-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cjUzLYoOwncELnEMS5PZIU8QIHggGfT4idPvv4ZukROabZN+w7M3h7aS8+4neS8l QrfeYLrc49DzVk13fp6myw== 0000950152-95-001134.txt : 19950531 0000950152-95-001134.hdr.sgml : 19950531 ACCESSION NUMBER: 0000950152-95-001134 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950526 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GREETINGS CORP CENTRAL INDEX KEY: 0000005133 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 340065325 STATE OF INCORPORATION: OH FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01502 FILM NUMBER: 95542724 BUSINESS ADDRESS: STREET 1: 10500 AMERICAN RD CITY: CLEVELAND STATE: OH ZIP: 44144 BUSINESS PHONE: 2162527300 MAIL ADDRESS: STREET 1: 10500 AMERICAN ROAD CITY: CLEVELAND STATE: OH ZIP: 44144 10-K 1 AMERICAN GREETINGS 10-K 1 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, 1995 Number 0-1502 ----------------- ------ AMERICAN GREETINGS CORPORATION ------------------------------ (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 --------------- 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 1, 1995 - $1,957,392,952. Number of shares outstanding as of May 1, 1995: CLASS A COMMON - 69,944,527 CLASS B COMMON - 4,631,391 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement filed with the Securities and Exchange Commission on May 12, 1995 with respect to the 1995 Annual Meeting of Shareholders called for June 23, 1995, 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 Carlton Mexico, 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. In fiscal 1995, marketing and manufacturing functions in the United States and Canada were 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 J to the Consolidated Financial Statements included in Part II, Item 8. - 2 - 3 The Corporation's products are primarily sold in approximately 110,000 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 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. The Corporation's presence in the growing mass retail channels of distribution has enabled it to grow at a rate of one to two percent per year in greeting card units, and this unit growth is expected to continue. 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 with the right of return. During the fiscal year, the Corporation experienced no difficulty in obtaining raw materials from suppliers. The weighted average interest rate on short-term borrowings outstanding as of February 28, 1995 was 6.5% (3.6% at February 28, 1994). At February 28, 1995, the Corporation employed approximately 15,700 full-time employees and approximately 19,900 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 - 3 - 4 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 1995, the Corporation's major channels of distribution, in order of importance, were: drug stores, mass merchandisers, supermarkets, stationery and gift shops, combo stores (stores combining food, general merchandise and drug items), variety stores, military post exchanges, and department stores. Sales to the Corporation's five largest customers, which include mass merchandisers and major drug stores, accounted for approximately 23.4% of net sales. Sales to retail 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 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 been immaterial. Advances, payments and credits made under these agreements are accounted for as deferred costs. The current and long-term portions of such deferred costs, 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 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. Item 2. Properties As of February 28, 1995, the Corporation owns or leases approximately 15.6 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 through long-term leases of properties constructed and financed by community development corporations and municipalities. - 4 - 5 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 Ohio headquarters; general (2 locations) offices of U.S. Greeting Card Division, Plus Mark, Inc., AG Industries, Inc., Wilhold, Carlton Cards Retail, Inc., CreataCard, Inc., and Acme Frame Products, Inc., ; creation and design of greeting cards and related products Corbin, 1,010,000 1997 Printing of greeting Kentucky cards, gift wrapping and paper party goods and manufacture of other related products Danville, 1,374,000 2001 Distribution of Kentucky everyday greeting cards and related products Forest City, 498,000 327,600 1996 Manufacture of the North Carolina and Corporation's display 1999 fixtures and other custom display fixtures for AG Industries, Inc. Greeneville, 1,410,000 Printing and Tennessee packaging of seasonal (2 locations) wrapping items for Plus Mark, Inc.
- 5 - 6
Expiration Approximate Square Date of Feet Occupied Material Principal Location Owned Leased Leases Activity - -------- ----- ------ ------ -------- Harrisburg, 417,000 2007 Manufacture and Arkansas distribution facility of metal picture frames for Acme Frame Products, Inc. Huntington Valley, 18,800 1997 Manufacture, order Pennsylvania filling, and distribution of eyeglass accessories for Magnivision, Inc. Lafayette, 194,000 Manufacture of Tennessee envelopes for greeting cards and packaging of cards McCrory, 771,000 1996 Order filling and Arkansas and shipping of everyday 2005 and seasonal products Milton, 46,000 1996 Order filling and Pennsylvania shipping of hair accessory products for Wilhold Osceola, 2,800,800 Cutting, folding, Arkansas finishing and packaging of seasonal greeting cards and warehousing; distribution of seasonal products Pembroke Pines, 68,000 1998 Manufacture, order Florida filling and shipping of non-prescription reading glasses for Magnivision, Inc. Philadelphia, 120,000 2017 Hand finishing of Mississippi greeting cards
- 6 - 7
Expiration Approximate Square Date of Feet Occupied Material Principal Location Owned Leased Leases Activity - -------- ----- ------ ------ -------- Ripley, 165,000 Seasonal card printing Tennessee and forms Shelbyville, 250,000 1997 Warehousing for Kentucky Carlton Cards Retail, Inc. Sunbury, 145,000 Manufacture of hair Pennsylvania accessory products for Wilhold Corby, 85,000 Distribution of England greeting cards and related products for Carlton Cards Limited (UK) Dewsbury, 361,000 87,000 2002, General offices of England 2008, Carlton Cards Limited (5 locations) and (UK) and manufacture 2015 of greeting cards and related products Mexico City, 166,000 General offices of Mexico Carlton Mexico, 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 Ontario, Carlton Cards Ltd. Canada (Canada); manufacture (2 locations) of greeting cards and related products
- 7 - 8 Item 3. Legal Proceedings As of May 1, 1995, 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 May 1, 1995, their positions and offices, and number of years in executive office:
Years as Name Age Executive Officer Current Position and Office - ---- --- ----------------- --------------------------- Irving I. Stone 86 45 Founder-Chairman and Chairman of the Executive Committee Morry Weiss 55 23 Chairman and Chief Executive Officer Edward Fruchtenbaum 47 9 President and Chief Operating Officer Henry Lowenthal 63 23 Senior Vice President and Chief Financial Officer James R. Van Arsdale 56 12 Senior Vice President John M. Klipfell 45 12 Senior Vice President Harvey Levin 62 14 Senior Vice President William R. Mason 50 13 Senior Vice President Erwin Weiss 46 5 Senior Vice President Jon Groetzinger, Jr. 46 7 Senior Vice President, General Counsel and Secretary William S. Meyer 48 7 Senior Vice President, Controller Dale A. Cable 48 3 Treasurer
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. - 8 - 9 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, 1995 and 1994:
1995 1994 ------------------ ------------------ High Low High Low ------- ------- ------- ------- 1st Quarter $30-1/2 $25-7/8 $29-1/4 $23-7/8 2nd Quarter 31-3/8 27 29-7/8 26-1/2 3rd Quarter 30-1/8 26-1/8 33-1/2 27-7/8 4th Quarter 29-1/2 25-3/4 34-1/4 27-7/8
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 May 1, 1995, there were approximately 20,700 holders of Class A Common Shares and 271 holders of Class B Common Shares of record and individual participants in security position listings. - 9 - 10 (c) CASH DIVIDENDS - ------------------
Dividends Per Share 1995 1994 ------------------- ----- ------ 1st Quarter (paid June 10, 1994 and 1993) $.125 $.1075 2nd Quarter (paid September 9, 1994 and September 10, 1993) $.14 $.125 3rd Quarter (paid December 9, 1994 and December 10, 1993) $.14 $.125 4th Quarter (paid March 10, 1995 and 1994) $.14 $.125 ----- ------ $.545 $.4825
- 10 - 11 Item 6. Selected Financial Data Years ended February 28 or 29 Thousands of dollars except per share amounts * Summary of Operations
1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ---------- Net sales ........................................... $ 1,868,927 $ 1,769,964 $ 1,671,692 $ 1,553,961 $ 1,412,716 Material, labor and other production costs .......... 676,085 672,020 661,183 645,951 597,109 Interest expense .................................... 16,871 16,897 26,924 30,423 31,378 Income before cumulative effect of accounting changes ................................ 148,792 130,884 112,288 97,462 82,497 Cumulative effect of accounting changes, net of tax ............................... - 17,182 - - - Net income ......................................... 148,792 113,702 112,288 97,462 82,497 Income per share: Before cumulative effect of accounting changes .............................. 2.00 1.77 1.55 1.40 1.30 Cumulative effect of accounting changes, net of tax ............................. - .23 - - - Net income ........................................ 2.00 1.54 1.55 1.40 1.30 Cash dividends per share ............................ .55 .48 .42 .38 .35 Fiscal year end market price per share .............. 29.38 27.88 24.00 21.25 18.88 Average number of shares outstanding ................ 74,305,346 73,809,132 72,440,114 69,514,436 63,291,126 Financial Position Accounts receivable ................................. $ 324,329 $ 322,675 $ 276,932 $ 264,125 $ 272,179 Inventories ......................................... 279,270 243,357 228,123 275,955 277,630 Working capital ..................................... 531,199 474,280 581,651 628,997 484,169 Total assets ........................................ 1,761,751 1,565,234 1,548,400 1,437,760 1,234,461 Capital expenditures ................................ 97,290 102,859 77,099 67,328 45,303 Long-term debt ...................................... 74,480 54,207 169,381 255,711 246,181 Shareholders' equity ................................ 1,159,541 1,053,442 952,535 865,046 656,606 Shareholders' equity per share ...................... 15.61 14.21 13.07 12.05 10.39 Net return on average shareholders' equity before cumulative effect of accounting changes ................................ 13.4% 13.0% 12.4% 12.8% 13.1% Return on net sales before income taxes and cumulative effect of accounting changes ........................................... 12.2% 11.8% 10.8% 9.8% 9.2% * Share and per share amounts for 1993 and prior have been restated to reflect the 1994 stock split.
- 11 - 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Strategic and Financial Objectives - ---------------------------------- Increasing shareholder value, through both stock appreciation and dividends, remains management's primary objective. The business strategies to accomplish this include offering products, programs and services superior to the competition, developing and maintaining relationships with key retailers and challenging current business processes to preserve and improve profit margins. During 1995, these strategies resulted in implementation of the Corporation's North American Plan, a major initiative to increase market penetration in the United States and Canada. Through this initiative, the marketing and manufacturing efforts in both countries have been combined to both improve efficiencies and provide a superior product line to the Canadian market. Features of this plan include production of dual priced cards in both countries and conversion of the Canadian production facility to just in time manufacturing. While 1995 results reflect expenses from implementation of this plan, which were not material, the positive impact in both the United States and Canadian markets will begin next year. Program and product development initiatives included new card lines designed to appeal to specific segments of consumers and the introduction of decorative flags and mylar balloons, products planned to complement existing card lines. Also during 1995, the growth of the Corporation's technology based businesses continued with the addition of the interactive marketing division to CreataCard to pursue rapidly evolving electronic markets. Results of Operations - --------------------- Revenues - -------- The Corporation derives its revenues from the sale of greeting cards and related social expression products in a market that is highly competitive. Despite this competitive environment, net sales increased 5.6% in 1995 from 1994, marking the 89th consecutive annual increase. In 1994, net sales increased 5.9% over 1993. The increases in both years were due to strong sales of the Corporation's core products of everyday, seasonal and personalized greeting cards. Greeting card unit sales increased 1% in both years while net sales in dollars increased 7.8% in 1995 and 6.9% in 1994. While the unfavorable impact of foreign exchange rates moderated during 1995, the additional weakening of the Canadian dollar and Mexican peso against the United States dollar reduced net sales growth from 6.2% to 5.6%. In 1994, the unfavorable foreign exchange impact on the revenue increase was 1.4 percentage points. - 12 - 13 The percent of net sales contributed by each major product classification is as follows:
1995 1994 1993 ---- ---- ---- Everyday Greeting Cards............................. 44% 41% 41% Holiday Greeting Cards.............................. 22% 24% 24% Gift Wrapping and Party Goods....................... 18% 18% 18% Consumer Products................................... 12% 13% 10% Stationery And Miscellaneous........................ 4% 4% 7%
Expenses and Profit Margins - --------------------------- The Corporation's success in improving margins continued in 1995. Material, labor and other production costs were 36.2% of net sales, down from 38.0% in 1994 and 39.6% in 1993. These improvements reflect higher selling prices and a product mix more heavily weighted with lower cost card products. The improvements in 1994 and 1993 also reflected reductions in card material costs in the United States which decreased 1.1% and 1.8%, respectively. United States card material costs remained stable in 1995 despite rising prices in the paper market. This cost containment was due to the Corporation's long-term commitments with certain paper suppliers, the benefit of which should extend into the next year. In 1993, material, labor and other production costs also included a $4.8 million LIFO inventory reduction which reduced costs in this category. Selling, distribution and marketing expenses were 38.9% of net sales compared to 37.1% in 1994 and 36.9% in 1993. The increases in both years were due primarily to higher amortization of deferred costs related to agreements with certain retail customers. The Corporation enters into these agreements to develop and maintain business with retail customers when a long-term business relationship is advantageous. In 1995, the Corporation successfully negotiated new agreements with certain retailers to continue the existing business relationship beyond periods covered by current agreements. The new agreements required cash advances to the retailers in 1995 and in the future. The deferred costs related to these agreements will be amortized over the effective period of the agreements, beginning primarily in 1997. When related to total operations, the increased and prudent use of these agreements has not had a material impact on operations and the impact of unamortized deferred costs related to existing agreements and commitments should not be material to total operations. See Notes A, B and C to the Consolidated Financial Statements for further discussion of payment commitments and deferred costs related to these agreements. Contributing to the increase in 1995 was an expanded national advertising program, primarily related to the CreataCard business. Advertising expenses, all of which were expensed as incurred, were $58.3 million in 1995, $48.2 million in 1994 and $48.1 million in 1993. Administrative and general expenses increased just 2% in 1995 and represented 12.4% of net sales. These expenses were 12.8% of net sales in 1994 and 12.1% of net sales in 1993. In 1994, certain new operating units, including Magnivision and CreataCard, experienced higher administrative and general expenses than the traditional business. The impact of these units on this expense category diminished in 1995 as the businesses grew. Contributions to the United States profit sharing plan in 1995 were comparable to 1994 after increasing $4.3 million from 1993 due to higher pre-tax income in the United States. - 13 - 14 The pre-tax costs of corporate owned life insurance included in administrative and general expenses, which were again more than offset by the related tax benefits, increased $4.5 million in 1995 after increasing $2.5 million in 1994. The tax benefits of corporate owned life insurance are discussed below. Interest expense for the year reflected a more efficient mix of debt between the United States and the United Kingdom and, despite rising interest rates, the Corporation's interest expense did not increase in 1995. In 1994, interest expense decreased $10 million due primarily to the repayment of the $100 million 8.375% notes on March 1, 1993 with funds on hand. Interest expense in 1994 and 1993 also included amortization of an option premium on an interest rate swap which 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 Corporation's effective tax rate decreased significantly to 34.5% in 1995 from 37.5% in 1994. The effective tax rate was 38.0% in 1993. The decrease in 1995 was due to higher tax benefits related to corporate owned life insurance and lower foreign losses with no tax benefit. In 1994, the increase in the United States statutory rate was more than offset by the tax benefits from the corporate owned life insurance. These tax benefits, which increased in each of the three years, resulted from non-taxable death benefits and increases in cash surrender value of the policies which exceeded the related premium and interest expenses. Net income in 1995 rose to $148.8 million or $2.00 per share, up 13.7% compared to 1994 income before the cumulative effect of accounting changes. In 1994, net income of $113.7 million included a one-time charge of $22.5 million or $.31 per share resulting from the full recognition of the transition obligation associated with the adoption of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and a one-time benefit of $5.3 million or $.08 per share resulting from the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". (Throughout this discussion, per share amounts for 1993 reflect the two-for-one common stock split effected in the form of a 100% share dividend which was distributed on September 10, 1993 to shareholders of record on August 27, 1993.) Income before the cumulative effect of these accounting changes was $130.9 million or $1.77 per share, a 16.6% increase from $112.3 million or $1.55 per share in 1993. Liquidity and Capital Resources The Corporation's financial strength, stability and capacity to fund operational needs through strong operating cash flows and worldwide credit facilities continued in 1995. Working capital increased to $531.1 million from $474.3 million in 1994. In 1993, working capital was $581.6 million. As of the end of 1995, the ratio of total debt to total capitalization (equity plus short and long-term debt) was 14.6%, down from 15.0% in 1994 and 22.9% in 1993. The current ratio also improved to 2.5 in 1995 from 2.3 in 1994 and compares to 2.8 in 1993. - 14 - 15 Cash flow from operations in 1995 increased $31.4 million to $107.0 million from $75.6 million in 1994 and compared to $169.3 million in 1993. The improvement from 1994 to 1995 was due to slower growth in accounts receivable and payments related to deferred costs, offset somewhat by an increase in inventories while additional cash was required during 1994 to support increases in these three asset categories. Trade accounts receivable improved to 17.4% of net sales in 1995 from 18.2% at the end of 1994. As of the end of 1993, trade accounts receivable were 16.6% of net sales. In 1995, the Corporation effectively managed the use of extended payment terms which had caused the increase from 1993 to 1994. Inventories as a percent of material, labor and other production costs were 41.3% in 1995 compared to 36.2% in 1994 and 34.5% in 1993. The higher inventory balances as of the end of 1995 were due primarily to increases in finished goods inventory in the United States to meet forecasted requirements, particularly for new programs. The increase also reflected advance purchases of paper for gift wrap production. The increase from 1993 to 1994 was due to the production of a new card line in the United Kingdom, advance purchases of favorably priced raw material and the Magnivision acquisition. The agreements with retailers that result in deferred costs were a significant factor in cash flow from operations. These agreements are discussed above and in Notes A, B and C to the Consolidated Financial Statements. Funding of these agreements with retailers required $22.9 million less cash (net of the related amortization) in 1995 than in 1994, but increased $26.5 million from the cash required in 1993. Capital expenditures included in investing activities in 1995 were $97.3 million, down from $102.9 million in 1994. In 1993, capital expenditures were $77.0 million. The deployment of the CreataCard machines, which caused the increase in 1994 due to the mass introduction, slowed during 1995 as the focus shifted to maximizing returns on existing machines. Capital expenditures for 1996 are expected to be $95.0 million. Total cash used by investing activities increased to $95.0 million in 1995 from $81.6 million and $86.5 million in 1994 and 1993, respectively. In 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 which mitigated the impact of the higher capital expenditures. In both 1995 and 1993, the net insurance investment did not increase as policy loans offset increases in cash surrender value. Financing activities used $102.2 million less cash in 1995 than in 1994, and at $25.9 million was comparable to the $24.9 million used in 1993. In 1994, the Corporation's $100 million 8.375% notes were paid with funds on hand. The Corporation's commitment to increase overall return to shareholders resulted in an increase in dividends each of the three years from an annual rate of $.43 per share at the end of 1993 to $.56 per share at the end of 1995. The seasonal nature of the business results in peak working capital requirements which are financed primarily through short term borrowings. During 1995, the Corporation replaced its $250 million revolving credit agreement with a $400 million revolving credit agreement to - 15 - 16 support its commercial paper borrowing arrangement and provide a six year term option for up to $200 million. The agreement extends through June, 1999 and is renewable thereafter on an annual basis. See Note D to the Consolidated Financial Statements for further discussion on this credit agreement. This credit facility, along with funds generated by operations are expected to meet the Corporation's currently anticipated funding requirements. Prospective Information Management is not aware of any adverse trends that would materially affect the Corporation's financial strength. Management believes that the Corporation is in a position to meet unanticipated working capital needs or investment opportunities with additional financing based on its strong balance sheet, ability to generate cash and history of growth. - 16 - 17 Item 8. Financial Statements and Supplementary Data CONSOLIDATED STATEMENT OF INCOME Years ended February 28, 1995, 1994 and 1993 Thousands of dollars except per share amounts
1995 1994 1993 ----------- ----------- ----------- Net sales $ 1,868,927 $ 1,769,964 $ 1,671,692 Other income 9,513 10,851 16,492 ----------- ----------- ----------- TOTAL REVENUE 1,878,440 1,780,815 1,688,184 Costs and expenses: Material, labor and other production costs 676,085 672,020 661,183 Selling, distribution and marketing 727,087 655,823 616,538 Administrative and general 231,234 226,661 202,429 Interest 16,871 16,897 26,924 ----------- ----------- ----------- 1,651,277 1,571,401 1,507,074 ----------- ----------- ----------- Income before income taxes and cumulative effect of accounting changes 227,163 209,414 181,110 Income taxes 78,371 78,530 68,822 ----------- ----------- ----------- Income before cumulative effect of accounting changes 148,792 130,884 112,288 Cumulative effect of accounting changes, net of tax - 17,182 - ----------- ----------- ----------- NET INCOME $ 148,792 $ 113,702 $ 112,288 =========== =========== =========== Income per share: Before cumulative effect of accounting changes $ 2.00 $ 1.77 $ 1.55 Cumulative effect of accounting changes, net of tax - .23 - ----------- ----------- ----------- NET INCOME PER SHARE $ 2.00 $ 1.54 $ 1.55 =========== =========== =========== Average number of shares outstanding 74,305,346 73,809,132 72,440,114
See notes to consolidated financial statements. 1993 share and per share amounts have been restated to reflect the 1994 stock split. - 17 - 18 CONSOLIDATED STATEMENT OF FINANCIAL POSITION February 28, 1995 and 1994 Thousands of dollars
ASSETS 1995 1994 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $ 87,151 $ 101,066 Trade accounts receivable, less allowances for sales returns of $102,004 ($97,903 in 1994) and for doubtful accounts of $14,968 ($13,084 in 1994) 324,329 322,675 Inventories: Raw material 54,196 48,845 Work in process 40,608 38,956 Finished products 225,959 202,620 ----------- ----------- 320,763 290,421 Less LIFO reserve 86,169 84,970 ----------- ----------- 234,594 205,451 Display material and factory supplies 44,676 37,906 ----------- ----------- Total inventories 279,270 243,357 Deferred income taxes 66,409 62,075 Prepaid expenses and other 136,290 121,022 ----------- ----------- Total current assets 893,449 850,195 OTHER ASSETS 419,477 286,117 PROPERTY, PLANT AND EQUIPMENT Land 5,533 5,975 Buildings 266,375 265,220 Equipment and fixtures 590,071 522,770 ----------- ----------- 861,979 793,965 Less accumulated depreciation 413,154 365,043 ----------- ----------- Property, plant and equipment - net 448,825 428,922 ----------- ----------- $ 1,761,751 $ 1,565,234 =========== ===========
See notes to consolidated financial statements. - 18 - 19 CONSOLIDATED STATEMENT OF FINANCIAL POSITION - CONTINUED February 28, 1995 and 1994 Thousands of dollars
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994 ----------- ----------- CURRENT LIABILITIES Debt due within one year $ 123,407 $ 132,036 Accounts payable 140,660 127,792 Payroll and payroll taxes 53,136 53,164 Retirement plans 20,633 20,766 Dividends payable 10,426 9,300 Income taxes 13,988 32,857 ----------- ----------- Total current liabilities 362,250 375,915 LONG-TERM DEBT 74,480 54,207 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 17,815 19,427 OTHER LIABILITIES 90,969 - DEFERRED INCOME TAXES 56,696 62,243 SHAREHOLDERS' EQUITY Common shares - par value $1: Class A - 69,825,377 shares issued less 151,619 Treasury shares in 1995 and 69,590,011 shares issued less 43,886 Treasury shares in 1994 69,674 69,546 Class B - 6,066,096 shares issued less 1,438,083 Treasury shares in 1995 and 6,066,096 shares issued less 1,493,152 Treasury shares in 1994 4,628 4,573 Capital in excess of par value 255,022 249,192 Treasury stock (30,585) (28,240) Cumulative translation adjustment (22,226) (16,421) Retained earnings 883,028 774,792 ----------- ----------- Total shareholders' equity 1,159,541 1,053,442 ----------- ----------- $ 1,761,751 $ 1,565,234 =========== ===========
See notes to consolidated financial statements. - 19 - 20 CONSOLIDATED STATEMENT OF CASH FLOWS Years ended February 28, 1995, 1994 and 1993
Thousands of dollars 1995 1994 1993 --------- --------- --------- OPERATING ACTIVITIES: Net income $ 148,792 $ 113,702 $ 112,288 Adjustments to reconcile to net cash provided (used) by operating activities: Postretirement benefit obligation - 22,530 - Depreciation 68,438 59,575 48,450 Deferred income taxes (9,736) (15,809) (9,286) Changes in operating assets and liabilities: Increase in trade accounts receivable (4,973) (37,940) (17,498) (Increase) decrease in inventories (37,944) (13,196) 39,279 Increase in other current assets (14,860) (31,256) (35,263) Increase in deferred cost - net (45,746) (52,887) (16,942) (Decrease) increase in accounts payable and other liabilities (4,879) 23,008 43,401 Other - net 7,906 7,886 4,851 --------- --------- --------- Cash Provided by Operating Activities 106,998 75,613 169,280 INVESTING ACTIVITIES: Property, plant and equipment additions (97,290) (102,859) (77,099) Proceeds from sale of fixed assets 3,447 1,009 592 Investment in corporate-owned life insurance 1,813 18,930 471 Other (2,966) 1,344 (10,473) --------- --------- --------- Cash Used by Investing Activities (94,996) (81,576) (86,509) FINANCING ACTIVITIES: Increase in long-term debt 30,914 19,519 19,103 Reduction of long-term debt (29,862) (216,892) (3,911) Increase (decrease) in short-term debt 9,919 89,456 (16,717) Sale of stock under benefit plans 7,130 21,792 15,100 Purchase of treasury shares (3,462) (6,399) (8,028) Dividends to shareholders (40,556) (35,633) (30,494) --------- --------- --------- Cash Used by Financing Activities (25,917) (128,157) (24,947) --------- --------- --------- (DECREASE) INCREASE IN CASH AND EQUIVALENTS (13,915) (134,120) 57,824 Cash and Equivalents at Beginning of Year 101,066 235,186 177,362 --------- --------- --------- Cash and Equivalents at End of Year $ 87,151 $ 101,066 $ 235,186 ========= ========= =========
See notes to consolidated financial statements. - 20 - 21 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Years ended February 28, 1995, 1994 and 1993 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 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 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 ======= ====== ======== ======== ======== ======== ==========
See notes to consolidated financial statements. - 21 - 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended February 28, 1995, 1994 and 1993 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 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. 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 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. 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 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, is $59,344, $43,543 and $31,851 in 1995, 1994 and 1993, respectively. 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. - 22 - 23 NOTE A - ACCOUNTING POLICIES (CONT'D) Other Liabilities: The other liabilities classification represents payment commitments relating to agreements with certain customers due primarily in 1997. 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 $58,342, $48,228 and $48,069 in 1995, 1994 and 1993, 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 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 1993 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. 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, and prepaid 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 $110,890 and $98,004 at February 28, 1995 and 1994, respectively. NOTE C - OTHER ASSETS The other assets 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 $311,503 and $174,524 at February 28, 1995 and 1994, respectively. Deferred costs are charged to operations on a straight-line basis over the effective period of the agreement, generally three to six years. At February 28, 1995, these costs include amounts which, during 1995, were committed for future payment. Deferred costs estimated to be charged to operations during the next year are classified with prepaid expenses and other. - 23 - 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - LONG AND SHORT-TERM DEBT The Corporation has a $400,000 domestic revolving credit agreement which supports its commercial paper borrowing arrangement. The agreement provides an option to convert up to $200,000 to a term loan. The agreement extends through June 1999 and 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 1/10 of 1% to 1/4 of 1%. As of February 28, 1995, the commitment fee is 1/8 of 1%. The Corporation also has a $100,000 domestic uncommitted line of credit available for short-term financing. No borrowings are outstanding under the domestic revolving credit agreement or the uncommitted line of credit as of February 28, 1995. In addition, the Corporation's subsidiaries in Canada, the United Kingdom and France have credit agreements permitting borrowing of up to $157,271 of which $79,184 is convertible to term loans. At February 28, 1995, $93,973 is outstanding under these foreign revolving credit facilities, which expire at various dates, the earliest of which is June 1995. All of the Corporation's revolving credit agreements provide for various borrowing alternatives in their respective currencies with interest rates ranging from 7.2% to 8.4% for amounts borrowed as of February 28, 1995. At February 28, 1995 and 1994, debt due within one year consists of the following:
1995 1994 ---- ---- Current maturities of long term debt $ 868 $ 19,120 Notes payable 20,758 45,970 Commercial paper 101,781 66,946 -------- -------- Total $123,407 $132,036 ======== ========
At February 28, 1995 and 1994, long-term debt consists of the following:
1995 1994 -------- -------- Revolving credit agreements $ 74,321 $ 71,196 Other 1,027 2,131 -------- -------- 75,348 73,327 Less current maturities 868 19,120 -------- -------- $ 74,480 $ 54,207 ======== ========
Aggregate maturities of long-term debt are as follow: 1996 $ 868 1997 49,302 1998 20 1999 - 2000 - Thereafter 25,158 ------- $75,348 =======
- 24 - 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - LONG AND SHORT-TERM DEBT (CONT'D) At February 28, 1995 the Corporation had credit arrangements to support the issuance of letters of credit in the amount of $40,000 with $31,727 of open credits outstanding. Interest paid on short-term and long-term debt was $16,081 in 1995, $17,495 in 1994 and $27,386 in 1993. 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 originally due July 15, 1996 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, 1995, the cost to the Corporation upon cancellation of the swap would be $2,362. However, the Corporation intends to hold the swap agreement until maturity. - 25 - 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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) in 1994. Postretirement benefit costs for 1993, which were recorded on a cash basis, have not been restated. The following table presents the plan's funded status at February 28, 1995 and 1994 as recognized in the Corporation's Consolidated Statement of Financial Position:
1995 1994 -------- -------- Accumulated postretirement benefit obligation: Retirees $ 19,318 $ 16,005 Fully eligible active plan participants 5,686 4,994 Other active plan participants 16,701 18,304 -------- -------- Accumulated postretirement benefit obligation 41,705 39,303 Plan assets, primarily listed stocks and bonds (21,970) (18,475) -------- -------- Accumulated postretirement benefit obligation in excess of plan assets 19,735 20,828 Unrecognized net loss (1,920) (1,401) -------- -------- Postretirement benefit obligation $ 17,815 $ 19,427 ======== ========
Net periodic postretirement cost includes the following components:
1995 1994 -------- -------- Service cost $ 1,313 $ 1,381 Interest cost 2,965 3,118 Actual return on plan assets (1,209) (897) -------- -------- $ 3,069 $ 3,602 ======== ========
- 26 - 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE E - OTHER POSTRETIREMENT BENEFITS (CONT'D) Assumptions used in the computations:
1995 1994 ---- ---- Assumed discount rate 8.0% 7.5% Expected long-term rate of return on plan assets 8.0% 7.0%
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, 1995 by $6,465 and increase aggregate service and interest cost for the year by $915. 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, 1995, 1994 and 1993 follows:
1995 1994 1993 -------- -------- -------- Gross rentals ............................ $ 63,247 $ 63,377 $ 65,707 Less sublease rentals .................... 8,378 7,733 6,196 -------- -------- -------- Net rental expense ....................... $ 54,869 $ 55,644 $ 59,511 ======== ======== ========
At February 28, 1995, future minimum rental payments for noncancelable operating leases, net of aggregate minimum noncancelable sublease rentals to be received, follow: Gross Rentals: 1996 ..................................................... $ 50,222 1997 ..................................................... 44,407 1998 ..................................................... 39,289 1999 ..................................................... 36,504 2000 ..................................................... 33,391 Later years .............................................. 168,432 -------- 372,245 Sublease rentals ......................................... (72,364) --------- Net rentals .............................................. $ 299,881 =========
- 27 - 28 NOTE G - INCOME TAXES Income (loss) before income taxes and the cumulative effect of accounting changes:
1995 1994 1993 -------- -------- -------- United States $235,515 $222,957 $192,990 Foreign (8,352) (13,543) (11,880) -------- -------- -------- $227,163 $209,414 $181,110 ======== ======== ========
Income taxes have been provided as follows:
1995 1994 1993 -------- -------- -------- Current: Federal $ 72,242 $ 78,274 $ 63,721 Foreign 1,416 1,936 3,677 State and local 14,393 10,376 12,062 -------- -------- -------- 88,051 90,586 79,460 Deferred (principally federal) (9,680) (12,056) (10,638) -------- -------- -------- $ 78,371 $ 78,530 $ 68,822 ======== ======== ========
Significant components of the Corporation's deferred tax liabilities and assets at February 28, 1995 and 1994 are as follow:
1995 1994 -------- -------- Deferred tax liabilities: Depreciation $ 58,249 $ 60,872 Other 23,971 26,013 -------- -------- Total deferred tax liabilities 82,220 86,885 Deferred tax assets: Sales returns 31,980 30,228 Other 69,701 70,808 -------- -------- 101,681 101,036 Valuation allowance (9,748) (14,321) -------- -------- Total deferred tax assets 91,933 86,715 -------- -------- Net deferred assets/(liabilities) $ 9,713 $ (170) ======== ========
The decrease in the valuation allowance was primarily due to the reduction of net operating loss carryforwards in the United Kingdom. - 28 - 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - INCOME TAXES (CONT'D) The statutory federal income tax rate and the effective income tax rate are reconciled as follows:
1995 1994 1993 ----- ---- ---- Statutory rate 35.0% 35.0% 34.0% State and local income taxes, net of federal tax benefit 3.8 3.4 4.4 Subsidiaries' losses without tax benefit 1.3 3.1 4.1 Corporate-owned life insurance investments (6.7) (5.4) (4.3) Other 1.1 1.4 (.2) ---- ---- ---- Effective tax rate 34.5% 37.5% 38.0% ==== ==== ====
Income taxes paid were $101,982 in 1995, $83,290 in 1994, and $67,108 in 1993. No deferred taxes have been provided on approximately $43,000 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, 1995 the Corporation had approximately $28,000 of foreign operating loss carryforwards with no expiration date. The Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" effective March 1, 1993. This statement required the Corporation to change its method of accounting for income taxes from the deferred method to the liability method. Under the liability 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. - 29 - 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - COMMON SHARES AND STOCK OPTIONS At February 28, 1995 and 1994, common shares authorized consisted of 93,800,000 Class A and 7,916,484 Class B shares. 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. 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. During 1994, the Corporation purchased 165,762 Class B shares 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. - 30 - 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - COMMON SHARES AND STOCK OPTIONS (CONT'D) Stock option transactions and prices are summarized as follow:
Options Price Range Number of Options Per Share ----------------------- -------------------------------------- Class A Class B Class A Class B --------- -------- ---------------- ---------------- 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 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 $19.25 - $26.75 ========= ======== Options exercisable at February 28: 1995 1,202,865 439,590 1994 949,654 285,590
- 31 - 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - 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 $20,414, $20,445 and $16,966 for 1995, 1994 and 1993, 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 $2,557, $2,577 and $1,750 for 1995, 1994 and 1993, 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. - 32 - 33 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 North American operations, which include the United States and Canada, the Corporation has subsidiaries in Europe and Mexico. 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, income taxes and cumulative effect of accounting changes. Segment information by geographic area for the years ended February 28, 1995, 1994 and 1993 follows:
North Other America Foreign Consolidated ----------- ----------- ------------ 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 1994 - ---- Total revenue $ 1,679,753 $ 101,062 $ 1,780,815 Operating profit (loss) 239,721 (13,410) 226,311 Total assets excluding cash and equivalents 1,363,638 100,530 1,464,168 1993 - ---- Total revenue $ 1,582,650 $ 105,534 $ 1,688,184 Operating profit (loss) 221,724 (13,690) 208,034 Total assets excluding cash and equivalents 1,215,236 97,978 1,313,214
- 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, 1995 and 1994.
Quarter Ended ------------------------ May 31 August 31 November 30 February 28 --------- --------- ----------- ----------- Fiscal 1995 - ----------- Net sales $ 416,403 $ 401,136 $ 551,036 $ 500,352 Total revenue 418,792 403,089 552,740 503,819 Material, labor and other production costs 137,741 153,663 211,365 173,316 Net income 33,162 13,416 58,890 43,324 Per share .45 .18 .79 .58 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
* Per share amounts have been restated, as appropriate, to reflect the 1994 stock split. - 34 - 35 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors American Greetings Corporation We have audited the accompanying consolidated statements of financial position of American Greetings Corporation and subsidiaries as of February 28, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 1995. 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 and related schedule 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 schedule. 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 as of February 28, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1995 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 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 LLP Cleveland, Ohio March 30, 1995 - 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 two year period ended February 28, 1995, 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 23, 1995, and related Proxy Statement filed with the Securities and Exchange Commission on May 12, 1995. (Next Item is Part IV) - 36 - 37 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 17 February 28, 1995, 1994 and 1993 Consolidated Statement of Financial Position 18 - 19 February 28, 1995 and 1994 Consolidated Statement of Cash Flows - Years ended February 28, 1995, 1994 and 1993 20 Consolidated Statement of Shareholders' Equity- Years ended February 28, 1995, 1994 and 1993 21 Notes to Consolidated Financial Statements - Years ended February 28, 1995, 1994 and 1993 22 - 33 Quarterly Results of Operations (Unaudited) 34 Report of Ernst & Young LLP, Independent Auditors 35 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 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.
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PART IV - Continued Page No. -------- (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. (iii) 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. (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.
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PART IV - Continued Page No. -------- (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. (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.
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PART IV - Continued Page No. -------- (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. (xi) CEO/COO Compensation Plans E - 1 (11) Statement Re Computation of Per Share Earnings E - 3 (21) Subsidiaries of the Registrant E - 4 (23) Consent of Independent Auditors E - 5 (27) Financial Data Schedule 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 41.
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PART IV - Continued Page No. -------- 3. Financial Statement Schedules ----------------------------- Included in Part IV of the report: Schedule II - Valuation and Qualifying Accounts S - 1
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. - 41 - 42 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 26, 1995 By: /s/ Jon Groetzinger, Jr. ------------ ------------------------ Jon Groetzinger, Jr. Secretary - 42 - 43 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 26, 1995 - ------------------------- ) 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 ) )
- 43 - 44
SIGNATURE TITLE DATE --------- ----- ---- ) /s/ Henry Lowenthal Senior Vice President; ) May 26, 1995 - --------------------- Chief Financial Officer ) Henry Lowenthal (principal financial ) officer) ) ) /s/ William S. Meyer Senior Vice President; ) - --------------------- Controller; Chief ) William S. Meyer Accounting Officer ) (principal accounting ) officer) )
- 44 - 45 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AMERICAN GREETINGS CORPORATION AND SUBSIDIARIES (000)
- ------------------------------------------------------------------------------------------------------------------------------------ COL. A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------------------------------------------------------ ADDITIONS ---------------------------------- (1) (2) Balance at Beginning Charged to Costs Charged to Other Deduction-Describe Balance at End DESCRIPTION of Period and Expenses Accounts-Describe of Period - ------------------------------------------------------------------------------------------------------------------------------------ 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 ======== ========= ======= ========= ========= 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(B) $ 13,816 ======== ========= ======= ========= ========= Allowance for sales returns $ 64,093 $ 167,718 $ (670)(A) $ 159,087(C) $ 72,054 ======== ========= ======= ========= ========= 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 EX-10 2 AMERICAN GREETINGS EX-10(II)A(XI) 1 EXHIBIT (10) (ii) (A) (xi) AMERICAN GREETINGS CORPORATION CEO/COO COMPENSATION PLANS GENERALLY. The Company's Chairman and Chief Executive Officer ("CEO") and President and Chief Operating Officer ("COO") are the only individuals eligible to participate in the compensation plans described below (together, the "CEO/COO Compensation Plans"), which are intended to reward these individuals based on the Company's performance. The terms of both the CEO/COO Annual Bonus Plan and the CEO/COO Three Year Bonus Plan are identical to the One Year Bonus Plan and Three Year Bonus Plan described on page 11 of the Company's Proxy Statement in connection with its 1994 Annual Meeting of Shareholders, under the heading "Executive Bonus Plans" in the Report of the Compensation Committee of the Board of Directors on Executive Compensation. The COO Restricted Stock Plan described below is available to only the COO. CEO/COO ANNUAL BONUS PLAN. Under this Plan, the CEO and COO each receive a bonus ("Target Bonus") equal to 40% of their respective base salaries in the event that the Company achieves the target consolidated pre-tax profit goal for the applicable fiscal year. In the case of the CEO, the target bonus shall also include an additional $230,000 payable in cash or the Company's Class A or Class B Common Shares, at the CEO's election. If the Company's performance is above the pre-tax profit goal by a percentage of not more than 10 percent, or below the target profit goal by a percentage of not more than 20 percent, the bonus is increased or decreased by a percentage equal to twice the excess or shortfall. If the performance is less than 80 percent of the target profit goal, no bonus is paid; if it is greater than 110 percent of the target profit goal, the bonus remains at 120 percent of the target bonus. The maximum effective bonus percentage is 48%. CEO/COO THREE YEAR BONUS PLAN. Under this Plan, the CEO and COO each receive 100% of the Target Bonus described above (without percentage adjustment) for each of the three fiscal years, the first set of three fiscal years consisting of FY 95, FY 96 and FY 97, if the Company achieves the target consolidated pre-tax profit goal for this plan as established by the Board of Directors for each of the three years. If the profit goals under the CEO/COO Three Year Bonus Plan are met in only two of the three years, the CEO and COO each receive 60% of their respective Target Bonuses for this Plan (without percentage adjustment). If the profit goal is met in only one year, no Three Year Bonus is paid. E - 1 2 EXHIBIT (10) (ii) (A) (xi) COO RESTRICTED STOCK PLAN. Under this Plan, the COO was granted 5,000 of the Company's Class A Shares on February 28, 1993, and an additional 10,000 of the Company's Class A Shares on June 1, 1993. These two grants (collectively, the "1993 Grant") became 9,000 and 20,000 shares, respectively, as a result of the Company's September 10, 1993 2-for-1 stock split. (One thousand shares of the 5,000 share grant vested prior to the stock split.) The 1993 Grant vests pursuant to the terms of the COO's employment agreement with the Company based on the Company's achievement of its profit goals. Dividends and voting rights attach only to vested shares. On February 29, 1996, and on each third anniversary (February 28th or 29th) thereafter during the term of the COO's employment agreement with the Company, the Company will grant the COO a block of 30,000 Class A or Class B shares, which block will vest ratably (on an annualized basis) over a period of five years (each grant, a "Three Year Grant"). Full vesting of each Three Year Grant is dependent on whether the Company achieves its consolidated pre-tax profit goal. For each year of the Three Year Grant period that the Company fails to achieve its pre-tax profit goal (which is the same profit goal used to calculate the bonus under the Annual Bonus Plan), 4,000 of the shares granted under the Three Year Grant will lapse and therefore be unavailable to the COO. The profit goals and bonus calculation formulae relating to the CEO/COO Compensation Plans are determined by the Compensation Committee of the Company's Board of Directors, which may modify these Plans or establish and administer new plans in its discretion without further shareholder approval. E - 2 EX-11 3 AMERICAN GREETINGS EX-11 1 EXHIBIT 11 AMERICAN GREETINGS CORPORATION COMPUTATION OF PER SHARE EARNINGS Computation of Earnings Per Share ---------------------------------
Year Ended February 28, ----------------------- 1995 1994 1993 ---- ---- ---- Average number of common shares outstanding 74,305,346 73,809,132 72,440,114 ----------- ----------- ----------- Net income (thousands) $ 148,792 $ 113,702 $ 112,288 ----------- ----------- ----------- Earnings per share $ 2.00 $ 1.54 $ 1.55 ----------- ----------- -----------
Computation of Fully-Diluted Earnings Per Share (a) ---------------------------------------------------
Year Ended February 28, ----------------------- 1995 1994 1993 ---- ---- ---- Average number of common shares outstanding on a fully diluted basis assuming exercise of stock options based on the treasury stock method using the year-end price which was higher than the average market price 75,739,055 75,155,155 73,456,782 ----------- ----------- ----------- Net income (thousands) $ 148,792 $ 113,702 $ 112,288 ----------- ----------- ----------- Earnings per share $ 1.96 $ 1.51 $ 1.53 ----------- ----------- ----------- (a) This calculation is submitted in accordance with the Securities Exchange Act of 1934, although not required by Accounting Principles Board Opinion No. 15, since less than a 3% dilution results.
E - 3 EX-21 4 AMERICAN GREETINGS EX-21 1 EXHIBIT 21 AMERICAN GREETINGS CORPORATION SUBSIDIARIES OF THE REGISTRANT
State/Jurisdiction Subsidiary of Incorporation ---------- ------------------ Carlton Cards Limited Canada Carlton Cards, Ltd. United Kingdom CreataCard Inc. Delaware Magnivision, Inc. Delaware Plus Mark, Inc. Ohio Carlton Cards Retail, Inc. Connecticut
E - 4 EX-23 5 AMERICAN GREETINGS EX-23 1 EXHIBIT 23 AMERICAN GREETINGS CORPORATION CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in (i) Post-Effective Amendment Number 1 dated May 27, 1986 to Registration Statement No. 2-89471 on Form S-3, (ii) Post-Effective Amendment Number 1 dated May 31, 1984 to Registration Statement No. 2-84911 on Form S-8, (iii) Registration Statement No. 33-975 on Form S-8 dated November 7, 1985, (iv) Registration Statement No. 33-16180 on Form S-8 dated July 31, 1987, (v) Post-Effective Amendment Number 1 dated May 17, 1991 to Registration Statement No. 33-39726 on Form S-3, (vi) Registration Statement No. 33-45673 on Form S-8 dated February 4, 1992, (vii) Registration Statement No. 33-58582 on Form S-8 dated February 22, 1993, (viii) Post-Effective Amendment Number 1 dated March 29, 1993 to Registration Statement No. 33-52196 on Form S-3, (ix) Registration Statement No. 33-50255 on Form S-3 dated September 15, 1993, and (x) Registration Statement No. 33-57221 on Form S-3 dated January 16, 1995 of our report dated March 30, 1995 with respect to the consolidated financial statements and schedule of American Greetings Corporation included in this annual report on Form 10-K for the year ended February 28, 1995. Ernst & Young LLP Cleveland, Ohio May 24, 1995 EX-27 6 AMERICAN GREETINGS EX-27
5 This schedule contains summary financial information extracted from Part II, Item 8 of the Form 10-K and is qualified in its entirety by reference to such financial statements. 1,000 YEAR FEB-28-1995 MAR-01-1994 FEB-28-1995 87,151 0 324,329 14,968 279,270 893,449 861,979 413,154 1,761,751 362,250 0 74,302 0 0 1,085,239 1,761,751 1,868,927 1,878,440 676,085 676,085 958,321 8,674 16,871 227,163 78,371 148,792 0 0 0 148,792 2.00 1.96
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