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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-11902
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 21, 1997 was
approximately $341,048,000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 16,260,506 shares
of Common Stock, $.01 par value, at March 21, 1997.
Documents incorporated by reference:
Portions of Gibson Greetings, Inc.'s Proxy Statement for the 1997
Annual Meeting of Stockholders are incorporated by reference in
Part III
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GIBSON GREETINGS, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
PAGE
----
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 53
PART III
Item 10. Directors and Executive Officers of the Registrant 54
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners and Management 54
Item 13. Certain Relationships and Related Transactions 54
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 55
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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.
During 1991, the Company formed Gibson Greeting 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. In 1993, 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"). The Paper Factory operates retail stores under the
names of The Paper Factory, Greetings N' More and Great Party located
primarily in manufacturers' outlet shopping centers.
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 included in the
consolidated financial statements for each of the two years ended December 31,
1995 were $151.9 million and $189.3 million, respectively.
In view of the poor economic conditions and devaluation of the peso in
Mexico, the Company liquidated its investment in Gibson de Mexico S.A. de C.V.
("Gibson de Mexico"), a majority-owned subsidiary, during 1996 resulting in a
loss on liquidation of $2.1 million and an income tax benefit of $3.7 million
for a net increase in net income of $1.6million or $.10 per share.
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 1996, approximately 68% of net sales of cards were derived
from everyday cards and approximately 32% from seasonal cards. The Company's
products also include paper partywares, gift wrap, 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(certain prior year
amounts have been reclassified to conform to the 1996 presentation):
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<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
Pro Forma
---------
1996 1995 1995* 1994*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Greeting cards $227,512 $237,160 $255,192 $250,891
Partywares 48,386 40,891 40,939 34,282
Gift wrap 42,812 45,194 172,893 202,439
Other products 70,711 64,968 71,121 60,430
-------- -------- -------- --------
Total net sales $389,421 $388,213 $540,145 $548,042
======== ======== ======== ========
</TABLE>
[FN]
* Includes Cleo, Inc. which was sold effective November 15, 1995.
Many of the Company's products incorporate well-known proprietary
characters. Net sales associated with licensed properties accounted for
approximately 13% of overall 1996 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 also has developed proprietary properties of its own. See
"Trademarks, Copyrights and Licenses."
Approximately 6% of the Company's revenues in 1996 were attributable to
sales and royalty income from foreign sources.
Sales and Marketing
The Company's products are sold in more than 25,000 retail outlets
worldwide. The Company's current products are sold primarily under the Gibson
brand name and are primarily distributed to supermarkets, deep discounters,
mass merchandisers, card and specialty shops and variety stores. To market
effectively through these outlets, the Company has developed specific product
programs and new product lines and introduced new in-store displays. During
1996, the Company's five largest customers accounted for approximately 32% of
the Company's net sales and 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 product
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. 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.
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Consistent with general industry practice, the Company has entered into
long-term sales agreements with certain retailers. These sales agreements
typically have terms ranging from three to five years, and generally specify a
minimum sales volume commitment. In certain of these sales agreements,
negotiated cash payments or credits constitute advance discounts against
future sales. These payments are capitalized and amortized over the initial
term of the sales agreement. The Company currently has sales agreements with
a number of customers including four 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, in some cases 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
The Company maintains an extensive world-wide free-lance pool and a
full-time staff of artists, writers, art directors and creative planners at
the Company's headquarters who design the majority of the Company's products.
Design of everyday products begins approximately 9 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 14 months before the holiday date and seasonal
designs go into production about 8 months before the holiday date.
Most of the Company's products are 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 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.
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. 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 sales agreements, and that it is competitive in all of these
areas. See "Sales and Marketing."
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Trademarks, Copyrights and Licenses
The Company currently has approximately 40 registrations of trademarks in
the United States and approximately 70 registrations of trademarks 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 also 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, 1996 and 1995, the Company employed approximately
2,300 and 2,500 persons on a full-time basis, respectively. In addition, as
of December 31, 1996 and 1995, the Company employed approximately 7,400 and
7,100 persons on a part-time basis, respectively.
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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 a third party's
alleged disposal at the site, during the period 1972-1977, of waste allegedly
generated at Cleo facilities. 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 issued a
similar Order to the Company on May 1, 1996. The May 1, 1996 order 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 the potential
liability of Cleo and/or the Company at this site. The insurance companies
have neither confirmed nor denied the coverage at this time.
-7-
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Item 2. Properties
The following is a summary of the Company's principal manufacturing,
distribution and administrative facilities:
<TABLE>
<CAPTION>
Approximate
Floor Space
Location Principal Use (Sq Ft)
- -------------------- ------------------------------------- -----------
<S> <S> <C>
Cincinnati, Ohio Corporate headquarters, manufacturing
and administration 593,700
Berea, Kentucky Manufacturing and distribution 597,100
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
Ranch Cucamonga,
California Distribution 40,200
---------
Total 1,743,500
=========
</TABLE>
The first two facilities listed above are currently leased 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 these dates. 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 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, and the facilities at Neenah, Wisconsin
and Rancho Cucamonga, California are leased. The Company also leases sales
offices, other manufacturing, distribution and administrative facilities and,
on a temporary basis, uses warehouse space in various locations throughout the
United States. The Paper Factory leases approximately 190 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 2006. See Note 11 of Notes to
Consolidated Financial Statements set forth in Item 8 below.
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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.
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 then
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 August
1996 the Court reconsidered its prior rulings and certified the case as a
class action. The latest 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 a motion to dismiss the
latest complaint and a Third Party Complaint against its former auditor for
contribution against any judgment adverse to the Company. The case currently
is scheduled to be tried in June 1997.
The Company presently is unable to predict the effect of the ultimate
resolution of the matter described above upon the Company's results of
operations and cash flows; as of this date, however, Management does not
expect that such resolution 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 April 10, 1995, two purported class action lawsuits were commenced
against the Company, its then Chairman, President and Chief Executive Officer
and its then 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. The two lawsuits
were consolidated and captioned In Re Gibson Greetings Securities Litigation
II. This litigation has been concluded through the creation of a $1.6 million
settlement fund, most of which is covered by insurance.
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<PAGE>
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 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.
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<PAGE>
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, 1996, the
amount of unrestricted retained earnings available for dividends was $16.0
million, which includes a waiver in effect until June 1, 1997 on $7.0 million.
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.
No dividends were declared in or paid in either 1996 or 1995. There were
approximately 7,800 beneficial owners of the Company's common stock on March
7, 1997.
The following table presents certain quarterly market price information
for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1996
- -------------------
Market price of
common stock (1):
Low $13 3/8 $13 1/8 $11 3/4 $14 $11 3/4
High 16 7/8 14 3/4 14 3/4 20 1/4 20 1/4
1995
- -------------------
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
</TABLE>
[FN]
(1) Per share prices are based on the closing price as quoted
in the Nasdaq National Market.
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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, 1996. 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,
----------------------------------------------------------
1996 1995 1994 1993(1) 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales $389,421 $540,145 $548,042 $546,165 $484,118
Royalty income 825 676 753 761 1,705
-------- -------- -------- -------- --------
Total revenues 390,246 540,821 548,795 546,926 485,823
-------- -------- -------- -------- --------
Cost of products
sold 152,229 268,702 310,039 277,109 247,340
Selling,
distribution and
administrative
expenses 199,490 239,922 276,147 227,863 218,642
Loss on sale of
Cleo, Inc. - 83,012 - - -
-------- -------- -------- -------- --------
Operating income
(loss) 38,527 (50,815) (37,391) 41,954 19,841
Interest expense 8,822 13,178 10,599 7,737 7,803
Interest income (3,364) (915) (765) (949) (1,023)
(Gain) loss on
derivative
transactions/
settlement, net - - (1,641) 5,689 -
-------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect
of accounting
changes 33,069 (63,078) (45,584) 29,477 13,061
Income taxes 11,107 (16,589) (16,981) 14,209 5,076
-------- -------- -------- -------- --------
Income (loss) before
cumulative effect
of accounting
changes 21,962 (46,489) (28,603) 15,268 7,985
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Cumulative effect
of accounting
changes - - - - (1,449)
-------- -------- -------- -------- --------
Net income (loss) $ 21,962 $(46,489) $(28,603) $ 15,268 $ 6,536
======== ======== ======== ======== ========
Income (loss)
per share
before cumulative
effect of
accounting
changes $ 1.34 $ (2.86) $ (1.77) $ 0.95 $ 0.50
-------- -------- -------- -------- --------
Net income (loss)
per share $ 1.34 $ (2.86) $ (1.77) $ 0.95 $ 0.41
======== ======== ======== ======== ========
Dividends
per share $ - $ - $ 0.40 $ 0.40 $ 0.39
======== ======== ======== ======== ========
Average common
shares and
equivalents 16,448 16,243 16,130 16,103 16,104
======== ======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
Other Financial Data
(Dollars in thousands except per share amounts)
December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Working capital $134,628 $106,284 $151,128 $209,209 $224,261
Plant and
equipment, net 92,649 90,813 119,491 116,900 112,712
Total assets 451,559 425,827 612,195 572,459 501,104
Debt due within
one year (2) 7,901 28,894 117,114 66,187 31,911
Long-term debt 40,898 46,533 63,233 74,365 70,175
Stockholders'
equity 256,316 230,242 277,500 313,097 303,341
Equity per share 15.81 14.31 17.24 19.50 18.92
Capital
expenditures 26,507 19,872 35,396 31,049 30,970
</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. 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
$7,901 in 1996, $9,894 in 1995, $11,164 in 1994, $3,917 in 1993, and $1,811 in
1992.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Effective August 31, 1996, the Company liquidated its Mexican subsidiary
resulting in a one-time charge of $2.1 million and related income tax benefit
of $3.7 million. The net effect of the liquidation of Gibson de Mexico
increased net income by $1.6 million or $.10 per share.
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 revenues by Cleo included in the
consolidated financial statements for each of the two years ended December 31,
1995 were $151.9 million and $189.4 million, respectively. The results of
operations for 1995 include 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.
Results of Operations - Year Ended December 31, 1996 Compared With Pro Forma
Year Ended December 31, 1995
Revenues in 1996 increased .4% to $390.2 million compared to pro forma
revenues of $388.9 million in 1995. The increase was largely attributable to
continued sales growth at The Paper Factory, reflecting increased retail
locations, and Gibson International. This increase was partially offset by a
decline in the Card Division's greeting card sales reflecting a volume
decrease due in part to the loss of certain customers combined with higher
returns and allowances, partially offset by new rooftops and increased selling
prices. 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, the Company enters into
long-term sales agreements with certain retailers, some of which include
advance payments. Returns and allowances were 19.8% in 1996 compared to pro
forma returns and allowances of 18.2% in 1995. The increase in 1996 reflects
an increase in everyday returns and customer allowances slightly offset by a
decrease in seasonal returns.
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Total operating expenses were $351.7 million or 90.1% of total revenues
in 1996 compared to pro forma operating expenses of $350.4 million or 90.1% in
1995. Cost of products sold was 39.0% of total revenues in 1996 compared to
pro forma cost of products sold of 38.2% in 1995. The increase was primarily
due to a change in product mix and higher returns and allowances, partially
offset by an increase in selling prices. Selling, distribution and
administrative expenses were 51.1% of total revenues in 1996 compared to pro
forma selling, distribution and administrative expenses of 51.9% in 1995. The
decrease in 1996 expenses, as a percentage of total revenues, reflected a
decline in selling and marketing expenses and reduced bad debt expense at the
Card Division, and a foreign exchange gain at Gibson International, partially
offset by increased expenses in connection with various legal and employment
matters, increased expenses at The Paper Factory to support increased retail
locations and a loss on the liquidation of Gibson de Mexico. Excluding the
charge for Gibson de Mexico, selling, distribution and administrative expenses
as a percent of revenues would have been 50.6%.
Income before income taxes, including the loss on the liquidation of
Gibson de Mexico, was $33.1 million in 1996 compared to pro forma income
before income taxes of $29.9 million in 1995. The effective income tax rate
for 1996, excluding the pretax charge of $2.1 million and related income tax
benefit of $3.7 million on the liquidation of Gibson de Mexico, was 42.0%
compared to the pro forma effective income tax rate of 45.5% in 1995. See
Notes 1 and 7 of Notes to Consolidated Financial Statements set forth in Item
8 below.
Net income was $22.0 million in 1996 compared to pro forma net income of
$16.3 million in 1995. The net effect of the liquidation of Gibson de Mexico
increased net income $1.6 million or $.10 per share.
Results of Operations - Year Ended December 31, 1996 Compared With Year Ended
December 31, 1995
Revenues in 1996 decreased 27.8% to $390.2 million from revenues of
$540.8 million in 1995 reflecting the reduction of revenue as a result of the
sale of Cleo and a decline in the Card Division's greeting card sales
reflecting a volume decrease due in part to the loss of certain customers
combined with higher returns and allowances. This decline was partially
offset by new rooftops, increased selling prices, sales growth at The Paper
Factory reflecting increased retail locations and increased international
greeting card sales. Returns and allowances were 19.8% in 1996 compared to
14.4% in 1995. The increase in 1996 reflects an increase in everyday returns
and customer allowances, and the reduction in revenue as a result of the sale
of Cleo slightly offset by a decrease in seasonal returns.
Total operating expenses were $351.7 million or 90.1% of total revenues
in 1996 compared to operating expenses of $591.6 million or 109.4% of total
revenues in 1995. Cost of products sold was 39.0% of total revenues in 1996
compared to cost of products sold of 49.7% in 1995. The decrease was
primarily due to the sale of Cleo which resulted in a change in the Company's
product mix which is now composed of higher margin products. Selling,
distribution and administrative expenses were 51.1% of total revenues in 1996
compared to 44.4% in 1995. The increase was due to the reduction of revenues
as a result of the sale of Cleo, increased expenses in connection with various
legal and employment matters, and increased expenses at The Paper Factory to
support increased retail locations.
-16-
PAGE
<PAGE>
Income before income taxes, including the liquidation of Gibson de
Mexico, was $33.1 million in 1996 compared to a loss before income taxes of
$63.1 million in 1995. The effective income tax rate for 1996, excluding the
pretax charge of $2.1 million and related income tax benefit of $3.7 million
on the liquidation of Gibson de Mexico, was 42.0% compared to the effective
income tax rate of 26.3% in 1995. See Notes 1 and 7 of Notes to Consolidated
Financial Statements set forth in Item 8 below.
Net income was $22.0 million in 1996 compared to a net loss of $46.5
million in 1995. The net effect of the liquidation of Gibson de Mexico
increased net income $1.6 million or $.10 per share.
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 selling prices partially offset by a modest decline in units
sold. Additionally, revenues at The Paper Factory and Gibson International
increased in 1995. Pro forma returns and allowances were 18.2% in 1995
compared to 22.7% in 1994. The decrease in 1995 reflected a decrease in
customer allowances, seasonal and everyday returns and long-term sales
agreement amortization. In 1994, $6.3 million of unamortized long-term sales
agreements 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.
Total pro forma operating expenses were $350.4 million or 90.1% of total
pro forma revenues in 1995 compared to $371.2 million 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 reflected
lower average unit cost. Paper price increases were offset 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 were 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 ($6.0 million). Additionally, the pro forma expenses in 1994
included 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 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.
-17-
PAGE
<PAGE>
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.
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
1995. 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 agreement amortization. In 1994, $6.3 million of unamortized long-term
sales agreements 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 reflected 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 were reflected
as one-time charges in selling, distribution and administrative expenses in
1994. In view of the 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.
-18-
PAGE
<PAGE>
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.
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.
Liquidity and Capital Resources
Cash flows from operating activities for 1996 increased $62.1 million
from 1995 to $107.2 million, compared to an increase of $51.6 million in 1995
from 1994 and a decrease of $38.0 million in 1994 from 1993. The increase in
1996 was primarily the result of improved cash flow from on-going operations,
tax benefits associated with the loss on the sale of Cleo and lower cash
requirements for sales agreement payments. The reduction in the use of cash
for other assets reflects a decrease in the number of new sales agreements
while the reduction in the use of cash for other liabilities reflects fewer
payments to customers under sales agreements.
Cash used in investing activities for plant and equipment purchases totaled
$26.5 million in 1996 compared to $19.9 million and $35.4 million in 1995 and
1994, respectively. Reduced levels of spending in 1996 and 1995 for plant and
equipment purchases are the result of the decision to delay the purchase of
certain machinery for manufacturing as well as the delay of certain other
capital projects at the Card Division. Plant and equipment purchases do not
include assets acquired under capital lease obligations. During 1995, the
Company renegotiated its long-term lease 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 provided by investing activities in 1996 included the collection of the
note receivable of $24.6 million for the sale of Cleo.
Cash used in financing activities in 1996 was $25.2 million compared to
cash used in financing activities of $109.1 million in 1995 and cash provided
by financing activities of $34.1 million in 1994. The 1996 decrease in
short-term borrowings resulted from the collection of the note receivable from
the sale of Cleo and from improved cash flow from operations eliminating the
need for short-term financing. 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 sales agreements. Long-term debt decreased in 1996
reflecting current year debt payments. Long-term debt payments increased in
1995 primarily reflecting the partial redemption of senior notes with the
proceeds from the sale of Cleo. The decrease in 1994 reflected current year
debt payments.
-19-
PAGE
<PAGE>
Management will seek to extend the existing revolving credit facility due
to expire in late April 1997. Management believes that it will be able to
extend this facility. When consummated, Management 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.
Capital expenditures for 1997 are expected to be comparable to 1996
levels. At February 28, 1997, the Company held short-term investments in
excess of normal operating cash needs of approximately $111.0 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 sales agreements, all of which total approximately $11.1 million to
$33.6 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 practices and other
contingencies.
Management does not believe that there are any trends, events,
commitments or uncertainties, except for previously disclosed items (see Note
12 of Notes to Consolidated Financial Statements set forth in Item 8 below),
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.
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.
-20-
PAGE
<PAGE>
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Gibson Greetings, Inc.
Consolidated Statements of Operations
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands except per share amounts)
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Net sales $ 389,421 $ 540,145 $ 548,042
Royalty income 825 676 753
--------- --------- ---------
Total revenues 390,246 540,821 548,795
--------- --------- ---------
Costs and expenses:
Operating expenses:
Cost of products sold 152,229 268,702 310,039
Selling, distribution and
administrative expenses 199,490 239,922 276,147
Loss on sale of Cleo, Inc. - 83,012 -
--------- --------- ---------
Total operating expenses 351,719 591,636 586,186
--------- --------- ---------
Operating income (loss) 38,527 (50,815) (37,391)
--------- --------- ---------
Financing expenses, net:
Interest expense 8,822 13,178 10,599
Interest income (3,364) (915) (765)
Gain on derivative
transactions/settlement, net - - (1,641)
--------- --------- ---------
Total financing expenses, net 5,458 12,263 8,193
--------- --------- ---------
Income (loss) before income taxes 33,069 (63,078) (45,584)
Income tax provision (benefit) 11,107 (16,589) (16,981)
--------- --------- ---------
Net income (loss) $ 21,962 $ (46,489) $(28,603)
========= ========= =========
Net income (loss) per share $ 1.34 $ (2.86) $ (1.77)
========= ========= =========
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
-21-
PAGE
<PAGE>
<TABLE>
<CAPTION>
Gibson Greetings, Inc.
Consolidated Balance Sheets
December 31, 1996 and 1995
(Dollars in thousands except per share amounts)
1996 1995
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 98,155 $ 15,555
Note receivable - 24,574
Trade receivables, net 42,423 46,620
Inventories 65,069 68,303
Income taxes receivable - 10,698
Prepaid expenses 2,958 4,054
Deferred income taxes 44,598 45,011
--------- ---------
Total current assets 253,203 214,815
Plant and equipment, net 92,649 90,813
Deferred income taxes 16,592 14,745
Other assets, net 89,115 105,454
--------- ---------
$ 451,559 $ 425,827
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Debt due within one year $ 7,901 $ 28,894
Accounts payable 13,420 7,995
Income taxes payable 15,816 -
Other current liabilities 81,438 71,642
--------- ---------
Total current liabilities 118,575 108,531
Long-term debt 40,898 46,533
Sales agreement payments due
after one year 14,274 18,564
Other liabilities 21,496 21,957
--------- ---------
Total liabilities 195,243 195,585
--------- ---------
-22-
PAGE
<PAGE>
Commitments and contingencies
(Notes 11 and 12)
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,
16,708,059 and 16,585,130
shares issued, respectively 167 166
Paid-in capital 47,474 46,041
Retained earnings 213,755 191,793
Foreign currency translation
adjustment 871 (1,807)
--------- ---------
262,267 236,193
--------- ---------
Less treasury stock, at cost,
494,601 shares 5,951 5,951
--------- ---------
Total stockholders' equity 256,316 230,242
--------- ---------
$ 451,559 $ 425,827
========= =========
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
-23-
PAGE
<PAGE>
<TABLE>
<CAPTION>
Gibson Greetings, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 21,962 $ (46,489) $ (28,603)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation including write-down
of display fixtures 22,774 26,896 26,150
(Gain) loss on disposal of plant
and equipment (123) 5,492 5,957
Loss on sale of Cleo, Inc. - 83,012 -
Gain on derivative transactions/
settlement, net - - (1,641)
Deferred income taxes (1,434) (2,901) (19,205)
Amortization of deferred costs
and intangibles and write-
down of deferred costs 24,121 23,590 31,155
Change in assets and liabilities:
(Increase) decrease in trade
receivables, net 4,197 17,820 (5,636)
(Increase) decrease in inventories 3,234 2,821 (2,322)
(Increase) decrease in income taxes
receivable 10,698 (10,698) -
(Increase) decrease in
prepaid expenses 1,096 221 (1,512)
Increase in other assets,
net of amortization (7,782) (27,260) (47,102)
Increase (decrease) in
accounts payable 5,425 (2,617) 2,944
Increase (decrease) in
income taxes payable 15,816 (4,742) (8,329)
Increase (decrease) in other
current liabilities 9,796 (19,267) 26,511
Increase (decrease)
in other liabilities (4,751) (316) 16,053
All other, net 2,218 (379) (850)
--------- --------- ---------
Total adjustments 85,285 91,672 22,173
--------- --------- ---------
Net cash provided by (used in)
operating activities 107,247 45,183 (6,430)
--------- --------- ---------
-24-
PAGE
<PAGE>
Cash flows from investing activities:
Purchase of plant and equipment (26,507) (19,872) (35,396)
Proceeds from sale of
plant and equipment 2,480 926 289
Proceeds from sale of Cleo, Inc.
net of escrow amount - 96,437 -
Collection of note receivable
from sale of Cleo, Inc. 24,574 - -
--------- --------- ---------
Net cash provided by (used in)
investing activities 547 77,491 (35,107)
--------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in
short-term borrowings (19,000) (86,950) 43,680
Payments on long-term debt (7,628) (22,207) (3,917)
Issuance of common stock 1,434 49 784
Acquisition of common stock
for treasury - (11) (52)
Dividends paid - - (6,435)
--------- --------- ---------
Net cash provided by (used in)
financing activities (25,194) (109,119) 34,060
--------- --------- ---------
Net increase (decrease) in
cash and equivalents 82,600 13,555 (7,477)
Cash and equivalents at beginning of year 15,555 2,000 9,477
--------- --------- ---------
Cash and equivalents at end of year $ 98,155 $ 15,555 $ 2,000
========= ========= =========
Supplemental disclosure of
cash flow information:
Cash paid during the year for:
Interest $ 3,455 $ 10,489 $ 9,325
Income taxes (13,973) 1,751 10,240
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.
-25-
PAGE
<PAGE>
<TABLE>
<CAPTION>
Gibson Greetings, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands except per share amounts)
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Common stock, par value $.01:
Balance at beginning of year $ 166 $ 166 $ 165
Exercise of stock options 1 - 1
--------- --------- ---------
167 166 166
--------- --------- ---------
Paid-in capital:
Balance at beginning of year 46,041 45,992 45,209
Exercise of stock options 1,433 49 783
--------- --------- ---------
47,474 46,041 45,992
--------- --------- ---------
Retained earnings:
Balance at beginning of year 191,793 238,282 273,320
Net income (loss) 21,962 (46,489) (28,603)
Cash dividends paid ($.40
per share in 1994) - - (6,435)
--------- --------- ---------
213,755 191,793 238,282
--------- --------- ---------
Foreign currency translation adjustment:
Balance at beginning of year (1,807) (1,000) 291
Aggregate adjustments resulting from:
Translation of financial statements
into U.S. dollars 513 (807) (1,291)
Liquidation of Gibson de Mexico
S.A. de C.V. 2,165 - -
--------- --------- ---------
871 (1,807) (1,000)
--------- --------- ---------
Less treasury stock, at cost:
Balance at beginning of year 5,951 5,940 5,888
Common stock acquired - 11 52
--------- --------- ---------
5,951 5,951 5,940
--------- --------- ---------
Total stockholders' equity $ 256,316 $ 230,242 $ 277,500
========= ========= =========
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
-26-
PAGE
<PAGE>
Gibson Greetings, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 1996, 1995, and 1994
(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.
Consistent with general industry practice, the Company has entered into
long-term sales agreements with certain retailers. These sales agreements
typically have terms ranging from 3 to 5 years, and generally specify a
minimum sales volume commitment. In certain of these sales agreements,
negotiated cash payments or credits constitute advance discounts against
future sales. These payments are capitalized and amortized over the initial
term of the sales agreement. In the event of default by a retailer, such as
bankruptcy or liquidation, a sales agreement 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. In view of the poor economic
conditions and devaluation of the peso in Mexico, the Company liquidated its
investment in Gibson de Mexico S.A. de C.V. (Gibson de Mexico), a
majority-owned subsidiary, during 1996 resulting in a loss on liquidation of
$2,107 and an income tax benefit of $3,673 for a net increase in net income of
$1,566 or $.10 per share.
One customer in 1996 accounted for approximately 16% of net sales. Prior
to the sale of Cleo, one customer in 1995 accounted for approximately 12% of
net sales; however, on a pro forma basis, without Cleo, the Company's largest
customer accounted for approximately 13% of net sales. During 1994, the
Company's largest customer accounted for approximately 12% of net sales.
-27-
PAGE
<PAGE>
Retail operations
The Paper Factory of Wisconsin, Inc. (The Paper Factory) operates retail
stores located primarily in manufacturers' outlet shopping centers. The Paper
Factory offers broad product assortments of nationally recognized brand gift
wrap, greeting cards, paper decorations, wedding supplies and other paper
products.
International operations
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 this subsidiary were not material to consolidated
operations in 1996, 1995 and 1994.
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 40 years; machinery and equipment are depreciated over 3 to 11 years; and
display fixtures are depreciated over 3 to 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.
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 3 to 5
years.
-28-
PAGE
<PAGE>
Goodwill, principally from the acquisition of The Paper Factory in 1993,
represents the excess of cost over fair value of net assets acquired.
Goodwill and other intangibles are amortized over periods ranging from 3 to 20
years, using the straight-line method. Accumulated goodwill amortization at
December 31, 1996 and 1995 was $4,687 and $4,367, 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
Impairment losses are 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. During 1996, the carrying value of certain long-term sales agreements
and related display fixtures exceeded the fair value of the assets based on
current and estimated future cash flows. The effect on the 1996 results 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.
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: 16,447,993 shares for 1996, 16,243,483 shares for 1995, and
16,130,140 shares for 1994.
-29-
PAGE
<PAGE>
Restatements and reclassifications
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. During 1995,
the Company restated the accompanying 1994 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 1994 consolidated net loss or $.28 per
share. 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 on derivative transactions and settlement in 1994 of $1,641 or $.06
per share as shown in the accompanying consolidated statements of operations.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
Note 2--Trade Receivables
Trade receivables at December 31, 1996 and 1995, consist of the
following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Trade receivables $ 101,712 $ 105,898
Less reserve for returns,
allowances, cash discounts
and doubtful accounts 59,289 59,278
--------- ---------
$ 42,423 $ 46,620
========= =========
</TABLE>
-30-
PAGE
<PAGE>
Note 3--Inventories
Inventories at December 31, 1996 and 1995, consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Finished goods $ 47,666 $ 47,967
Work-in-process 11,710 12,409
Raw materials and supplies 5,693 7,927
--------- ---------
$ 65,069 $ 68,303
========= =========
</TABLE>
Note 4--Plant and Equipment
Plant and equipment at December 31, 1996 and 1995, consist of the
following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land and buildings $ 32,155 $ 32,800
Machinery and equipment 52,948 44,437
Display fixtures 81,480 83,784
Leasehold improvements 11,700 10,484
Construction in progress 3,257 1,598
--------- ---------
181,540 173,103
Less accumulated depreciation 88,891 82,290
--------- ---------
$ 92,649 $ 90,813
========= =========
</TABLE>
At December 31, 1996 and 1995, buildings included assets acquired under
capital lease obligations of $19,135. Accumulated depreciation on such assets
totaled $1,190 and $132 at December 31, 1996 and 1995, respectively.
-31-
PAGE
<PAGE>
Note 5--Other Assets
Other assets at December 31, 1996 and 1995, consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred and prepaid costs $ 131,656 $ 138,114
Goodwill and other intangibles 26,160 27,148
--------- ---------
157,816 165,262
Less accumulated amortization 68,701 59,808
--------- ---------
$ 89,115 $ 105,454
========= =========
</TABLE>
-32-
PAGE
<PAGE>
Note 6--Debt
Debt at December 31, 1996 and 1995, consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Debt due within one year:
Current portion of long-term
debt $ 7,901 $ 9,894
Loans payable to banks
under a revolving credit
agreement bearing interest
at a weighted average rate
of 6.57% in 1995 $ - $ 19,000
--------- ---------
$ 7,901 $ 28,894
========= =========
Long-term debt:
Senior notes bearing interest
at 9.33%, with annual serial
maturities through 2001 $ 25,714 $ 30,857
Notes payable to former
shareholders of The Paper
Factory bearing interest
at 5.01%, payable in annual
installments of $2,019 2,019 4,037
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 $8,664
and $5,712 at December 31, 1996
and 1995, respectively 1,200 1,800
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 441 573
--------- ---------
29,374 37,267
Capital lease obligations payable
in monthly installments through
2013 (see Note 11) 19,425 19,160
--------- ---------
48,799 56,427
Less portion due within one year 7,901 9,894
--------- ---------
$ 40,898 $ 46,533
========= =========
</TABLE>
-33-
PAGE
<PAGE>
The Company has a 364-day revolving credit agreement providing $40,000
for general corporate purposes which expires in late April 1997. No
borrowings were outstanding under the agreement at December 31, 1996.
Management believes that it will be able to extend this facility. When
consummated, Management 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, 1996 was $30,145.
The annual principal payments due on long-term debt for each of the years
in the five-year period ended December 31, 2001, are $7,901, $5,890, $5,299,
$5,142 and $5,142, respectively.
No interest was capitalized for the years ended December 31, 1996, 1995
and 1994.
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, 1996 the
amount of unrestricted retained earnings available for dividends was $16,007,
which includes a waiver in effect until June 1, 1997 on $7,000. At December
31, 1995, there were no unrestricted retained earnings available for
dividends.
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, 1996 and 1995, the Company had two outstanding interest
rate swap positions with a total notional amount of $2,400. These two
agreements, with terms similar to the related industrial revenue bonds, are
constituted as hedges and effectively reduce the Company's interest on the
bonds from 9.25% to 6.67% through February 1998. The estimated fair value of
these two agreements at December 31, 1995 was $28.
-34-
PAGE
<PAGE>
Note 7--Income Taxes
The income tax provision (benefit) for the years ended December 31, 1996,
1995, and 1994 consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current $ 10,216 $ (19,093) $ 1,574
Deferred (1,251) (2,252) (14,530)
Change in valuation allowance - - (924)
Alternative minimum tax
credit carryforward 200 - (200)
Deferred investment
tax credits, net (64) (79) (100)
--------- --------- ---------
9,101 (21,424) (14,180)
--------- --------- ---------
State and local:
Current 2,325 5,405 649
Deferred (319) (570) (3,239)
Change in valuation allowance - - (211)
--------- --------- ---------
2,006 4,835 (2,801)
--------- --------- ---------
$ 11,107 $ (16,589) $ (16,981)
========= ========= =========
</TABLE>
The effective income tax rate for the years ended December 31, 1996, 1995
and 1994, varied from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<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 3.9 3.2 4.0
Liquidity of subsidiary (7.4) - -
Nondeductible losses 0.3 (8.5) (2.6)
Other 1.8 (3.4) 0.8
--------- --------- ---------
33.6% 26.3% 37.2%
========= ========= =========
</TABLE>
-35-
PAGE
<PAGE>
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 for the years ended December 31, 1996 and 1995
consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current deferred taxes:
Gross assets $ 44,852 $ 45,275
Alternative minimum
tax carryforward - 200
Gross liabilities (254) (464)
--------- ---------
44,598 45,011
--------- ---------
Noncurrent deferred taxes:
Gross assets 23,854 21,573
Valuation allowance (830) (830)
Gross liabilities (6,304) (5,806)
Deferred investment
tax credits (128) (192)
--------- ---------
16,592 14,745
--------- ---------
$ 61,190 $ 59,756
========= =========
</TABLE>
The Company has recorded a valuation allowance with respect to the
deferred tax assets reflected in the following table 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.
-36-
PAGE
<PAGE>
The tax balances of significant temporary differences representing
deferred tax assets and liabilities for the years ended December 31, 1996 and
1995, consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Reserve for returns, allowances,
cash discounts and doubtful
accounts $ 24,911 $ 25,390
Reserve for inventories
and related items 6,103 6,222
Postretirement benefits 2,238 2,251
Depreciation of plant
and equipment (6,188) (5,713)
Reserve for display fixtures 1,006 1,628
Accrued compensation and benefits 17,802 17,223
Sales agreement payments due 7,697 4,067
Other accruals and reserves, net 8,579 9,510
Alternative minimum tax
carryforward - 200
Deferred investment tax credits (128) (192)
--------- ---------
62,020 60,586
Valuation allowance (830) (830)
--------- ---------
$ 61,190 $ 59,756
========= =========
</TABLE>
Note 8--Other Current Liabilities
Other current liabilities at December 31, 1996 and 1995, consist of the
following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Compensation, payroll taxes
and related withholdings $ 18,074 $ 16,584
Customer allowances 14,525 12,963
Accrued insurance 10,810 10,029
Sales agreement payments due
within one year 8,592 7,628
Accrued interest 8,189 6,221
Property and other taxes 4,259 4,397
Other 16,989 13,820
--------- ---------
$ 81,438 $ 71,642
========= =========
</TABLE>
-37-
PAGE
<PAGE>
Note 9--Employee and Retirement Benefit Plans
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.
The following table sets forth the Retirement Plan's funded status on the
measurement dates, December 31, 1996 and 1995, and a reconciliation of the
funded status to the amounts recognized in the Company's consolidated balance
sheets at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 60,741 $ 61,449
========= =========
Accumulated benefit
obligation $ 64,152 $ 65,247
========= =========
Projected benefit
obligation for services
rendered to date $ 71,117 $ 74,779
Plan assets at fair market value 78,656 68,068
--------- ---------
Projected benefit obligation
greater than (less than)
plan assets (7,539) 6,711
Unrecognized prior service cost (837) (1,174)
Unrecognized net gain resulting
from experience different from
assumed and effects of changes
in assumptions 19,858 6,454
--------- ---------
Accrued pension expense included
in other liabilities $ 11,482 $ 11,991
========= =========
</TABLE>
The market value of the Retirement Plan assets exceeded assumed market
value by $5,946. 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.
-38-
PAGE
<PAGE>
In addition to the Retirement Plan, the Company has established the
following plans: a nonqualified defined benefit plan for employees whose
benefits under the Retirement Plan are limited by provisions of the Internal
Revenue Code; a nonqualified defined benefit plan to provide supplemental
retirement benefits for selected executives in addition to benefits provided
under other Company plans; and a nonqualified plan 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. These plans were unfunded at December
31, 1996 and 1995, although assets for these 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.
The following table sets forth the nonqualified defined benefit plans'
benefit obligations on the measurement dates, December 31, 1996 and December
31, 1995, and a reconciliation of those obligations to the amounts recognized
in the Company's consolidated balance sheets at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 4,263 $ 4,039
========= =========
Accumulated benefit
obligation $ 4,840 $ 4,763
========= =========
Projected benefit
obligation for services
rendered to date $ 5,081 $ 5,452
Unrecognized prior service cost (1,414) (1,657)
Unrecognized net gain (loss)
resulting from experience
different from assumed and
effects of changes in
assumptions 248 (306)
--------- ---------
Accrued pension expense included
in other liabilities $ 3,915 $ 3,489
========= =========
</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 7.75% and 4.50% in 1996 and
7.25% and 4.50% in 1995, respectively. The change in the discount rate from
7.25% to 7.75% reduced the Retirement Plan's projected benefit obligation by
$4,564. The assumed long-term rate of return on plan assets used for
valuation purposes was 9.0% for 1996 and 1995.
-39-
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, 1996, 1995
and 1994, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 2,158 $ 2,652 $ 3,285
Interest cost on projected
benefit obligation 5,635 5,833 5,339
Net amortization and deferral 6,494 7,409 (6,103)
Actual return on plan assets (11,744) (13,178) 902
Other - - 284
--------- -------- ---------
$ 2,543 $ 2,716 $ 3,707
========= ======== =========
</TABLE>
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. Eligible employees of Cleo participated in one of these
defined contribution plans through the date of the sale of Cleo on November
14, 1995. The total expense for these plans for the years ended December 31,
1996, 1995 and 1994, was $752, $452 and $550, respectively.
The Company had a defined contribution plan for Cleo employees who were
members of a collective bargaining unit. Benefits under this plan were
determined based upon years of service and an hourly contribution rate.
Pension expense for this plan for the years ended December 31, 1995 and 1994,
was $218 and $409, respectively. As a result of the sale of Cleo, the Company
has no further obligations to the plan.
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.
-40-
PAGE
<PAGE>
A reconciliation of the accumulated postretirement benefit obligation
(APBO) measured as of December 31, 1996 and 1995 to the amounts recognized in
the Company's consolidated balance sheets at December 31, 1996 and 1995, is as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Retirees $ 930 $ 1,475
Fully eligible active employees 1,030 997
Other active employees 1,020 1,117
--------- ---------
Accumulated benefit obligation
(unfunded) 2,980 3,589
Unrecognized prior service cost 89 100
Unrecognized net gain 2,042 1,475
--------- ---------
Accrued APBO included in
other liabilities $ 5,111 $ 5,164
========= =========
</TABLE>
The accumulated benefit obligation for 1996 and 1995 was determined using
the following assumptions:
1995 1995
------------------ ----------------
Discount rate 7.75% 7.25%
Health care cost 8.5% for 1997 9% for 1996
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,
1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 152 $ 161 $ 171
Interest cost on
accumulated benefits 219 349 363
Net amortization (142) (70) 42
Other - - 68
--------- --------- ---------
$ 229 $ 440 $ 644
========= ========= =========
</TABLE>
-41-
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, 1996, 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 up to 3,342,500 shares of
common stock. All incentive options were 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. Certain nonqualified stock
options were granted at exercise prices in excess of the fair market value on
the date of grant. 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 1996, 1995 or 1994.
-42-
PAGE
<PAGE>
A summary of stock option activity during the years ended December 31,
1996, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
beginning
of year 1,033,166 $ 14.58 1,321,619 $ 18.79 1,063,042 $ 19.75
Granted -
exercise
price on
date of
grant:
Equal to
market price
of stock 445,750 12.57 65,900 10.99 597,500 17.24
Greater than
market price
of stock 350,000 14.64 - - - -
Effect of
cancelled and
reissued
stock options - - - (8.43) - -
Exercised (119,077) 10.16 (5,600) 13.16 (46,263) 17.70
Forfeited (285,566) 19.81 (340,503) 18.04 (291,140) 19.43
Expired - - (8,250) 20.00 (1,520) 16.42
--------- -------- --------- -------- --------- --------
Outstanding
end of year 1,424,273 $ 13.29 1,033,166 $ 14.58 1,321,619 $ 18.79
========= ======== ========= ======== ========= ========
Exercisable
end of year 694,694 $ 14.07 388,999 $ 20.47 641,408 $ 20.00
========= ======== ========= ======== ========= ========
</TABLE>
-43-
PAGE
<PAGE>
The range of exercise prices on shares outstanding as of December 31,
1996 is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Shares Exercise Contractual Shares Exercise
Prices Outstanding Price Life Exercisable Price
- ------------- ----------- -------- ----------- ----------- --------
<C> <C> <C> <C> <C> <C>
$ 9.75-14.50 1,162,273 $ 12.07 6.82 514,994 $ 12.07
14.63-18.38 162,800 16.76 5.38 85,500 17.53
19.63-28.00 99,200 21.84 4.42 94,200 21.88
</TABLE>
For the years ended 1996, 1995 and 1994, compensation expense recognized
under stock-based employee compensation was not material. During 1995,
476,600 options outstanding at the beginning of the year were canceled and
reissued at $9.75.
At December 31, 1996, 73,238 shares were available under the stock option
and incentive plans, of which 32,838 shares could be issued as restricted
shares. Of the total shares available, 29,000 shares were reserved for
issuance pursuant to the Company's Stock Option Plan for Non-Employee
Directors.
During 1996, the Company granted options for 300,000 shares of common
stock in excess of those available under its existing stock option plans,
including options for 250,000 shares to the Company's Chief Executive Officer.
Stockholder approval of these options will be requested at the 1997 Annual
Meeting. Options for 150,000 shares have an exercise price of $15.50 per
share, options for 100,000 shares have an exercise price of $16.50 per share
and options for 50,000 shares have an exercise price of $19.00 per share. At
the time of approval, the amount by which the market value of the Company's
common stock exceeds the exercise price of these options will be recognized as
compensation expense and amortized over the vesting period of these options.
In the event stockholder approval is not received, the Company's Chief
Executive Officer has the right to terminate his employment contract during
the following 60-day period.
Effective January 1, 1996, the Company adopted SFAS No. 123 - "Accounting
for Stock-Based Compensation." This statement encourages, but does not
require, adoption of a fair-value-based accounting method for employee
stock-based compensation arrangements. As permitted by the statement, the
Company elected to only disclose pro forma net income and net income per share
as if the fair-value-based method had been applied in measuring compensation
costs.
-44-
PAGE
<PAGE>
Pro forma information for the years ended December 31, 1996 and 1995, is
as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Pro forma net income (loss) $ 20,264 $ (46,748)
========= =========
Pro forma net income (loss) per share $ 1.23 $ (2.88)
========= =========
</TABLE>
Compensation expense reflected in the pro forma disclosures is not
indicative of future amounts when the SFAS No. 123 prescribed method will
apply to all outstanding nonvested awards.
The weighted average fair value of options granted was $2,689 in 1996 and
$1,952 in 1995. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1996 and 1995: expected dividend yield of .94%
to 2.02%; expected option lives of five years; expected volatility of .2840 to
.3962; and risk-free interest rates of 6.25% to 7.50%, for both years.
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.
-45-
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 2006.
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, 1996, 1995 and 1994, on
all real and personal property, was $15,292, $23,663 and $24,493,
respectively.
Minimum rental commitments under noncancelable leases as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31: Lease Lease
------------------------------- --------- ---------
<S> <C> <C>
1997 $ 3,100 $ 13,976
1998 3,100 12,408
1999 3,100 6,347
2000 3,152 4,280
2001 3,720 2,215
Thereafter 52,960 1,771
--------- ---------
Net minimum commitments 69,132 $ 40,997
=========
Less amount representing
interest 49,707
---------
Present value of net minimum
lease commitments $ 19,425
=========
</TABLE>
-46-
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 four-year period ended
December 31, 2000, of $8,592, $6,269, $4,466, and $3,539, 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, 1996.
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 then
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 August
1996, the Court reconsidered its prior rulings and certified the case as a
class action. The latest 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 a motion to dismiss the
latest complaint and a Third Party Complaint against its former auditor for
contribution against any judgment adverse to the Company. The case currently
is scheduled to be tried in June 1997.
The Company presently is unable to predict the effect of the ultimate
resolutions of the matter described above upon the Company's results of
operations and cash flows; as of this date, however, Management does not
expect that such resolution 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 April 10, 1995, two purported class action lawsuits were commenced
against the Company, its then Chairman, President and Chief Executive Officer
and its then 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. The two lawsuits
were consolidated and captioned In Re Gibson Greetings Securities Litigation
II. This litigation has been concluded through the creation of a $1,600
settlement fund, most of which is covered by insurance.
-47-
PAGE
<PAGE>
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 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.
-48-
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 is held in escrow for
certain post-closing adjustments and indemnification obligations. In
addition, the Company was released from approximately $14,956 of third-party
debt which was 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>
-49-
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>
1996 Actual
- -------------------
Net sales $ 97,572 $ 88,397 $ 92,369 $111,083 $389,421
Total revenues 97,779 88,585 92,551 111,331 390,246
Cost of products
sold 39,338 31,106 38,721 48,064 152,229
Other operating
expenses 52,207 46,082 50,710 50,491 199,490
Interest expense, net 1,489 1,090 902 1,977 5,458
Net income 5,596 5,869 4,054 6,443 21,962
Net income per share 0.34 0.36 0.25 0.39 1.34
1995 Actual (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)
1995 Pro Forma (1)(2)
- -------------------
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
</TABLE>
(1) The 1995 fourth quarter included a reduction in expenses resulting
from an adjustment to customer returns and allowances increasing net income
(loss) by $2,545 or $.16 per share and an increase in 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.
-50-
PAGE
<PAGE>
(2) 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 gives effect to the sale of Cleo as if it had
occurred as of January 1, 1995 after giving effect to the pro forma
adjustments. Pro forma adjustments represent management fee allocations
including legal, tax and administrative expenses that were 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.
-51-
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, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 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
/s/ Deloitte & Touche LLP
- --------------------------
Cincinnati, Ohio
February 12, 1997
-52-
PAGE
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
-53-
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 1997
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, 1997) are as
follows:
Name Age Title
------------------- --- ----------------------------
Frank J. O'Connell 53 President and
Chief Executive Officer
Paul W. Farley 52 Assistant Treasurer and
Principal Accounting Officer
Gregory Ionna 45 Executive Vice President -
Gibson Card Division
FRANK J. O'CONNELL. Mr. O'Connell has been the Company's Chief Executive
Officer and President since August 1996. He was a business consultant from
May 1995 to August 1996. He served as the President and Chief Executive
Officer of Skybox International, Inc. (Skybox), a trading card manufacturer,
from July 1991 to May 1995. Prior to joining Skybox, he was a venture capital
consultant from February 1990 to July 1991 and served as President of Reebok
Brands, North America from February 1989 to February 1990. He became a
director of the Company in August 1996.
PAUL W. FARLEY. Mr. Farley has served as the Principal Accounting
Officer since September 1996. In 1992, he became Vice President, Finance of
the Gibson Card Division. Previously, he served as Corporate Controller from
1986 to 1992. He was appointed Assistant Treasurer in 1981.
GREGORY IONNA. Mr. Ionna has been Executive Vice President - 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.
-54-
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
------ --------------------------------------------------------------
21 Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
22 Consolidated Balance Sheets as of December 31, 1996 and 1995
24 Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
26 Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994
27 Notes to Consolidated Financial Statements
52 Independent Auditors' Report
2. Financial Statement Schedules required to be filed by Item 8 of
this Form 10-K:
Page
Herein Schedule
------ --------------------------------------------------------------
57 Valuation and Qualifying Accounts
3. Exhibits: See Index of Exhibits (page 36) for a listing
of all exhibits filed with this annual report on Form 10-K
b) Reports on Form 8-K: The Company filed no reports on Form 8-K
with the Securities and Exchange
Commission during the quarter ended
December 31, 1996.
-55-
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 27th
day of March 1997.
Gibson Greetings, Inc.
By /s/ Frank J. O'Connell
-----------------------
Frank J. O'Connell
President and 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 27th day of March 1997.
Signature Title
---------- -----
/s/ Albert R. Pezzillo
-------------------------
Albert R. Pezzillo Chairman of the Board
/s/ Frank J. O'Connell President and
------------------------- Chief Executive Officer
Frank J. O'Connell (principal executive officer)
/s/ Paul W. Farley
------------------------- Assistant Treasurer
Paul W. Farley (principal accounting officer)
/s/ George M. Gibson
-------------------------
George M. Gibson Director
/s/ Charles D. Lindberg
-------------------------
Charles D. Lindberg Director
/s/ Frank Stanton
-------------------------
Frank Stanton Director
/s/ Charlotte St. Martin
-------------------------
Charlotte St. Martin Director
/s/ C. Anthony Wainwright
-------------------------
C. Anthony Wainwright Director
-56-
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 Balance
Beginning Costs and to Other at 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 12/31/96 $ 12,305 $ 2,086 $ - $ 737(A) $ 13,654
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
Allowance for sales
returns, allowances
and cash discounts:
Twelve months
ended 12/31/96 46,973 101,815 - 103,153(B) 45,635
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
</TABLE>
[FN]
- --------------------
(A) Accounts judged to be uncollectible and charged to reserve, net of
recoveries (including Cleo through November 14, 1995) which were
charged to the reserve, and the reduction in the allowance as a
result of the sale of Cleo effective November 15, 1995 of $1,917.
(B) Includes actual cash discounts taken by customers and sales returns
and allowances granted to customers (including Cleo through
November 14, 1995) all of which were charged to the reserve, and
the reduction in the allowance as a result of the sale of Cleo
effective November 15, 1995 of $5,495.
-57-
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, 1996, by and among
Gibson Greetings, Inc.; The Bank of New York; The Fifth Third
Bank; Harris Trust and Savings Bank; NBD Bank, N.A.; The Sanwa
Bank, Ltd.; The Sumitomo Bank, Ltd.; and The Bank of New York,
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) 1983 Stock Option Plan (*2)
(ii) 1985 Stock Option Plan (*2)
(iii) 1987 Stock Option Plan (*2)
(iv) 1989 Stock Option Plan (*2)
(v) 1989 Stock Option Plan for Nonemployee Directors (*2)
(vi) 1996 Nonemployee Director Stock Plan (*8)
(vii) 1991 Stock Option Plan (*9)
-58-
PAGE
<PAGE>
Exhibit
Number Description
------- -----------------------------------------------------------------
(viii) Employment Agreement between Gibson Greetings, Inc. and
Benjamin J. Sottile, dated April 1, 1993 (*10)
(ix) ERISA Makeup Plan (*11)
(x) Supplemental Executive Retirement Plan (*11)
(xi) Agreements dated January 2, 1991 and December 10, 1993
between Gibson Greetings, Inc. and Stephen M. Sweeney
(*2)
(xii) Agreement dated November 17, 1995 between Gibson
Greetings, Inc. and Stephen M. Sweeney (*12)
(xiii) Agreement dated August 25, 1996 between Gibson Greetings,
Inc. and Frank J. O'Connell (*13)
(xiv) Agreement dated December 28, 1996 between Gibson
Greetings, Inc. and Gregory Ionna
(xv) Agreements dated January 24, 1991 and December 10, 1993
between Gibson Greetings, Inc. and Paul W. Farley
(xvi) Agreement dated September 3, 1996 between Gibson
Greetings, Inc. and William L. Flaherty
(xvii) Settlement Agreement dated February 18,1997 between
Gibson Greetings, Inc. and Benjamin J. Sottile
10(f) Stock Purchase Agreement (*14)
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. (*12)
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)
-59-
PAGE
<PAGE>
- ----------------------
* 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, 1996.
(7) The Company's Report on Form 10-Q for the quarter ended June
30, 1991.
(8) The Company's definitive Proxy Statement dated April 24, 1996.
(9) The Company's definitive Proxy Statement dated March 17, 1997.
(10) The Company's Report on Form 10-Q for the quarter ended June 30,
1993.
(11) The Company's Report on Form 10-K for the year ended December
31, 1992.
(12) The Company's Report on Form 10-K for the year ended December
31, 1995.
(13) The Company's Report on Form 10-Q for the quarter ended September
30, 1996.
(14) 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.
-60-
PAGE
<PAGE>
Exhibit 10(e)(xiv)
_____________________
Mr. Gregory Ionna
Executive Vice President
Gibson Division
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, OH 45237
Re: Employment Agreement
Dear Greg:
In accordance with our discussions, this letter serves as a contract
confirming your employment as Executive Vice President of the Card Division of
Gibson Greetings, Inc. This agreement supersedes and terminates that
Employment Agreement entered into on January 2, 1991 and amended and extended
by agreement of December 6, 1994. The terms of this new Agreement are as
follows:
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 as of April 1, 1996 and ending on
March 31, 1999. Your employment and this Agreement may be extended
thereafter on an indefinite basis by mutual agreement of the parties.
In the event that either you or the Company elect not to extend your
employment on an indefinite basis after March 31, 1999, then you shall
be treated as having been terminated without Cause and you shall be
entitled to those termination benefits set forth in Paragraph 5.
2.Your annual salary, effective as of April 1, 1996, shall be $210,000
and effective as of the date of the signing of this Agreement shall be
$230,000 and which amount may be increased from time to time by the
Company in accordance with the Company's salary administration program.
In addition, you will qualify for participation in the Incentive Bonus
Program.
3.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, tax preparation, and estate
planning assistance. Further, you will continue to receive all other
fringe benefits as are generally available to Company executives as
such benefit plans may exist from time to time.
-61-
PAGE
<PAGE>
Mr. Gregory Ionna
_________________
Page Two
4.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 12 month period, the
Company shall have the right, on not less than 30 days written notice
to you, to terminate this Agreement; your employment and your salary
and rights to participate in the Incentive Bonus Plan and benefits
described in Paragraph 3 shall cease on the effective date of your
termination.
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 and your rights to participate in
the Incentive Bonus Plan and benefits described in Paragraph 3 shall
terminate as of the date of death. Provided, however, that in the
event of your death during your employment hereunder health insurance
coverage shall be extended to your wife and dependent children at the
Company's expense for at least six months.
5.The Company reserves the right to terminate your employment at any time
during the term or extended term of this Agreement. Except where
termination is pursuant to Paragraph 4, or is for Cause as defined in
Paragraph 6, the Company will pay to you immediately upon such
termination, two times your yearly salary at the salary level in effect
on the date of termination, plus any unpaid bonus under the Incentive
Bonus Program with respect to a completed calendar year of employment.
In addition, you will continue to be covered at the Company's cost
under the Company's medical benefits plan until you commence new
employment or until two years from the date of termination, whichever
first occurs. In the event any person, corporation, partnership or
joint venture becomes the beneficial owner of fifty percent (50%) or
more of the voting securities of the Company then the provisions of
this Paragraph for two times salary and bonus shall be automatically
revised to 2.9 times such salary plus any unpaid bonus but subject to
the provisions of the attached Exhibit A. Further, upon the
consummation of such a change of ownership you may, within 30 days,
elect to terminate your employment and if you make such an election the
Company shall, upon such termination immediately pay to you 2.9 times
your yearly salary plus any unpaid bonus.
-62-
PAGE
<PAGE>
Mr. Gregory Ionna
_________________
Page Three
6.In the event you voluntarily terminate your employment during the term
or extended term of this Agreement, other than 1) on March 31, 1999 as
provided in Paragraph 1, above, or 2) within 30 days of a change of
ownership as provided in Paragraph 5, above, or if your employment is
terminated by the Company for Cause, your right to salary and rights to
participate in the Incentive Bonus Plan and benefits described in
Paragraph 3 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 - provided, however, that in instances of
alleged insubordination, gross negligence, failure to perform duties in
a diligent and competent manner, or any willful or material breach of
this Agreement you shall be promptly given notice and shall have 90
days in which to correct or cure any alleged deficiency.
7.Termination of employment under Paragraph 4, 5, or 6 shall terminate
this Agreement with the exception of the provisions of Paragraphs 8, 9,
and 11 and any other provisions of this Agreement which by their terms
survive termination of employment.
8.In the event of termination of your employment for whatever reason, you
agree that for a period of one year 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.
9.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.
-63-
PAGE
<PAGE>
Mr. Gregory Ionna
_________________
Page Four
10.Nothing herein is intended to be granted to you to the exclusion of any
other 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.
11.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.
By /s/ Frank O'Connell
--------------------
AGREED:
/s/ Gregory Ionna
- -------------------
Gregory Ionna
December 28, 1996
- --------------------
Date
-64-
PAGE
<PAGE>
EXHIBIT A
Anything in this Agreement to the contrary notwithstanding, in the event
that the Corporation's auditors (the "Auditors") determine that any payment or
distribution by the Corporation to or for the benefit of Executive, whether
paid or payable (distributed or distributable) pursuant to this Agreement or
otherwise (a "Payment"), would be nondeductible by the Corporation for federal
income tax purposes because of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), then the aggregate present value of the amounts
payable or distributable to or for the benefit of Executive pursuant to this
Agreement or any other agreement between Executive and Corporation (the
"Agreement Payments") shall be reduced (but not below zero) to the "Reduced
Amount." For purposes of this Agreement, the "Reduced Amount" shall be an
amount expressed in present value terms which maximizes the aggregate present
value of Agreement Payments without causing any Payment to be nondeductible by
the Corporation because of Section 280G of the Code.
As a result of the uncertainty in the application of Section 280G of the
Code at the time of the initial determination by the Auditors, it is possible
that Agreement Payments will have been made by the Corporation which should
not have been made (an "Overpayment") or that additional Agreement Payments
which will not have been made by the Corporation could have been made (an
"Underpayment"), consistent in each case with the calculation of the Reduced
Amount hereunder. In the event that the Auditors, based on the assertion of a
deficiency by the Internal Revenue Service against the Corporation or
Executive which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to Executive which he shall repay to the
Corporation, together with interest at the applicable federal rate provided
for in Section 7872(f)(2) of the Code; provided, however, that no amount shall
be payable by Executive to the Corporation if and to the extent that such
payment would not reduce the amount which is subject to taxation under Section
4999 of the Code. In the event that the Auditors, based on controlling
precedent, determine that an Underpayment has occurred, such Underpayment
shall promptly be paid by the Corporation to or for the benefit of Executive,
together with interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code.
-65-
PAGE
<PAGE>
Exhibit 10(e)(xv)
December 10, 1993
Mr. Paul W. Farley
Vice President - Finance
Gibson Card Division
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, OH 45237
Dear Paul:
As you are probably aware, your employment agreement with Gibson
Greetings, Inc. is set to expire on January 31, 1994. Upon that expiration,
you would become an at-will employee of the Company.
However, we believe that you, as a 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
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. 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
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/HLC/dk
ACCEPTED AND AGREED TO:
/s/ Paul W. Farley
--------------------
Date: 1/28/94
--------------
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<PAGE>
January 24, 1991
Mr. Paul W. Farley
Controller
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, Ohio 45237
Re: Employment Agreement
Dear Paul:
It is my pleasure to confirm to you the following terms and conditions
under which you have agreed to serve as Controller 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 February 1,1991 and ending on January
31, 1994. Your annual salary, effective February 1, 1991, shall be
$85,000 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.
Cont'd......
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<PAGE>
Mr. Paul W. Farley
January 24, 1991
Page Two
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 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
Cont'd......
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<PAGE>
Paul W. Farley
January 24, 1991
Page Three
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.
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:=24
ACCEPTED AND AGREED TO:
/s/ Paul W. Farley
- -------------------
Paul W. Farley
Date: 2/13/91
------------
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<PAGE>
Exhibit 10(e)(xvi)
September 3, 1996
Mr. William L. Flaherty
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, OH 45237
Dear Bill:
You have notified us that you will be voluntarily terminating your
employment effective as of September 15, 1996. Pursuant to your Employment
Agreement, your right to all compensation ceases as of the date of termination
and your Employment Agreement terminates with the exception of the provisions
of paragraph 13 (noncompete), paragraph 14 (which is not applicable),
paragraph 15 (confidentiality), and paragraph 16 (rights and provisions under
certain benefit plans) and which remain in effect as provided therein. In
addition to these provisions, you agree to advise, cooperate and consult with
the Company during the next six months with respect to its ongoing business
matters and during the pendency of litigation with respect to the defense and
prosecution of all litigation involving the Company which (a) is presently
outstanding or (b) may be brought in the future and involves matters arising
during the course of your employment with Gibson. You also agree to be
available at reasonable times in Cincinnati for such advice and consultation
with normal Gibson reimbursement for travel expenses. In certain litigation
matters you also are a named defendant and the defense that the Company has
furnished you through the law firm of Taft, Stettinius & Hollister will be
continued.
You have rendered significant service to the Company, and in recognition
of that service and the fact that there will be additional time commitments on
your part as provided herein, Gibson agrees (a) at the time of payment of
Gibson employee incentive bonuses in the Spring of 1997 to pay to you the sum
of $100,000.00 and (b) forthwith to sell to you for $1.00 the automobile
currently furnished to you by the Company.
In the interest of confidentiality, any statements relating to matters
covered by this Agreement will be subject to prior approval by the Company.
If the foregoing is satisfactory to you, please execute both copies of
this letter agreement and return one of them to the undersigned.
Yours truly,
GIBSON GREETINGS, INC.
By: /s/ Frank O'Connell
---------------------
AGREED:
/s/ William L. Flaherty
------------------------
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<PAGE>
Exhibit 10(e)(xvii)
SETTLEMENT AGREEMENT
This Settlement Agreement is made and entered as of the 18th day of
February, 1997 by and between Gibson Greetings, Inc. ("Corporation") and
Benjamin J. Sottile ("Executive").
WHEREAS, Corporation and Executive entered into an Employment Agreement
dated April 1, 1993, and
WHEREAS, Executive's employment terminated on June 15, 1996, pursuant to
the provisions of Paragraph 6(d) of said Employment Agreement, and
WHEREAS, the parties desire to settle all claims relating to Executive's
termination and the Employment Agreement,
NOW, THEREFORE, the parties agree as follows:
1.The Corporation shall continue Executive's base salary through March
31, 1998 at the rate of $38,333.34 per month subject to customary
withholdings. In the event of Executive's death prior to March 31,
1998, payment of said base salary shall be continued for six full
calendar months after death through March, 1998, whichever occurs
first; payments in the case of Executive's death shall be made to
Executive's widow or if deceased to Executive's estate.
2.The Corporation forthwith shall pay to Executive the sum of $200,000.00
plus the sum of $34,045.00 for a total of $234,045.00 and both of which
are subject to customary withholdings. In partial consideration for
this payment, the Executive's participation in all benefit and payment
plans of the Corporation, except to the extent specified in Paragraphs
4, 5, 6, and 8 and including, without limitation, incentive
compensation, vacation, social club memberships, Pritikin,
reimbursement for reasonable business expenses, automobile (except as
provided in Paragraph 3), estate planning and financial planning,
outplacement services, and any and all other benefits available for
management level employees is terminated forthwith with no further
payments or reimbursements of any sort to be paid to Executive.
3.The Executive, within 30 days from the date hereof, shall be entitled
to purchase the automobile currently provided to him by the Corporation
for the sum of $1.00.
4.The Corporation shall continue through March 31, 1998 Executive's
coverage under medical and health benefit plans of the Corporation (as
in effect from time to time for management employees) plus the special
supplementary plan currently in effect for Executive. In the event of
Executive's death prior to March 31, 1998, coverage under this
Paragraph 4 shall be continued for Executive's widow through said March
31, 1998.
-71-
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<PAGE>
5.The Corporation shall pay the $42,000 premium due in 1997 on
Executive's $1,000,000 life insurance policy and shall pay $10,500 of
the payment due on said life insurance policy in 1998 provided this
obligation shall cease in the event of Executive's death.
6.The Corporation's contributions to the Corporation's Retirement Income
Plan, Makeup Plan, 401(k) match amount, and S.E.R.P. Plan for and on
behalf of Executive or substitute arrangements previously discussed
with Executive shall be continued through March 31, 1998 or until
Executive's death, whichever first occurs. Executive, at his cost, may
continue to participate until March 31, 1998 in the Corporation's
Voluntary Accidental Insurance Plan.
7.The Executive by this Agreement hereby resigns, effective immediately,
as a member of the Board of Directors of Gibson Greetings, Inc.
8.The Executive hereby waives and releases the Corporation from any and
all claims, demands and causes of action which Executive has or may
have against the Corporation and including, without limitation, claims,
demands and causes of action arising out of his employment by the
Corporation or out of the Employment Agreement set forth above
(specifically including as example claims to options and "golden
parachute" rights) and also including, but not limited to, any and all
actions for breach of contract, express or implied, wrongful
termination in violation of public policy, and all other claims for
wrongful termination and constructive discharge, and all other tort
claims including, but not limited to, intentional or negligent
infliction of emotional distress, negligence, negligent investigation,
negligent hiring or retention, defamation, intentional or negligent
misrepresentation, fraud, and any and all claims arising under any
statute, including but not limited to, the Ohio Fair Employment
Practice Act, Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1991, the Age Discrimination in Employment Act of 1967,
the Older Workers Benefit Protection Act, the Fair Labor Standards Act,
Employee Retirement and Income Security Act, Americans with
Disabilities Act, 42 USC Section 1981, Family and Medical Leave Act,
U.S. and Ohio Constitutions, and any and all other laws and regulations
relating to employment termination, employment discrimination or other
retaliation, wages, hours, benefits, stock options, compensation, and
any and all claims for attorneys' fees and costs, but excepting from
this release any and all rights to reimbursement and indemnification to
which Executive may be entitled as an officer or director of the
Corporation and which are uniformly applicable to officers and/or
directors. Executive shall reasonably cooperate with Corporation in
connection with any and all legal matters in which the Corporation is
involved or in which the Executive is involved as a result of his
service as an officer or director. Corporation acknowledges that such
reimbursement rights include legal fee payments and reasonable expenses
in conjunction with shareholder litigation currently pending in the
Federal District Court for the Southern District of Ohio, or in
connection with any other litigation falling within the reimbursement
indemnification rights set forth above.
-72-
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<PAGE>
9.The Employment Agreement dated April 1, 1993 be and it hereby is
terminated effectively immediately without further liability of either
party thereunder with the exception that Paragraph 8, Noncompetition,
shall remain in full force and effect to June 15, 1998 provided such
Paragraph 8 shall not be applicable to Executive's employment by a
non-greeting card company.
10.This Agreement contains the entire agreement of the parties with
respect to Executive's employment by the Corporation and supersedes any
prior or simultaneous agreements between them, whether oral or written.
11.This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Ohio.
12.This Agreement shall be binding upon and inure to the benefit of and
shall be enforceable by and against the Corporation, its successors and
assigns, and against the Executive, his heirs, beneficiaries, and legal
representatives.
13.Executive acknowledges that he has had the opportunity to consult with
an attorney prior to signing this Agreement, and that he has been
advised and understands that he has twenty-one (21) days in which to
consider whether he should sign this Agreement, and he further
understands that he has seven (7) days following the date upon which he
signs this Agreement to revoke it and that this Agreement will not
become effective until after the seven-day period has elapsed.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
GIBSON GREETINGS, INC. ("Corporation")
BY:/s/ Frank O'Connell
--------------------
Date of Execution: 2/18/97
---------
/s/ Benjamin J. Sottile
------------------------
Benjamin J. Sottile ("Executive")
Date of Execution: February 18, 1997
-73-
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<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,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) $ 21,962 $ (46,489) $ (28,603)
========== ========== ==========
Weighted average number
of shares of common
stock and equivalents
outstanding:
Common stock 16,094 16,084 16,087
Options 354 159 43
---------- ---------- ----------
16,448 16,243 16,130
========== ========== ==========
Net income (loss) per
share $ 1.34 $ (2.86) $ (1.77)
========== ========== ==========
</TABLE>
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<PAGE>
Exhibit 21
GIBSON GREETINGS, INC.
Subsidiaries of the Registrant
As of December 31, 1995
NAME STATE OF INCORPORATION
-------------------------------------- ----------------------
Gibson Greetings International Limited Delaware
The Paper Factory of Wisconsin, Inc. Wisconsin
-75-
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<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
12, 1997, appearing in this Annual Report on Form 10-K of Gibson Greetings,
Inc. for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
- --------------------------
Cincinnati, Ohio
March 27, 1997
-76-
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GIBSON
GREETINGS, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 98155
<SECURITIES> 0
<RECEIVABLES> 101712
<ALLOWANCES> 59289
<INVENTORY> 65069
<CURRENT-ASSETS> 253203
<PP&E> 181540
<DEPRECIATION> 88891
<TOTAL-ASSETS> 451559
<CURRENT-LIABILITIES> 118575
<BONDS> 40898
0
0
<COMMON> 167
<OTHER-SE> 256149
<TOTAL-LIABILITY-AND-EQUITY> 451559
<SALES> 389421
<TOTAL-REVENUES> 390246
<CGS> 152229
<TOTAL-COSTS> 351719
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8822
<INCOME-PRETAX> 33069
<INCOME-TAX> 11107
<INCOME-CONTINUING> 21962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21962
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
PAGE
<PAGE>
</TABLE>
