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 - 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 - 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.
Item 2. Properties
As of February 28, 1994, the Corporation owns or leases approximately 15.3 million square feet of plant, warehouse, store and office space, of which approximately 6.8 million square feet are leased. Space needs in the United States have been met primarily though long-term leases of properties constructed and financed by community development corporations and municipalities.
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- 5 -
- 6 -
- 7 - Item 3.
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.
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:
Mr. Irving I. Stone is the father-in-law of Morry Weiss. The Board of Directors annually elects all executive officers; however executive officers are subject to removal, with or without cause, at any time.
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All of the executive officers listed above, with the exception of Dale A. Cable, have served in the capacity shown or similar capacities with the Corporation (or major subsidiary) over the past five years. Mr. Cable was Treasurer-Assistant Secretary of Standard Products Company from 1989 to 1992, and Corporate Treasurer of Sheller-Globe Corporation from 1987 to 1989.
PART II
Item 5.
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:
The Corporation's Class A Common Shares, $1.00 par value per Share, are traded on the NASDAQ National Market under the trading symbol: AGREA. Society National Bank, Cleveland, Ohio, is the Corporation's registrar and transfer agent. There is no public market for the Class B Common Shares of the Corporation. Pursuant to the Corporation's Amended Articles of Incorporation, a holder of Class B Common Shares may not transfer such Class B Common Shares (except to permitted transferees, a group that generally includes members of the holder's extended family, family trusts and charities) unless such holder first offers such shares to the Corporation for purchase at the most recent closing price for the Corporation's Class A Common Shares. If the Corporation does not purchase such Class B Common Shares, the holder must convert such shares, on a share for share basis, into Class A Common Shares prior to any transfer.
(b) SHAREHOLDERS - - ---------------- At April 1, 1994, there were approximately 14,700 holders of Class A Common Shares and 295 holders of Class B Common Shares of record and individual participants in security position listings.
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(c) CASH DIVIDENDS * - - ------------------
Provisions of certain loan agreements contain restrictions on the payment of cash dividends, under the most restrictive of which retained earnings of approximately $99,124,000 are available for the payment of dividends at February 28, 1994.
* Per share amounts have been restated to reflect the stock split, which occurred on September 10, 1993.
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Item 7.
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:
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 - the Consolidated Financial Statements contained in Item 8
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
- 17 - CONSOLIDATED STATEMENT OF FINANCIAL POSITION
- 18 -
- 19 - CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended February 28 or 29, 1994, 1993 and 1992
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- 21 - 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.
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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 - 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:
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 - 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:
- 25 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONT'D)
Net periodic postretirement cost includes the following components:
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:
At February 28, 1994, future minimum rental payments for noncancelable operating leases, net of minimum noncancelable sublease rentals to be received, follow:
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 - 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:
Significant components of the Corporation's deferred tax liabilities and assets at February 28, 1994 are as follow:
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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:
Income (loss) before income taxes and cumulative effect of accounting changes consists of the following:
The statutory federal income tax rate and the effective income tax rate are reconciled as follows:
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
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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.
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- 30 - 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 - 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:
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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.
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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 -
Item 9.
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 - PART IV
Item 14.
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 - 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.
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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 -
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 -
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 -
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 - 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:
- 42 -
- 43 -
S-1
S-2
S-4
S-7