-----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, VwfpanCz99eS+YHzRKTSd/eAN8MSo+QvMQ8MplTRfQV44xTy9jIn7d0mlH1gZVQF 9THWMt6QMIvrv66tGMp62g== 0000950152-94-000572.txt : 19940531 0000950152-94-000572.hdr.sgml : 19940531 ACCESSION NUMBER: 0000950152-94-000572 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940228 FILED AS OF DATE: 19940526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GREETINGS CORP CENTRAL INDEX KEY: 0000005133 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94530645 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, 1994 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 2, 1994 - $2,085,711,762. Number of shares outstanding as of May 2, 1994: CLASS A COMMON - 69,768,936 CLASS B COMMON - 4,645,075 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement to be filed with the Securities and Exchange Commission on or about May 13, 1994, with respect to the 1994 Annual Meeting of Shareholders called for June 24, 1994, are incorporated by reference into Part III. PART I Item 1. Business American Greetings Corporation and its subsidiaries operate predominantly in a single industry: the design, manufacture and sale of everyday and seasonal greeting cards and other personal communication products. Greeting cards, gift wrap, paper party goods, candles and giftware are manufactured and /or sold in the United States by American Greetings Corporation, Plus Mark, Inc., Carlton Cards Retail, Inc., and Quality Greeting Card Distributing Company; in Canada by Carlton Cards Ltd. (Canada); in the United Kingdom by Carlton Cards Limited (UK), Maiden and Kemp Ltd., Someone Somewhere, Ltd., Carlton (UK) Retail, Ltd., and Carlton Cards Ltd. (Ireland); in France by Carlton Cards (France) SNC; and in Mexico by Felicitaciones Nationales, S.A. de C.V. Personalized greeting cards are sold through CreataCard machines by CreataCard, Inc. in the United States, by CreataCard Canada, Inc. in Canada and by CreataCard (UK) Ltd. in the United Kingdom. Wilhold, a division of Plus Mark, Inc., produces and sells hair accessory items, Acme Frame Products, Inc. produces and sells picture frames, while Magnivision, Inc. produces and sells non-prescription reading glasses and eyeware accessories. Design licensing and character licensing are done by AGC, Inc. and Those Characters From Cleveland, Inc., respectively. AG Industries, Inc. manufactures custom display fixtures for the Corporation's products and products of others. Although other subsidiaries of American Greetings Corporation exist, they are either inactive, of minor importance or of a holding company nature. Many of the Corporation's products are manufactured at common production facilities and marketed by a common sales force. Information concerning sales by major product classifications is included in Part II, Item 7. Additionally, information by geographic area is included in Note J to the Consolidated Financial Statements included in Part II, Item 8. - 2 - 3 The Corporation's products are primarily sold in approximately 100,000 retail outlets throughout the world. The greeting card and gift wrap industry is intensely competitive. Competitive factors include quality, design, customer service and terms, which may include payments and other concessions to retail customers under long-term agreements. These agreements are discussed in greater detail below. There are an estimated 500 companies in this industry. The principal competitors, however, are Hallmark Cards, Incorporated and Gibson Greetings, Inc. Based upon its general familiarity with the greeting card and gift wrap industry and limited information as to its competitors, the Corporation believes that it is the second largest company in the industry and the largest publicly owned company in the industry. The greeting card and gift wrap industry is generally mature and growing at a moderate rate of one to two percent in units per year. Although there have been year-to-year fluctuations, on average the Corporation has grown at or above the growth rate of the industry. The Corporation is well positioned in each retail channel of distribution that sells its products, particularly in the growing mass retail channels. The Corporation expects continued growth at or above the growth rate of the industry. Production of the Corporation's products is on a level basis throughout the year. Everyday inventories remain relatively constant throughout the year, while seasonal inventories peak in advance of each major holiday season, including Christmas, Valentine, Easter, Mother's Day, Father's Day and Graduation. Also characteristic of the business, accounts receivable for seasonal merchandise are carried for relatively long periods, as product is normally shipped three to five months prior to a holiday. Payments for seasonal shipments are generally received during the month in which the major holiday occurs, or shortly thereafter. Extended payment terms may also be offered in response to competitive situations with individual customers. The Corporation and many of its competitors sell seasonal greeting cards on a return basis. These returns generally occur immediately following the holiday. During the fiscal year, the Corporation experienced no difficulty in obtaining raw materials from suppliers. At February 28, 1994, the Corporation employed approximately 15,900 full-time employees and approximately 20,700 part-time employees which, when jointly considered, equate to approximately 21,100 full-time employees. Approximately 3,000 of the Corporation's hourly plant employees are unionized. The locations and unions are: Cleveland, Ohio, International Association of Greeting Card Workers; Bardstown, Kentucky, and Corbin, Kentucky, International Brotherhood of Teamsters; Greeneville, Tennessee, Amalgamated Clothing & Textile Workers Union; and Toronto, Ontario (Carlton Cards Ltd.), Canadian Paperworkers Union. Labor relations at each location have been satisfactory. The Corporation's headquarters and other manufacturing locations are not unionized. The Corporation has a number of patents and registered trademarks which are used in connection with its products. The Corporation's designs and verses are protected by copyright. Although the licensing of copyrighted designs and trademarks produces additional revenue, in the opinion of the Corporation, the Corporation's - 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 copyrights and trademarks. In fiscal 1994, the Corporation's major channels of distribution, in order of importance, were: drug stores, mass merchandisers, supermarkets, stationery and gift shops, variety stores, military post exchanges, combo stores (stores combining food, general merchandise and drug items), and department stores. Sales to the Corporation's five largest customers, which include mass merchandisers and major drug stores, accounted for approximately 21.2% of net sales. Sales to customers are made through 25 regional and 62 district sales offices in the United States, Canada, United Kingdom, France and Mexico. The Corporation has agreements with various customers for the supply of greeting cards and related products. Contracts are separately negotiated to meet competitive situations; therefore, while some aspects of the agreements may be the same or similar, important contractual terms often vary from contract to contract. No one contract approaches the materiality threshold. Under the agreements, customers typically receive allowances, discounts and/or advances in consideration for the Corporation being allowed to supply customers' stores for a stated term. The Corporation views the use of such agreements as advantageous in developing and maintaining business with retail customers. Although risk is inherent in the granting of advances, payments and credits, the Corporation subjects such customers to its normal credit review. Losses attributable to these agreements have historically been immaterial. Advances, payments and credits made under these agreements are accounted for as deferred costs. The current and long-term portions of the agreements, which are material in the aggregate, are disclosed in Note B and Note C, respectively, to the Consolidated Financial Statements included in Part II, Item 8. Note C also discusses the amortization period. The Corporation believes that these agreements represent a common practice within the industry. Since Hallmark Cards, one of the Corporation's two principal competitors, is a non-public company, public disclosure of its practices has been limited. Gibson Greetings, the Corporation's other principal competitor and a public company, made comparable disclosures to those previously made by the Corporation with respect to such agreements. Item 2. Properties As of February 28, 1994, the Corporation owns or leases approximately 15.3 million square feet of plant, warehouse, store and office space, of which approximately 6.8 million square feet are leased. Space needs in the United States have been met primarily though long-term leases of properties constructed and financed by community development corporations and municipalities. - 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 headquarters; general offices Ohio of U.S. Greeting Card Division, Those (2 locations) Characters From Cleveland, Plus Mark, Inc., AG Industries, Wilhold, Carlton Cards Retail, Inc., CreataCard, and Acme Frame Products, Inc.; creation and design of greeting cards and related products Corbin, 1,010,000 1997 Printing of greeting cards, gift wrapping and Kentucky paper party goods and manufacture of other related products Danville, 1,374,000 2001 Distribution of everyday greeting cards and Kentucky related products Forest City, 498,000 327,600 1995, Manufacture of the Corporation's display North Carolina 1996 fixtures and other custom display and fixtures for AG Industries, Inc. 1999 Greeneville, 1,410,000 Printing and packaging of seasonal Tennessee wrapping items for Plus Mark, Inc. (2 locations)
- 5 - 6
Expiration Approximate Square Date of Feet Occupied Material Principal Location Owned Leased Leases Activity - - -------- ----- ------ ------ -------- Harrisburg, 417,000 2007 Manufacture and distribution facility of metal Arkansas picture frames for Acme Frame Products, Inc. Huntington Valley, 12,000 1997 Manufacture, order filling, and distribution Pennsylvania of eyeglass accessories for Magnivision, Inc. Lafayette, 194,000 Manufacture of envelopes for greeting Tennessee cards and packaging of cards McCrory, 771,000 1996 Order filling and shipping of everyday Arkansas and and seasonal products 2005 Milton, 46,000 1995 Order filling and shipping of hair Pennsylvania accessory products for Wilhold Osceola, 2,598,500 Cutting, folding, finishing and Arkansas packaging of seasonal greeting cards and warehousing; distribution of seasonal products Pembroke Pines, 68,000 1998 Manufacture, order filling and shipping of Florida non-prescription reading glasses for Magnivision, Inc. Philadelphia, 120,000 2017 Processing of seasonal products and hand Mississippi finishing of greeting cards
- 6 - 7
Expiration Approximate Square Date of Feet Occupied Material Principal Location Owned Leased Leases Activity - - -------- ----- ------ ------ -------- Ripley, 165,000 1995 Seasonal card printing Tennessee and and forms 2001 Shelbyville, 250,000 1997 Warehousing for Carlton Cards Retail, Inc. Kentucky Sunbury, 145,000 Manufacture of hair accessory products for Pennsylvania Wilhold Tutwiler, 110,000 Manufacture of wooden picture Mississippi frames for Acme Frame Products, Inc. Corby, 85,000 Distribution of greeting cards and England related products for Carlton Cards Limited (UK) Dewsbury, 361,000 97,500 1995, General offices of England 2002, Carlton Cards Limited (6 locations) 2008 (UK) and manufacture and of greeting cards and 2015 related products Mexico City, 166,000 General offices of Mexico Felicitaciones Nacionales S.A. de C.V. and manufacture of greeting cards and related products Paris, France 70,000 1997 Distribution of greeting cards and related products for Carlton Cards France SNC Toronto, 1,084,500 General offices of Carlton Cards Ltd. Ontario, (Canada); manufacture of greeting cards Canada and related products (2 locations)
- 7 - 8 Item 3. Legal Proceedings As of April 1, 1994, the Corporation is a party to nine legal proceedings relating to state and federal environmental laws. One or more governmental authorities is a party to each proceeding. The proceedings allege, among other things, that hazardous waste material generated by the Corporation was improperly disposed of by others. In eight of these cases the Corporation has entered into consent decrees under which the Corporation has agreed to pay a PRO RATA share of clean-up costs. Costs of remediation in each of the proceedings cannot be estimated at this time; however, in the opinion of management, based on the amounts involved in each proceeding and in the aggregate, such liabilities will not have a material effect on the Corporation's consolidated financial position. Item 4. Submission of Matters to Vote of Security Holders None Executive Officers of the Registrant - - ------------------------------------ The following is a list of the Corporation's executive officers, their ages as of April 1, 1994, their positions and offices, and number of years in executive office:
Years as Name Age Executive Officer Current Position and Office - - ---- --- ----------------- --------------------------- Irving I. Stone 85 44 Founder-Chairman and Chairman of the Executive Committee Morry Weiss 54 22 Chairman and Chief Executive Officer Edward Fruchtenbaum 46 8 President and Chief Operating Officer Henry Lowenthal 62 22 Senior Vice President and Chief Financial Officer James R. Van Arsdale 55 11 Senior Vice President John M. Klipfell 44 11 Senior Vice President Harvey Levin 61 13 Senior Vice President William R. Mason 49 12 Senior Vice President James M. Semon 54 15 Senior Vice President Erwin Weiss 45 4 Senior Vice President Jon Groetzinger, Jr. 45 6 Senior Vice President, General Counsel and Secretary Dale A. Cable 47 2 Treasurer William S. Meyer 47 6 Controller
Mr. Irving I. Stone is the father-in-law of Morry Weiss. The Board of Directors annually elects all executive officers; however executive officers are subject to removal, with or without cause, at any time. - 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, 1994, and 1993:
1994 1993 ------------------------ ------------------------ High Low High low -------- -------- -------- --------- 1st Quarter $29-1/4 $23-7/8 $21-7/8 $18-7/8 2nd Quarter 29-7/8 26-1/2 22-1/2 18-7/8 3rd Quarter 33-1/2 27-7/8 24-5/8 21-3/8 4th Quarter 34-1/4 27-7/8 26-1/8 22-1/2
The Corporation's Class A Common Shares, $1.00 par value per Share, are traded on the NASDAQ National Market under the trading symbol: AGREA. Society National Bank, Cleveland, Ohio, is the Corporation's registrar and transfer agent. There is no public market for the Class B Common Shares of the Corporation. Pursuant to the Corporation's Amended Articles of Incorporation, a holder of Class B Common Shares may not transfer such Class B Common Shares (except to permitted transferees, a group that generally includes members of the holder's extended family, family trusts and charities) unless such holder first offers such shares to the Corporation for purchase at the most recent closing price for the Corporation's Class A Common Shares. If the Corporation does not purchase such Class B Common Shares, the holder must convert such shares, on a share for share basis, into Class A Common Shares prior to any transfer. (b) SHAREHOLDERS - - ---------------- At April 1, 1994, there were approximately 14,700 holders of Class A Common Shares and 295 holders of Class B Common Shares of record and individual participants in security position listings. - 9 - 10 (c) CASH DIVIDENDS * - - ------------------
Dividends Per Share 1994 1993 ------------------- -------- -------- 1st Quarter (paid June 10, 1993 and 1992) $.1075 $.0975 2nd Quarter (paid September 10, 1993 and 1992) $.125 $.1075 3rd Quarter (paid December 10, 1993 and 1992) $.125 $.1075 4th Quarter (paid March 10, 1994 and 1993) $.125 $.1075 ------- ------- $.4825 $.42 ======== ========
Provisions of certain loan agreements contain restrictions on the payment of cash dividends, under the most restrictive of which retained earnings of approximately $99,124,000 are available for the payment of dividends at February 28, 1994. * Per share amounts have been restated to reflect the stock split, which occurred on September 10, 1993. - 10 - 11 Item 6. Selected Financial Data Years ended February 28 or 29 Thousands of dollars except per share amounts *
Summary of Operations 1994 1993 1992 1991 1990 ------------- -------------- ------------- ------------- ------------- Total revenue. . . . . . . . . . . . $1,780,815 $1,688,184 $1,573,061 $1,431,806 $1,308,984 Material, labor and other production costs. . . . . . . . . 672,020 661,183 645,951 597,109 563,326 Interest expense . . . . . . . . . . 16,897 26,924 30,423 31,378 27,691 Income before cumulative effect of accounting changes . . . . . . . . 130,884 112,288 97,462 82,497 72,177 Cumulative effect of accounting changes, net of tax. . . . . . . . 17,182 - - - - Net income . . . . . . . . . . . . . 113,702 112,288 97,462 82,497 72,177 Income per share: Before cumulative effect of accounting changes . . . . . . . 1.77 1.55 1.40 1.30 1.13 Cumulative effect of accounting changes, net of tax. . . . . . . .23 - - - - Net income . . . . . . . . . . . . 1.54 1.55 1.40 1.30 1.13 Cash dividends per share . . . . . . .48 .42 .38 .35 .33 Fiscal year end market price per share 27.88 24.00 21.25 18.88 15.63 Average number of shares outstanding 73,809,132 72,440,114 69,514,436 63,291,126 64,059,066 Financial Position Accounts receivable . . . . . . . . $ 322,675 $ 276,932 $ 264,125 $ 272,179 $233,103 Inventories. . . . . . . . . . . . . 243,357 228,123 275,955 277,630 242,314 Working capital. . . . . . . . . . . 474,280 581,651 628,997 484,169 480,189 Total assets . . . . . . . . . . . . 1,565,234 1,548,400 1,437,760 1,234,461 1,119,834 Capital additions . . . . . . . . . 102,859 77,099 67,328 45,303 42,869 Long-term debt . . . . . . . . . . . 54,207 169,381 255,711 246,181 235,497 Shareholders' equity . . . . . . . . 1,053,442 952,535 865,046 656,606 604,604 Shareholders' equity per share . . . 14.21 13.07 12.05 10.39 9.44 Net return on average shareholders' equity before cumulative effect of accounting changes . . . . . . . . 13.0% 12.4% 12.8% 13.1% 12.3% Return on total revenue before income taxes and cumulative effect of accounting changes . . . . . . . . 11.8% 10.7% 9.7% 9.1% 8.9% * Share and per share amounts have been restated to reflect the 1994 stock split.
- 11 - 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - - --------------------- During 1994, the Corporation's revenue growth continued as net sales reached $1.77 billion, a 5.9% increase over 1993. This increase reflects ongoing strong sales of everyday and seasonal cards through both traditional channels of distribution and the new personalized greeting card machines. Unit sales of greeting cards increased 1% and net sales of greeting cards in dollars increased 6.9%. These improvements were offset somewhat by the weakening of foreign currencies against the U.S. dollar which had an unfavorable revenue impact of 1.4 percentage points. In 1993, net sales increased 7.6% over 1992 with greeting card unit sales up 1% and greeting card sales in dollars up 9.7%. The percent of net sales contributed by each major product classification is as follows:
1994 1993 1992 ---- ---- ---- Everyday Greeting Cards . . . . . . . . . . . . . . . . . . . . 41% 41% 40% Seasonal Greeting Cards . . . . . . . . . . . . . . . . . . . . 24% 24% 23% Gift Wrapping and Party Goods . . . . . . . . . . . . . . . . . 18% 18% 19% Consumer Products . . . . . . . . . . . . . . . . . . . . . . . 13% 10% 11% Stationery and Miscellaneous . . . . . . . . . . . . . . . . . 4% 7% 7%
The Consumer Product classification includes, among other items, giftware, frames, non-prescription reading glasses, hair care accessories and candles. Other income, which reflected lower royalty income, decreased to $10.9 million from $16.5 million in 1993 and $19.1 million in 1992. During 1994, the demand for character licensing continued the downward trend experienced in recent years. The income from character licensing did not significantly contribute to 1994 results and further declines in this income will have minimal impact on revenue. Material, labor and other production costs continued to decrease as a percent of net sales and were 38% for 1994, down from 39.6% and 41.6% in 1993 and 1992, respectively. Contributing to the margin improvements were price increases and reductions in card material costs in the United States which decreased 1.1% during 1994 and 1.8% during 1993. Both years include improvements related to just-in-time manufacturing processes. In 1993, costs in this category also included a reduction of $4.8 million as a result of LIFO inventory reductions. As a percent of net sales, selling, distribution and marketing expenses increased slightly to 37.1% in 1994 from 36.9% in 1993. In 1992 these expenses were 35.8% of net sales. The increase in both years resulted primarily from amortization of the deferred costs related to agreements with retail customers as described in Note C to - 12 - 13 the Consolidated Financial Statements contained in Item 8 hereof. The higher amortization expense reflects the Corporation's increased use of these agreements to develop and maintain business with retail customers. The increased use of these agreements has not had a material impact on operations and the impact of unamortized deferred costs relating to existing agreements should remain immaterial to operations. Advertising costs, which are included in selling, distribution and marketing expenses, were $48.2 million in 1994, and were primarily for the Corporation's cooperative advertising program with retailers and an initial national advertising test for CreataCard. These expenses, which were $48.1 million in 1993 and $45.4 million in 1992, will increase to support CreataCard. Administrative and general expenses were 12.8% of net sales in 1994 compared to 12.1% in 1993 and 12% in 1992. This increase reflected the growth of certain new operating units, including Magnivision and CreataCard, which had higher administrative and general expenses than the traditional business. The impact of these units on this expense category should diminish as these businesses expand. Excluding the impact of these units, administrative and general expenses were 12.5% of net sales for 1994. Administrative and general expenses also included increases in the contribution to the profit sharing retirement plan of $4.3 million in each of the past two years which resulted from higher pre-tax income in the United States. Additionally, the net pre-tax cost of corporate owned life insurance increased $2.5 million in 1994 after increasing $3.5 million in the prior year. As discussed below, the pre-tax cost of these life insurance programs are more than offset by the reduction in the Corporation's effective tax rate. Bad debt expense increased to $10.8 million in 1994 from $9.8 million in 1993 and $8.7 million in 1992. These increases reflect normal additions to the allowance for doubtful accounts which the Corporation believes represents an adequate provision for possible losses from bad debts. Interest expense for 1994 was $16.9 million, down significantly from $26.9 million in 1993 and $30.4 million in 1992. The decrease in 1994 was due to the repayment of the 8.375% notes on March 1, 1993 with funds on hand. The decrease in 1993 from 1992 resulted from lower interest rates in the United States and the amortization of an option premium on an interest rate swap. The premium amortization reduced interest expense by $1.1 million in 1994 and $2.1 million in 1993. See Note D to the Consolidated Financial Statements for further discussion of the interest rate swap. The 1994 effective tax rate decreased to 37.5% from 38% in 1993 after increasing from 36.3% in 1992. The increase in the United States statutory rate for 1994 was more than offset by additional tax benefits from the corporate owned life insurance programs. In addition, foreign losses with no tax benefit, which caused the increase in the 1993 effective rate, decreased in 1994. See Note G to the Consolidated Financial Statements contained in Item 8 hereof for further discussion of the effective tax rate. During 1994, the Corporation declared a two-for-one common stock split effected in the form of a 100% share dividend which was distributed on September 10, 1993 to stockholders of record on August 27, 1993. In the following discussion, per share amounts have been restated to reflect this split. - 13 - 14 The Corporation adopted two new accounting standards during 1994 and reflected the impact of these changes as a one-time cumulative effect of accounting changes. These new standards were Statement of Financial Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions" and Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The Corporation elected to immediately recognize the full SFAS 106 transition obligation, the effect of which was to reduce net income by $22.5 million or $.31 per share. The adoption of SFAS 109 resulted in a one-time benefit of $5.3 million or $.08 per share. Neither of the accounting changes had a material effect on operations nor any impact on cash flow for 1994 and these changes are not expected to materially impact 1995 results. See Note E to the Consolidated Financial Statements - Postretirement Benefits Other Than Pensions and Note G to the Consolidated Financial Statements - Income Taxes, contained in Item 8 hereof for further discussion. Income before the cumulative effect of these accounting changes was $130.9 million or $1.77 per share, up 16.6% from $112.3 million or $1.55 per share in 1993. In 1992, net income was $97.5 million or $1.40 per share. The net impact of the accounting changes was to reduce net income by $17.2 million or $.23 per share. FOREIGN OPERATIONS - - ------------------ Total foreign revenue of $260 million, which reflected the weakening of foreign currencies against the U.S. dollar, was down from $273.1 million in 1993 and $263.2 million in 1992. The increase in 1993 was due to the acquisition of specialty stores in the United Kingdom and Canada. Operating profit, which was also negatively impacted by the exchange rates, was $5.4 million compared to $8.1 million and $10.6 million in 1993 and 1992, respectively. Canadian revenue for 1994 was 5.1% below 1993 revenue as increased sales of everyday and seasonal cards were offset by the exchange rate impact and a weakness in the retail market for non-card products. Revenue increased 1% during 1993 as strong sales of everyday cards and seasonal cards and accessories were offset by a decrease in the exchange rate. Operating profit in Canada was $18.9 million, a 13.5% decrease from 1993. This decrease reflects the impact of the exchange rate and lower sales in the retail market for non-card products. For 1993, operating profit decreased 6.3% due to the exchange rate and higher retail expenses from store acquisitions. LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------- In 1994, operating activities provided $75.6 million in cash which was used to expand both the conventional business and CreataCard. Cash provided by operations was $169.3 million in 1993 and $69.4 million in 1992. Significant reductions in inventory levels contributed to the 1993 improvement while in 1994 inventories increased due to the production of a new card line in the United Kingdom, advance purchases of favorably priced raw materials in the United States and the acquisition of Magnivision, among other lesser factors. Inventories as a percent of material, labor and other production costs were 36.2%, up from the 34.5% achieved in 1993 but lower than the 42.7% reported for 1992. - 14 - 15 Trade accounts receivable were 18.2% of net sales for 1994 compared to 16.6% at the end of 1993 and 17% for 1992. The increase in 1994 primarily reflected the continued use of extended payment terms. Cash generated from operations was also impacted by the increase in deferred costs related to agreements with customers. These deferred costs are described above and in Note C to the Consolidated Financial Statements contained in Item 8 hereof. Investing activities for 1994 included $102.9 million of capital expenditures which increased $25.8 million over 1993 expenditures. This increase was due to the mass introduction of CreataCard machines which was accelerated from the original schedule in order to establish market position. The increase from 1992 to 1993 was also due primarily to the start up of this business. The Corporation anticipates capital expenditures of approximately $90 million in 1995, primarily for improvements to existing facilities and updates to technological processes. During 1994, additional policy loans under the corporate-owned life insurance program, net of the increase in cash surrender value, provided $18.9 million of cash from investing activities. As described in Note A to the Consolidated Financial Statements contained in Item 8 hereof, the Corporation's cash surrender value of these policies is recorded net of policy loans in other assets and is not significant to the Corporation's financial position. In 1993, the net insurance investment did not increase as policy loans offset increases in cash surrender value and, in 1992, investing activities reflected increases in insurance investments of $19.9 million. Financing activities for 1994 included both a reduction of long-term debt and a shift from long-term debt to short-term borrowings. On March 1, 1993, the Corporation's $100 million 8.375% notes were paid with current funds on hand. On July 15, 1993, the $100 million 8.125% notes were called and replaced with short-term borrowings. An interest rate swap option was also exercised on July 15, 1993. Under the terms of the swap, the Corporation pays 8.125% fixed and receives the US Dealer Commercial Paper Composite Rate floating until July 15, 1996. See Note D to the Consolidated Financial Statements contained in Item 8 hereof for further discussion of the interest rate swap. As of the end of 1994, the ratio of total debt to total capitalization (equity plus short and long-term debt) decreased to 15.0% from 22.9% in 1993 and 25.7% in 1992. The improvement in this ratio resulted from both the reduction of long-term debt and the increase in shareholders' equity to $1.1 billion from $952 million in 1993 and $865 million in 1992. During 1994, the Corporation paid cash dividends of $35.6 million, up from $30.5 million and $26.5 million in 1993 and 1992, respectively. Working capital of $474 million at the end of 1994 and $582 million in 1993 reflected the movement of the long-term notes to current liabilities. In 1992, working capital was $629 million. The seasonal nature of the business results in peak working capital requirements which are financed primarily through short-term borrowings. As described in Note D to the Consolidated Financial Statements contained in Item 8 hereof, the Corporation has credit facilities in place to meet both seasonal working capital requirements and the shift from long-term to short-term debt. Funds generated by operations, along with funds available under these facilities for seasonal - 15 - 16 borrowings, are expected to meet the Corporation's currently anticipated funding requirements. Prospective Information - - ----------------------- Management is not aware of any current trends, events, demands, commitments or uncertainties which reasonably can be expected to have a material effect on the liquidity, capital resources, financial position or results of operations of the Corporation. - 16 - 17 Item 8. Financial Statements and Supplementary Data CONSOLIDATED STATEMENT OF INCOME Years ended February 28 or 29, 1994, 1993 and 1992 Thousands of dollars except per share amounts
1994 1993 1992 ---------- ---------- ---------- Net sales $1,769,964 $1,671,692 $1,553,961 Other income 10,851 16,492 19,100 ---------- ---------- ---------- TOTAL REVENUE 1,780,815 1,688,184 1,573,061 Costs and expenses: Material, labor and other production costs 672,020 661,183 645,951 Selling, distribution and marketing 655,823 616,538 556,828 Administrative and general 226,661 202,429 186,858 Interest 16,897 26,924 30,423 ---------- ---------- ---------- 1,571,401 1,507,074 1,420,060 ---------- ---------- ---------- Income before income taxes and cumulative effect of accounting changes 209,414 181,110 153,001 Income taxes 78,530 68,822 55,539 ---------- ---------- ---------- Income before cumulative effect of accounting changes 130,884 112,288 97,462 Cumulative effect of accounting changes, net of tax 17,182 - - ---------- ---------- ---------- NET INCOME $ 113,702 $ 112,288 $ 97,462 ========== ========== ========== Income per share: Before cumulative effect of accounting changes $1.77 $1.55 $1.40 Cumulative effect of accounting changes, net of tax .23 - - ----- ----- ----- NET INCOME PER SHARE $1.54 $1.55 $1.40 ===== ===== ===== Average number of shares outstanding 73,809,132 72,440,114 69,514,436 See notes to consolidated financial statements. Share and per share amounts have been restated to reflect the September, 1993 stock split.
- 17 - 18 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
February 28, 1994 and 1993 Thousands of dollars ASSETS 1994 1993 ---------- ---------- CURRENT ASSETS Cash and equivalents $ 101,066 $ 235,186 Trade accounts receivable, less allowances for sales returns of $97,903 ($72,054 in 1993) and for doubtful accounts of $13,084 ($13,816 in 1993) 322,675 276,932 Inventories: Raw material 48,845 44,469 Work in process 38,956 30,171 Finished products 202,620 204,010 ---------- ---------- 290,421 278,650 Less LIFO reserve 84,970 84,887 ---------- ---------- 205,451 193,763 Display material and factory supplies 37,906 34,360 ---------- ---------- Total inventories 243,357 228,123 Deferred and refundable income taxes 62,075 66,339 Prepaid expenses and other 121,022 105,277 ---------- ---------- Total current assets 850,195 911,857 OTHER ASSETS 286,117 248,991 PROPERTY, PLANT AND EQUIPMENT Land 5,975 6,182 Buildings 265,220 258,511 Equipment and fixtures 522,770 443,548 ---------- ---------- 793,965 708,241 Less accumulated depreciation 365,043 320,689 ---------- ---------- Property, plant and equipment - net 428,922 387,552 ---------- ---------- $1,565,234 $1,548,400 ========== ========== See notes to consolidated financial statements.
- 18 - 19 CONSOLIDATED STATEMENT OF FINANCIAL POSITION - CONTINUED February 28, 1994 and 1993 Thousands of dollars
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993 ---------- ---------- CURRENT LIABILITIES Debt due within one year $ 132,036 $ 113,986 Accounts payable 127,792 113,684 Payrolls and payroll taxes 53,164 54,099 Retirement plans 20,766 17,409 Dividends payable 9,300 7,837 Income taxes 32,857 23,191 ---------- ---------- Total current liabilities 375,915 330,206 LONG-TERM DEBT 54,207 169,381 POSTRETIREMENT BENEFIT OBLIGATION 19,427 - DEFERRED INCOME TAXES 62,243 96,278 SHAREHOLDERS' EQUITY Common shares - par value $1: Class A - 69,590,011 shares issued less 43,886 Treasury shares in 1994 and 68,714,572 shares issued less 66,472 Treasury shares in 1993 69,546 34,324 Class B - 6,066,096 shares issued less 1,493,152 Treasury shares in 1994 and 6,064,522 shares issued less 1,810,742 Treasury shares in 1993 4,573 2,127 Capital in excess of par value 249,192 259,093 Treasury stock (28,240) (28,152) Cumulative translation adjustment (16,421) (11,580) Retained earnings 774,792 696,723 ---------- ---------- Total shareholders' equity 1,053,442 952,535 ---------- ---------- $1,565,234 $1,548,400 ========== ========== See notes to consolidated financial statements.
- 19 - 20 CONSOLIDATED STATEMENT OF CASH FLOWS Years ended February 28 or 29, 1994, 1993 and 1992
Thousands of dollars 1994 1993 1992 -------- -------- -------- OPERATING ACTIVITIES: Net income $113,702 $112,288 $ 97,462 Adjustments to reconcile to net cash provided (used) by operating activities: Postretirement benefit obligation 22,530 - - Depreciation 59,575 48,450 45,517 Deferred and refundable income taxes (15,809) (9,286) (4,197) Changes in operating assets and liabilities: (Increase) decrease in trade accounts receivable (37,940) (17,498) 4,722 (Increase) decrease in inventories (13,196) 39,279 (3,281) Increase in other current assets (31,256) (35,263) (26,100) Increase in deferred cost - net (52,887) (16,942) (46,520) Increase (decrease) in accounts payable and other liabilities 23,008 43,401 (9,170) Other - net 7,886 4,851 10,949 -------- -------- -------- Cash Provided by Operating Activities 75,613 169,280 69,382 INVESTING ACTIVITIES: Property, plant & equipment additions (102,859) (77,099) (67,328) Proceeds from sale of fixed assets 1,009 592 2,669 Investment in corporate owned life insurance 18,930 471 (19,921) Other 1,344 (10,473) (500) --------- -------- -------- Cash Used by Investing Activities (81,576) (86,509) (85,080) FINANCING ACTIVITIES: Increase in long-term debt 19,519 19,103 21,155 Reduction of long-term debt (216,892) (3,911) (14,126) Increase (decrease) in short-term debt 89,456 (16,717) 3,008 Proceeds from common stock offering - - 135,428 Sale of stock under benefit plans 21,792 15,100 8,190 Purchase of treasury shares (6,399) (8,028) (1,866) Dividends to shareholders (35,633) (30,494) (26,475) -------- -------- -------- Cash (Used) Provided by Financing Activities (128,157) (24,947) 125,314 -------- -------- -------- (DECREASE) INCREASE IN CASH AND EQUIVALENTS (134,120) 57,824 109,616 Cash and Equivalents at Beginning of Year 235,186 177,362 67,746 -------- -------- -------- Cash and Equivalents at End of Year $101,066 $235,186 $177,362 ======== ======== ======== See notes to consolidated financial statements.
- 20 - 21 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Years ended February 28 or 29, 1994, 1993 and 1992 Thousands of dollars except per share amounts
Common Shares Capital in Cumulative ----------------------- Excess of Treasury Translation Retained Class A Class B Par Value Stock Adjustment Earnings Total ---------- ----------- ---------- ---------- ----------- ----------- ------------ BALANCE FEBRUARY 28, 1991 $ 29,554 $ 2,055 $115,028 $(41,584) $ 3,748 $547,805 $ 656,606 Net income 97,462 97,462 Cash dividends-$.38 per share (26,475) (26,475) Exchange of shares 20 (20) Sale of shares under benefit plans, including tax benefits 353 5 6,439 3,112 (1,719) 8,190 Purchase of treasury shares (25) (25) (1,816) (1,866) Translation adjustment (4,299) (4,299) Retirement of treasury shares (11,764) 11,764 Issuance of stock in public offering 3,967 131,461 135,428 -------- -------- ------- -------- -------- -------- ---------- BALANCE FEBRUARY 29, 1992 33,869 2,015 241,164 (28,524) (551) 617,073 865,046 Net income 112,288 112,288 Cash dividends-$.42 per share (30,494) (30,494) Exchange of shares (23) 23 Sale of shares under benefit plans, including tax benefits 258 177 8,497 5,274 (2,921) 11,285 Purchase of treasury shares (1) (177) (7,850) (8,028) Sale of treasury shares 89 2,948 777 3,814 Translation adjustment (11,029) (11,029) Issuance of stock in acquisition 221 9,432 9,653 -------- -------- -------- -------- --------- -------- ---------- BALANCE FEBRUARY 28, 1993 34,324 2,127 259,093 (28,152) (11,580) 696,723 952,535 Net income 113,702 113,702 Cash dividends-$.48 per share (35,633) (35,633) Exchange of shares 16 (16) Sale of shares under benefit plans, including tax benefits 251 24 7,279 430 7,984 Purchase of treasury shares (2) (210) (6,857) (7,069) Sale of treasury shares 418 8,551 5,509 14,478 Translation adjustment (4,841) (4,841) Issuance of stock in acquisition 252 12,034 12,286 Issuance of 34,704,750 class A shares and 2,229,618 class B shares to effect two-for-one stock split 34,705 2,230 (37,765) 830 -------- -------- -------- -------- --------- -------- ---------- BALANCE FEBRUARY 28, 1994 $ 69,546 $ 4,573 $249,192 $(28,240) $ (16,421) $774,792 $1,053,442 ======== ======== ======== ======== ========= ======== ========== See notes to consolidated financial statements.
- 21 - 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended February 28 or 29, 1994, 1993 and 1992 Thousands of dollars except per share amounts NOTE A - ACCOUNTING POLICIES Stock Split and Earnings Per Share: Income per share information is based on the average number of shares outstanding during each year. On June 25, 1993, the Corporation declared a two-for-one stock split of the Corporation's common stock, effected in the form of a 100% share dividend. Such distribution was made on September 10, 1993 to shareholders of record at the close of business on August 27, 1993. All share and per share amounts have been restated to retroactively reflect the stock split. For the years presented, stock options do not have a material dilutive effect. Consolidation: The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All intercompany transactions are eliminated. Cash Equivalents: The Corporation considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. Financial Instruments: The carrying value of the Corporation's financial instruments approximate their fair market values, except where otherwise stated. Concentration of Credit Risks: The Corporation sells primarily to customers in the retail trade, including those in the mass merchandiser, drug store, supermarket and other channels of distribution. These customers are located throughout the United States, Canada, the United Kingdom, France and Mexico. The Corporation conducts business based on periodic evaluations of its customers' financial condition and generally does not require collateral. While the competitiveness of the retail industry presents an inherent uncertainty, the Corporation does not believe a significant risk of loss from a concentration of credit is likely. Inventories: Finished products, work in process and raw material inventories are carried at cost, principally last-in, first-out (LIFO), not in excess of market. Display material and factory supplies are carried at average cost. In 1993, certain inventory quantities were reduced, resulting in liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years. The effect was to increase net income by $2,716 in that year. Investment in Purchased Tax Benefits: The cost of purchased tax credits and deductions is accounted for as an investment. Realized tax benefits are applied first to reduce the investment to equal the remaining unamortized interest cost related to the transaction, and then to the establishment of deferred tax liabilities. Interest expense is amortized over the life of the investment. Investment in Life Insurance: The Corporation's investment in corporate-owned life insurance policies is recorded net of policy loans in other assets. The net life insurance expense, including interest expense, is included in administrative and general expenses in the Consolidated Statement of Income. The related interest expense is $43,543, $31,851, and $19,248 in 1994, 1993 and 1992, respectively. - 22 - 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - ACCOUNTING POLICIES (CONT'D) Property and Depreciation: Property, plant and equipment is carried at cost. Depreciation and amortization of buildings, equipment and fixtures is computed principally by the straight-line method over the useful lives of the various assets or, in the case of certain property under capital lease, over the lesser of the useful life or the lease term. Revenue Recognition: Sales and related costs are recorded by the Corporation upon shipment of products to non-related retailers and upon the sale of products at Corporation-owned retail locations. Seasonal cards are sold with the right of return on unsold merchandise. The Corporation provides for estimated returns of seasonal cards when those products are shipped to retailers. Income Taxes: Deferred income taxes are provided for temporary differences between the amounts of assets and liabilities for financial reporting purposes and amounts measured by tax laws. NOTE B - PREPAID EXPENSES AND OTHER The prepaid expenses and other classification consists of deferred costs relating to agreements with certain customers, cash and short-term investments held in trust for the payment of medical benefits, rent and insurance. The largest component of prepaid expenses and other is deferred costs estimated to be charged to operations during the next year and are $98,004 and $69,535 at February 28, 1994 and 1993, respectively. Cash and short-term investments held in trusts restricted for the payment of benefits provided under the Corporation's health care plan are $8,456 and $23,163 at February 28, 1994 and 1993, respectively. At February 28, 1994, the assets held in trust for benefits to retired employees was recorded as a reduction of the Corporation's postretirement benefit obligation. NOTE C - OTHER ASSETS The other asset classification consists of various long-term assets such as deferred costs relating to agreements with certain customers, corporate-owned life insurance, goodwill and equity investments. The largest component of other assets is deferred costs, which are $174,524 and $121,762 at February 28, 1994 and 1993, respectively. Deferred costs are charged to operations on a straight-line basis, generally three to six years. Deferred costs estimated to be charged to operations during the next year are classified as a prepaid expense. - 23 - 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - LONG AND SHORT-TERM DEBT The Corporation has a $250,000 domestic revolving credit agreement which supports its commercial paper borrowing arrangement. The agreement extends through July 1998 and is renewable thereafter on an annual basis. A commitment fee of 1/8 of 1% is due on the unused portion. The Corporation also has a $100,000 domestic uncommitted line of credit available for short-term financing. In addition, the Corporation's subsidiaries in Canada, the United Kingdom and France have credit agreements permitting borrowing of up to $154,152 of which $79,225 is convertible to term loans. At February 28, 1994, $82,179 was outstanding under these foreign revolving credit facilities, which expire at various dates, the earliest of which is June 1994. All of the Corporation's revolving credit agreements provide for various borrowing alternatives in their respective currencies with interest rates approximating local prime lending rates. In addition, foreign subsidiary overdraft facilities total $7,219 at year end. Debt due within one year consists of current maturities of long-term debt, notes payable of $45,970 in 1994 ($12,825 in 1993) and commercial paper of $66,946 in 1994. At February 28, 1994 and 1993, long-term debt consists of the following:
1994 1993 --------- --------- 8.125% notes, due July 15, 1996 $ - $ 100,000 8.375% notes, due March 1, 1993 - 100,000 Revolving credit agreements 71,196 47,422 Other 2,131 23,120 --------- --------- 73,327 270,542 Less current maturities 19,120 101,161 --------- --------- $ 54,207 $ 169,381 ========= =========
Aggregate maturities of long-term debt are as follow: 1995 $19,120 1996 823 1997 27,490 1998 - 1999 - Thereafter 25,894 -------- $73,327 ======== Provisions of certain loan agreements contain restrictions on the payment of cash dividends, under the most restrictive of which retained earnings of approximately $99,124 are available for the payment of dividends at February 28, 1994. At February 28, 1994, the Corporation had credit arrangements to support the issuance of letters of credit in the amount of $40,090 with $25,134 of open credits outstanding. Interest paid on short-term and long-term debt was $17,495 in 1994, $27,386 in 1993 and $29,478 in 1992. - 24 - 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - LONG AND SHORT-TERM DEBT (CONT'D) During 1993 the Corporation sold an option to enter into an interest rate swap agreement to hedge a notional amount of $100,000. The cash consideration received from the sale of the option is recorded as a reduction of interest expense over the period of the option. On July 15, 1993, the $100,000 8.125% notes were called and replaced with short-term borrowings. Also on that date, the interest rate swap was exercised. Under the terms of the swap, the Corporation pays 8.125% fixed and receives the US Dealer Commercial Paper Composite Rate floating until July 15, 1996, the maturity date of the swap agreement. At February 28, 1994, the cost to the Corporation upon cancellation of the swap would be $7,688. However, the Corporation intends to hold the swap agreement until maturity. NOTE E - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to full-time employees who are age 65 or over at retirement with 15 or more years of service and who were hired on or before December 31, 1991. In addition, for retirements on or after January 2, 1992 the retiree must have been continuously enrolled for health care for a minimum of five years or since January 2, 1992. The plan is contributory, with retiree contributions adjusted periodically, and contains other cost-sharing features such as deductibles and coinsurance. The Corporation maintains a trust for the payment of retiree health care benefits. This trust is funded at the discretion of management. On March 1, 1993 the Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The statement requires the Corporation to recognize the cost of providing certain retiree benefits on an accrual basis. The Corporation elected to immediately recognize the cumulative effect of this accounting change at March 1, 1993 and reduced income by $36,048 ($22,530 net of tax). Postretirement benefit costs for 1993 and 1992, which were recorded on a cash basis, have not been restated. Income before the cumulative effect of the accounting change was not materially impacted for 1994. The following table presents the plan's funded status at February 28, 1994 as recognized in the Corporation's Consolidated Statement of Financial Position:
1994 -------- Accumulated postretirement benefit obligation: Retirees $ 16,005 Fully eligible active plan participants 4,994 Other active plan participants 18,304 -------- Accumulated postretirement benefit obligation 39,303 Plan assets, primarily listed stocks and bonds (18,475) -------- Accumulated postretirement benefit obligation in excess of plan assets 20,828 Unrecognized net loss (1,401) -------- Postretirement benefit obligation $ 19,427 ========
- 25 - 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE E - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONT'D) Net periodic postretirement cost includes the following components:
1994 --------- Service cost 1,381 Interest cost 3,118 Actual return on plan assets (897) -------- $ 3,602 ========
Assumptions used in the computations: Assumed discount rate 7.5% Expected long-term rate of return on plan assets 7%
A 9% annual rate of increase in per capita cost of covered benefits is assumed through 1996. This rate decreases to 7.5% in 1997 and to 6% in 2002 and remains at that level thereafter. This health care trend rate has a significant impact on the amount reported. For example, a 1% increase in the trend rate in each year would increase the accumulated postretirement benefit obligation at February 28, 1994 by $2,871 and increase aggregate service and interest cost for the year by $916. NOTE F - LONG TERM LEASES The Corporation is committed under noncancelable operating leases for commercial properties (many of which have been subleased) and equipment, terms of which are generally less than 25 years. Rental expense under operating leases for the years ended February 28 or 29, 1994, 1993 and 1992 follows:
1994 1993 1992 -------- -------- -------- Gross rentals. . . . . . . . . . $63,377 $ 65,707 $ 58,990 Less sublease rentals. . . . . . 7,733 6,196 6,726 ------- -------- -------- Net rental expense . . . . . . . $55,644 $ 59,511 $ 52,264 ======= ======== ========
At February 28, 1994, future minimum rental payments for noncancelable operating leases, net of minimum noncancelable sublease rentals to be received, follow:
Gross Sublease Net Rentals Rentals Rentals -------- -------- -------- 1995 . . . . . . . . . . . . . . $ 51,885 $ 8,515 $ 43,370 1996 . . . . . . . . . . . . . . 46,459 7,965 38,494 1997 . . . . . . . . . . . . . . 40,281 7,551 32,730 1998 . . . . . . . . . . . . . . 35,042 7,127 27,915 1999 . . . . . . . . . . . . . . 32,252 6,985 25,267 Later years. . . . . . . . . . . 177,884 40,680 137,204 -------- -------- -------- $383,803 $ 78,823 $304,980 ======== ======== ========
The Corporation also holds a portion of its operating facilities under industrial revenue bond related capital leases. The capitalized leased net assets and related obligations are not material to the Consolidated Statements of Financial Position at February 28, 1994 and 1993. - 26 - 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - INCOME TAXES Effective March 1, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This statement required the Corporation to change its method of accounting for income taxes from the deferred method to the liability method. Under this method, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The cumulative effect of adopting the statement as of March 1, 1993 was to increase net income by $5,348. Income taxes have been provided as follows:
Liability Method Deferred Method 1994 1993 1992 ---------- -------- -------- Current: Federal $ 78,274 $ 63,721 $ 43,879 Foreign 1,936 3,677 (191) State and local 10,376 12,062 10,753 --------- -------- -------- 90,586 79,460 54,441 Deferred (principally federal) (12,056) (10,638) 1,098 --------- -------- -------- $ 78,530 $ 68,822 $ 55,539 ========= ======== ========
Significant components of the Corporation's deferred tax liabilities and assets at February 28, 1994 are as follow: Deferred tax liabilities: Depreciation $60,872 Other 26,013 ------- Total deferred tax liabilities $86,885 ======= Deferred tax assets: Sales returns $30,228 Tax loss carryforwards 14,321 Other 56,487 ------- 101,036 Valuation allowance (14,321) ------- Total deferred tax assets $86,715 ======= The valuation allowance represents foreign loss carryforwards which may not be realized.
- 27 - 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - INCOME TAXES (CONT'D) Prepaid and deferred income taxes which relate to timing differences in the recognition of revenues and expenses for tax and financial reporting purposes are as follow:
1993 1992 ---------- ---------- Inventory costing $ 1,046 $ 774 Non-deductible reserves (4,444) (1,761) Other (7,240) 2,085 -------- -------- $(10,638) $ 1,098 ======== ========
Income (loss) before income taxes and cumulative effect of accounting changes consists of the following:
1994 1993 1992 -------- -------- -------- United States $222,957 $192,990 $163,178 Foreign (13,543) (11,880) (10,177) -------- -------- -------- $209,414 $181,110 $153,001 ======== ======== ========
The statutory federal income tax rate and the effective income tax rate are reconciled as follows:
1994 1993 1992 -------- -------- -------- Statutory rate 35.0% 34.0% 34.0% State and local income taxes, net of federal tax benefit 3.4 4.4 4.6 Subsidiaries' losses without tax benefit 3.1 4.1 2.1 Corporate-owned life insurance investments (5.4) (4.3) (3.1) Other 1.4 (.2) (1.3) --------- ----------- ----------- Effective tax rate 37.5% 38.0% 36.3% ====== ======= =======
Income taxes paid were $83,290 in 1994, $67,108 in 1993, and $64,050 in 1992. No deferred taxes have been provided on approximately $54,000 of undistributed earnings of foreign subsidiaries since substantially all of these earnings are necessary to meet their business requirements. It is not practicable to - 28 - 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - INCOME TAXES (CONT'D) calculate the deferred taxes associated with these earnings, however, foreign tax credits would be available to reduce federal income taxes in the event of distribution. At February 28, 1994 the Corporation had approximately $41,000 of foreign operating loss carryforwards with no expiration date. NOTE H - COMMON SHARES AND STOCK OPTIONS At February 28, 1993, common shares authorized consisted of 46,900,000 Class A and 3,958,242 Class B shares. On June 25, 1993, the shareholders approved increases in the authorized number of Class A and Class B shares to 93,800,000 and 7,916,484, respectively. On that date, the Board of Directors of the Corporation declared a two-for-one stock split of the Corporation's Class A and Class B common stock, to be effected in the form of a 100% share dividend. Such distribution was made on September 10, 1993, to shareholders of record at the close of business August 27, 1993. Class A shares have one vote per share and Class B shares have ten votes per share. If holders of Class B shares wish to sell their shares, they must first offer to sell the shares to the Corporation at the closing price of the Class A shares on the day preceding the making of such offer. If the Corporation elects not to purchase the shares offered, the Class B shareholder may convert the Class B shares into Class A shares, on a share-for-share basis. During 1994, the Corporation purchased 165,762 Class B shares (340,000 shares in 1993) from a Director of the Corporation at the then-current market price of the shares. Under the Corporation's Stock Option Plans, options to purchase Class A and Class B shares are granted to officers and other key employees at the then-current market price. In general, subject to continuing employment, options become exercisable commencing one year after date of grant in four equal annual installments and expire over a period of not more than ten years from the date of grant. The options for certain Class B shares become exercisable commencing one year after date of grant in ten equal annual installments. - 29 - 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - COMMON SHARES AND STOCK OPTIONS (CONT'D) Stock option transactions and prices are summarized as follow:
Number of Options Options Price Range Per Share --------------------------------- ----------------------------------- Class A Class B Class A Class B ------- -------- ------- ------- Options outstanding February 28, 1991 1,741,208 872,500 $ 3.50 - $18.44 $ 7.16 Granted 165,600 - 16.13 - 20.25 - Exercised (705,460) (6,750) 3.50 - 18.44 7.16 Cancelled (38,236) - --------- --------- Options outstanding February 29, 1992 1,163,112 865,750 5.85 - 20.25 7.16 Granted 1,743,600 296,000 19.25 - 24.25 19.25 - 19.82 Exercised (516,740) (353,500) 5.85 - 20.25 7.16 Cancelled (85,900) - --------- --------- Options outstanding February 28, 1993 2,304,072 808,250 6.75 - 24.25 7.16 - 19.81 Granted 219,475 1,590 24.94 - 31.25 26.75 Exercised (373,207) (34,750) 6.75 - 27.31 7.16 - 19.81 Cancelled (106,800) - --------- --------- Options outstanding February 28, 1994 2,043,540 775,090 6.75 - 31.25 19.25 - 26.75 ========= ========= Options exercisable at February 28: 1994 949,654 285,590 1993 757,858 159,750
- 30 - 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - RETIREMENT PLANS The Corporation has a non-contributory profit-sharing plan with a 401(k) provision covering most of its United States employees. Contributions to the profit-sharing plan were $20,445, $16,966 and $14,444 for 1994, 1993 and 1992, respectively. In 1993, the Corporation began matching a portion of 401(k) employee contributions contingent upon meeting specified annual operating results goals. The Corporation's matching contributions were $2,577 for 1994 and $1,750 for 1993. The Corporation also has several defined benefit and defined contribution pension plans covering certain employees in foreign countries. The cost of these plans was not material in any of the years presented. In the aggregate, the actuarially computed plan benefit obligation was fully funded. - 31 - 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - BUSINESS SEGMENT INFORMATION The Corporation operates predominantly in a single industry: the design, manufacture and sale of greeting cards and other social expression products. While the Corporation offers a wide range of items for sale, many of them are manufactured at common production facilities and marketed by a common sales force. In addition to its domestic operations, the Corporation has subsidiaries in Canada, Europe, and Mexico. Substantially all revenue transfers between geographic areas originate in the United States. These revenue transfers and other intergeographic eliminations are not material. The Corporation does not derive more than 10% of its total revenue from any individual customer, government agency or export sales. Operating profit (loss) by geographic segment is revenue less operating costs, excluding interest, income taxes and cumulative effect of accounting changes. Segment information by geographic area for the years ended February 28 or 29, 1994, 1993 and 1992 follows:
United Other States Canada Foreign Consolidated ------ ------ ------- ------------ 1994 - - ---- Total revenue $1,520,815 $158,938 $101,062 $1,780,815 Operating profit (loss) 220,863 18,858 (13,410) 226,311 Total assets excluding cash and equivalents 1,217,398 146,240 100,530 1,464,168 1993 - - ---- Total revenue $1,415,111 $167,539 $105,534 $1,688,184 Operating profit (loss) 199,913 21,811 (13,690) 208,034 Total assets excluding cash and equivalents 1,066,655 148,581 97,978 1,313,214 1992 - - ---- Total revenue $1,309,894 $166,412 $ 96,755 $1,573,061 Operating profit (loss) 172,828 23,285 (12,689) 183,424 Total assets excluding cash and equivalents 990,102 150,481 119,815 1,260,398
- 32 - 33 QUARTERLY RESULTS OF OPERATIONS (Unaudited) Thousands of dollars except per share amounts * The following is a summary of the unaudited quarterly results of operations for the years ended February 28, 1994 and 1993.
Quarter Ended ------------- May 31 August 31 November 30 February 28 ------ --------- ----------- ----------- Fiscal 1994 - - ----------- Net sales $391,959 $385,706 $518,987 $473,312 Total revenue 395,441 388,381 522,504 474,489 Material, labor and other production costs 143,626 158,840 210,215 159,339 Income before cumulative effect of accounting changes 29,027 10,919 51,466 39,472 Cumulative effect of accounting changes, net of tax 17,182 - - - Net income 11,845 10,919 51,466 39,472 Income per share: Before cumulative effect of accounting changes .39 .15 .70 .53 Cumulative effect of accounting changes, net of tax .23 - - - Net income .16 .15 .70 .53 Fiscal 1993 - - ----------- Net sales $371,995 $366,860 $489,491 $443,346 Total revenue 376,062 370,624 492,975 448,523 Material, labor and other production costs 137,832 154,312 203,605 165,434 Net income 25,516 8,894 43,904 33,974 Per share .36 .12 .60 .47 * Per share amounts have been restated to reflect the 1994 stock split.
- 33 - 34 Report of Independent Auditors Board of Directors American Greetings Corporation Cleveland, Ohio We have audited the accompanying consolidated statements of financial position of American Greetings Corporation and subsidiaries as of February 28, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended February 28, 1994. Our audits also included the financial statement schedules listed in the Index at Item 14 (a). These financial statements and schedules are the responsibility of the Corporation's management. Our responsibility is to express an opinion on those financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and related schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and related schedules. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Greetings Corporation and subsidiaries at February 28, 1994 and 1993, and the consolidated results of their operations and cash flows for each of the three years in the period ended February 28, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Notes E and G to the consolidated financial statements, in 1994 the Corporation changed its methods of accounting for postretirement benefits other than pensions and income taxes. Ernst & Young Cleveland, Ohio March 31, 1994 - 34 - 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no disagreements with the Corporation's independent accountants on accounting and financial disclosure matters within the two year period ended February 28, 1994, or in any period subsequent to such date. PART III The Corporation hereby incorporates by reference the information called for by Part III of Form 10-K from the Corporation's Notice of Annual Meeting of Shareholders to be held June 24, 1994, and related Proxy Statement to be filed with the Securities and Exchange Commission on or about May 13, 1994. (Next Item is Part IV) - 35 - 36 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 1. Financial Statements Page No. -------------------- -------- Included in Part II of this report: Consolidated Statement of Income - Years ended February 28 or 29, 1994, 1993 and 1992 17 Consolidated Statement of Financial Position February 28, 1994 and 1993 18 - 19 Consolidated Statement of Cash Flows - Years ended February 28 or 29, 1994, 1993 and 1992 20 Consolidated Statement of Shareholders' Equity - Years ended February 28 or 29, 1994, 1993 and 1992 21 Notes to Consolidated Financial Statements - Years ended February 28 or 29, 1994, 1993 and 1992 22 - 32 Quarterly Results of Operations (Unaudited) 33 Report of Independent Auditors 34 2. Financial Statement Schedules ----------------------------- Included in Part IV of this report: Schedule II - Amounts Receivable From Related Parties and Underwriters, Promoters, and Employees Other than Related Parties S-1 Schedule V - Property, Plant and Equipment S-2 - S3 Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment S-4 Schedule VIII - Valuation and Qualifying Accounts S-5 Schedule IX - Short-Term Borrowings S-6 Schedule X - Supplementary Income Statement Information S-7 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. - 36 - 37 3. Exhibits required by Item 601 of Regulation S-K: PAGE ------------------------------------------------- ---- (3) Articles of Incorporation and By-laws (i) Amended Articles of Incorporation of the Registrant This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-8 Registration Statement (Registration No. 33-45673) filed on February 4, 1992, and is incorporated herein by reference. (ii) Amended Regulations of the Registrant This Exhibit has been previously filed as an Exhibit to the Registrant's Form S-3 Registration Statement (Registration No. 33-39726) filed on May 17, 1991, and is incorporated herein by reference. (4) Instruments defining the rights of security holders, including debentures (i) Revolving Credit Agreement aggregating $250,000,000 dated July 1, 1991, and Grid Note with six banks and National City Bank as Agent. This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 29, 1992, and is incorporated herein by reference. (10) Material Contracts (i) (A) (i) Shareholders Agreement dated November 19, 1984 This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1985, and is incorporated herein by reference. (ii) Officers' contracts This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1985, and is incorporated herein by reference. - 37 - 38 PART IV - Continued PAGE NO. ------- (iii) Employment Agreement with Edward Fruchtenbaum, dated May 18, 1992 (as amended). E-1 (ii) (A) (i) Executive Bonus Plan This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1981, and is incorporated herein by reference. (ii) Executive Incentive Compensation Plan (as Amended and Restated as at March 6, 1989) This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1989, and is incorporated herein by reference. (iii) Executive Deferred Compensation Plan This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1993, and is incorporated herein by reference. (iv) 1982 Incentive Stock Option Plan This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1983, and is incorporated herein by reference. (v) 1985 Incentive Stock Option Plan This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1985, and is incorporated herein by reference. (vi) Supplemental Executive Retirement Plan This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1993, and is incorporated herein by reference. - 38 - 39 PART IV - Continued Page No. ------- (vii) 1987 Class B Stock Option Plan This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1987, and is incorporated herein by reference. (viii) Stock Option Agreement with Morry Weiss dated January 25, 1988 This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 29, 1988, and is incorporated herein by reference. (ix) Loan Agreement with Edward Fruchtenbaum dated March 1, 1990 This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1991, and is incorporated herein by reference. (x) 1992 Stock Option Plan This Exhibit has been previously filed as an Exhibit to the Registrant's Form 10-K Annual Report for the Fiscal Year ended February 28, 1993, and is incorporated herein by reference. (11) Statement Re Computation of Per Share Earnings E-15 - 39 - 40 PART IV - Continued Page No. ------- (21) Subsidiaries of the Registrant E-16 (23) Consent of Independent Auditors E-17 Executive Compensation Plans and Arrangements The Corporation's executive compensation plans and arrangements are listed under Exhibit 10 hereof. (b) Reports on Form 8-K None (c) Exhibits listed in Item 14(a) (3) are included herein or incorporated herein by reference (d) Financial Statement Schedules The response to this portion of Item 14 is submitted on Page 36. - 40 - 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN GREETINGS CORPORATION ------------------------------ (Registrant) Date: May 23,1994 By: /s/ Jon Groetzinger, Jr. ------------- --------------------------------- Jon Groetzinger, Jr. Secretary - 41 - 42 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Irving I. Stone Founder-Chairman; ) - - ---------------------------------------------------- Chairman of the ) Irving I. Stone Executive Committee; ) Director ) ) /s/ Morry Weiss Chairman of the Board; ) - - ---------------------------------------------------- Chief Executive Officer; ) Morry Weiss Director ) ) /s/ Edward Fruchtenbaum President; ) - - ---------------------------------------------------- Chief Operating Officer; ) Edward Fruchtenbaum Director ) ) /s/ Scott S. Cowen Director ) May 23, 1994 - - ---------------------------------------------------- ) Scott S. Cowen ) ) /s/ Herbert H. Jacobs Director ) - - ---------------------------------------------------- ) Herbert H. Jacobs ) ) /s/ Albert B. Ratner Director ) - - ---------------------------------------------------- ) Albert B. Ratner ) ) /s/ Harry H. Stone Director ) - - ---------------------------------------------------- ) Harry H. Stone ) ) /s/ Jeanette S. Wagner Director ) - - ---------------------------------------------------- ) Jeanette S. Wagner ) ) ) /s/ Milton A. Wolf Director ) - - ---------------------------------------------------- ) Milton A. Wolf ) ) ) /s/ Abraham Zaleznik Director ) - - ---------------------------------------------------- ) Abraham Zaleznik ) )
- 42 - 43
SIGNATURE TITLE DATE --------- ----- ---- /s/ Henry Lowenthal Senior Vice President; ) May 23, 1994 - - ------------------------------- Chief Financial Officer ) Henry Lowenthal (principal financial ) officer) ) ) ) /s/ William S. Meyer Controller; Chief ) - - ------------------------------- Accounting Officer ) William S. Meyer (principal accounting ) officer) )
- 43 - 44 SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
+----------------------+--------------------------+-----------+----------------------------------------+---------------------------+ | COL. A | COL. B | COL. C | COL. D | COL. E | +----------------------+--------------------------+-----------+----------------------------------------+---------------------------+ | | | | DEDUCTIONS BALANCE AT END OF PERIOD | + + + +--------------------------------------------------------------------+ |NAME OF DEBTOR | Balance at Beginning | Additions | (1) | (2) | (1) | (2) | | | of Period | | Amounts Collected | Amounts Written Off| Current | Not Current | +----------------------+--------------------------+-----------+-------------------+--------------------+------------+--------------+ Year Ended February 28, 1994: Edward Fruchtenbaum, President, Chief Operating Officer $140,000 -0- -0- $20,000 (A) $20,000 $100,000 Year Ended February 28, 1993: Edward Fruchtenbaum, President, Chief Operating Officer $160,000 -0- -0- $20,000 (A) $20,000 $120,000 Year Ended February 29, 1992: Edward Fruchtenbaum, President, Chief Operating Officer $180,000 -0- -0- $20,000 (A) $20,000 $140,000 The Company entered into a ten year unsecured loan, effective March 1, 1990, bearing interest at 10% per annum. Note A: Annual forgiveness of $20,000 (principal only) for each year. Interest payments required annually on February 28 or 29.
S-1 45 SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT AMERICAN GREETINGS CORPORATION AND SUBSIDIARIES (000)
+--------------------------+-----------------------+--------------------+---------------+-----------------------+----------------+ | COL. A | COL. B | COL. C | COL. D | COL. E | COL. F | +--------------------------+-----------------------+--------------------+---------------+-----------------------+----------------+ | | Balance at Beginning | | | Other Changes-Add | Bal. at End | | CLASSIFICATION | of Period | Additions at Cost | Retirements | (Deduct) - Describe | of Period | +--------------------------+-----------------------+--------------------+---------------+-----------------------+----------------+ Year ended February 28, 1994: Land $ 6,182 $ 1 $ 126 $ (82) $ 5,975 Buildings 258,511 13,766 (A) 5,656 (1,401) 265,220 Production equipment 245,059 67,332 (B) 5,792 2,289 308,888 Office equipment and fixtures 195,870 21,451 (C) 7,357 1,124 211,088 Transportation equipment 2,619 309 344 210 2,794 ------------- ------------- --------- --------- --------- TOTALS $ 708,241 $ 102,859 $ 19,275(D) $ 2,140(E) $ 793,965 ============= ============= ========= ========= ========= Year ended February 28, 1993: Land $ 6,840 $ 2 $ 368 $ (292) $ 6,182 Buildings 249,711 16,765 (A) 1,807 (6,158) 258,511 Production equipment 213,193 41,755 (B) 2,479 (7,410) 245,059 Office equipment and fixtures 186,532 18,348 (C) 4,783 (4,227) 195,870 Transportation equipment 2,645 230 220 (36) 2,619 ------------- ------------- --------- --------- --------- TOTALS $ 658,921 $ 77,100 $ 9,657(D) $(18,123)(E) $ 708,241 ============= ============= ========= ========= ========= Year ended February 29, 1992: Land $ 6,693 $ 378 $ 103 $ (128) $ 6,840 Buildings 225,638 28,478 (A) 1,985 (2,420) 249,711 Production equipment 200,087 20,993 (B) 5,874 (2,013) 213,193 Office equipment and fixtures 177,397 17,289 (C) 6,923 (1,231) 186,532 Transportation equipment 2,832 190 352 (25) 2,645 ------------- ------------- --------- --------- --------- TOTALS $ 612,647 $ 67,328 $ 15,237(D) $ (5,817)(E) $ 658,921 ============= ============= ========= ========= =========
S-2 46 SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (CONT'D) AMERICAN GREETINGS CORPORATION AND SUBSIDIARIES (000)
Note A: In 1994 due to purchase or upgrade of retail stores in the U.S., U.K. and Canada, and various other building and leasehold improvements. In 1993 due to warehouse addition in Arkansas and purchase or upgrade of retail stores in the U.S., U.K. and Canada. In 1992 primarily due to purchase or upgrade of retail stores in the U.S., U.K. and Canada, building expansion at Cleveland, Ohio and various other building and leasehold improvements. Note B: In 1994 and 1993 due to additions related to CreataCard and expansion of existing production facilities. In 1992 primarily due to expansion of existing production facilities. Note C: In 1994 due to computer hardware and software expenditures and purchase or upgrade of retail stores in the U.S., U.K. and Canada. In 1993 primarily due to computer hardware and software expenditures. In 1992 due to office outfitting costs at Cleveland, Ohio and computer hardware and software expenditures. Note D: Primarily due to retirements of retail equipment, computer hardware and normal property, plant and equipment. Note E: Represents translation adjustments on foreign subsidiary balances and other minor adjustments. Note F: The annual provisions for depreciation have been computed principally in accordance with the following ranges of depreciable lives: Buildings 20 to 40 years Production equipment 3 to 15 years Office equipment and fixture 3 to 20 years Transportation equipment 3 to 6 years S-3
47 SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (000)
+--------------------------+-------------------------+----------------------+--------------+---------------------+--------------+ | COL. A | COL. B | COL. C | COL. D | COL. E | COL. F | +--------------------------+-------------------------+----------------------+--------------+---------------------+--------------+ | | Bal. at Beginning| Additions Charged to | | Other Changes-Add | Bal. at End | | DESCRIPTION | of Period | Costs and Expenses | Retirements | (Deduct) - Describe | of Period | +--------------------------+-------------------------+----------------------+--------------+---------------------+--------------+ Year ended February 28, 1994: Buildings $ 99,800 $ 11,920 $ 4,743 $ (646) $ 106,331 Production equipment 105,107 23,509 4,646 122 124,092 Office equipment and fixtures 113,594 23,841 5,779 758 132,414 Transportation equipment 2,188 305 303 16 2,206 ----------- ---------- ---------- --------- ----------- TOTALS $ 320,689 $ 59,575 $ 15,471 $ 250 (A) $ 365,043 =========== ========== ========== ========= =========== Year ended February 28, 1993: Buildings $ 91,435 $ 11,574 $ 1,542 $ (1,667) $ 99,800 Production equipment 96,691 14,831 2,065 (4,350) 105,107 Office equipment and fixtures 98,103 21,821 4,293 (2,037) 113,594 Transportation equipment 2,165 223 178 (22) 2,188 ----------- ---------- ---------- --------- ----------- TOTALS $ 288,394 $ 48,449 $ 8,078 $ (8,076)(A) $ 320,689 =========== ========== ========== ========= =========== Year ended February 29, 1992: Buildings $ 82,321 $ 10,779 $ 1,148 $ (517) $ 91,435 Production equipment 88,307 13,083 3,615 (1,084) 96,691 Office equipment and fixtures 82,674 21,420 5,548 (443) 98,103 Transportation equipment 2,225 235 282 (13) 2,165 ----------- ---------- ---------- --------- ----------- TOTALS $ 255,527 $ 45,517 $ 10,593 $ (2,057)(A) $ 288,394 =========== ========== ========== ========= =========== Note A: Includes translation adjustment on foreign subsidiary balances and other minor reclassifications and adjustments.
S-4 48 SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AMERICAN GREETINGS CORPORATION AND SUBSIDIARY (000)
+----------------------------------+------------------------+----------------------------------------+-------------+---------------+ | COL. A | COL. B | COL. C | COL. D | COL. E | +----------------------------------+------------------------+----------------------------------------+-------------|---------------+ | | | ADDITIONS | | | | | +------------------+---------------------| | | | | | (1) | (2) | | | | | Balance at Beginning | Charged to Costs | Charged to Other | Deduction- | Balance at End| | DESCRIPTION | of Period | and Expenses | Accounts-Describe | Describe | of Period | +----------------------------------+------------------------+------------------+---------------------+-------------+---------------+ Year ended February 28, 1994: Deduction from asset account: Allowance for doubtful accounts $ 13,816 $ 8,827 $ (57)(A) $ 9,502(B) $ 13,084 ======== ========= ======== ========= ======== Allowance for sales returns $ 72,054 $ 225,283 $ (581)(A) $ 198,853(C) $ 97,903 ======== ========= ======== ========= ======== Year ended February 28, 1993: Deduction from asset account: Allowance for doubtful accounts $ 12,576 $ 9,738 $ (305)(A) $ 8,193(C) $ 13,816 ======== ========= ======== ========= ======== Allowance for sales returns $ 64,093 $ 167,718 $ (670)(A) $ 159,087(C) $ 72,054 ======== ========= ======== ========= ======== Year ended February 29, 1992: Deduction from asset account: Allowance for doubtful accounts $ 10,372 $ 8,714 $ (96)(A) $ 6,414(B) $ 12,576 ======== ========= ======== ========= ======== Allowance for sales returns $ 66,733 $ 133,386 $ (333)(A) $ 135,693(C) $ 64,093 ======== ========= ======== ========= ======== Note A: Includes translation adjustment on foreign subsidiary balances and other minor reclasses and adjustments. Note B: Accounts charged off, less recoveries. Note C: Sales returns charged to the allowance account for actual returns for the year. S-5
49 SCHEDULE IX - SHORT-TERM BORROWINGS (000)
+--------------------------+-----------------+----------+------------------+-------------------+-------------------+ | COL. A | COL. B | COL. C | COL. D | COL. E | COL. F | +--------------------------+-----------------+----------+------------------+-------------------+-------------------+ | | | Weighted| Maximum | Average | Weighted | | CATEGORY OF AGGREGATE | Balance at End | Average | Amount | Amount | Average | | SHORT-TERM BORROWINGS | of Period | Interest | Outstanding | Outstanding | Interest rate | | | | Rate | During the Period| During the Period | During the Period | +--------------------------+-----------------+----------+------------------+-------------------+-------------------+ Year ended February 28, 1994: Notes Payable to Banks $45,970 (A) 3.8% $215,109 $82,626 (C) 4.4% (D) Commercial Paper 66,946 (B) 3.5% 84,772 27,194 3.3% Year ended February 28, 1993: Notes Payable to Banks $12,825 (A) 7.6% $50,535 $38,107 (C) 9.1% (D) Year ended February 29, 1992: Notes Payable to Banks $41,984 (A) 10.9% $94,641 $64,417 (C) 10.5% (D) (A) Notes payable to banks represents borrowings under lines of credit. (B) Commercial paper generally matures within 30 days from date of issue with no provisions for the extention of its maturity. (C) The average amount outstanding during the period was computed by dividing the total of month-end outstanding principal balances by 12. (D) The weighted average interest rate is an annual weighted average which is determined by multiplying actual monthly interest rate at each month-end by the balance outstanding at each month-end and dividing the total of these extensions by the average aggregate month-end short-term debt outstanding. S-6
50 SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION (000)
+---------------------------------+-----------------------------------------------------------+ | COL. A | COL. B | +---------------------------------+-----------------------------------------------------------+ | ITEM | Charged to Costs and Expenses | +---------------------------------+-----------------------------------------------------------+ Year Ended Year Ended Year Ended February 28, 1994 February 28, 1993 February 29, 1992 ----------------- ----------------- ----------------- Maintenance and repairs $ 21,915 $ 20,558 $ 20,461 Amortization of deferred costs 70,435 54,709 37,942 Amortization of intangibles 6,861 5,237 4,812 Advertising costs 48,228 48,069 45,429 Taxes, other than payroll and 19,397 20,575 19,740 income taxes Amounts for royalty expense are not presented as such amounts are less than 1% of total revenues.
S-7 EX-10 2 EXHIBIT 10(I)(A)(III) 1 EXHIBIT 10(i)(A)(iii) EMPLOYMENT AGREEMENT This Agreement ("Agreement") is made this 18th day of May, 1992, between Edward Fruchtenbaum ("Fruchtenbaum") and American Greetings Corporation ("AG" or "Company"). In consideration of the mutual promises contained herein, the parties agree as follows: 1. POSITION: As of March 1, 1992, Fruchtenbaum will be employed by AG as the Company's President and Chief Operating Officer. Fruchtenbaum will perform any and all duties commensurate with those positions. 2. TERM: This Agreement will be in effect for "rolling" three (3) year terms. The initial three (3) year term will commence on March 1, 1992, and will terminate on February 28, 1995; successive three (3) year terms will commence on March 2, 1992, and on each day thereafter, and will terminate three (3) years from each commencement date. 3. TERMINATION: It is understood that Fruchtenbaum's employment with AG, whether pursuant to this Agreement or otherwise, is terminable at-will, and may be terminated by either party at any time for any reason or for no reason. This Agreement will end on the date that Fruchtenbaum ends his employment with AG ("Termination Date"). Unless he voluntarily resigns, Fruchtenbaum will continue to receive compensation pursuant to paragraph 4(a) below, at the then current rate, for three (3) years after the Termination Date. As of the Termination Date, Fruchtenbaum will no longer be an employee of AG and will not be entitled to or receive any benefits or privileges of employment, except for those provided herein and those post-employment benefits generally afforded such former employees under AG's then current policies and procedures. 4. COMPENSATION: During the term of this Agreement, in addition to the other regular benefits offered to Executive Officers (as designated by the AG Board of Directors or otherwise), including but not limited to, the profit sharing, 401-K, stock option and supplemental executive retirement plans, health benefits and life insurance, Fruchtenbaum will receive the following salary and benefits: a. Beginning March 1, 1992, Fruchtenbaum will be paid an annual base salary of $350,000.00, less payroll taxes and other withholdings as required by law ("Base Salary"). Such Base Salary may be changed from time to time at the discretion of the AG Board of Directors. Unless Fruchtenbaum voluntarily resigns, E-1 2 the then current Base Salary will be paid for three years from the Termination Date, but Fruchtenbaum will not be eligible for bonuses under subparagraphs 4.b. and 4.c. below. If Fruchtenbaum voluntarily resigns, he will receive no further Base Salary or bonuses under subparagraphs 4.b. and 4.c. below after the Termination Date. AG agrees to promptly compensate Fruchtenbaum for any PRO RATA shortage in Base Salary for the period between March 1, 1992 to the present. b. For each AG fiscal year, March 1 through February 28 ("Fiscal Year") in which AG pays its officers and certain key employees a cash bonus pursuant to the Company's regular Executive Incentive Compensation Plan, Fruchtenbaum will receive such a bonus based upon a target bonus of 40% of his then current annual Base Salary. c. Fruchtenbaum shall further be eligible to receive a cash bonus, if and when paid, under the terms of AG's current three year Special Bonus Plan or other future long-term executive incentive compensation plans for officers and certain key employees, in accordance with its/their terms. If the Special Bonus Plan is not renewed or a similar plan is not instituted at the end of the current three year Special Bonus Plan period, AG agrees to promptly review, but not necessarily act upon, the need for such a bonus as an element of Fruchtenbaum's compensation package. d. 1. On each of February 28, 1993, February 28, 1994, and February 28, 1995, AG will grant Fruchtenbaum 5,000 shares of AG Common Stock, which may be in either Class A or Class B Shares, or any combination thereof, at AG's election ("Shares"). Fruchtenbaum's ownership of each block of 5,000 Shares will vest at the rate of 20% as of the end of each fiscal year, with the first 20% vesting on February 28, 1993, and each succeeding 20% vesting on the last day of each following fiscal year, until each block is 100% vested. 2. Beginning on April 12, 1996, and thereafter on the last business day preceding April 15th following the end of each fiscal year ("Grant Date"), AG will annually grant Fruchtenbaum 5,000 Shares if the Company, as a whole, has attained its profit goal for the recently ended fiscal year, and 3,000 Shares if it has not. If AG grants 5,000 Shares because it has attained its profit goal for the respective fiscal year, Fruchtenbaum's ownership of such block will vest at the annual rate of 20% over five years, with the first 20% vesting on the Grant Date and each succeeding 20% vesting on each succeeding anniversary of the Grant Date, until the block is 100% vested. If AG grants only 3,000 Shares because E-2 3 it has not attained its profit goal for the respective fiscal year, Fruchtenbaum's ownership of such block will vest at the annual rate of 33-1/3% over three years, with the first 33-1/3% vesting on the Grant Date and each succeeding 33-1/3% vesting on each succeeding anniversary of the Grant Date, until the block is 100% vested. 3. The following shall apply to Shares granted pursuant to this subparagraph 4.d.: i) Declared dividends will be paid on only vested Shares. ii) Voting rights will be exercisable on only vested Shares. iii) Subject to applicable state and federal law, including but not limited to Section 16 of the Securities Act of 1934, Shares may be sold or otherwise disposed of at any time on or after they have vested. iv) If Fruchtenbaum voluntarily resigns his employment with AG, all Shares that have been granted, but have not vested, will be forfeited as of the effective date of such resignation. v) If Fruchtenbaum retires or AG terminates Fruchtenbaum's employment, any Shares that have been granted and would otherwise have vested annually at the applicable 20% or 33-1/3% rate, as described above, over the three (3) year period beginning as of the date that Fruchtenbaum retires or AG mails or delivers written notice of termination to Fruchtenbaum, as the case may be ("Notice Date"), shall instead vest as of the Notice Date. However, no additional Shares will be granted after the Notice Date, and all granted Shares that would otherwise have vested after such three (3) year period shall be forfeited as of the Notice Date. vi) If during the term of this Agreement Fruchtenbaum dies and his death is not the result of suicide, all Shares that have been granted hereunder will upon his death immediately vest in favor of his estate. vii) If during the term of this Agreement Fruchtenbaum becomes totally and permanently disabled, as determined by AG's then current disability insurance carrier, and such disability is not self-inflicted ("Disability Date"), all Shares that have been granted hereunder will immediately vest on the Disability Date, and no further Shares will be granted. The Shares E-3 4 Fruchtenbaum is entitled to receive under this subparagraph 4.d.3.vii) are in addition to any and all disability benefits he would otherwise be entitled to receive as an AG Executive Officer. 5. CONFIDENTIAL AND TRADE SECRET INFORMATION: Fruchtenbaum acknowledges that in the course of his employment with AG he has and will have access to confidential information and trade secrets ("Confidential Information"), misuse or disclosure of which would adversely affect AG's business. Fruchtenbaum agrees that he will not, either during his employment with AG or at any time thereafter, use for himself or others, or disclose or convey to others (except as is necessary in the ordinary course of his employment) any of AG's Confidential Information. Confidential Information shall include documents so marked, as well as any other information, oral or written, which a reasonable person would believe to be confidential to or a trade secret of AG. This paragraph shall not prohibit disclosure of information which has become public, unless it became public through Fruchtenbaum's breach of this Agreement. 6. NON-COMPETITION: In consideration of AG's agreement to employ Fruchtenbaum under the terms of this Agreement, Fruchtenbaum agrees that he will not for the following periods engage anywhere in the United States or Canada, directly or indirectly, in any business activities, either as principal, agent or consultant or through any corporation, firm or organization in which he may be an officer, director, employee, substantial shareholder, partner, member or be otherwise affiliated that are in competition with AG's businesses at such time: (i) for the period of his employment hereunder; (ii) if Fruchtenbaum voluntarily resigns his employment with AG or retires, for three (3) years thereafter; or (iii) if AG terminates Fruchtenbaum's employment with AG, for three (3) years thereafter. 7. CONFLICT OF INTEREST: Fruchtenbaum represents and warrants that he has no interest or obligation that is inconsistent with or in conflict with this Agreement or that would prevent, limit or impair his performance of any part of this Agreement. 8. MISCELLANEOUS: a. This Agreement constitutes the entire understanding between Fruchtenbaum and AG relating to the subject matter contained herein and this Agreement supersedes any previous oral or written agreement(s) and understandings. This Agreement may not be changed, modified, or altered without the express written consent of Fruchtenbaum and AG. E-4 5 b. Either party's failure to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive the other part of his/its rights thereafter to insist upon strict adherence to that term or any other term of this Agreement. c. If any part or section of this Agreement is found to be contrary to law or unenforceable, the remainder shall remain in force and effect. d. This Agreement will be governed by and construed in accordance with the law of the State of Ohio. Any disputes that cannot be resolved amicably shall be resolved by binding arbitration in Cleveland in accordance with applicable rules of the Center for Public Resources, or if the Center for Public Resources' facilities are not available, the rules of the American Arbitration Association. e. Upon Fruchtenbaum's termination, regardless of the reason, Fruchtenbaum will promptly surrender to AG any of its property in Fruchtenbaum's possession including, but not limited to, all correspondence, memoranda, notes, records, reports, plans, computer printouts, reproductions, slides, and any other papers or items, and copies of papers and other items, received or made by Fruchtenbaum in connection with his employment with AG. 9. REVIEW BY ADVISORS. Fruchtenbaum acknowledges that he has had ample opportunity to consult with his legal and financial advisors, has carefully considered this Agreement, and fully understands its provisions. He has not relied on any other representations or statements, written or oral. 10. SURVIVAL. The following paragraphs shall survive the expiration or termination of this Agreement: 3.; 4.a.; 4.d.3.i.), ii) and iii) as they apply under 4.d.3.v); 4.d.3.v); 4.d.3.vi); 4.d. 3.vii); 5.; 6.; 7.; 8.d.; and 8.e. AMERICAN GREETINGS CORPORATION EDWARD FRUCHTENBAUM BY: /s/ Morry Weiss /s/ Edward Fruchtenbaum -------------------------- -------------------------- NAME: MORRY WEISS ------------------------- TITLE: CHAIRMAN & CEO DATE: 5/26/92 ------------------------ --------------------- DATE: 6/10/92 ------------------------ E-5 6 AMENDMENT NO. 1 The Employment Agreement entered into between Edward Fruchtenbaum ("Fruchtenbaum") and American Greetings Corporation ("AG" or "Company") on May 18, 1992 ("Agreement"), is hereby amended effective March 1, 1993, by deleting paragraphs 4(d)(1) and 4(d)(2) in their entirety and replacing them with the following paragraphs number 4(d)(1), 4(d)(2), 4(d)(3), and 4(d)(4) and renumbering original paragraph 4(d)(3) as 4(d)(5), including each reference in paragraph 10 of the Agreement to original paragraph 4(d)(3): 4(d)(1). On February 28, 1993, AG granted Fruchtenbaum 5,000 Class A shares of AG Common Stock, on June 1, 1993, AG will grant Fruchtenbaum an additional 10,000 shares of AG Common Stock, which may be in either Class A or Class B Shares, or any combination thereof, at AG's election ("Shares") (collectively the "1993 Grant"). Fruchtenbaum's ownership of the 1993 Grant will vest as set forth in attached Schedule "A". 4(d)(2). (i) On February 29, 1996, and on each third anniversary thereafter during the term of the Agreement, beginning on February 28, 1999, AG will grant Fruchtenbaum a block of 15,000 Shares, which may be in either Class A or Class B Shares, or any combination thereof at AG's election ("Shares") and which, except as set forth in subparagraph 4(d)(2)(ii) below and attached E-6 7 Schedule "C", will vest as set forth in attached Schedule "B" so long as the Agreement is in effect. 4(d)(2)(ii). For each block of 15,000 Shares granted under subparagraph 4(d)(2)(i), up to 6,000 Shares will expire in increments of 2,000 Shares each at the close of each fiscal year, beginning with the Fiscal Year ending February 29, 1996, and at each fiscal year end thereafter during which the Agreement is in effect, in which the Company, as a whole, has not attained its profit goal for the then ended fiscal year. Therefore, beginning with the Fiscal Year ending February 29, 1996, 2,000 Shares that would have otherwise vested 1,000 Shares on each of the last business days preceding April 15, 1999, and April 15, 2000, will expire retroactively to February 29, 1996, if the Company, as a whole, has not attained its profit goal for the fiscal year ending February 26, 1996. For purposes of example only, attached Schedule "C" sets forth the applicable vesting for the block of 15,000 Shares that will be granted on February 29, 1996, if the Agreement is then in effect, in the event the Company, as a whole, has not attained its profit goal for one or more of the Fiscal Years ending February 29, 1996, February 28, 1997 and February 28, 1998. 4(d)(3). The vesting of Shares set forth in subparagraphs 4(d)(1) and 4(d)(2) above, including attached Schedules "A" and "B", are cumulative and overlap, so that by way of example only, the Shares will vest cumulatively as set forth in attached Schedule "D" so long as the Agreement is in effect. E-7 8 4(d)(4). AG will provide Fruchtenbaum with certain registration rights in connection with the Stock granted pursuant to subparagraphs 4(d)(1) and 4(d)(2) above. AMERICAN GREETINGS CORPORATION EDWARD FRUCHTENBAUM By: Morry Weiss Edward Fruchtenbaum -------------------------- ---------------------------- Name: Date: 8/7/93 ------------------------ ----------------------- Title: Chairman - CEO ------------------------ Date: 8-17-93 ------------------------ E-8 9 SCHEDULE "A" The 15,000 Shares granted pursuant to the 1993 Grant, will vest as follows: February 28, 1993 - 1,000 Shares March 1, 1994 - 2,000 Shares March 1, 1995 - 3,000 Shares March 1, 1996 - 3,000 Shares March 1, 1997 - 3,000 Shares March 1, 1998 - 2,000 Shares March 1, 1999 - 1,000 Shares E-9 10 SCHEDULE "B" Each block of 15,000 Shares granted under subparagraph 4(d)(2) of Amendment No. 1 to the Agreement will vest as follows: April, 1996,1 - 1,000 Shares and every three years thereafter April, 1997, - 2,000 Shares and every three years thereafter April, 1998, - 3,000 Shares and every three years thereafter April, 1999, - 3,000 Shares2 and every three years thereafter April, 2000, - 3,000 Shares and every three years thereafter April, 2001, - 2,000 Shares and every three years thereafter April, 2002, - 1,000 Shares and every three years thereafter ____________________ 1 The exact date in this and each following year will be the last business day preceding April 15th. 2 Beginning with April, 1999 and continuing for the term of the Agreement, this Schedule "C" assumes the Company has made its profit goal in all applicable fiscal years and subparagraph 4(d)(2)(i) is therefore not applicable. E-10 11 SCHEDULE "C" By way of example, the following shows the effect of subparagraph 4(d)(2)(i) on the block of 15,000 Shares granted on the last business day preceeding April 15, 1996, in the event the Company, on a whole, (i) has not made its profit goal for the Fiscal Year ended February 28, 1996; (ii) has not made its profit goals for the Fiscal Years ended February 28, 1996, and February 28, 1997; (iii) has not made its profit goals for the Fiscal Years ended February 28, 1996, February 28, 1997, and February 28, 1998.
Failure to Failure to Failure to Make Goal Make Goal Make Goal F.Y. 1996 F.Y. F.Y. 1996/1997 1996/1997/ 1998 April, 1996 1,000 1,000 1,000 April, 1997 2,000 2,000 2,000 April, 1998 3,000 3,000 3,000 April, 1999 2,000 2,000 2,000 April, 2000 2,000 1,000 1,000 April, 2001 2,000 1,000 --- April, 2002 1,000 1,000 ---
E-11 12 SCHEDULE "D" By way of example only, and without limiting Fruchtenbaum's rights under subparagraphs 4(d)(1) and 4(d)(2)*, so long as the Agreement is in effect, the vesting set forth in Schedules "A" and "B" will be cumulative as shown below:
1993 1,000 2,000 3,000 3,000 3,000 2,000 1,000 Grant April 1,000 2,000 3,000 3,000 3,000 2,000 1,000 1996 Grant April 1,000 2,000 3,000 3,000 1999 Grant *It is expressly understood that so long as the Agreement is in effect, Fruchtenbaum will continue to receive a grant of 15,000 Shares every three (3) years pursuant to subparagraph 4(d)(2) and that subparagraph 4(d)(2)(i) applies to each such grant.
E-12 13 AMENDMENT NO. 2 In order to reflect the split of American Greetings Corporation ("AG") Common Stock which occurred on September 10, 1993, the Employment Agreement entered into between Edward Fruchtenbaum ("Fruchtenbaum") and AG on May 18, 1992, as amended by Amendment No. 1 on June 1, 1993 ("Agreement") is hereby amended by doubling (i) each grant of AG Common Shares ("Shares") made pursuant to the terms of the Agreement on or after September 10, 1993; (ii) the number of Shares vested upon each event of vesting of Shares occurring pursuant to the terms of the Agreement on or after September 10, 1993; and (iii) the number of shares expired upon each event of expiration of Shares occurring pursuant to the terms of the Agreement on or after September 10, 1993. AMERICAN GREETINGS CORPORATION EDWARD FRUCHTENBAUM By: Morry Weiss Edward Fruchtenbaum -------------------------- ---------------------------- Name: Date: 11/29/93 ------------------------ ----------------------- Title: Chairman - CEO ------------------------ Date: 10-29-93 ------------------------ E-13 14 AMENDMENT NO. 3 The Employment Agreement entered into between Edward Fruchtenbaum ("Fruchtenbaum") and American Greetings Corporation ("AG" or "Company") on May 18, 1992 as amended ("Agreement"), is hereby amended effective September 11, 1993, by adding paragraph 4(d)(6) as follows: 4(d)(6). All numbers of shares referred to in paragraphs 4(d)(2) and 4(d)(3) above, including all Schedules thereto, will be adjusted to reflect any future adjustments in the price and in the number or kind of shares resulting from (a) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) any merger, consolidation, separation, reorganization or partial or complete liquidation, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. AMERICAN GREETINGS CORPORATION EDWARD FRUCHTENBAUM By: Morry Weiss Edward Fruchtenbaum -------------------------- ---------------------------- Name: Date: 3/1/94 ------------------------ ----------------------- Title: Chairman - CEO ------------------------ Date: 3/2/94 ------------------------ E-14 EX-11 3 EXHIBIT 1 EXHIBIT 11 AMERICAN GREETINGS CORPORATION COMPUTATION OF PER SHARE EARNINGS Computation of Earnings Per Share ---------------------------------
Twelve Months Ended February 28 or 29 ------------------------------------- 1994 1993 1992 ---- ---- ---- Average number of common shares outstanding 73,809,132 72,440,114 69,514,436 ========== ========== ========== Net income (thousands) $113,702 $112,288 $97,462 ========== ========== ========== Earnings per share $1.54 $1.55 $1.40 ========== ========== ==========
Computation of Fully-Diluted Earnings Per Share (a) ---------------------------------------------------
Twelve Months Ended February 28 or 29, -------------------------------------- 1994 1993 1992 ---- ---- ---- 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 75,155,155 73,456,782 70,630,776 ========== ========== ========== Net income (thousands) $113,702 $112,288 $97,462 ========== ========== ========== Fully-diluted earnings per share $1.51 $1.53 $1.38 ========== ========== ========== (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-15 EX-21 4 EXHIBIT 1 EXHIBIT 21 AMERICAN GREETINGS CORPORATION SUBSIDIARIES OF THE REGISTRANT State/Jurisdiction Subsidiary of Incorporation ---------- ------------------ Acme Frame Products Delaware A.G. Industries, Inc. North Carolina Carlton Cards (France) SNC France Carlton Cards Limited Canada Carlton Cards, Ltd. United Kingdom CreataCard Inc. Delaware Felicitaciones Nacionales S.A. de C.V. Mexico Magnivision, Inc. Delaware Plus Mark, Inc. Ohio Quality Greeting Card Distributing Company, Inc. New Jersey Carlton Cards Retail, Inc. Connecticut Those Characters From Cleveland, Inc. Ohio E-16 EX-23 5 EXHIBIT 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, and (ix) Registration Statement No. 33-50255 on Form S-3 dated September 15, 1993 of our report dated March 31, 1994 with respect to the consolidated financial statements and schedules of American Greetings Corporation included in this annual report on Form 10-K for the year ended February 28, 1994. Ernst & Young Cleveland, Ohio May 20, 1994 E-17 -----END PRIVACY-ENHANCED MESSAGE-----