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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Commission File
Ended February 28, 1994 Number 0-1502
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AMERICAN GREETINGS CORPORATION
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(Exact name of registrant as specified in Charter)
OHIO 34-0065325
- - ------------------------ ----------------
(State of incorporation) (I.R.S. Employer
Identification No.)
One American Road , Cleveland, Ohio 44144
- - --------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,including area code (216) 252-7300
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Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Title of Each Class
-------------------
Class A Common Shares, Par Value $1.00
Class B Common Shares, Par Value $1.00
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. [ ]
2
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of May 2, 1994 - $2,085,711,762.
Number of shares outstanding as of May 2, 1994:
CLASS A COMMON - 69,768,936
CLASS B COMMON - 4,645,075
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission on or about May 13, 1994, with respect to the 1994 Annual Meeting of
Shareholders called for June 24, 1994, are incorporated by reference into
Part III.
PART I
Item 1. Business
American Greetings Corporation and its subsidiaries operate
predominantly in a single industry: the design, manufacture and sale of
everyday and seasonal greeting cards and other personal communication products.
Greeting cards, gift wrap, paper party goods, candles and giftware are
manufactured and /or sold in the United States by American Greetings
Corporation, Plus Mark, Inc., Carlton Cards Retail, Inc., and Quality Greeting
Card Distributing Company; in Canada by Carlton Cards Ltd. (Canada); in the
United Kingdom by Carlton Cards Limited (UK), Maiden and Kemp Ltd., Someone
Somewhere, Ltd., Carlton (UK) Retail, Ltd., and Carlton Cards Ltd. (Ireland);
in France by Carlton Cards (France) SNC; and in Mexico by Felicitaciones
Nationales, S.A. de C.V. Personalized greeting cards are sold through
CreataCard machines by CreataCard, Inc. in the United States, by CreataCard
Canada, Inc. in Canada and by CreataCard (UK) Ltd. in the United Kingdom.
Wilhold, a division of Plus Mark, Inc., produces and sells hair accessory
items, Acme Frame Products, Inc. produces and sells picture frames, while
Magnivision, Inc. produces and sells non-prescription reading glasses and
eyeware accessories. Design licensing and character licensing are done by AGC,
Inc. and Those Characters From Cleveland, Inc., respectively. AG Industries,
Inc. manufactures custom display fixtures for the Corporation's products and
products of others. Although other subsidiaries of American Greetings
Corporation exist, they are either inactive, of minor importance or of a
holding company nature.
Many of the Corporation's products are manufactured at common
production facilities and marketed by a common sales force. Information
concerning sales by major product classifications is included in Part II, Item
7. Additionally, information by geographic area is included in Note J to the
Consolidated Financial Statements included in Part II, Item 8.
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The Corporation's products are primarily sold in approximately 100,000 retail
outlets throughout the world. The greeting card and gift wrap industry is
intensely competitive. Competitive factors include quality, design, customer
service and terms, which may include payments and other concessions to retail
customers under long-term agreements. These agreements are discussed in
greater detail below. There are an estimated 500 companies in this industry.
The principal competitors, however, are Hallmark Cards, Incorporated and Gibson
Greetings, Inc. Based upon its general familiarity with the greeting card and
gift wrap industry and limited information as to its competitors, the
Corporation believes that it is the second largest company in the industry and
the largest publicly owned company in the industry.
The greeting card and gift wrap industry is generally mature and
growing at a moderate rate of one to two percent in units per year. Although
there have been year-to-year fluctuations, on average the Corporation has grown
at or above the growth rate of the industry. The Corporation is well
positioned in each retail channel of distribution that sells its products,
particularly in the growing mass retail channels. The Corporation expects
continued growth at or above the growth rate of the industry.
Production of the Corporation's products is on a level basis
throughout the year. Everyday inventories remain relatively constant
throughout the year, while seasonal inventories peak in advance of each major
holiday season, including Christmas, Valentine, Easter, Mother's Day, Father's
Day and Graduation. Also characteristic of the business, accounts receivable
for seasonal merchandise are carried for relatively long periods, as product is
normally shipped three to five months prior to a holiday. Payments for
seasonal shipments are generally received during the month in which the major
holiday occurs, or shortly thereafter. Extended payment terms may also be
offered in response to competitive situations with individual customers. The
Corporation and many of its competitors sell seasonal greeting cards on a
return basis. These returns generally occur immediately following the holiday.
During the fiscal year, the Corporation experienced no
difficulty in obtaining raw materials from suppliers.
At February 28, 1994, the Corporation employed approximately
15,900 full-time employees and approximately 20,700 part-time employees which,
when jointly considered, equate to approximately 21,100 full-time employees.
Approximately 3,000 of the Corporation's hourly plant employees are unionized.
The locations and unions are: Cleveland, Ohio, International Association of
Greeting Card Workers; Bardstown, Kentucky, and Corbin, Kentucky, International
Brotherhood of Teamsters; Greeneville, Tennessee, Amalgamated Clothing &
Textile Workers Union; and Toronto, Ontario (Carlton Cards Ltd.), Canadian
Paperworkers Union. Labor relations at each location have been satisfactory.
The Corporation's headquarters and other manufacturing locations are not
unionized.
The Corporation has a number of patents and registered
trademarks which are used in connection with its products. The Corporation's
designs and verses are protected by copyright. Although the licensing of
copyrighted designs and trademarks produces additional revenue, in the opinion
of the Corporation, the Corporation's
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operations are not dependent upon any individual patent, trademark, copyright
or intellectual property license. The collective value of the Corporation's
copyrights and trademarks is substantial and the Corporation follows an
aggressive policy of protecting its copyrights and trademarks.
In fiscal 1994, the Corporation's major channels of
distribution, in order of importance, were: drug stores, mass merchandisers,
supermarkets, stationery and gift shops, variety stores, military post
exchanges, combo stores (stores combining food, general merchandise and drug
items), and department stores.
Sales to the Corporation's five largest customers, which include
mass merchandisers and major drug stores, accounted for approximately 21.2% of
net sales. Sales to customers are made through 25 regional and 62 district
sales offices in the United States, Canada, United Kingdom, France and Mexico.
The Corporation has agreements with various customers for the
supply of greeting cards and related products. Contracts are separately
negotiated to meet competitive situations; therefore, while some aspects of the
agreements may be the same or similar, important contractual terms often vary
from contract to contract. No one contract approaches the materiality
threshold. Under the agreements, customers typically receive allowances,
discounts and/or advances in consideration for the Corporation being allowed to
supply customers' stores for a stated term. The Corporation views the use of
such agreements as advantageous in developing and maintaining business with
retail customers. Although risk is inherent in the granting of advances,
payments and credits, the Corporation subjects such customers to its normal
credit review. Losses attributable to these agreements have historically been
immaterial. Advances, payments and credits made under these agreements are
accounted for as deferred costs. The current and long-term portions of the
agreements, which are material in the aggregate, are disclosed in Note B and
Note C, respectively, to the Consolidated Financial Statements included in Part
II, Item 8. Note C also discusses the amortization period. The Corporation
believes that these agreements represent a common practice within the industry.
Since Hallmark Cards, one of the Corporation's two principal competitors, is a
non-public company, public disclosure of its practices has been limited.
Gibson Greetings, the Corporation's other principal competitor and a public
company, made comparable disclosures to those previously made by the
Corporation with respect to such agreements.
Item 2. Properties
As of February 28, 1994, the Corporation owns or leases
approximately 15.3 million square feet of plant, warehouse, store and office
space, of which approximately 6.8 million square feet are leased. Space needs
in the United States have been met primarily though long-term leases of
properties constructed and financed by community development corporations and
municipalities.
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The following table summarizes the principal plants and
materially important physical properties of the Corporation:
Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- - -------- ----- ------ ------ --------
Bardstown, 413,500 Cutting, folding,
Kentucky finishing, and
packaging of greeting cards
Cleveland, 1,312,500 International headquarters; general offices
Ohio of U.S. Greeting Card Division, Those
(2 locations) Characters From Cleveland, Plus Mark, Inc., AG
Industries, Wilhold, Carlton Cards
Retail, Inc., CreataCard, and Acme Frame
Products, Inc.; creation and design of greeting
cards and related products
Corbin, 1,010,000 1997 Printing of greeting cards, gift wrapping and
Kentucky paper party goods and manufacture of other
related products
Danville, 1,374,000 2001 Distribution of everyday greeting cards and
Kentucky related products
Forest City, 498,000 327,600 1995, Manufacture of the Corporation's display
North Carolina 1996 fixtures and other custom display
and fixtures for AG Industries, Inc.
1999
Greeneville, 1,410,000 Printing and packaging of seasonal
Tennessee wrapping items for Plus Mark, Inc.
(2 locations)
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Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- - -------- ----- ------ ------ --------
Harrisburg, 417,000 2007 Manufacture and distribution facility of metal
Arkansas picture frames for Acme Frame Products, Inc.
Huntington Valley, 12,000 1997 Manufacture, order filling, and distribution
Pennsylvania of eyeglass accessories for Magnivision, Inc.
Lafayette, 194,000 Manufacture of envelopes for greeting
Tennessee cards and packaging of cards
McCrory, 771,000 1996 Order filling and shipping of everyday
Arkansas and and seasonal products
2005
Milton, 46,000 1995 Order filling and shipping of hair
Pennsylvania accessory products for Wilhold
Osceola, 2,598,500 Cutting, folding, finishing and
Arkansas packaging of seasonal greeting cards and
warehousing; distribution of seasonal products
Pembroke Pines, 68,000 1998 Manufacture, order filling and shipping of
Florida non-prescription reading glasses for
Magnivision, Inc.
Philadelphia, 120,000 2017 Processing of seasonal products and hand
Mississippi finishing of greeting cards
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Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- - -------- ----- ------ ------ --------
Ripley, 165,000 1995 Seasonal card printing
Tennessee and and forms
2001
Shelbyville, 250,000 1997 Warehousing for Carlton Cards Retail, Inc.
Kentucky
Sunbury, 145,000 Manufacture of hair accessory products for
Pennsylvania Wilhold
Tutwiler, 110,000 Manufacture of wooden picture
Mississippi frames for Acme Frame Products, Inc.
Corby, 85,000 Distribution of greeting cards and
England related products for Carlton Cards
Limited (UK)
Dewsbury, 361,000 97,500 1995, General offices of
England 2002, Carlton Cards Limited
(6 locations) 2008 (UK) and manufacture
and of greeting cards and
2015 related products
Mexico City, 166,000 General offices of
Mexico Felicitaciones
Nacionales S.A. de
C.V. and manufacture
of greeting cards and
related products
Paris, France 70,000 1997 Distribution of greeting cards and related
products for Carlton Cards France SNC
Toronto, 1,084,500 General offices of Carlton Cards Ltd.
Ontario, (Canada); manufacture of greeting cards
Canada and related products
(2 locations)
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Item 3. Legal Proceedings
As of April 1, 1994, the Corporation is a party to nine legal
proceedings relating to state and federal environmental laws. One or more
governmental authorities is a party to each proceeding. The proceedings
allege, among other things, that hazardous waste material generated by the
Corporation was improperly disposed of by others. In eight of these cases the
Corporation has entered into consent decrees under which the Corporation has
agreed to pay a PRO RATA share of clean-up costs. Costs of remediation in each
of the proceedings cannot be estimated at this time; however, in the opinion of
management, based on the amounts involved in each proceeding and in the
aggregate, such liabilities will not have a material effect on the
Corporation's consolidated financial position.
Item 4. Submission of Matters to Vote of Security Holders
None
Executive Officers of the Registrant
- - ------------------------------------
The following is a list of the Corporation's executive officers,
their ages as of April 1, 1994, their positions and offices, and number of
years in executive office:
Years as
Name Age Executive Officer Current Position and Office
- - ---- --- ----------------- ---------------------------
Irving I. Stone 85 44 Founder-Chairman and Chairman
of the Executive Committee
Morry Weiss 54 22 Chairman and Chief Executive
Officer
Edward Fruchtenbaum 46 8 President and Chief Operating
Officer
Henry Lowenthal 62 22 Senior Vice President and
Chief Financial Officer
James R. Van Arsdale 55 11 Senior Vice President
John M. Klipfell 44 11 Senior Vice President
Harvey Levin 61 13 Senior Vice President
William R. Mason 49 12 Senior Vice President
James M. Semon 54 15 Senior Vice President
Erwin Weiss 45 4 Senior Vice President
Jon Groetzinger, Jr. 45 6 Senior Vice President, General Counsel and Secretary
Dale A. Cable 47 2 Treasurer
William S. Meyer 47 6 Controller
Mr. Irving I. Stone is the father-in-law of Morry Weiss. The
Board of Directors annually elects all executive officers; however executive
officers are subject to removal, with or without cause, at any time.
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All of the executive officers listed above, with the exception
of Dale A. Cable, have served in the capacity shown or similar capacities with
the Corporation (or major subsidiary) over the past five years. Mr. Cable was
Treasurer-Assistant Secretary of Standard Products Company from 1989 to 1992,
and Corporate Treasurer of Sheller-Globe Corporation from 1987 to 1989.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
(a) MARKET INFORMATION *
- - ----------------------
The high and low stock prices for the Corporation's Class A
Common Shares, as reported in the NASDAQ National Market Listing, for the years
ended February 28, 1994, and 1993:
1994 1993
------------------------ ------------------------
High Low High low
-------- -------- -------- ---------
1st Quarter $29-1/4 $23-7/8 $21-7/8 $18-7/8
2nd Quarter 29-7/8 26-1/2 22-1/2 18-7/8
3rd Quarter 33-1/2 27-7/8 24-5/8 21-3/8
4th Quarter 34-1/4 27-7/8 26-1/8 22-1/2
The Corporation's Class A Common Shares, $1.00 par value per
Share, are traded on the NASDAQ National Market under the trading symbol:
AGREA. Society National Bank, Cleveland, Ohio, is the Corporation's registrar
and transfer agent. There is no public market for the Class B Common Shares of
the Corporation. Pursuant to the Corporation's Amended Articles of
Incorporation, a holder of Class B Common Shares may not transfer such Class B
Common Shares (except to permitted transferees, a group that generally includes
members of the holder's extended family, family trusts and charities) unless
such holder first offers such shares to the Corporation for purchase at the
most recent closing price for the Corporation's Class A Common Shares. If the
Corporation does not purchase such Class B Common Shares, the holder must
convert such shares, on a share for share basis, into Class A Common Shares
prior to any transfer.
(b) SHAREHOLDERS
- - ----------------
At April 1, 1994, there were approximately 14,700 holders of
Class A Common Shares and 295 holders of Class B Common Shares of record and
individual participants in security position listings.
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(c) CASH DIVIDENDS *
- - ------------------
Dividends Per Share 1994 1993
------------------- -------- --------
1st Quarter (paid June 10, 1993 and 1992) $.1075 $.0975
2nd Quarter (paid September 10, 1993 and 1992) $.125 $.1075
3rd Quarter (paid December 10, 1993 and 1992) $.125 $.1075
4th Quarter (paid March 10, 1994 and 1993) $.125 $.1075
------- -------
$.4825 $.42
======== ========
Provisions of certain loan agreements contain restrictions on
the payment of cash dividends, under the most restrictive of which retained
earnings of approximately $99,124,000 are available for the payment of
dividends at February 28, 1994.
* Per share amounts have been restated to reflect the stock split, which
occurred on September 10, 1993.
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Item 6. Selected Financial Data
Years ended February 28 or 29
Thousands of dollars except per share amounts *
Summary of Operations
1994 1993 1992 1991 1990
------------- -------------- ------------- ------------- -------------
Total revenue. . . . . . . . . . . . $1,780,815 $1,688,184 $1,573,061 $1,431,806 $1,308,984
Material, labor and other
production costs. . . . . . . . . 672,020 661,183 645,951 597,109 563,326
Interest expense . . . . . . . . . . 16,897 26,924 30,423 31,378 27,691
Income before cumulative effect of
accounting changes . . . . . . . . 130,884 112,288 97,462 82,497 72,177
Cumulative effect of accounting
changes, net of tax. . . . . . . . 17,182 - - - -
Net income . . . . . . . . . . . . . 113,702 112,288 97,462 82,497 72,177
Income per share:
Before cumulative effect of
accounting changes . . . . . . . 1.77 1.55 1.40 1.30 1.13
Cumulative effect of accounting
changes, net of tax. . . . . . . .23 - - - -
Net income . . . . . . . . . . . . 1.54 1.55 1.40 1.30 1.13
Cash dividends per share . . . . . . .48 .42 .38 .35 .33
Fiscal year end market price per share 27.88 24.00 21.25 18.88 15.63
Average number of shares outstanding 73,809,132 72,440,114 69,514,436 63,291,126 64,059,066
Financial Position
Accounts receivable . . . . . . . . $ 322,675 $ 276,932 $ 264,125 $ 272,179 $233,103
Inventories. . . . . . . . . . . . . 243,357 228,123 275,955 277,630 242,314
Working capital. . . . . . . . . . . 474,280 581,651 628,997 484,169 480,189
Total assets . . . . . . . . . . . . 1,565,234 1,548,400 1,437,760 1,234,461 1,119,834
Capital additions . . . . . . . . . 102,859 77,099 67,328 45,303 42,869
Long-term debt . . . . . . . . . . . 54,207 169,381 255,711 246,181 235,497
Shareholders' equity . . . . . . . . 1,053,442 952,535 865,046 656,606 604,604
Shareholders' equity per share . . . 14.21 13.07 12.05 10.39 9.44
Net return on average shareholders'
equity before cumulative effect of
accounting changes . . . . . . . . 13.0% 12.4% 12.8% 13.1% 12.3%
Return on total revenue before income
taxes and cumulative effect of
accounting changes . . . . . . . . 11.8% 10.7% 9.7% 9.1% 8.9%
* Share and per share amounts have been restated to reflect the 1994 stock split.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- - ---------------------
During 1994, the Corporation's revenue growth continued as net sales reached
$1.77 billion, a 5.9% increase over 1993. This increase reflects ongoing
strong sales of everyday and seasonal cards through both traditional channels
of distribution and the new personalized greeting card machines. Unit sales of
greeting cards increased 1% and net sales of greeting cards in dollars
increased 6.9%. These improvements were offset somewhat by the weakening of
foreign currencies against the U.S. dollar which had an unfavorable revenue
impact of 1.4 percentage points. In 1993, net sales increased 7.6% over 1992
with greeting card unit sales up 1% and greeting card sales in dollars up 9.7%.
The percent of net sales contributed by each major product classification is as
follows:
1994 1993 1992
---- ---- ----
Everyday Greeting Cards . . . . . . . . . . . . . . . . . . . . 41% 41% 40%
Seasonal Greeting Cards . . . . . . . . . . . . . . . . . . . . 24% 24% 23%
Gift Wrapping and Party Goods . . . . . . . . . . . . . . . . . 18% 18% 19%
Consumer Products . . . . . . . . . . . . . . . . . . . . . . . 13% 10% 11%
Stationery and Miscellaneous . . . . . . . . . . . . . . . . . 4% 7% 7%
The Consumer Product classification includes, among other items, giftware,
frames, non-prescription reading glasses, hair care accessories and candles.
Other income, which reflected lower royalty income, decreased to $10.9 million
from $16.5 million in 1993 and $19.1 million in 1992. During 1994, the demand
for character licensing continued the downward trend experienced in recent
years. The income from character licensing did not significantly contribute to
1994 results and further declines in this income will have minimal impact on
revenue.
Material, labor and other production costs continued to decrease as a percent
of net sales and were 38% for 1994, down from 39.6% and 41.6% in 1993 and 1992,
respectively. Contributing to the margin improvements were price increases
and reductions in card material costs in the United States which decreased 1.1%
during 1994 and 1.8% during 1993. Both years include improvements related to
just-in-time manufacturing processes. In 1993, costs in this category also
included a reduction of $4.8 million as a result of LIFO inventory reductions.
As a percent of net sales, selling, distribution and marketing expenses
increased slightly to 37.1% in 1994 from 36.9% in 1993. In 1992 these expenses
were 35.8% of net sales. The increase in both years resulted primarily from
amortization of the deferred costs related to agreements with retail customers
as described in Note C to
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the Consolidated Financial Statements contained in Item 8 hereof. The higher
amortization expense reflects the Corporation's increased use of these
agreements to develop and maintain business with retail customers. The
increased use of these agreements has not had a material impact on operations
and the impact of unamortized deferred costs relating to existing agreements
should remain immaterial to operations.
Advertising costs, which are included in selling, distribution and marketing
expenses, were $48.2 million in 1994, and were primarily for the Corporation's
cooperative advertising program with retailers and an initial national
advertising test for CreataCard. These expenses, which were $48.1 million in
1993 and $45.4 million in 1992, will increase to support CreataCard.
Administrative and general expenses were 12.8% of net sales in 1994 compared to
12.1% in 1993 and 12% in 1992. This increase reflected the growth of certain
new operating units, including Magnivision and CreataCard, which had higher
administrative and general expenses than the traditional business. The impact
of these units on this expense category should diminish as these businesses
expand. Excluding the impact of these units, administrative and general
expenses were 12.5% of net sales for 1994.
Administrative and general expenses also included increases in the contribution
to the profit sharing retirement plan of $4.3 million in each of the past two
years which resulted from higher pre-tax income in the United States.
Additionally, the net pre-tax cost of corporate owned life insurance increased
$2.5 million in 1994 after increasing $3.5 million in the prior year. As
discussed below, the pre-tax cost of these life insurance programs are more
than offset by the reduction in the Corporation's effective tax rate. Bad debt
expense increased to $10.8 million in 1994 from $9.8 million in 1993 and $8.7
million in 1992. These increases reflect normal additions to the allowance for
doubtful accounts which the Corporation believes represents an adequate
provision for possible losses from bad debts.
Interest expense for 1994 was $16.9 million, down significantly from $26.9
million in 1993 and $30.4 million in 1992. The decrease in 1994 was due to the
repayment of the 8.375% notes on March 1, 1993 with funds on hand. The
decrease in 1993 from 1992 resulted from lower interest rates in the United
States and the amortization of an option premium on an interest rate swap. The
premium amortization reduced interest expense by $1.1 million in 1994 and $2.1
million in 1993. See Note D to the Consolidated Financial Statements for
further discussion of the interest rate swap.
The 1994 effective tax rate decreased to 37.5% from 38% in 1993 after
increasing from 36.3% in 1992. The increase in the United States statutory
rate for 1994 was more than offset by additional tax benefits from the
corporate owned life insurance programs. In addition, foreign losses with no
tax benefit, which caused the increase in the 1993 effective rate, decreased in
1994. See Note G to the Consolidated Financial Statements contained in Item 8
hereof for further discussion of the effective tax rate.
During 1994, the Corporation declared a two-for-one common stock split effected
in the form of a 100% share dividend which was distributed on September 10,
1993 to stockholders of record on August 27, 1993. In the following
discussion, per share amounts have been restated to reflect this split.
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The Corporation adopted two new accounting standards during 1994 and reflected
the impact of these changes as a one-time cumulative effect of accounting
changes. These new standards were Statement of Financial Accounting Standards
No. 106 (SFAS 106), "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." The Corporation elected to immediately
recognize the full SFAS 106 transition obligation, the effect of which was to
reduce net income by $22.5 million or $.31 per share. The adoption of SFAS 109
resulted in a one-time benefit of $5.3 million or $.08 per share. Neither of
the accounting changes had a material effect on operations nor any impact on
cash flow for 1994 and these changes are not expected to materially impact 1995
results. See Note E to the Consolidated Financial Statements - Postretirement
Benefits Other Than Pensions and Note G to the Consolidated Financial
Statements - Income Taxes, contained in Item 8 hereof for further discussion.
Income before the cumulative effect of these accounting changes was $130.9
million or $1.77 per share, up 16.6% from $112.3 million or $1.55 per share in
1993. In 1992, net income was $97.5 million or $1.40 per share. The net
impact of the accounting changes was to reduce net income by $17.2 million or
$.23 per share.
FOREIGN OPERATIONS
- - ------------------
Total foreign revenue of $260 million, which reflected the weakening of foreign
currencies against the U.S. dollar, was down from $273.1 million in 1993 and
$263.2 million in 1992. The increase in 1993 was due to the acquisition of
specialty stores in the United Kingdom and Canada. Operating profit, which was
also negatively impacted by the exchange rates, was $5.4 million compared to
$8.1 million and $10.6 million in 1993 and 1992, respectively.
Canadian revenue for 1994 was 5.1% below 1993 revenue as increased sales of
everyday and seasonal cards were offset by the exchange rate impact and a
weakness in the retail market for non-card products. Revenue increased 1%
during 1993 as strong sales of everyday cards and seasonal cards and
accessories were offset by a decrease in the exchange rate.
Operating profit in Canada was $18.9 million, a 13.5% decrease from 1993. This
decrease reflects the impact of the exchange rate and lower sales in the retail
market for non-card products. For 1993, operating profit decreased 6.3% due to
the exchange rate and higher retail expenses from store acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
In 1994, operating activities provided $75.6 million in cash which was used to
expand both the conventional business and CreataCard. Cash provided by
operations was $169.3 million in 1993 and $69.4 million in 1992. Significant
reductions in inventory levels contributed to the 1993 improvement while in
1994 inventories increased due to the production of a new card line in the
United Kingdom, advance purchases of favorably priced raw materials in the
United States and the acquisition of Magnivision, among other lesser factors.
Inventories as a percent of material, labor and other production costs were
36.2%, up from the 34.5% achieved in 1993 but lower than the 42.7% reported for
1992.
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Trade accounts receivable were 18.2% of net sales for 1994 compared to 16.6% at
the end of 1993 and 17% for 1992. The increase in 1994 primarily reflected the
continued use of extended payment terms. Cash generated from operations was
also impacted by the increase in deferred costs related to agreements with
customers. These deferred costs are described above and in Note C to the
Consolidated Financial Statements contained in Item 8 hereof.
Investing activities for 1994 included $102.9 million of capital expenditures
which increased $25.8 million over 1993 expenditures. This increase was due to
the mass introduction of CreataCard machines which was accelerated from the
original schedule in order to establish market position. The increase from
1992 to 1993 was also due primarily to the start up of this business. The
Corporation anticipates capital expenditures of approximately $90 million in
1995, primarily for improvements to existing facilities and updates to
technological processes.
During 1994, additional policy loans under the corporate-owned life insurance
program, net of the increase in cash surrender value, provided $18.9 million of
cash from investing activities. As described in Note A to the Consolidated
Financial Statements contained in Item 8 hereof, the Corporation's cash
surrender value of these policies is recorded net of policy loans in other
assets and is not significant to the Corporation's financial position. In
1993, the net insurance investment did not increase as policy loans offset
increases in cash surrender value and, in 1992, investing activities reflected
increases in insurance investments of $19.9 million.
Financing activities for 1994 included both a reduction of long-term debt and a
shift from long-term debt to short-term borrowings. On March 1, 1993, the
Corporation's $100 million 8.375% notes were paid with current funds on hand.
On July 15, 1993, the $100 million 8.125% notes were called and replaced with
short-term borrowings. An interest rate swap option was also exercised on July
15, 1993. Under the terms of the swap, the Corporation pays 8.125% fixed and
receives the US Dealer Commercial Paper Composite Rate floating until July 15,
1996. See Note D to the Consolidated Financial Statements contained in Item 8
hereof for further discussion of the interest rate swap.
As of the end of 1994, the ratio of total debt to total capitalization (equity
plus short and long-term debt) decreased to 15.0% from 22.9% in 1993 and 25.7%
in 1992. The improvement in this ratio resulted from both the reduction of
long-term debt and the increase in shareholders' equity to $1.1 billion from
$952 million in 1993 and $865 million in 1992. During 1994, the Corporation
paid cash dividends of $35.6 million, up from $30.5 million and $26.5 million
in 1993 and 1992, respectively.
Working capital of $474 million at the end of 1994 and $582 million in 1993
reflected the movement of the long-term notes to current liabilities. In 1992,
working capital was $629 million. The seasonal nature of the business results
in peak working capital requirements which are financed primarily through
short-term borrowings. As described in Note D to the Consolidated Financial
Statements contained in Item 8 hereof, the Corporation has credit facilities in
place to meet both seasonal working capital requirements and the shift from
long-term to short-term debt. Funds generated by operations, along with funds
available under these facilities for seasonal
- 15 -
16
borrowings, are expected to meet the Corporation's currently anticipated
funding requirements.
Prospective Information
- - -----------------------
Management is not aware of any current trends, events, demands, commitments or
uncertainties which reasonably can be expected to have a material effect on the
liquidity, capital resources, financial position or results of operations of
the Corporation.
- 16 -
17
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENT OF INCOME
Years ended February 28 or 29, 1994, 1993 and 1992
Thousands of dollars except per share amounts
1994 1993 1992
---------- ---------- ----------
Net sales $1,769,964 $1,671,692 $1,553,961
Other income 10,851 16,492 19,100
---------- ---------- ----------
TOTAL REVENUE 1,780,815 1,688,184 1,573,061
Costs and expenses:
Material, labor and other production
costs 672,020 661,183 645,951
Selling, distribution and marketing 655,823 616,538 556,828
Administrative and general 226,661 202,429 186,858
Interest 16,897 26,924 30,423
---------- ---------- ----------
1,571,401 1,507,074 1,420,060
---------- ---------- ----------
Income before income taxes and
cumulative effect of
accounting changes 209,414 181,110 153,001
Income taxes 78,530 68,822 55,539
---------- ---------- ----------
Income before cumulative
effect of accounting changes 130,884 112,288 97,462
Cumulative effect of
accounting changes, net of tax 17,182 - -
---------- ---------- ----------
NET INCOME $ 113,702 $ 112,288 $ 97,462
========== ========== ==========
Income per share:
Before cumulative effect of
accounting changes $1.77 $1.55 $1.40
Cumulative effect of
accounting changes, net of tax .23 - -
----- ----- -----
NET INCOME PER SHARE $1.54 $1.55 $1.40
===== ===== =====
Average number of shares outstanding 73,809,132 72,440,114 69,514,436
See notes to consolidated financial statements.
Share and per share amounts have been restated to reflect the September, 1993 stock split.
- 17 -
18
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
February 28, 1994 and 1993
Thousands of dollars
ASSETS 1994 1993
---------- ----------
CURRENT ASSETS
Cash and equivalents $ 101,066 $ 235,186
Trade accounts receivable, less allowances for
sales returns of $97,903 ($72,054 in 1993) and
for doubtful accounts of $13,084 ($13,816 in 1993) 322,675 276,932
Inventories:
Raw material 48,845 44,469
Work in process 38,956 30,171
Finished products 202,620 204,010
---------- ----------
290,421 278,650
Less LIFO reserve 84,970 84,887
---------- ----------
205,451 193,763
Display material and factory supplies 37,906 34,360
---------- ----------
Total inventories 243,357 228,123
Deferred and refundable income taxes 62,075 66,339
Prepaid expenses and other 121,022 105,277
---------- ----------
Total current assets 850,195 911,857
OTHER ASSETS 286,117 248,991
PROPERTY, PLANT AND EQUIPMENT
Land 5,975 6,182
Buildings 265,220 258,511
Equipment and fixtures 522,770 443,548
---------- ----------
793,965 708,241
Less accumulated depreciation 365,043 320,689
---------- ----------
Property, plant and equipment - net 428,922 387,552
---------- ----------
$1,565,234 $1,548,400
========== ==========
See notes to consolidated financial statements.
- 18 -
19
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - CONTINUED
February 28, 1994 and 1993
Thousands of dollars
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993
---------- ----------
CURRENT LIABILITIES
Debt due within one year $ 132,036 $ 113,986
Accounts payable 127,792 113,684
Payrolls and payroll taxes 53,164 54,099
Retirement plans 20,766 17,409
Dividends payable 9,300 7,837
Income taxes 32,857 23,191
---------- ----------
Total current liabilities 375,915 330,206
LONG-TERM DEBT 54,207 169,381
POSTRETIREMENT BENEFIT OBLIGATION 19,427 -
DEFERRED INCOME TAXES 62,243 96,278
SHAREHOLDERS' EQUITY
Common shares - par value $1:
Class A - 69,590,011 shares issued
less 43,886 Treasury shares in 1994
and 68,714,572 shares issued less 66,472
Treasury shares in 1993 69,546 34,324
Class B - 6,066,096 shares issued
less 1,493,152 Treasury shares in 1994
and 6,064,522 shares issued less
1,810,742 Treasury shares in 1993 4,573 2,127
Capital in excess of par value 249,192 259,093
Treasury stock (28,240) (28,152)
Cumulative translation adjustment (16,421) (11,580)
Retained earnings 774,792 696,723
---------- ----------
Total shareholders' equity 1,053,442 952,535
---------- ----------
$1,565,234 $1,548,400
========== ==========
See notes to consolidated financial statements.
- 19 -
20
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended February 28 or 29, 1994, 1993 and 1992
Thousands of dollars
1994 1993 1992
-------- -------- --------
OPERATING ACTIVITIES:
Net income $113,702 $112,288 $ 97,462
Adjustments to reconcile to net cash
provided (used) by operating activities:
Postretirement benefit obligation 22,530 - -
Depreciation 59,575 48,450 45,517
Deferred and refundable income taxes (15,809) (9,286) (4,197)
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts
receivable (37,940) (17,498) 4,722
(Increase) decrease in inventories (13,196) 39,279 (3,281)
Increase in other current assets (31,256) (35,263) (26,100)
Increase in deferred cost - net (52,887) (16,942) (46,520)
Increase (decrease) in accounts
payable and other liabilities 23,008 43,401 (9,170)
Other - net 7,886 4,851 10,949
-------- -------- --------
Cash Provided by Operating Activities 75,613 169,280 69,382
INVESTING ACTIVITIES:
Property, plant & equipment additions (102,859) (77,099) (67,328)
Proceeds from sale of fixed assets 1,009 592 2,669
Investment in corporate owned life insurance 18,930 471 (19,921)
Other 1,344 (10,473) (500)
--------- -------- --------
Cash Used by Investing Activities (81,576) (86,509) (85,080)
FINANCING ACTIVITIES:
Increase in long-term debt 19,519 19,103 21,155
Reduction of long-term debt (216,892) (3,911) (14,126)
Increase (decrease) in short-term debt 89,456 (16,717) 3,008
Proceeds from common stock offering - - 135,428
Sale of stock under benefit plans 21,792 15,100 8,190
Purchase of treasury shares (6,399) (8,028) (1,866)
Dividends to shareholders (35,633) (30,494) (26,475)
-------- -------- --------
Cash (Used) Provided by Financing Activities (128,157) (24,947) 125,314
-------- -------- --------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS (134,120) 57,824 109,616
Cash and Equivalents at Beginning of Year 235,186 177,362 67,746
-------- -------- --------
Cash and Equivalents at End of Year $101,066 $235,186 $177,362
======== ======== ========
See notes to consolidated financial statements.
- 20 -
21
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended February 28 or 29, 1994, 1993 and 1992
Thousands of dollars except per share amounts
Common Shares Capital in Cumulative
----------------------- Excess of Treasury Translation Retained
Class A Class B Par Value Stock Adjustment Earnings Total
---------- ----------- ---------- ---------- ----------- ----------- ------------
BALANCE FEBRUARY 28, 1991 $ 29,554 $ 2,055 $115,028 $(41,584) $ 3,748 $547,805 $ 656,606
Net income 97,462 97,462
Cash dividends-$.38 per
share (26,475) (26,475)
Exchange of shares 20 (20)
Sale of shares under benefit
plans, including tax benefits 353 5 6,439 3,112 (1,719) 8,190
Purchase of treasury shares (25) (25) (1,816) (1,866)
Translation adjustment (4,299) (4,299)
Retirement of treasury shares (11,764) 11,764
Issuance of stock in public
offering 3,967 131,461 135,428
-------- -------- ------- -------- -------- -------- ----------
BALANCE FEBRUARY 29, 1992 33,869 2,015 241,164 (28,524) (551) 617,073 865,046
Net income 112,288 112,288
Cash dividends-$.42 per
share (30,494) (30,494)
Exchange of shares (23) 23
Sale of shares under benefit
plans, including tax benefits 258 177 8,497 5,274 (2,921) 11,285
Purchase of treasury shares (1) (177) (7,850) (8,028)
Sale of treasury shares 89 2,948 777 3,814
Translation adjustment (11,029) (11,029)
Issuance of stock in acquisition 221 9,432 9,653
-------- -------- -------- -------- --------- -------- ----------
BALANCE FEBRUARY 28, 1993 34,324 2,127 259,093 (28,152) (11,580) 696,723 952,535
Net income 113,702 113,702
Cash dividends-$.48 per
share (35,633) (35,633)
Exchange of shares 16 (16)
Sale of shares under benefit
plans, including tax benefits 251 24 7,279 430 7,984
Purchase of treasury shares (2) (210) (6,857) (7,069)
Sale of treasury shares 418 8,551 5,509 14,478
Translation adjustment (4,841) (4,841)
Issuance of stock in acquisition 252 12,034 12,286
Issuance of 34,704,750 class A shares
and 2,229,618 class B shares to
effect two-for-one stock split 34,705 2,230 (37,765) 830
-------- -------- -------- -------- --------- -------- ----------
BALANCE FEBRUARY 28, 1994 $ 69,546 $ 4,573 $249,192 $(28,240) $ (16,421) $774,792 $1,053,442
======== ======== ======== ======== ========= ======== ==========
See notes to consolidated financial statements.
- 21 -
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended February 28 or 29, 1994, 1993 and 1992
Thousands of dollars except per share amounts
NOTE A - ACCOUNTING POLICIES
Stock Split and Earnings Per Share: Income per share information is based on
the average number of shares outstanding during each year. On June 25, 1993,
the Corporation declared a two-for-one stock split of the Corporation's common
stock, effected in the form of a 100% share dividend. Such distribution was
made on September 10, 1993 to shareholders of record at the close of business
on August 27, 1993. All share and per share amounts have been restated to
retroactively reflect the stock split. For the years presented, stock options
do not have a material dilutive effect.
Consolidation: The consolidated financial statements include the accounts of
the Corporation and its subsidiaries. All intercompany transactions are
eliminated.
Cash Equivalents: The Corporation considers all highly liquid instruments
purchased with a maturity of less than three months to be cash equivalents.
Financial Instruments: The carrying value of the Corporation's financial
instruments approximate their fair market values, except where otherwise
stated.
Concentration of Credit Risks: The Corporation sells primarily to customers in
the retail trade, including those in the mass merchandiser, drug store,
supermarket and other channels of distribution. These customers are located
throughout the United States, Canada, the United Kingdom, France and Mexico.
The Corporation conducts business based on periodic evaluations of its
customers' financial condition and generally does not require collateral.
While the competitiveness of the retail industry presents an inherent
uncertainty, the Corporation does not believe a significant risk of loss from a
concentration of credit is likely.
Inventories: Finished products, work in process and raw material inventories
are carried at cost, principally last-in, first-out (LIFO), not in excess of
market. Display material and factory supplies are carried at average cost.
In 1993, certain inventory quantities were reduced, resulting in liquidations
of LIFO inventory quantities carried at lower costs prevailing in prior years.
The effect was to increase net income by $2,716 in that year.
Investment in Purchased Tax Benefits: The cost of purchased tax credits and
deductions is accounted for as an investment. Realized tax benefits are
applied first to reduce the investment to equal the remaining unamortized
interest cost related to the transaction, and then to the establishment of
deferred tax liabilities. Interest expense is amortized over the life of the
investment.
Investment in Life Insurance: The Corporation's investment in corporate-owned
life insurance policies is recorded net of policy loans in other assets. The
net life insurance expense, including interest expense, is included in
administrative and general expenses in the Consolidated Statement of Income.
The related interest expense is $43,543, $31,851, and $19,248 in 1994, 1993 and
1992, respectively.
- 22 -
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - ACCOUNTING POLICIES (CONT'D)
Property and Depreciation: Property, plant and equipment is carried at cost.
Depreciation and amortization of buildings, equipment and fixtures is computed
principally by the straight-line method over the useful lives of the various
assets or, in the case of certain property under capital lease, over the lesser
of the useful life or the lease term.
Revenue Recognition: Sales and related costs are recorded by the Corporation
upon shipment of products to non-related retailers and upon the sale of
products at Corporation-owned retail locations. Seasonal cards are sold with
the right of return on unsold merchandise. The Corporation provides for
estimated returns of seasonal cards when those products are shipped to
retailers.
Income Taxes: Deferred income taxes are provided for temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and amounts measured by tax laws.
NOTE B - PREPAID EXPENSES AND OTHER
The prepaid expenses and other classification consists of deferred costs
relating to agreements with certain customers, cash and short-term investments
held in trust for the payment of medical benefits, rent and insurance.
The largest component of prepaid expenses and other is deferred costs estimated
to be charged to operations during the next year and are $98,004 and $69,535 at
February 28, 1994 and 1993, respectively.
Cash and short-term investments held in trusts restricted for the payment of
benefits provided under the Corporation's health care plan are $8,456 and
$23,163 at February 28, 1994 and 1993, respectively.
At February 28, 1994, the assets held in trust for benefits to retired
employees was recorded as a reduction of the Corporation's postretirement
benefit obligation.
NOTE C - OTHER ASSETS
The other asset classification consists of various long-term assets such as
deferred costs relating to agreements with certain customers, corporate-owned
life insurance, goodwill and equity investments. The largest component of
other assets is deferred costs, which are $174,524 and $121,762 at February 28,
1994 and 1993, respectively. Deferred costs are charged to operations on a
straight-line basis, generally three to six years. Deferred costs estimated to
be charged to operations during the next year are classified as a prepaid
expense.
- 23 -
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - LONG AND SHORT-TERM DEBT
The Corporation has a $250,000 domestic revolving credit agreement which
supports its commercial paper borrowing arrangement. The agreement extends
through July 1998 and is renewable thereafter on an annual basis. A commitment
fee of 1/8 of 1% is due on the unused portion. The Corporation also has a
$100,000 domestic uncommitted line of credit available for short-term
financing. In addition, the Corporation's subsidiaries in Canada, the United
Kingdom and France have credit agreements permitting borrowing of up to
$154,152 of which $79,225 is convertible to term loans. At February 28, 1994,
$82,179 was outstanding under these foreign revolving credit facilities, which
expire at various dates, the earliest of which is June 1994. All of the
Corporation's revolving credit agreements provide for various borrowing
alternatives in their respective currencies with interest rates approximating
local prime lending rates. In addition, foreign subsidiary overdraft
facilities total $7,219 at year end.
Debt due within one year consists of current maturities of long-term debt,
notes payable of $45,970 in 1994 ($12,825 in 1993) and commercial paper of
$66,946 in 1994.
At February 28, 1994 and 1993, long-term debt consists of the following:
1994 1993
--------- ---------
8.125% notes, due July 15, 1996 $ - $ 100,000
8.375% notes, due March 1, 1993 - 100,000
Revolving credit agreements 71,196 47,422
Other 2,131 23,120
--------- ---------
73,327 270,542
Less current maturities 19,120 101,161
--------- ---------
$ 54,207 $ 169,381
========= =========
Aggregate maturities of long-term debt are as follow:
1995 $19,120
1996 823
1997 27,490
1998 -
1999 -
Thereafter 25,894
--------
$73,327
========
Provisions of certain loan agreements contain restrictions on the payment of
cash dividends, under the most restrictive of which retained earnings of
approximately $99,124 are available for the payment of dividends at February
28, 1994.
At February 28, 1994, the Corporation had credit arrangements to support the
issuance of letters of credit in the amount of $40,090 with $25,134 of open
credits outstanding.
Interest paid on short-term and long-term debt was $17,495 in 1994, $27,386 in
1993 and $29,478 in 1992.
- 24 -
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - LONG AND SHORT-TERM DEBT (CONT'D)
During 1993 the Corporation sold an option to enter into an interest rate swap
agreement to hedge a notional amount of $100,000. The cash consideration
received from the sale of the option is recorded as a reduction of interest
expense over the period of the option. On July 15, 1993, the $100,000 8.125%
notes were called and replaced with short-term borrowings. Also on that date,
the interest rate swap was exercised. Under the terms of the swap, the
Corporation pays 8.125% fixed and receives the US Dealer Commercial Paper
Composite Rate floating until July 15, 1996, the maturity date of the swap
agreement. At February 28, 1994, the cost to the Corporation upon cancellation
of the swap would be $7,688. However, the Corporation intends to hold the swap
agreement until maturity.
NOTE E - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Corporation sponsors a defined benefit health care plan that provides
postretirement medical benefits to full-time employees who are age 65 or over
at retirement with 15 or more years of service and who were hired on or before
December 31, 1991. In addition, for retirements on or after January 2, 1992
the retiree must have been continuously enrolled for health care for a minimum
of five years or since January 2, 1992. The plan is contributory, with retiree
contributions adjusted periodically, and contains other cost-sharing features
such as deductibles and coinsurance. The Corporation maintains a trust for the
payment of retiree health care benefits. This trust is funded at the
discretion of management.
On March 1, 1993 the Corporation adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions." The statement requires the Corporation to recognize the cost
of providing certain retiree benefits on an accrual basis. The Corporation
elected to immediately recognize the cumulative effect of this accounting
change at March 1, 1993 and reduced income by $36,048 ($22,530 net of tax).
Postretirement benefit costs for 1993 and 1992, which were recorded on a cash
basis, have not been restated. Income before the cumulative effect of the
accounting change was not materially impacted for 1994.
The following table presents the plan's funded status at February 28, 1994 as
recognized in the Corporation's Consolidated Statement of Financial Position:
1994
--------
Accumulated postretirement benefit obligation:
Retirees $ 16,005
Fully eligible active plan participants 4,994
Other active plan participants 18,304
--------
Accumulated postretirement benefit
obligation 39,303
Plan assets, primarily listed
stocks and bonds (18,475)
--------
Accumulated postretirement benefit obligation
in excess of plan assets 20,828
Unrecognized net loss (1,401)
--------
Postretirement benefit obligation $ 19,427
========
- 25 -
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONT'D)
Net periodic postretirement cost includes the following components:
1994
---------
Service cost 1,381
Interest cost 3,118
Actual return on plan assets (897)
--------
$ 3,602
========
Assumptions used in the computations:
Assumed discount rate 7.5%
Expected long-term rate of return on plan assets 7%
A 9% annual rate of increase in per capita cost of covered benefits is assumed
through 1996. This rate decreases to 7.5% in 1997 and to 6% in 2002 and
remains at that level thereafter. This health care trend rate has a
significant impact on the amount reported. For example, a 1% increase in the
trend rate in each year would increase the accumulated postretirement benefit
obligation at February 28, 1994 by $2,871 and increase aggregate service and
interest cost for the year by $916.
NOTE F - LONG TERM LEASES
The Corporation is committed under noncancelable operating leases for
commercial properties (many of which have been subleased) and equipment, terms
of which are generally less than 25 years. Rental expense under operating
leases for the years ended February 28 or 29, 1994, 1993 and 1992 follows:
1994 1993 1992
-------- -------- --------
Gross rentals. . . . . . . . . . $63,377 $ 65,707 $ 58,990
Less sublease rentals. . . . . . 7,733 6,196 6,726
------- -------- --------
Net rental expense . . . . . . . $55,644 $ 59,511 $ 52,264
======= ======== ========
At February 28, 1994, future minimum rental payments for noncancelable
operating leases, net of minimum noncancelable sublease rentals to be received,
follow:
Gross Sublease Net
Rentals Rentals Rentals
-------- -------- --------
1995 . . . . . . . . . . . . . . $ 51,885 $ 8,515 $ 43,370
1996 . . . . . . . . . . . . . . 46,459 7,965 38,494
1997 . . . . . . . . . . . . . . 40,281 7,551 32,730
1998 . . . . . . . . . . . . . . 35,042 7,127 27,915
1999 . . . . . . . . . . . . . . 32,252 6,985 25,267
Later years. . . . . . . . . . . 177,884 40,680 137,204
-------- -------- --------
$383,803 $ 78,823 $304,980
======== ======== ========
The Corporation also holds a portion of its operating facilities under
industrial revenue bond related capital leases. The capitalized leased net
assets and related obligations are not material to the Consolidated Statements
of Financial Position at February 28, 1994 and 1993.
- 26 -
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INCOME TAXES
Effective March 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
required the Corporation to change its method of accounting for income taxes
from the deferred method to the liability method. Under this method, deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The cumulative effect of adopting the
statement as of March 1, 1993 was to increase net income by $5,348.
Income taxes have been provided as follows:
Liability
Method Deferred Method
1994 1993 1992
---------- -------- --------
Current:
Federal $ 78,274 $ 63,721 $ 43,879
Foreign 1,936 3,677 (191)
State and local 10,376 12,062 10,753
--------- -------- --------
90,586 79,460 54,441
Deferred (principally federal) (12,056) (10,638) 1,098
--------- -------- --------
$ 78,530 $ 68,822 $ 55,539
========= ======== ========
Significant components of the Corporation's deferred tax liabilities and assets
at February 28, 1994 are as follow:
Deferred tax liabilities:
Depreciation $60,872
Other 26,013
-------
Total deferred tax liabilities $86,885
=======
Deferred tax assets:
Sales returns $30,228
Tax loss carryforwards 14,321
Other 56,487
-------
101,036
Valuation allowance (14,321)
-------
Total deferred tax assets $86,715
=======
The valuation allowance represents foreign loss carryforwards which may not be realized.
- 27 -
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INCOME TAXES (CONT'D)
Prepaid and deferred income taxes which relate to timing differences in the
recognition of revenues and expenses for tax and financial reporting purposes
are as follow:
1993 1992
---------- ----------
Inventory costing $ 1,046 $ 774
Non-deductible reserves (4,444) (1,761)
Other (7,240) 2,085
-------- --------
$(10,638) $ 1,098
======== ========
Income (loss) before income taxes and cumulative effect of accounting changes
consists of the following:
1994 1993 1992
-------- -------- --------
United States $222,957 $192,990 $163,178
Foreign (13,543) (11,880) (10,177)
-------- -------- --------
$209,414 $181,110 $153,001
======== ======== ========
The statutory federal income tax rate and the effective income tax rate are
reconciled as follows:
1994 1993 1992
-------- -------- --------
Statutory rate 35.0% 34.0% 34.0%
State and local income taxes, net
of federal tax benefit 3.4 4.4 4.6
Subsidiaries' losses without tax
benefit 3.1 4.1 2.1
Corporate-owned life insurance
investments (5.4) (4.3) (3.1)
Other 1.4 (.2) (1.3)
--------- ----------- -----------
Effective tax rate 37.5% 38.0% 36.3%
====== ======= =======
Income taxes paid were $83,290 in 1994, $67,108 in 1993, and $64,050 in 1992.
No deferred taxes have been provided on approximately $54,000 of undistributed
earnings of foreign subsidiaries since substantially all of these earnings are
necessary to meet their business requirements. It is not practicable to
- 28 -
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INCOME TAXES (CONT'D)
calculate the deferred taxes associated with these earnings, however, foreign
tax credits would be available to reduce federal income taxes in the event of
distribution. At February 28, 1994 the Corporation had approximately $41,000
of foreign operating loss carryforwards with no expiration date.
NOTE H - COMMON SHARES AND STOCK OPTIONS
At February 28, 1993, common shares authorized consisted of 46,900,000 Class A
and 3,958,242 Class B shares. On June 25, 1993, the shareholders approved
increases in the authorized number of Class A and Class B shares to 93,800,000
and 7,916,484, respectively. On that date, the Board of Directors of the
Corporation declared a two-for-one stock split of the Corporation's Class A and
Class B common stock, to be effected in the form of a 100% share dividend. Such
distribution was made on September 10, 1993, to shareholders of record at the
close of business August 27, 1993. Class A shares have one vote per share and
Class B shares have ten votes per share. If holders of Class B shares wish to
sell their shares, they must first offer to sell the shares to the Corporation
at the closing price of the Class A shares on the day preceding the making of
such offer. If the Corporation elects not to purchase the shares offered, the
Class B shareholder may convert the Class B shares into Class A shares, on a
share-for-share basis. During 1994, the Corporation purchased 165,762 Class B
shares (340,000 shares in 1993) from a Director of the Corporation at the
then-current market price of the shares.
Under the Corporation's Stock Option Plans, options to purchase Class A and
Class B shares are granted to officers and other key employees at the
then-current market price. In general, subject to continuing employment,
options become exercisable commencing one year after date of grant in four
equal annual installments and expire over a period of not more than ten years
from the date of grant. The options for certain Class B shares become
exercisable commencing one year after date of grant in ten equal annual
installments.
- 29 -
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - COMMON SHARES AND STOCK OPTIONS (CONT'D)
Stock option transactions and prices are summarized as follow:
Number of Options Options Price Range Per Share
--------------------------------- -----------------------------------
Class A Class B Class A Class B
------- -------- ------- -------
Options outstanding
February 28, 1991 1,741,208 872,500 $ 3.50 - $18.44 $ 7.16
Granted 165,600 - 16.13 - 20.25 -
Exercised (705,460) (6,750) 3.50 - 18.44 7.16
Cancelled (38,236) -
--------- ---------
Options outstanding
February 29, 1992 1,163,112 865,750 5.85 - 20.25 7.16
Granted 1,743,600 296,000 19.25 - 24.25 19.25 - 19.82
Exercised (516,740) (353,500) 5.85 - 20.25 7.16
Cancelled (85,900) -
--------- ---------
Options outstanding
February 28, 1993 2,304,072 808,250 6.75 - 24.25 7.16 - 19.81
Granted 219,475 1,590 24.94 - 31.25 26.75
Exercised (373,207) (34,750) 6.75 - 27.31 7.16 - 19.81
Cancelled (106,800) -
--------- ---------
Options outstanding
February 28, 1994 2,043,540 775,090 6.75 - 31.25 19.25 - 26.75
========= =========
Options exercisable at February 28:
1994 949,654 285,590
1993 757,858 159,750
- 30 -
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - RETIREMENT PLANS
The Corporation has a non-contributory profit-sharing plan with a 401(k)
provision covering most of its United States employees. Contributions to the
profit-sharing plan were $20,445, $16,966 and $14,444 for 1994, 1993 and 1992,
respectively. In 1993, the Corporation began matching a portion of 401(k)
employee contributions contingent upon meeting specified annual operating
results goals. The Corporation's matching contributions were $2,577 for 1994
and $1,750 for 1993.
The Corporation also has several defined benefit and defined contribution
pension plans covering certain employees in foreign countries. The cost of
these plans was not material in any of the years presented. In the aggregate,
the actuarially computed plan benefit obligation was fully funded.
- 31 -
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - BUSINESS SEGMENT INFORMATION
The Corporation operates predominantly in a single industry: the design,
manufacture and sale of greeting cards and other social expression products.
While the Corporation offers a wide range of items for sale, many of them are
manufactured at common production facilities and marketed by a common sales
force.
In addition to its domestic operations, the Corporation has subsidiaries in
Canada, Europe, and Mexico.
Substantially all revenue transfers between geographic areas originate in the
United States. These revenue transfers and other intergeographic eliminations
are not material. The Corporation does not derive more than 10% of its total
revenue from any individual customer, government agency or export sales.
Operating profit (loss) by geographic segment is revenue less operating costs,
excluding interest, income taxes and cumulative effect of accounting changes.
Segment information by geographic area for the years ended February 28 or 29,
1994, 1993 and 1992 follows:
United Other
States Canada Foreign Consolidated
------ ------ ------- ------------
1994
- - ----
Total revenue $1,520,815 $158,938 $101,062 $1,780,815
Operating profit (loss) 220,863 18,858 (13,410) 226,311
Total assets excluding
cash and equivalents 1,217,398 146,240 100,530 1,464,168
1993
- - ----
Total revenue $1,415,111 $167,539 $105,534 $1,688,184
Operating profit (loss) 199,913 21,811 (13,690) 208,034
Total assets excluding
cash and equivalents 1,066,655 148,581 97,978 1,313,214
1992
- - ----
Total revenue $1,309,894 $166,412 $ 96,755 $1,573,061
Operating profit (loss) 172,828 23,285 (12,689) 183,424
Total assets excluding
cash and equivalents 990,102 150,481 119,815 1,260,398
- 32 -
33
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
Thousands of dollars except per share amounts *
The following is a summary of the unaudited quarterly results of operations for
the years ended February 28, 1994 and 1993.
Quarter Ended
-------------
May 31 August 31 November 30 February 28
------ --------- ----------- -----------
Fiscal 1994
- - -----------
Net sales $391,959 $385,706 $518,987 $473,312
Total revenue 395,441 388,381 522,504 474,489
Material, labor and
other production costs 143,626 158,840 210,215 159,339
Income before
cumulative effect
of accounting changes 29,027 10,919 51,466 39,472
Cumulative effect of
accounting changes,
net of tax 17,182 - - -
Net income 11,845 10,919 51,466 39,472
Income per share:
Before cumulative
effect of accounting
changes .39 .15 .70 .53
Cumulative effect of
accounting changes,
net of tax .23 - - -
Net income .16 .15 .70 .53
Fiscal 1993
- - -----------
Net sales $371,995 $366,860 $489,491 $443,346
Total revenue 376,062 370,624 492,975 448,523
Material, labor and
other production costs 137,832 154,312 203,605 165,434
Net income 25,516 8,894 43,904 33,974
Per share .36 .12 .60 .47
* Per share amounts have been restated to reflect the 1994 stock split.
- 33 -
34
Report of Independent Auditors
Board of Directors
American Greetings Corporation
Cleveland, Ohio
We have audited the accompanying consolidated statements of financial position
of American Greetings Corporation and subsidiaries as of February 28, 1994 and
1993, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended February 28,
1994. Our audits also included the financial statement schedules listed in the
Index at Item 14 (a). These financial statements and schedules are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on those financial statements and schedules 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 and related
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and related schedules. 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 consolidated financial position of
American Greetings Corporation and subsidiaries at February 28, 1994 and 1993,
and the consolidated results of their operations and cash flows for each of the
three years in the period ended February 28, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Notes E and G to the consolidated financial statements, in 1994
the Corporation changed its methods of accounting for postretirement benefits
other than pensions and income taxes.
Ernst & Young
Cleveland, Ohio
March 31, 1994
- 34 -
35
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with the Corporation's independent
accountants on accounting and financial disclosure matters within the two year
period ended February 28, 1994, or in any period subsequent to such date.
PART III
The Corporation hereby incorporates by reference the information
called for by Part III of Form 10-K from the Corporation's Notice of Annual
Meeting of Shareholders to be held June 24, 1994, and related Proxy Statement
to be filed with the Securities and Exchange Commission on or about May 13,
1994.
(Next Item is Part IV)
- 35 -
36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Financial Statements Page No.
-------------------- --------
Included in Part II of this report:
Consolidated Statement of Income - Years ended
February 28 or 29, 1994, 1993 and 1992 17
Consolidated Statement of Financial Position
February 28, 1994 and 1993 18 - 19
Consolidated Statement of Cash Flows - Years ended
February 28 or 29, 1994, 1993 and 1992 20
Consolidated Statement of Shareholders' Equity -
Years ended February 28 or 29, 1994, 1993 and 1992 21
Notes to Consolidated Financial Statements - Years ended
February 28 or 29, 1994, 1993 and 1992 22 - 32
Quarterly Results of Operations (Unaudited) 33
Report of Independent Auditors 34
2. Financial Statement Schedules
-----------------------------
Included in Part IV of this report:
Schedule II - Amounts Receivable From Related Parties and
Underwriters, Promoters, and Employees Other
than Related Parties S-1
Schedule V - Property, Plant and Equipment S-2 - S3
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and
Equipment S-4
Schedule VIII - Valuation and Qualifying Accounts S-5
Schedule IX - Short-Term Borrowings S-6
Schedule X - Supplementary Income Statement Information S-7
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
- 36 -
37
3. Exhibits required by Item 601 of Regulation S-K: PAGE
------------------------------------------------- ----
(3) Articles of Incorporation and By-laws
(i) Amended Articles of Incorporation of the Registrant
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-45673) filed on February 4, 1992, and is
incorporated herein by reference.
(ii) Amended Regulations of the Registrant
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form S-3
Registration Statement (Registration No.
33-39726) filed on May 17, 1991, and is
incorporated herein by reference.
(4) Instruments defining the rights of security
holders, including debentures
(i) Revolving Credit Agreement aggregating
$250,000,000 dated July 1, 1991, and Grid
Note with six banks and National City Bank as
Agent.
This Exhibit has been previously filed as an
Exhibit to the Registrant's Form 10-K Annual
Report for the Fiscal Year ended February 29,
1992, and is incorporated herein by
reference.
(10) Material Contracts
(i) (A) (i) Shareholders Agreement dated November
19, 1984
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1985, and is
incorporated herein by reference.
(ii) Officers' contracts
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1985, and is
incorporated herein by reference.
- 37 -
38
PART IV - Continued PAGE NO.
-------
(iii) Employment Agreement with Edward
Fruchtenbaum, dated May 18, 1992 (as
amended). E-1
(ii) (A) (i) Executive Bonus Plan
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1981, and is
incorporated herein by reference.
(ii) Executive Incentive Compensation Plan
(as Amended and Restated as at March
6, 1989)
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1989, and is
incorporated herein by reference.
(iii) Executive Deferred Compensation Plan
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1993, and is
incorporated herein by reference.
(iv) 1982 Incentive Stock Option Plan
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1983, and is
incorporated herein by reference.
(v) 1985 Incentive Stock Option Plan
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1985, and is
incorporated herein by reference.
(vi) Supplemental Executive Retirement Plan
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1993, and is
incorporated herein by reference.
- 38 -
39
PART IV - Continued Page No.
-------
(vii) 1987 Class B Stock Option Plan
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1987, and is
incorporated herein by reference.
(viii) Stock Option Agreement with Morry
Weiss dated January 25, 1988
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 29, 1988, and is
incorporated herein by reference.
(ix) Loan Agreement with Edward Fruchtenbaum
dated March 1, 1990
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1991, and is
incorporated herein by reference.
(x) 1992 Stock Option Plan
This Exhibit has been previously filed
as an Exhibit to the Registrant's Form
10-K Annual Report for the Fiscal Year
ended February 28, 1993, and is
incorporated herein by reference.
(11) Statement Re Computation of Per Share Earnings E-15
- 39 -
40
PART IV - Continued Page No.
-------
(21) Subsidiaries of the Registrant E-16
(23) Consent of Independent Auditors E-17
Executive Compensation Plans and Arrangements
The Corporation's executive compensation plans and
arrangements are listed under Exhibit 10 hereof.
(b) Reports on Form 8-K
None
(c) Exhibits listed in Item 14(a) (3) are included herein or
incorporated herein by reference
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted on
Page 36.
- 40 -
41
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.
AMERICAN GREETINGS CORPORATION
------------------------------
(Registrant)
Date: May 23,1994 By: /s/ Jon Groetzinger, Jr.
------------- ---------------------------------
Jon Groetzinger, Jr.
Secretary
- 41 -
42
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Irving I. Stone Founder-Chairman; )
- - ---------------------------------------------------- Chairman of the )
Irving I. Stone Executive Committee; )
Director )
)
/s/ Morry Weiss Chairman of the Board; )
- - ---------------------------------------------------- Chief Executive Officer; )
Morry Weiss Director )
)
/s/ Edward Fruchtenbaum President; )
- - ---------------------------------------------------- Chief Operating Officer; )
Edward Fruchtenbaum Director )
)
/s/ Scott S. Cowen Director ) May 23, 1994
- - ---------------------------------------------------- )
Scott S. Cowen )
)
/s/ Herbert H. Jacobs Director )
- - ---------------------------------------------------- )
Herbert H. Jacobs )
)
/s/ Albert B. Ratner Director )
- - ---------------------------------------------------- )
Albert B. Ratner )
)
/s/ Harry H. Stone Director )
- - ---------------------------------------------------- )
Harry H. Stone )
)
/s/ Jeanette S. Wagner Director )
- - ---------------------------------------------------- )
Jeanette S. Wagner )
)
)
/s/ Milton A. Wolf Director )
- - ---------------------------------------------------- )
Milton A. Wolf )
)
)
/s/ Abraham Zaleznik Director )
- - ---------------------------------------------------- )
Abraham Zaleznik )
)
- 42 -
43
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Henry Lowenthal Senior Vice President; ) May 23, 1994
- - ------------------------------- Chief Financial Officer )
Henry Lowenthal (principal financial )
officer) )
)
)
/s/ William S. Meyer Controller; Chief )
- - ------------------------------- Accounting Officer )
William S. Meyer (principal accounting )
officer) )
- 43 -
44
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
+----------------------+--------------------------+-----------+----------------------------------------+---------------------------+
| COL. A | COL. B | COL. C | COL. D | COL. E |
+----------------------+--------------------------+-----------+----------------------------------------+---------------------------+
| | | | DEDUCTIONS BALANCE AT END OF PERIOD |
+ + + +--------------------------------------------------------------------+
|NAME OF DEBTOR | Balance at Beginning | Additions | (1) | (2) | (1) | (2) |
| | of Period | | Amounts Collected | Amounts Written Off| Current | Not Current |
+----------------------+--------------------------+-----------+-------------------+--------------------+------------+--------------+
Year Ended February 28, 1994:
Edward Fruchtenbaum,
President, Chief
Operating Officer $140,000 -0- -0- $20,000 (A) $20,000 $100,000
Year Ended February 28, 1993:
Edward Fruchtenbaum,
President, Chief
Operating Officer $160,000 -0- -0- $20,000 (A) $20,000 $120,000
Year Ended February 29, 1992:
Edward Fruchtenbaum,
President, Chief
Operating Officer $180,000 -0- -0- $20,000 (A) $20,000 $140,000
The Company entered into a ten year unsecured loan, effective March 1, 1990,
bearing interest at 10% per annum.
Note A: Annual forgiveness of $20,000 (principal only) for each year.
Interest payments required annually on February 28 or 29.
S-1
45
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
AMERICAN GREETINGS CORPORATION
AND SUBSIDIARIES
(000)
+--------------------------+-----------------------+--------------------+---------------+-----------------------+----------------+
| COL. A | COL. B | COL. C | COL. D | COL. E | COL. F |
+--------------------------+-----------------------+--------------------+---------------+-----------------------+----------------+
| | Balance at Beginning | | | Other Changes-Add | Bal. at End |
| CLASSIFICATION | of Period | Additions at Cost | Retirements | (Deduct) - Describe | of Period |
+--------------------------+-----------------------+--------------------+---------------+-----------------------+----------------+
Year ended February 28, 1994:
Land $ 6,182 $ 1 $ 126 $ (82) $ 5,975
Buildings 258,511 13,766 (A) 5,656 (1,401) 265,220
Production equipment 245,059 67,332 (B) 5,792 2,289 308,888
Office equipment and fixtures 195,870 21,451 (C) 7,357 1,124 211,088
Transportation equipment 2,619 309 344 210 2,794
------------- ------------- --------- --------- ---------
TOTALS $ 708,241 $ 102,859 $ 19,275(D) $ 2,140(E) $ 793,965
============= ============= ========= ========= =========
Year ended February 28, 1993:
Land $ 6,840 $ 2 $ 368 $ (292) $ 6,182
Buildings 249,711 16,765 (A) 1,807 (6,158) 258,511
Production equipment 213,193 41,755 (B) 2,479 (7,410) 245,059
Office equipment and fixtures 186,532 18,348 (C) 4,783 (4,227) 195,870
Transportation equipment 2,645 230 220 (36) 2,619
------------- ------------- --------- --------- ---------
TOTALS $ 658,921 $ 77,100 $ 9,657(D) $(18,123)(E) $ 708,241
============= ============= ========= ========= =========
Year ended February 29, 1992:
Land $ 6,693 $ 378 $ 103 $ (128) $ 6,840
Buildings 225,638 28,478 (A) 1,985 (2,420) 249,711
Production equipment 200,087 20,993 (B) 5,874 (2,013) 213,193
Office equipment and fixtures 177,397 17,289 (C) 6,923 (1,231) 186,532
Transportation equipment 2,832 190 352 (25) 2,645
------------- ------------- --------- --------- ---------
TOTALS $ 612,647 $ 67,328 $ 15,237(D) $ (5,817)(E) $ 658,921
============= ============= ========= ========= =========
S-2
46
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (CONT'D)
AMERICAN GREETINGS CORPORATION
AND SUBSIDIARIES
(000)
Note A: In 1994 due to purchase or upgrade of retail stores in the U.S., U.K. and Canada, and various other
building and leasehold improvements. In 1993 due to warehouse addition in Arkansas and purchase or
upgrade of retail stores in the U.S., U.K. and Canada. In 1992 primarily due to purchase or upgrade of
retail stores in the U.S., U.K. and Canada, building expansion at Cleveland, Ohio and various other
building and leasehold improvements.
Note B: In 1994 and 1993 due to additions related to CreataCard and expansion of existing production facilities.
In 1992 primarily due to expansion of existing production facilities.
Note C: In 1994 due to computer hardware and software expenditures and purchase or upgrade of retail
stores in the U.S., U.K. and Canada. In 1993 primarily due to computer hardware and software
expenditures. In 1992 due to office outfitting costs at Cleveland, Ohio and computer hardware and
software expenditures.
Note D: Primarily due to retirements of retail equipment, computer hardware and normal property, plant and
equipment.
Note E: Represents translation adjustments on foreign subsidiary balances and other minor adjustments.
Note F: The annual provisions for depreciation have been computed principally in accordance with the
following ranges of depreciable lives:
Buildings 20 to 40 years
Production equipment 3 to 15 years
Office equipment and fixture 3 to 20 years
Transportation equipment 3 to 6 years
S-3
47
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(000)
+--------------------------+-------------------------+----------------------+--------------+---------------------+--------------+
| COL. A | COL. B | COL. C | COL. D | COL. E | COL. F |
+--------------------------+-------------------------+----------------------+--------------+---------------------+--------------+
| | Bal. at Beginning| Additions Charged to | | Other Changes-Add | Bal. at End |
| DESCRIPTION | of Period | Costs and Expenses | Retirements | (Deduct) - Describe | of Period |
+--------------------------+-------------------------+----------------------+--------------+---------------------+--------------+
Year ended February 28, 1994:
Buildings $ 99,800 $ 11,920 $ 4,743 $ (646) $ 106,331
Production equipment 105,107 23,509 4,646 122 124,092
Office equipment and fixtures 113,594 23,841 5,779 758 132,414
Transportation equipment 2,188 305 303 16 2,206
----------- ---------- ---------- --------- -----------
TOTALS $ 320,689 $ 59,575 $ 15,471 $ 250 (A) $ 365,043
=========== ========== ========== ========= ===========
Year ended February 28, 1993:
Buildings $ 91,435 $ 11,574 $ 1,542 $ (1,667) $ 99,800
Production equipment 96,691 14,831 2,065 (4,350) 105,107
Office equipment and fixtures 98,103 21,821 4,293 (2,037) 113,594
Transportation equipment 2,165 223 178 (22) 2,188
----------- ---------- ---------- --------- -----------
TOTALS $ 288,394 $ 48,449 $ 8,078 $ (8,076)(A) $ 320,689
=========== ========== ========== ========= ===========
Year ended February 29, 1992:
Buildings $ 82,321 $ 10,779 $ 1,148 $ (517) $ 91,435
Production equipment 88,307 13,083 3,615 (1,084) 96,691
Office equipment and fixtures 82,674 21,420 5,548 (443) 98,103
Transportation equipment 2,225 235 282 (13) 2,165
----------- ---------- ---------- --------- -----------
TOTALS $ 255,527 $ 45,517 $ 10,593 $ (2,057)(A) $ 288,394
=========== ========== ========== ========= ===========
Note A: Includes translation adjustment on foreign subsidiary balances and other minor reclassifications and adjustments.
S-4
48
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
AMERICAN GREETINGS CORPORATION AND SUBSIDIARY
(000)
+----------------------------------+------------------------+----------------------------------------+-------------+---------------+
| COL. A | COL. B | COL. C | COL. D | COL. E |
+----------------------------------+------------------------+----------------------------------------+-------------|---------------+
| | | ADDITIONS | | |
| | +------------------+---------------------| | |
| | | (1) | (2) | | |
| | Balance at Beginning | Charged to Costs | Charged to Other | Deduction- | Balance at End|
| DESCRIPTION | of Period | and Expenses | Accounts-Describe | Describe | of Period |
+----------------------------------+------------------------+------------------+---------------------+-------------+---------------+
Year ended February 28, 1994:
Deduction from asset account:
Allowance for doubtful accounts $ 13,816 $ 8,827 $ (57)(A) $ 9,502(B) $ 13,084
======== ========= ======== ========= ========
Allowance for sales returns $ 72,054 $ 225,283 $ (581)(A) $ 198,853(C) $ 97,903
======== ========= ======== ========= ========
Year ended February 28, 1993:
Deduction from asset account:
Allowance for doubtful accounts $ 12,576 $ 9,738 $ (305)(A) $ 8,193(C) $ 13,816
======== ========= ======== ========= ========
Allowance for sales returns $ 64,093 $ 167,718 $ (670)(A) $ 159,087(C) $ 72,054
======== ========= ======== ========= ========
Year ended February 29, 1992:
Deduction from asset account:
Allowance for doubtful accounts $ 10,372 $ 8,714 $ (96)(A) $ 6,414(B) $ 12,576
======== ========= ======== ========= ========
Allowance for sales returns $ 66,733 $ 133,386 $ (333)(A) $ 135,693(C) $ 64,093
======== ========= ======== ========= ========
Note A: Includes translation adjustment on foreign subsidiary balances and other minor reclasses and adjustments.
Note B: Accounts charged off, less recoveries.
Note C: Sales returns charged to the allowance account for actual returns for the year.
S-5
49
SCHEDULE IX - SHORT-TERM BORROWINGS
(000)
+--------------------------+-----------------+----------+------------------+-------------------+-------------------+
| COL. A | COL. B | COL. C | COL. D | COL. E | COL. F |
+--------------------------+-----------------+----------+------------------+-------------------+-------------------+
| | | Weighted| Maximum | Average | Weighted |
| CATEGORY OF AGGREGATE | Balance at End | Average | Amount | Amount | Average |
| SHORT-TERM BORROWINGS | of Period | Interest | Outstanding | Outstanding | Interest rate |
| | | Rate | During the Period| During the Period | During the Period |
+--------------------------+-----------------+----------+------------------+-------------------+-------------------+
Year ended February 28, 1994:
Notes Payable to Banks $45,970 (A) 3.8% $215,109 $82,626 (C) 4.4% (D)
Commercial Paper 66,946 (B) 3.5% 84,772 27,194 3.3%
Year ended February 28, 1993:
Notes Payable to Banks $12,825 (A) 7.6% $50,535 $38,107 (C) 9.1% (D)
Year ended February 29, 1992:
Notes Payable to Banks $41,984 (A) 10.9% $94,641 $64,417 (C) 10.5% (D)
(A) Notes payable to banks represents borrowings under lines of credit.
(B) Commercial paper generally matures within 30 days from date of issue with no provisions for the extention of its maturity.
(C) The average amount outstanding during the period was computed by dividing the total of month-end
outstanding principal balances by 12.
(D) The weighted average interest rate is an annual weighted average which is determined by multiplying
actual monthly interest rate at each month-end by the balance outstanding at each month-end and dividing
the total of these extensions by the average aggregate month-end short-term debt outstanding.
S-6
50
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(000)
+---------------------------------+-----------------------------------------------------------+
| COL. A | COL. B |
+---------------------------------+-----------------------------------------------------------+
| ITEM | Charged to Costs and Expenses |
+---------------------------------+-----------------------------------------------------------+
Year Ended Year Ended Year Ended
February 28, 1994 February 28, 1993 February 29, 1992
----------------- ----------------- -----------------
Maintenance and repairs $ 21,915 $ 20,558 $ 20,461
Amortization of deferred costs 70,435 54,709 37,942
Amortization of intangibles 6,861 5,237 4,812
Advertising costs 48,228 48,069 45,429
Taxes, other than payroll and 19,397 20,575 19,740
income taxes
Amounts for royalty expense are not presented as such amounts are less than 1% of total revenues.
S-7