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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, 1997 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
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(State of incorporation) (I.R.S. Employer
Identification No.)
One American Road , Cleveland, Ohio 44144
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(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
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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. [ ]
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State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of May 2, 1997 - $2,318,348,384
Number of shares outstanding as of May 2, 1997:
CLASS A COMMON - 70,816,480
CLASS B COMMON - 4,391,989
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement filed with the Securities and Exchange
Commission on May 14 , 1997 with respect to the 1997 Annual Meeting of
Shareholders called for June 27, 1997, 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 social expression 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 Limited; in the United Kingdom by Carlton
Cards Limited and Carlton Cards Ltd. (Ireland); in France by Carlton Cards
(France) SNC; in Mexico by Carlton Mexico, S.A. de C.V. ; in Australia by John
Sands (Australia) Ltd.; in New Zealand by John Sands (N.Z.) Ltd.; and in South
Africa by S.A. Greetings Corporation (PTY) Ltd. (80% owned). 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. Electronic marketing efforts are provided by CreataCard
Interactive, Inc., which distributes a CD-ROM product, CreataCard Plus, for
personal computers and also operates a site on the World Wide Web,
www.americangreetings.com. Wilhold, Inc. produces and sells hair accessory
items, Acme Frame Products, Inc. produces and sells picture frames, Magnivision,
Inc. produces and sells non-prescription reading glasses and eyeware
accessories, and Learning Horizons distributes supplemental educational
products. 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. Marketing and
manufacturing functions in the United States and Canada are combined; dual
priced cards are produced and distributed in both countries. Information
concerning sales by major product classifications is included in Part II, Item
7. Additionally, information by geographic area is included in Note L to the
Consolidated Financial Statements included in Part II, Item 8.
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The Corporation's products are primarily sold in about 100,000
retail outlets in more than 75 nations around 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 Corporation's 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.
Total unit sales of greeting cards increased 2% in 1997 after remaining flat
from 1995 to 1996.
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's Day, 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 with the right of
return.
During the fiscal year, the Corporation experienced no
difficulty in obtaining raw materials from suppliers.
At February 28, 1997, the Corporation employed approximately
15,800 full-time employees and approximately 20,500 part-time employees which,
when jointly considered, equate to approximately 20,700 full-time employees.
Approximately 3,300 of the Corporation's hourly plant employees are unionized,
of which approximately 2,400 are covered by the following collective bargaining
agreements:
Union Plant Location Contract Expiration Date
----- -------------- ------------------------
International Brotherhood Bardstown, Kentucky 4/15/98
of Teamsters Corbin, Kentucky 12/01/97
Unite (Union of Needletrader, Knoxville, Tennessee 10/20/98
Industrial and Textile (Plus Mark)
Employees)
Communication, Energy Toronto, Ontario 1/31/98
and Paperworkers Canada (Carlton Cards Limited)
Other locations with unions are Cleveland, Ohio, the United Kingdom, Mexico,
Australia, New Zealand, and South Africa.
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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 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 patents,
copyrights and trademarks.
In fiscal 1997, the Corporation's major channel of
distribution continues to be mass retail (which is comprised of mass
merchandisers, chain drug stores and supermarkets), where it is the social
expression industry leader. Other major channels of distribution include card
and gift shops, combo stores (stores combining food, general merchandise and
drug items), military post exchanges, variety stores, and department stores.
Sales to the Corporation's five largest customers, which
include mass merchandisers and major drug stores, accounted for approximately
29.4% of net sales. Sales to retail customers are made through 22 sales offices
in the United States, Canada, United Kingdom, Australia, New Zealand, France,
Mexico and South Africa.
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 is significant to the Corporation's
financial position. 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. Some of these competitive
agreements have been negotiated with customers covering a period following that
covered by current agreements and requiring the Corporation to make advances
prior to the start of such future period. 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 not been material.
Advances, payments and credits made under these agreements are accounted for as
deferred costs. The current and long-term portions of such deferred costs,
including future payment commitments, are disclosed in Note D to the
Consolidated Financial Statements included in Part II, Item 8. Note D also
discusses the amortization policy. 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, has made
comparable disclosures with respect to such agreements.
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Item 2. Properties
As of February 28, 1997, the Corporation owns or leases
approximately 15.9 million square feet of plant, warehouse, store and office
space, of which approximately 5.9 million square feet are leased. Space needs in
the United States have been met primarily through long-term leases of properties
constructed and financed by community development corporations and
municipalities.
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, finishing,
Kentucky and packaging of greeting
cards
Cleveland, 1,100,000 International headquarters;
Ohio general offices of U.S. Greeting
Card Division, Plus Mark, Inc., AG
Industries, Inc., Wilhold, Inc.,
Carlton Cards Retail, Inc.,
CreataCard Inc., CreataCard
Interactive, Inc., Acme Frame
Products, Inc., and Learning
Horizons, Inc.; creation and
design of greeting cards and
related products
Corbin, 1,010,000 Printing of greeting cards,
Kentucky gift wrapping and paper party
goods and manufacture
other related products
Danville, 1,374,000 2001 Distribution of everyday greeting
Kentucky and related products
Forest City, 498,000 277,500 1999 Manufacture of the Corporation's
North Carolina display fixtures and other custom
display fixtures by AG Industries, Inc.
Greeneville, 1,410,000 Printing and packaging of
Tennessee seasonal wrapping items and
(2 locations) order filling and shipping for Plus
Mark, Inc.
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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
Arkansas of picture frames for Acme
Frame Products Inc.
Lafayette, 194,000 Manufacture of envelopes
Tennessee for greeting cards and
packaging of cards
McCrory, 771,000 2005 Order filling and shipping of
Arkansas everyday and seasonal
products
Osceola, 2,800,800 Cutting, folding, finishing and
Arkansas packaging of seasonal
greeting cards and ware-
housing; distribution of
seasonal products
Ft. Lauderdale / 108,000 1999 Manufacture, order filling and
Miami, and shipping of non-prescription
Florida 2000 reading glasses for
(2 locations) Magnivision, Inc.
Philadelphia, 120,000 2017 Hand finishing of greeting
Mississippi cards
Ripley, 165,000 Seasonal card printing and
Tennessee forms
Shelbyville, 250,000 2002 Warehousing for Carlton
Kentucky Cards Retail, Inc.
Sunbury, 145,000 58,000 1998 Manufacture, order filling and
Pennsylvania shipping of hair accessory
(2 locations) products for Wilhold, Inc.
Auckland, 80,000 General offices of John Sands
New Zealand (New Zealand) Ltd.; manu-
facture of greeting cards and
related products
Clayton, 208,000 General offices of John Sands
Australia (Australia) Ltd.; manufacture
of greeting cards and related
products
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Expiration
Approximate Square Date of
Feet Occupied Material Principal
Location Owned Leased Leases Activity
- ----------------- ------------- -------------- -------------- ---------
Corby, 85,000 Distribution of greeting
England cards and related products for
Carlton Cards Limited
Dewsbury, 361,000 87,000 2002, General offices of Carlton
England 2008, Cards Limited and manufacture
(5 locations) and of greeting cards and related
2015 products
Mexico City, 166,000 General offices of Carlton
Mexico Mexico, S.A. de C.V. and
manufacture of greeting cards
and related products
Paris, 70,000 2000 Distribution of greeting cards
France and related products for
Carlton Cards (France) SNC
Roodepoort, 105,000 2001 General offices of S.A.
South Africa Greetings Corporation;
manufacture and distribution
of greeting cards and related
products
Toronto, 1,084,500 General offices of Carlton
Ontario, Cards Limited; manu-
Canada facture of greeting cards and
(2 locations) related products
Item 3. Legal Proceedings
1) J. E. and Z.B. Butler Foundation, Inc. v. American Greetings
Corp., Morry Weiss, Edward Fruchtenbaum, John M. Klipfell,
Irving I. Stone and Dale A. Cable, Case No. 1:95CV 2411, United
States District Court, Northern District of Ohio
On November 14, 1995, the above class lawsuit was filed against
the Corporation and certain of its officers, alleging violations
of (i) Section 10 (b) of the Securities Exchange Act of 1934
(the "Act") and Rule 10b-5 promulgated thereunder and (ii)
Section 20 (a) of the Act. The Complaint is based on the alleged
failure to disclose, as well as misleading disclosure, of
material information regarding the Corporation's CreataCard unit
prior to the Corporation's November 10, 1995 announcement that
it had elected to write down certain of CreataCard's assets
pursuant to Statement of Financial Accounting Standards No. 121.
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The Complaint also alleges that certain of the Corporation's
officers improperly benefited from this activity.
The Complaint in this action seeks unspecified compensatory and
punitive damages (as well as attorney fees) on behalf of all
purchasers of the Corporation's publicly traded shares who were
allegedly injured during the period of the alleged wrongdoing,
March 30-November 10, 1995.
The Corporation and the individual defendants deny liability,
but in order to avoid the cost and risks of protracted
litigation, they have reached an agreement in principle to
settle all disputes with the named plantiff and proposed class.
The parties plan to file a Stipulation of Settlement on or
before May 30, 1997. The settlement contemplates that the
Corporation and the individual defendants will pay the
settlement amount (an amount that will not have a material
effect on the Corporation's consolidated financial position)
into a fund to be distributed to class members after payment of
plantiff's expenses and attorney fees. All of the terms of the
settlement are subject to court approval. A portion of the
settlement payment is covered by insurance proceeds.
2) As of May 2, 1997, the Corporation is a party to six 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 all 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. In addition, in April 1997, the Corporation was notified
by the Kentucky Department of Environmental Protection of an
alleged escape of certain chemicals from an underground storage
tank at its Corbin, Kentucky plant. The Corporation is
conducting a site investigation. 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.
3) BEC Group, Inc. v. American Greetings Corporation, Magnivision,
Inc., and Erwin Weiss in the District Court of Dallas County
Texas, 160th Judicial District, Case Number 97-00761-H
On January 27, 1997, BEC Group filed suit alleging breach of
confidentiality agreement, unfair competition, and other tort
claims following the termination of the purchase negotiations in
September 1996. The Corporation was contemplating purchase of
the Foster Grant business from BEC Group. The complaint seeks in
excess of $18 million in damages. The Corporation, Magnivision,
and Mr. Weiss deny liability, and Mr. Weiss has moved to dismiss
for lack of jurisdiction.
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4) Thorntons Plc. v. Carlton Cards Limited, in the High Court of
Justice, Queen's Bench Division, Birmingham District Registry,
1997 No. ML40017A
In December 1995, Thornton Plc. filed suit in the United Kingdom
claiming breach of contract arising out of the discontinuance of
29 franchise agreements after the sale of Carlton Cards
Limited's retail stores to Clinton Cards in September 1995.
Plaintiff claims damages of at least (pound)2.2 million. Carlton
Cards Limited denies liability. Trial is scheduled for September
30, 1997.
Item 4. Submission of Matters to Vote of Security Holders
None
Executive Officers of the Registrant
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The following is a list of the Corporation's executive officers,
their ages as of May 2, 1997, their positions and offices, and number of years
in executive office:
Years as
Name Age Executive Officer Current Position and Office
- ---- --- ----------------- ---------------------------
Irving I. Stone 88 47 Founder-Chairman and
Chairman of the Executive
Committee
Morry Weiss 57 25 Chairman and
Chief Executive Officer
Edward Fruchtenbaum 49 11 President and
Chief Operating Officer
Mary Ann Corrigan-Davis 43 --- Senior Vice President
Jon Groetzinger, Jr. 48 9 Senior Vice President,
General Counsel and
Secretary
John M. Klipfell 47 14 Senior Vice President
Harvey Levin 64 16 Senior Vice President
William R. Mason 52 15 Senior Vice President
William S. Meyer 50 9 Senior Vice President,
Chief Financial Officer
Patricia A. Papesh 49 2 Senior Vice President
James R. Van Arsdale 58 14 Senior Vice President
Erwin Weiss 48 7 Senior Vice President
Dale A. Cable 49 5 Vice President, Treasurer
Patricia L. Ripple 41 1 Vice President,
Corporate Controller
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Mr. Irving I. Stone is the father-in-law of Morry Weiss. Morry
Weiss and Erwin Weiss are brothers. The Board of Directors annually elects all
executive officers; however, executive officers are subject to removal, with or
without cause, at any time.
All of the executive officers listed above have served in the
capacity shown or similar capacities with the Corporation (or major subsidiary)
over the past five years, with the following exceptions.
Mary Ann Corrigan-Davis was Vice President, Product Management
of the Corporation's U.S. Greeting Card Division from November 1988 until
December 1992; President of Carlton Cards Retail, Inc. from December 1992 until
January 1996; and Group Managing Director of the John Sands Group from January
1996 until becoming Senior Vice President in May 1997.
Patricia A. Papesh was Vice President, Marketing Services of the
Corporation's U.S. Greeting Card Division from June 1991 until December 1992;
and Vice President, Creative of the U.S. Greeting Card Division from December
1992 until becoming Senior Vice President in April 1995.
Patricia L. Ripple was Director, Tax and Financial Reporting of
the Corporation from November 1991 until April 1993; and Executive Director, Tax
and Financial Reporting of the Corporation from April 1993 until becoming Vice
President and Corporate Controller in September 1996.
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,
1997 and February 29, 1996 are as follows:
1997 1996
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High Low High Low
---- --- ---- ---
1st Quarter ..... $30-1/2 $25-7/8 $31-1/8 $26-3/4
2nd Quarter ..... 27-3/8 23-1/2 32-1/2 27-7/8
3rd Quarter ..... 30-1/4 25-1/8 32-5/8 25-1/2
4th Quarter ..... 31-3/8 25 28-3/8 25-3/4
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.
National City 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
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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 May 2, 1997, there were approximately 26,750 holders of Class
A Common Shares and 250 holders of Class B Common Shares of record and
individual participants in security position listings.
(c) Cash Dividends
- ------------------
Dividends Per Share 1997 1996
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1st Quarter (paid June 10, 1996 and June 9, 1995) $ .16 $ .14
2nd Quarter (paid September 10, 1996 and
September 8, 1995) .17 .16
3rd Quarter (paid December 10, 1996 and
December 8, 1995) .17 .16
4th Quarter (paid March 10, 1997 and March 8, 1996) .17 .16
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$ .67 $ .62
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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
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
Net sales ............................................. $ 2,161,089 $ 2,003,038 $ 1,868,927 $ 1,769,964 $ 1,671,692
Gross profit .......................................... 1,355,965 1,241,032 1,192,842 1,097,944 1,010,509
Asset impairment loss ................................. -- 52,061 -- -- --
Interest expense ...................................... 30,749 24,290 16,871 16,897 26,924
Income before cumulative effect of accounting changes . 167,095 115,135 148,792 130,884 112,288
Cumulative effect of accounting changes, net of tax ... -- -- -- 17,182 --
Net income ............................................ 167,095 115,135 148,792 113,702 112,288
Income per share:
Before cumulative effect of accounting changes .... 2.23 1.54 2.00 1.77 1.55
Cumulative effect of accounting changes, net of tax -- -- -- .23 --
Net income ........................................ 2.23 1.54 2.00 1.54 1.55
Cash dividends per share .............................. .67 .62 .55 .48 .42
Fiscal year end market price per share ................ 31.00 27.38 29.38 27.88 24.00
Average number of shares outstanding .................. 74,818,960 74,528,809 74,305,346 73,809,132 72,440,114
FINANCIAL POSITION
Accounts receivable ................................... $ 375,324 $ 353,671 $ 324,329 $ 322,675 $ 276,932
Inventories ........................................... 303,611 335,074 279,270 243,357 228,123
Working capital ....................................... 562,148 516,346 531,199 474,280 581,651
Total assets .......................................... 2,135,120 2,005,832 1,761,751 1,565,234 1,548,400
Property, plant and equipment additions ............... 92,895 91,590 97,290 102,859 77,099
Long-term debt ........................................ 219,639 231,073 74,480 54,207 169,381
Shareholders' equity .................................. 1,361,655 1,235,022 1,159,541 1,053,442 952,535
Shareholders' equity per share ........................ 18.16 16.53 15.61 14.21 13.07
Net return on average shareholders' equity
before cumulative effect of accounting changes .... 12.9% 9.6% 13.4% 13.0% 12.4%
Return on net sales before income taxes and
cumulative effect of accounting changes ........... 11.8% 8.7% 12.2% 11.8% 10.8%
* Share and per share amounts for 1993 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
- ---------------------
REVENUES
In 1997, strong greeting card performance resulted in a net sales increase of
7.9% over 1996. Net sales of everyday cards increased 10.3% while seasonal cards
increased 12.5%. The increase in everyday card sales reflects the strength of
the everyday card market in the United States and also in Australia and New
Zealand where everyday cards represent nearly 65% of the Corporation's net sales
in those markets. In late 1996, the Corporation entered into these two markets
by acquiring substantially all of the assets of the John Sands Group, the
largest greeting card business in these countries. In 1996, total net sales of
everyday cards increased 6.2% due primarily to price increases. The seasonal
card sales increase reflected the improvement in the retail environment compared
to 1996, particularly in the fourth quarter. In 1996, net sales of seasonal
cards increased less than 1% from 1995 due to a weak retail environment. Total
unit sales of all greeting cards increased 2% in 1997 after remaining flat from
1995 to 1996. After increasing 13.0% in 1996, net sales of non-card products
slowed somewhat in 1997 due to softer demand for certain consumer products,
particularly non-prescription reading glasses and custom display fixtures. Total
net sales in 1996 increased 7.2% from 1995.
The contribution of each major product category as a percent of net sales for
the past three years is:
1997 1996 1995
---- ---- ----
Everyday Greeting Cards 44% 44% 44%
Seasonal Greeting Cards 22% 21% 22%
Gift Wrapping and Party Goods 18% 19% 18%
All Other Products 16% 16% 16%
The All Other Products classification includes giftware, picture frames,
non-prescription reading glasses, hair care accessories, educational products,
candles, stationery, plush, balloons, stickers, and custom display fixtures.
EXPENSES AND PROFIT MARGINS
In 1997, strong high margin card sales, along with benefits from the North
American Plan and a focused effort to control costs resulted in an improvement
in pre-tax margin. Material, labor and other production costs were 37.3% of net
sales, down from 38.0% in 1996. In 1995 these costs were 36.2% of net sales.
Product cost variances related to the conversion of the Canadian manufacturing
operations to United States manufacturing processes decreased $11.7 million in
1997 as integration of the North American Plan progressed. In 1996, the
unfavorable product cost variances from Canadian manufacturing contributed
significantly to the increase, from 1995, in material, labor and other
production costs as a percent of sales. The cost of greeting card cabinets and
point of purchase displays in the United States was well managed in 1997 and
decreased $11.1 million from 1996. In 1996, the expense of providing these
cabinets and displays increased $12.4 million in the United States from 1995 to
support new product offerings.
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Selling, distribution and marketing expenses increased 9.1% in 1997 after
increasing 5.9% in 1996 due primarily to an increase in competitive expense and
the impact of the John Sands Group acquisition. The increase in competitive
costs in both years resulted from higher amortization of deferred costs and
other expenses related to the Corporation's agreements with certain retail
customers. Deferred costs and the Corporation's method of accounting for them
are described in Note D to the Consolidated Financial Statements. Selling,
distribution and marketing expenses other than competitive costs increased just
3.1% in 1997 after increasing 2.1% in 1996. While total selling, distribution
and marketing expenses increased in both 1997 and 1996, these costs as a percent
of net sales have remained relatively stable at 38.9% in 1997, 38.4% in 1996 and
38.9% in 1995.
Administrative and general expenses increased $13.6 million or 6.0% after
decreasing $2.7 million or 1.2% in 1996. Changes in the expense of the United
States profit sharing plan contributed to the variances in both years. In 1997,
profit sharing expense increased $6.1 million due to higher pre-tax income
while, in 1996, the asset impairment loss led to lower pre-tax income and a $3.4
million reduction in profit sharing expense. The 1997 increase also includes
$6.2 million more administrative and general expense from the operations of the
John Sands Group. In 1996, the reduction in profit sharing expense was partially
offset by a $2.4 million loss related to an investment accounted for under the
equity method and a $2.3 million increase in the pre-tax cost of corporate owned
life insurance.
In the third quarter of 1996, the Corporation 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". This Statement requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In November, 1995, the Corporation determined that the trends in
the CreataCard business indicated that the undiscounted future cash flows from
that business would be less than the carrying value of the long-lived assets
related to that business. As a result, the Corporation recognized a pre-tax,
non-cash loss of $52.1 million for the asset impairment. After the effect of
income taxes, the loss was $35.1 million or $.47 cents per share. See Note K to
the Consolidated Financial Statements for further discussion of the impairment
loss.
Interest expense increased $6.5 million in 1997 after increasing $7.4 million in
1996. The increase in 1997 was due primarily to the long term debt incurred to
purchase the John Sands Group. The higher interest expense in 1996 reflected
increased debt levels to support the growth in both inventories and deferred
costs.
The 1997 effective tax rate was 34.3%, comparable to 34.2% in 1996 and 34.5% in
1995. While the rate for all three years reflected tax benefits of the corporate
owned life insurance, the benefit in 1997 was reduced due to the phasing out of
the Federal income tax deduction for interest on loans associated with these
policies. In 1996, the effective rate was negatively impacted by the write down
of nondeductible goodwill which was included in the asset impairment loss.
Excluding the impairment loss, the effective rate was 33.5%. See Note H to the
Consolidated Financial Statements for details of the differences between the
Federal statutory rate and the effective tax rate.
14
15
Net income in 1997 increased to $167.1 million or $2.23 per share compared to
net income of $115.1 million or $1.54 per share in 1996. However, the 1996 net
income included the impact of the asset impairment loss recognized upon the
adoption of SFAS No. 121 and, without this non-recurring charge, net income
would have been $150.2 million or $2.01 per share. In 1995, net income was
$148.8 million or $2.00 per share.
LIQUIDITY AND CAPITAL RESOURCES
In 1997, the Corporation's initiatives to manage working capital resulted in a
significant improvement in cash flow. Cash flow from operations in 1997
increased $121.1 million to $153.9 million from $32.8 million in 1996 and $107.0
million in 1995. The significant improvement in 1997 was due to higher earnings,
slower growth in accounts receivable and a reduction of inventories. In 1996,
higher levels of accounts receivable, inventories and cash payments related to
deferred costs resulted in the decrease in cash flow from operations from 1995.
Trade accounts receivable increased $21.7 million in 1997 after increasing $29.3
million in 1996. The receivable balance in both years reflect strong fourth
quarter sales of everyday cards and accessories. As a percent of net sales,
accounts receivable were 17.4% in 1997, 17.7% in 1996 and 17.4% in 1995.
Inventories as a percent of material, labor and other production costs were
37.7% in 1997, down notably from 44% in 1996 and 41.3% in 1995. The improvement
in 1997 reflected the Corporation's focused efforts to reduce inventory levels.
While the most significant improvements in inventory management were
accomplished in the greeting card divisions, where inventories decreased $16.0
million in 1997 after increasing $57.1 million from 1995 to 1996, improvements
were realized in almost all business units. The increase in 1996 was due
primarily to the growth in non-card product inventory, which has a higher cost
than greeting cards, to support expanding sales and the acquisition of the John
Sands Group.
Payments under agreements with certain retailers (net of related amortization)
increased $10.0 million in 1997, less than the $25.3 million increase in 1996.
Payments in both years were made in connection with both new and existing
agreements. Although actual payments fluctuate from year-to-year, the deferred
costs which result from the payments are amortized over the effective period of
the agreement. Total commitments under the agreements are capitalized as
deferred costs when the agreements are consummated, and any future payment
commitments are recorded as liabilities at that time. Commitments under existing
agreements at the end of 1997 were $105.3 million with $51.2 million due within
the next year. See Note D to the Consolidated Financial Statements for further
discussion of deferred costs related to certain customer agreements.
Effective January 1, 1996, the Corporation acquired substantially all of the
assets from the John Sands Group for $85.1 million in cash. This acquisition was
accounted for under the purchase method of accounting and the purchase price was
allocated to the acquired assets and liabilities based upon their fair market
values at the date of acquisition. Results of operations were included
prospectively from the acquisition date. The acquisition was not significant to
the Corporation's financial position or results of operations as a whole.
15
16
Capital expenditures were $92.9 million in 1997, up slightly from $91.6 million
in 1996 but down from $97.3 million in 1995. Expenditures for the automation of
distribution systems and the replacement and upgrade of manufacturing equipment,
which began in 1996, continued during 1997. The 1995 expenditures included the
conclusion of the initial roll out of the CreataCard personalized greeting card
units that began in 1994. Capital expenditures for 1998 are expected to
approximate $75 million.
Investing activities other than capital expenditures and acquisitions used $9.0
million less cash in 1997 after increasing $23.5 million in 1996. The increase
in 1996 was due primarily to investments related to expanded product offerings.
These investments decreased substantially in 1997. This decrease was partially
offset by an increase in the investment in corporate owned life insurance
policies. In 1997, fewer policy loans resulted in a cash investment of $8.4
million, which exceeded the 1996 investment by $7.3 million.
In 1997, financing activities used $44.0 million of cash, including $50.2
million in dividend payments to shareholders. Dividend payments increased $4.0
million in 1997 and $5.6 million in 1996. In 1996, financing activities included
a $154.4 million increase in long-term debt used to fund the purchase of assets
from the John Sands Group. The increase in 1996 long-term debt also reflected a
shift in Canadian borrowings from short-term to long-term. Debt as a percent of
total capitalization decreased to 20.6% in 1997 from 22.1% in 1996 after
increasing from 14.6% in 1995.
The Corporation's operating cash flow and existing credit facilities are
expected to meet currently anticipated funding requirements. The seasonal nature
of the business results in peak working capital requirements which are financed
primarily through short term borrowings. See Note F to the Consolidated
Financial Statements for further discussion of the Corporation's credit
facilities.
FACTORS THAT MAY AFFECT FUTURE RESULTS
In 1997, the Corporation continued its long-term record of sales growth and
profitability. A focused effort on working capital management improved cash flow
and increased the Corporation's financial strength. However, future revenue
trends, profit margins and customer viability are difficult to predict.
The Corporation is well represented in a wide variety of channels of
distribution, such as mass merchandisers, drug stores and supermarkets. In 1997,
consolidation among retailers, particularly in the drug store business,
increased. Although the Corporation did not suffer any significant loss of
business because of these transactions, the impact of future retailer
consolidations on the Corporation's business is difficult to assess. The retail
business environment continues to be highly competitive and downturns in the
financial strength of retailers may impact the Corporation's future results.
The Corporation's investment in deferred costs related to agreements with
certain retailers continues to increase. The long-term business relationship
created by these agreements has been instrumental in the Corporation's growth
and has insulated it from short-term loss of business during retail
consolidations. The Corporation continues to evaluate and monitor the financial
condition of its retail customers to reduce risk.
16
17
The Corporation reviews its portfolio of businesses on an ongoing basis to
ensure that growth opportunities and return on investments are in line with its
long-term goals. While possible acquisitions or divestitures are part of that
review process, the consummation of any transaction is unlikely to have a
material effect on the Corporation's results as a whole.
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENT OF INCOME
Years ended February 28 or 29, 1997, 1996 and 1995 Thousands of dollars except
per share amounts
1997 1996 1995
----------- ----------- -----------
Net sales $ 2,161,089 $ 2,003,038 $ 1,868,927
Other income 11,209 8,916 9,513
----------- ----------- -----------
Total revenue 2,172,298 2,011,954 1,878,440
Costs and expenses:
Material, labor and other production costs 805,124 762,006 676,085
Selling, distribution and marketing 839,916 770,044 727,087
Administrative and general 242,179 228,544 231,234
Asset impairment loss -- 52,061 --
Interest 30,749 24,290 16,871
----------- ----------- -----------
1,917,968 1,836,945 1,651,277
----------- ----------- -----------
Income before income taxes 254,330 175,009 227,163
Income taxes 87,235 59,874 78,371
----------- ----------- -----------
Net income $ 167,095 $ 115,135 $ 148,792
=========== =========== ===========
Net income per share $ 2.23 $ 1.54 $ 2.00
=========== =========== ===========
Average number of shares outstanding 74,818,960 74,528,809 74,305,346
See notes to consolidated financial statements.
17
18
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
February 28, 1997 and February 29, 1996
Thousands of dollars
ASSETS 1997 1996
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 35,050 $ 30,130
Trade accounts receivable, less allowances for
sales returns of $121,856 ($141,412 in 1996) and
for doubtful accounts of $15,264 ($16,214 in 1996) 375,324 353,671
Inventories 303,611 335,074
Deferred income taxes 100,732 102,889
Prepaid expenses and other 190,174 148,429
---------- ----------
Total current assets 1,004,891 970,193
OTHER ASSETS 667,442 595,369
PROPERTY, PLANT AND EQUIPMENT - NET 462,787 440,270
---------- ----------
$2,135,120 $2,005,832
========== ==========
19
18
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - CONTINUED
February 28, 1997 and February 29, 1996
Thousands of dollars
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
----------- -----------
CURRENT LIABILITIES
Debt due within one year $ 133,171 $ 119,174
Accounts payable and accrued liabilities 157,628 144,242
Accrued compensation and benefits 82,569 74,713
Income taxes 5,475 21,210
Other current liabilities 63,900 94,508
----------- -----------
Total current liabilities 442,743 453,847
LONG-TERM DEBT 219,639 231,073
OTHER LIABILITIES 67,839 40,806
DEFERRED INCOME TAXES 43,244 45,084
SHAREHOLDERS' EQUITY Common shares - par value $1:
Class A - 70,608,745 shares issued
less 14,193 Treasury shares in 1997 and
70,285,336 shares issued less
137,331 Treasury shares in 1996 70,594 70,148
Class B - 6,066,096 shares issued
less 1,678,197 Treasury shares in 1997 and
6,066,096 shares issued less
1,506,286 Treasury shares in 1996 4,388 4,560
Capital in excess of par value 272,262 265,387
Treasury stock (34,850) (32,835)
Cumulative translation adjustment (19,646) (24,202)
Retained earnings 1,068,907 951,964
----------- -----------
Total shareholders' equity 1,361,655 1,235,022
----------- -----------
$ 2,135,120 $ 2,005,832
=========== ===========
See notes to consolidated financial statements.
19
20
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended February 28 or 29, 1997, 1996 and 1995
Thousands of dollars
1997 1996 1995
--------- --------- ---------
OPERATING ACTIVITIES:
Net income $ 167,095 $ 115,135 $ 148,792
Adjustments to reconcile to net cash
provided (used) by operating activities:
Asset impairment loss -- 52,061 --
Depreciation 64,566 75,319 68,438
Deferred income taxes 294 (48,184) (9,736)
Changes in operating assets and liabilities,
net of effects from acquisitions:
Increase in trade accounts receivable (25,389) (33,967) (4,973)
Decrease (increase) in inventories 32,371 (43,804) (37,944)
Increase in other current assets (2,050) (3,434) (2,009)
Increase in deferred costs - net (93,961) (83,939) (58,597)
Increase (decrease) in accounts payable
and other liabilities 5,877 (6,907) (4,879)
Other - net 5,100 10,542 7,906
--------- --------- ---------
Cash Provided by Operating Activities 153,903 32,822 106,998
INVESTING ACTIVITIES:
Business acquisitions -- (85,056) --
Property, plant and equipment additions (92,895) (91,590) (97,290)
Proceeds from sale of fixed assets 2,579 2,065 3,447
Investment in corporate-owned life insurance (8,454) (1,117) 1,813
Other (6,283) (22,103) (2,966)
--------- --------- ---------
Cash Used by Investing Activities (105,053) (197,801) (94,996)
FINANCING ACTIVITIES:
Increase in long-term debt 8,451 154,406 30,914
Reduction of long-term debt (12,232) (1,012) (29,862)
Increase (decrease) in short-term debt 4,869 (6,558) 9,919
Sale of stock under benefit plans 6,997 9,572 7,130
Purchase of treasury shares (1,863) (2,251) (3,462)
Dividends to shareholders (50,152) (46,199) (40,556)
--------- --------- ---------
Cash (Used) Provided by Financing Activities (43,930) 107,958 (25,917)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 4,920 (57,021) (13,915)
Cash and Equivalents at Beginning of Year 30,130 87,151 101,066
--------- --------- ---------
Cash and Equivalents at End of Year $ 35,050 $ 30,130 $ 87,151
========= ========= =========
See notes to consolidated financial statements.
20
21
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended February 28 or 29, 1997, 1996 and 1995 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 MARCH 1, 1994 $ 69,546 $ 4,573 $ 249,192 $ (28,240) $ (16,421) $ 774,792 $ 1,053,442
Net income 148,792 148,792
Cash dividends - $.55 per share (40,556) (40,556)
Exchange of shares 19 (19)
Sale of shares under benefit
plans, including tax benefits 239 5 4,854 123 5,221
Purchase of treasury shares (130) (5) (3,469) (3,604)
Sale of treasury shares 74 976 1,001 2,051
Translation adjustment (5,805) (5,805)
---------- -------- ---------- --------- ------------ ----------- -------------
BALANCE FEBRUARY 28, 1995 69,674 4,628 255,022 (30,585) (22,226) 883,028 1,159,541
Net income 115,135 115,135
Cash dividends - $.62 per share (46,199) (46,199)
Exchange of shares 15 (15)
Sale of shares under benefit
plans, including tax benefits 424 36 9,116 486 10,062
Purchase of treasury shares (1) (97) (2,849) (2,947)
Sale of treasury shares 8 128 113 249
Translation adjustment (1,976) (1,976)
Issuance of shares 36 1,121 1,157
---------- --------- ----------- --------- ----------- ----------- ----------
BALANCE FEBRUARY 29, 1996 70,148 4,560 265,387 (32,835) (24,202) 951,964 1,235,022
Net income 167,095 167,095
Cash dividends - $.67 per share (50,152) (50,152)
Exchange of shares 131 (131)
Sale of shares under benefit
plans, including tax benefits 323 44 6,872 587 7,826
Purchase of treasury shares (8) (85) (2,609) (2,702)
Sale of treasury shares 3 7 10
Translation adjustment 4,556 4,556
---------- -------- ----------- ----------- ----------- ----------- ------------
BALANCE FEBRUARY 28, 1997 $ 70,594 $ 4,388 $ 272,262 $ (34,850) $ (19,646) $ 1,068,907 $ 1,361,655
========== ======== =========== ============ ============ =========== ============
See notes to consolidated financial statements.
21
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended February 28 or 29, 1997, 1996 and 1995 Thousands of dollars except
per share amounts
NOTE A - ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All intercompany accounts and transactions are
eliminated.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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.
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, Australia, New
Zealand, France, Mexico and South Africa. 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 exists.
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.
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, which approximates amounts paid, was $67,788, $70,485
and $59,344 in 1997, 1996 and 1995, respectively.
Property and Depreciation: Property, plant and equipment is carried at cost,
except for certain assets as described in Note K. Depreciation and amortization
of buildings, equipment and fixtures is computed principally by the
straight-line method over the useful lives of the various assets. The cost of
buildings is depreciated over 25 to 40 years and equipment and fixtures over 3
to 20 years.
22
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - ACCOUNTING POLICIES (CONTINUED)
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 non-related retailers.
Advertising Expense: Advertising costs are expensed as incurred. Advertising
expense was $58,794, $61,124 and $58,342 in 1997, 1996 and 1995, respectively.
Income Taxes: Deferred income taxes are provided for temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Stock-Based Compensation: The Corporation has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employee stock options.
Because the exercise price of the Corporation's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized. The Corporation has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation".
Earnings Per Share: Income per share information is based on the average number
of shares outstanding during each year. For the years presented, stock options
do not have a material dilutive effect. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128 "Earnings Per Share". The Corporation plans to adopt this standard, as
required, in fiscal year 1998. The Corporation is currently analyzing the
effects of adopting the Statement.
NOTE B - INVENTORIES
Components of inventories are as follows:
1997 1996
-------- --------
Raw material $ 48,299 $ 57,415
Work in process 47,113 49,741
Finished products 253,096 274,713
-------- --------
348,508 381,869
Less LIFO reserve 89,061 92,020
-------- --------
259,447 289,849
Display material and factory supplies 44,164 45,225
-------- --------
Inventories $303,611 $335,074
======== ========
23
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment are as follows:
1997 1996
-------- --------
Land $ 10,028 $ 10,018
Buildings 282,726 269,191
Equipment and fixtures 627,440 571,934
-------- --------
920,194 851,143
Less accumulated depreciation 457,407 410,873
-------- --------
Property, plant and equipment - net $462,787 $440,270
======== ========
NOTE D - DEFERRED COSTS
Deferred costs relating to agreements with certain customers are charged to
operations on a straight-line basis over the effective period of each agreement,
generally three to six years. Deferred costs estimated to be charged to
operations during the next year are classified with prepaid expenses and other.
Total commitments under the agreements are capitalized as deferred costs and
future payment commitments, if any, are recorded as liabilities when the
agreements are consummated.
At February 28, 1997 and February 29, 1996 deferred costs and future payment
commitments are included in the following financial statement captions:
1997 1996
-------- --------
Prepaid expenses and other $161,601 $121,937
Other assets 464,599 410,119
Other current liabilities (51,153) (82,533)
Other liabilities (54,199) (25,089)
-------- --------
$520,848 $424,434
======== ========
NOTE E - RETIREMENT PLANS
The Corporation has a non-contributory profit-sharing plan with a contributory
401(k) provision covering most of its United States employees. Contributions to
the profit-sharing plan were $22,990, $16,846 and $20,414 for 1997, 1996 and
1995, respectively. The Corporation matches a portion of 401(k) employee
contributions contingent upon meeting specified annual operating results goals.
The Corporation's matching contributions were $2,698, $2,760 and $2,557 for
1997, 1996 and 1995, respectively.
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.
24
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - LONG AND SHORT-TERM DEBT
The borrowings of the Corporation in the United States consist primarily of
commercial paper. At February 28, 1997, commercial paper borrowings were
$128,605. The commercial paper borrowing arrangements are supported by a
$650,000 revolving credit agreement. The agreement provides an option to convert
up to $200,000 to a term loan. The agreement extends through June 2001, except
for $250,000 which extends through June 1997. The expiration date of $400,000 of
the agreement can be extended annually for one year to the June 30 next
following the expiration date. A commitment fee is due on the unused portion of
the credit facility and can range from 0.08% to 0.25%. As of February 28, 1997,
the commitment fee was 0.125% on $400,000 of the facility, and 0.08% on $250,000
of the facility. No borrowings are outstanding under this facility as of
February 28, 1997.
The borrowings of the Corporation in Canada consist primarily of commercial
paper. At February 28, 1997, commercial paper borrowings were $78,614, of which
$77,475 was classified as long-term. The commercial paper borrowing arrangements
up to $73,090 are supported by a revolving credit agreement for that amount that
extends through January 2000. The expiration date of the agreement can be
extended for one year during each of the next two years to the January 15 next
following the expiration date. A facility fee is due on the aggregate amount of
the facility, and can range from 0.07% to 0.25%. At February 28, 1997, the
facility fee was 0.08%. No borrowings are outstanding under this facility as of
February 28, 1997. However, the amount available under this facility is reduced
by $73,090 of commercial paper issued at February 28, 1997. Commercial paper
borrowings in Canada up to an additional $36,545 are supported by the revolving
credit agreement in the United States.
The Corporation's subsidiaries in the United Kingdom, Australia, France and
South Africa have credit agreements permitting borrowings of up to $191,595. At
February 28, 1997, $142,756 is outstanding under these foreign revolving credit
facilities, of which $139,765 is classified as long-term.
All of the Corporation's revolving credit and term loan agreements provide for
various borrowing alternatives in their respective currencies with interest
rates ranging from 4.25% to 7.7% for amounts borrowed as of February 28, 1997.
25
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - LONG AND SHORT-TERM DEBT (CONTINUED)
At February 28, 1997 and February 29, 1996, debt due within one year consists of
the following:
1997 1996
-------- --------
Current maturities of long-term debt $ 436 $ 354
Notes payable 2,991 6,173
Commercial paper 129,744 112,647
-------- --------
Total $133,171 $119,174
======== ========
At February 28, 1997 and February 29, 1996, long-term debt consists of the
following:
1997 1996
-------- --------
Revolving credit, commercial paper,
and term loan agreements $217,240 $230,345
Other 2,835 1,082
-------- --------
220,075 231,427
Less current maturities 436 354
-------- --------
$219,639 $231,073
======== ========
Aggregate maturities of long-term debt are as follows:
1998 $ 436
1999 56,005
2000 77,959
2001 449
2002 84,777
Thereafter 449
---------
$ 220,075
=========
At February 28, 1997 the Corporation had credit arrangements to support the
issuance of letters of credit in the amount of $57,309 with $20,723 of open
credits outstanding.
Interest paid on short-term and long-term debt was $29,914 in 1997, $23,395 in
1996 and $16,081 in 1995.
The weighted average interest rate on short-term borrowings outstanding was 5.5%
and 5.6% as of February 28, 1997 and February 29, 1996, respectively.
26
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - 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.
The following table presents the plan's funded status at February 28, 1997 and
February 29, 1996:
1997 1996
-------- --------
Accumulated postretirement benefit obligation:
Retirees $ 22,821 $ 21,620
Fully eligible active plan participants 5,778 5,474
Other active plan participants 22,728 21,533
-------- --------
Accumulated postretirement benefit obligation 51,327 48,627
Plan assets, primarily listed stocks and bonds (32,358) (27,473)
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets 18,969 21,154
Unrecognized net loss (5,546) (5,658)
-------- --------
Accrued postretirement benefit obligation $ 13,423 $ 15,496
======== ========
The accrued postretirement benefit obligation is included in the other
liabilities financial statement caption.
Net periodic postretirement benefit cost includes the following components:
1997 1996 1995
------- ------- -------
Service cost $ 1,594 $ 1,280 $ 1,313
Interest cost 3,441 3,239 2,965
Actual return on plan assets (2,379) (2,864) (1,209)
Asset gain deferred 274 1,193 --
Amortization of loss 53 -- --
------- ------- -------
$ 2,983 $ 2,848 $ 3,069
======= ======= =======
Assumptions used in the computations:
Assumed discount rate 7.25% 7.25% 8.0%
Expected long-term rate of return on plan assets 8.0% 8.0% 8.0%
27
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - OTHER POSTRETIREMENT BENEFITS (CONTINUED)
A 7.5% annual rate of increase in per capita cost of covered benefits was
assumed for 1997. This rate decreases 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, 1997
by $8,400 and increase aggregate service and interest cost for the year by
$1,010.
NOTE H - INCOME TAXES
Income (loss) before income taxes:
1997 1996 1995
--------- --------- ---------
United States $ 264,077 $ 191,649 $ 235,515
Foreign (9,747) (16,640) (8,352)
--------- --------- ---------
$ 254,330 $ 175,009 $ 227,163
========= ========= =========
Income taxes have been provided as follows:
1997 1996 1995
--------- --------- ---------
Current:
Federal $ 71,582 $ 94,094 $ 72,242
Foreign 936 (1,045) 1,416
State and local 14,400 14,917 14,393
--------- --------- ---------
86,918 107,966 88,051
Deferred (principally federal) 317 (48,092) (9,680)
--------- --------- ---------
$ 87,235 $ 59,874 $ 78,371
========= ========= =========
Significant components of the Corporation's deferred tax assets and liabilities
at February 28, 1997 and February 29, 1996 are as follows:
Deferred tax assets:
1997 1996
--------- ---------
Sales returns $ 34,643 $ 43,064
Other 109,345 100,688
--------- ---------
143,988 143,752
Valuation allowance (11,515) (12,189)
--------- ---------
Total deferred tax assets 132,473 131,563
Deferred tax liabilities:
Depreciation 46,005 44,908
Other 28,980 28,850
--------- ---------
Total deferred tax liabilities 74,985 73,758
--------- ---------
Net deferred tax assets $ 57,488 $ 57,805
========= =========
The decrease in the valuation allowance was due to decreases in net operating
loss carryforwards in the United Kingdom and Mexico.
28
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - INCOME TAXES (CONTINUED)
The statutory federal income tax rate and the effective income tax rate are
reconciled as follows:
1997 1996 1995
------ ------ ------
Statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal tax benefit 3.9 4.0 3.8
Asset impairment loss - 1.8 -
Subsidiaries' losses without tax benefit 1.0 1.8 1.3
Corporate-owned life insurance investments (4.3) (10.6) (6.7)
Other (1.3) 2.2 1.1
------ ------ ------
Effective tax rate 34.3% 34.2% 34.5%
====== ====== ======
Income taxes paid were $99,391 in 1997, $94,267 in 1996 and $101,982 in 1995.
Deferred taxes have not been provided on approximately $11,000 of undistributed
earnings of foreign subsidiaries since substantially all of these earnings are
necessary to meet their business requirements. It is not practicable to
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, 1997 the Corporation had approximately $38,781 of
foreign operating loss carryforwards, of which $27,935 have no expiration dates
and $10,846 have expiration dates ranging from 1999 through 2007.
NOTE I - COMMON SHARES AND STOCK OPTIONS
At February 28, 1997 and February 29, 1996, common shares authorized consisted
of 93,800,000 Class A and 7,916,484 Class B shares. Class A shares have one vote
per share and Class B shares have ten votes per share. 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.
Under the Corporation's Stock Option Plans, options to purchase Class A and
Class B shares are granted to directors, 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 granted to non-employee directors become exercisable in
six installments over five years. 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 I - COMMON SHARES AND STOCK OPTIONS (CONTINUED)
The Corporation has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Corporation's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123 and has been determined as if the Corporation had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996, respectively: risk-free interest rates of 6.4%
and 5.7%; dividend yield of 2.4% and 2.3%; volatility factor of the expected
market price of the Corporation's common stock of 0.25 and 0.27 and a
weighted-average expected life of the options of 4.6 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Corporation's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Corporation's pro
forma information follows:
1997 1996
-------- --------
Net income
As reported $167,095 $115,135
Pro forma 164,748 114,955
Earnings per share
As reported $2.23 $1.54
Pro forma 2.20 1.54
30
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - COMMON SHARES AND STOCK OPTIONS (CONTINUED)
Stock option transactions and prices are summarized as follows:
Number of Options Options Price Range Per Share
----------------- -----------------------------
Class A Class B Class A Class B
------- ------- ------- -------
Options outstanding
March 1, 1994 2,043,540 775,090 $ 6.75 - $ 31.25 $ 19.25 - $ 26.75
Granted 76,791 - 26.13 - 30.00 -
Exercised (235,366) (5,000) 6.75 - 29.31 19.25
Cancelled (58,000) -
----------- --------
Options outstanding
February 28, 1995 1,826,965 770,090 $ 6.75 - $ 31.25 $ 7.16 - $ 26.75
Granted 105,291 6,000 25.75 - 31.63 28.13
Exercised (417,959) (36,000) 7.16 - 30.88 19.25
Cancelled (47,300) -
----------- --------
1,466,997 740,090 $ 6.75 - $ 31.63 $ 7.16 - $ 28.13
Weighted-Average Exercise Price Per Share
-----------------------------------------
Options outstanding
February 29, 1996 1,466,997 740,090 $ 20.29 $ 11.01
Granted 891,595 215,922 27.29 27.32
Exercised (317,409) (43,500) 18.10 19.31
Cancelled (84,800) - 27.13 -
----------- --------
Options outstanding
February 28, 1997 1,956,383 912,512 $ 23.57 $ 14.42
========= =======
Options exercisable at February 28 or 29:
1997 1,169,083 689,762 $ 20.90 $ 12.79
1996 1,191,347 562,590 18.63 12.31
Exercise prices for options outstanding as of February 28, 1997 ranged from
$6.75 to $31.63. The weighted average remaining contractual life of those
options is 7.1 years.
31
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - LONG-TERM LEASES
The Corporation is committed under noncancelable operating leases for commercial
properties (certain 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, 1997, 1996 and 1995 follows:
1997 1996 1995
------- ------- -------
Gross rentals $59,228 $61,198 $63,247
Less sublease rentals 7,423 7,876 8,378
------- ------- -------
Net rental expense $51,805 $53,322 $54,869
======= ======= =======
At February 28, 1997, future minimum rental payments for noncancelable operating
leases, net of aggregate future minimum noncancelable sublease rentals, follow:
Gross Rentals:
1998 $ 42,541
1999 38,499
2000 35,268
2001 31,814
2002 27,488
Later years 67,572
---------
243,182
Sublease rentals (23,022)
---------
Net rentals $ 220,160
=========
NOTE K - ASSET IMPAIRMENT LOSS
During 1996, in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Corporation recorded an impairment loss on the
long-lived assets of its CreataCard business. The trends in the CreataCard
business indicated that the undiscounted future cash flows from this business
would be less than the carrying value of the long-lived assets related to that
business. Accordingly, on November 1, 1995, the Corporation recognized an asset
impairment loss of $52,061 ($35,094 net of tax, or $.47 per share). This loss is
the difference between the carrying value of the CreataCard machines and related
goodwill and other intangibles, and the fair value of these assets based on
discounted estimated future cash flows.
32
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - 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. The Corporation's products are sold primarily to drug stores, mass
merchandisers, supermarkets and card and gift stores.
In addition to its North American operations, which include the United States
and Canada, the Corporation has subsidiaries in Europe, Australia, New Zealand,
Mexico and South Africa.
Revenue transfers between geographic areas 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 and income taxes.
Segment information by geographic area for the years ended February 28 or 29,
1997, 1996 and 1995 follows:
North Other
America Foreign Consolidated
------- ------- ------------
1997
- ----
Total revenue $2,009,455 $ 162,843 $2,172,298
Operating profit 279,212 5,867 285,079
Total assets excluding
cash and equivalents 1,870,569 229,501 2,100,070
1996
- ----
Total revenue $1,907,942 $ 104,012 $2,011,954
Operating profit (loss)
before asset impairment loss 257,667 (6,307) 251,360
Asset impairment loss 49,432 2,629 52,061
---------- --------- ----------
Operating profit (loss) 208,235 (8,936) 199,299
Total assets excluding
cash and equivalents 1,744,465 231,237 1,975,702
1995
- ----
Total revenue $1,775,957 $ 102,483 $1,878,440
Operating profit (loss) 251,990 (7,956) 244,034
Total assets excluding
cash and equivalents 1,565,973 108,627 1,674,600
33
34
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, 1997 and February 29, 1996.
Quarter Ended
-----------------------------------------------------------------
May 31 August 31 November 30 February 28 or 29
-------- --------- ----------- -----------------
Fiscal 1997
- -----------
Net sales $438,212 $466,536 $647,723 $608,618
Total revenue 440,127 469,024 651,074 612,073
Gross profit 283,545 278,277 397,568 396,575
Net income 27,772 11,429 74,597 53,297
Per share .37 .15 1.00 .71
Fiscal 1996
- -----------
Net sales $438,509 $431,171 $587,602 $545,756
Total revenue 440,617 433,168 588,689 549,480
Gross profit 294,923 259,112 340,432 346,565
Asset impairment loss - - 52,061 -
Net income 37,300 15,029 17,484 45,322
Per share .50 .20 .24 .60
34
35
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
American Greetings Corporation
We have audited the accompanying consolidated statements of financial position
of American Greetings Corporation as of February 28, 1997 and February 29, 1996,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended February 28, 1997.
Our audits also included the financial statement schedule listed in the index at
Item 14. These financial statements and schedule are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Greetings
Corporation at February 28, 1997 and February 29, 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended February 28, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note K to the consolidated financial statements, in 1996 the
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
Ernst & Young LLP
Cleveland, Ohio
March 27, 1997
35
36
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 three year
period ended February 28, 1997, 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 27, 1997, and related Proxy Statement
filed with the Securities and Exchange Commission on May 14, 1997.
(Next item is Part IV)
36
37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Financial Statements
--------------------
Included in Part II of this report:
Consolidated Statement of Income Years ended February
28 or 29, 1997, 1996 and 1995
Consolidated Statement of Financial Position -
February 28, 1997 and February 29, 1996
Consolidated Statement of Cash Flows Years ended
February 28 or 29, 1997, 1996 and 1995
Consolidated Statement of Shareholders' Equity Years
ended February 28 or 29, 1997, 1996 and 1995
Notes to Consolidated Financial Statements Years
ended February 28 or 29, 1997, 1996 and 1995
Quarterly Results of Operations (Unaudited)
Report of Ernst & Young LLP, Independent Auditors
2. Exhibits required by Item 601 of Regulation S-K:
------------------------------------------------
(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-3
Registration Statement (Registration No.
33-50255) filed on September 15, 1993, and
is incorporated herein by reference.
(ii) Amended Regulations of the Registrant
This Exhibit has been previously filed as an
Exhibit to the Amendment No. 1 to the
Registrant's Form S-3 Registration Statement
(Registration No. 33-39726) filed on May 17,
1991, and is incorporated herein by
reference.
(10) Material Contracts
(i) (A) (i) Officers' contracts*
37
38
PART IV - Continued
(ii) Employment Agreement with Edward
Fruchtenbaum, dated May 18, 1992 (as
amended)*
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, 1994, and is
incorporated herein by reference.
(iii) Employment Agreement with Jon Groetzinger,
Jr. dated April 25, 1988 (as amended)
(ii) (A) (i) Shareholders Agreement dated November 19,
1984
(ii) Executive Bonus Plan*
(iii) Executive Incentive Compensation Plan (as
Amended and Restated as at March 6, 1989)*
(iv) 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.
(v) 1982 Incentive Stock Option Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
2-84911) dated July 1, 1983, and is
incorporated herein by
reference.
(vi) 1985 Incentive Stock Option Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-975) dated November 7, 1985, and is
incorporated herein by
reference.
(vii) 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
(viii) 1987 Class B Stock Option Plan
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-16180) dated July 31, 1987, and is
incorporated herein by
reference.
(ix) Stock Option Agreement with Morry Weiss
dated January 25,1988*
(x) Loan Agreement with Edward Fruchtenbaum
dated March 1,1990*
(xi) 1992 Stock Option Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-58582) dated February 22,1993, and is
incorporated herein
by reference.
(xii) CEO/COO Compensation Plans*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form 10-K
Annual Report for the Fiscal Year ended
February 28,1995, and is incorporated
herein by reference.
(xiii) 1995 Director Stock Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-61037) dated July 14, 1995, and is
incorporated herein by
reference.
(xiv) 1996 Employee Stock Option Plan*
This Exhibit has been previously filed as
an Exhibit to the Registrant's Form S-8
Registration Statement (Registration No.
33-08123) dated July 15, 1996, and is
incorporated herein by
reference.
(xv) 1997 Equity and Performance Incentive Plan
(11) Statement Re Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(27) Financial Data Schedule
39
40
PART IV - Continued
Executive Compensation Plans and Arrangements
The Corporation's executive compensation plans and
arrangements are listed under Exhibit 10 hereof and
marked by an asterisk(*).
(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 below.
3. Financial Statement Schedules
----------------------------
Included in Part IV of the report:
Schedule II - Valuation and Qualifying Accounts
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.
40
41
PART IV - Continued
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 27, 1997 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 27, 1997
- -------------------------------- )
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 )
)
/s/ William S. Meyer Senior Vice President; )
- -------------------------------- Chief Financial Officer; )
William S. Meyer (principal financial officer) )
)
/s/ Patricia L. Ripple Vice President; )
- -------------------------------- Corporate Controller; )
Patricia L. Ripple (principal accounting officer) )
42
43
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AMERICAN GREETINGS CORPORATION AND SUBSIDIARIES
(000)
- -------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-----------------------------------
Balance (1) (2) Balance
Description at Beginning Charged to Costs Charged to Other Deductions-Describe at End
of Period and Expenses Accounts-Describe of Period
- -------------------------------------------------------------------------------------------------------------------------------
Year ended February 28, 1997:
Deduction from asset account:
Allowance for doubtful accounts $ 16,214 $ 8,210 $ 113(A) $ 9,273(B) $ 15,264
======== ======== ===== ======== ========
Allowance for sales returns $141,412 $306,755 $ 164(A) $326,475(C) $121,856
======== ======== ===== ======== ========
Allowance for other assets $ 16,400 $ 0 $ 0 $ 0 $ 16,400
======== ======== ===== ======== ========
Year ended February 29, 1996:
Deduction from asset account:
Allowance for doubtful accounts $ 14,968 $ 13,905 $ 367(A) $ 13,026(B) $ 16,214
======== ======== ===== ======== ========
Allowance for sales returns $102,004 $321,693 $ 238(A) $282,523(C) $141,412
======== ======== ===== ======== ========
Allowance for other assets $ 5,000 $ 11,400 $ 0 0 $ 16,400
======== ======== ===== ======== ========
Year ended February 28, 1995:
Deduction from asset account:
Allowance for doubtful accounts $ 13,084 $ 8,674 $ (36)(A) $ 6,754(B) $ 14,968
======== ======== ===== ======== ========
Allowance for sales returns $ 97,903 $297,899 $ 41(A) $293,839(C) $102,004
======== ======== ===== ======== ========
Allowance for other assets $ 0 $ 5,000 $ 0 $ 0 $ 5,000
======== ======== ===== ======== ========
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 - 1