" shall mean whenever enacted or
promulgated any applicable federal, state, foreign and local law, statute,
ordinance, rule, regulation, or code relating to pollution or protection of
the environment or to health and safety, including, without limitation,
laws relating to (i) emissions, discharge, releases or threatened releases
of Hazardous Substances into the environment (including ambient air,
surface water, groundwater, or land) and (ii) the processing, use,
generation, treatment, storage, disposal, recycling, or remediation of
Hazardous Substances or Hazardous Conditions.
(b) "Environmental Violation" shall mean (a) any direct or
indirect discharge, disposal, spillage, emission, escape, pumping, pouring,
injection, leaching, release, seepage, filtration or transporting of any
Hazardous Substance at, upon, under, onto or within the Leased Premises, or
from the Leased Premises to the environment, in violation of any
Environmental Law or in excess of any reportable quantity established under
any Environmental Law or which could result in any liability to Landlord,
Tenant or First Lender, any Federal, state or local government or any other
Person for the costs of any removal or remedial action or natural resources
damage or for bodily injury or property damage, (b) any deposit, storage,
dumping, placement or use of any Hazardous Substance at, upon, under or
within the Leased Premises or which extends to any Adjoining Property in
violation of any Environmental Law or in excess of any reportable quantity
established under any Environmental Law or which could result in any
liability to any Federal, state or local government or to any other Person
for the costs of any removal or remedial action or natural resources damage
or for bodily injury or property damage, (c) the abandonment or discarding
of any barrels, containers or other receptacles containing any Hazardous
Substances in violation of any Environmental Laws, (d) any Hazardous
Condition which results in any liability, cost or expense to Landlord or
First Lender or any other owner or occupier of the Leased Premises, or
which could result in a creation of a lien on the Leased Premises under any
Environmental Law, or (e) any material violation of or noncompliance with
any Environmental Law; provided, however, Environmental Violation shall not
include any matter described in the foregoing clauses (a) through (e) of
this definition that (i) arises out of or relates to a condition existing
at the Leased Premises on the date of this Lease, (ii) arises or results
from the migration of any Hazardous Substance onto the Leased Premises from
any other property, or (iii) arises or accrues due to acts or omissions
occurring prior to the date of this Lease.
(c) "Hazardous Conditions" shall mean conditions of the
environment, including soil, surface water, groundwater, subsurface strata
or the ambient air, relating to or arising out of the use, handling,
storage, treatment, recycling, generation, release, disposal, or threatened
release of Hazardous Substances.
(d) "Hazardous Substances" shall mean any pollutant, contaminant,
hazardous or toxic substance, hazardous waste, or other chemicals,
substances or materials subject to regulation under any Environmental Law.
PAGE
<PAGE>
(e) "Renewal Term" shall have the meaning set forth in Paragraph
5(b) of the Lease as amended in Paragraph 7 of this Agreement.
11. The effectiveness of this Agreement, the Lease Agreement
with CLEO and the transactions contemplated by those documents is
specifically conditioned and contingent upon: (a) Landlord and CLEO
entering into a Lease Agreement for the Tennessee Premises in form and
substance acceptable to Landlord; (b) CSS executing a Guaranty and
Suretyship Agreement in favor of Landlord, guarantying CLEO's obligations
under the lease with Landlord, in form and substance acceptable to
Landlord; and (c) receipt of the Consideration by Lender within two (2)
business days of the execution of this Agreement.
12. Except as expressly amended hereby, the Lease remains in
full force and effect in accordance with its terms.
PAGE
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the date first above written.
Signed and acknowledged CORPORATE PROPERTY ASSOCIATES 2
in the presence of:
By: W.P. Carey & Co., Inc.,
General Partner
/s/ Samantha Garbus By:/s/ John J. Park
- ------------------------- --------------------------
Name: Title: Senior VP
/s/ Stacey Edelson
- -------------------------
Name:
CORPORATE PROPERTY ASSOCIATES 3
By: W.P. Carey & Co., Inc.,
General Partner
/s/ Samantha Garbus By:/s/ John J. Park
- ------------------------- --------------------------
Name: Title: Senior VP
/s/ Stacey Edelson
- -------------------------
Name:
GIBSON GREETINGS, INC.
By: W.P. Carey & Co., Inc.,
General Partner
/s/ Dan Fausz By:/s/ William L. Flaherty
- ------------------------- --------------------------
Name: Dan Fausz William L. Flaherty
Vice President and
/s/ Gerald S. Greeenberg Chief Financial Officer
- -------------------------
Name: Gerald S. Greenberg
PAGE
<PAGE>
State of New York :
: ss.
COUNTY OF New York :
On this, the 15th day of November, 1995, before me, a notary
public, the undersigned officer, personally appeared John J. Park, who
acknowledged himself to be the Senior VP of W.P. Carey & Co., Inc., a New
York corporation, and that he, as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal the
day and year aforesaid.
/s/ Samantha Garbus
------------------------
Notary Public
My Commission Expires:
SAMANTHA GARBUS
Notary Public, State of New York
No. 31-4995627
Qualified in New York County
Commission Expires April 27, 1996
PAGE
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
: ss.
COUNTY OF Philadelphia :
On this, the 15th day of November, 1995, before me, a notary
public, the undersigned officer, personally appeared William L. Flaherty,
who acknowledged himself to be the Vice President and Chief Financial
Officer of Gibson Greetings Inc., a Delaware corporation, and that he, as
such officer, being authorized to do so, executed the foregoing instrument
for the purposes therein contained, by signing the name of the corporation
by himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal the
day and year aforesaid.
/s/ Hollie R. Gibboney
------------------------
Notary Public
My Commission Expires:
NOTARIAL SEAL
HOLLIE R. GIBBONEY, Notary Public
City of Philadelpia, Phila. County
My Commission Expires April 6, 1998
PAGE
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